**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      DC 20549**





**FORM
      10-Q**





[X]
            QUARTERLY
                REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
                1934




For
      the
      quarterly period ended March 31, 2007





OR





[ 
              ]
            TRANSITION
                REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
                1934





For
      the
      transition period from _______ to _______








Commission
      file number 001-32639





**Manhattan
      Pharmaceuticals, Inc.**


(Exact
      Name of Registrant as Specified in Its Charter)





Delaware

              (State
                or other jurisdiction of

              incorporation
                or organization)
            36-3898269

              (I.R.S.
                Employer Identification No.)




810
      Seventh Avenue, 4th Floor, New York, New York 10019


(Address
      of principal executive offices)





(212)
      582-3950


(Issuer’s
      telephone number)










Check
      whether the issuer: (1) 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 issuer was required to file such reports),
      and
      (2) has been subject to such filing requirements for the past 90 days. Yes
      [X]
      No [   ]





Indicate
      by check mark whether the registrant is a large accelerated filer, accelerated
      filer, or a non-accelerated filer. See definition of “accelerated filer and
      large accelerated filer” in Rule 12b-2 of the Exchange Act (check one):




Large
      accelerated filer o Accelerated filer o Non-accelerated filer x





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





As
      of May
      2, 2007 there were 70,470,419 shares of the issuer’s common stock, $.001 par
      value, outstanding.





1


**INDEX**




Page**PART
                I**
            **FINANCIAL
                INFORMATION**Item
                1.
            Unaudited
                Condensed Consolidated Balance Sheets
            4Unaudited
                Condensed Consolidated Statements of Operations
            5Unaudited
                Condensed Consolidated Statement of Stockholders’ Equity
                (Deficiency)
            6Unaudited
                Condensed Consolidated Statements of Cash Flows
            7Notes
                to Unaudited Condensed Consolidated Financial Statements
            8Item
                2.
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations
            16Item
                3.
            Quantitative
                and Qualitative Disclosure About Market Risk
            24Item
                4.
            Controls
                and Procedures
            24**PART
                II**
            **OTHER
                INFORMATION**Item
                5.
            Other
                Events
            25Item
                6.
            Exhibits
            25Signatures
            26





2


**Forward-Looking
      Statements**




This
      quarterly report on Form 10-Q contains forward-looking statements within the
      meaning of Section 27A of the Securities Act of 1933, as amended, or the
      Securities Act, and Section 21E of the Exchange Act. Any statements about
      our expectations, beliefs, plans, objectives, assumptions or future events
      or
      performance are not historical facts and may be forward-looking. These
      statements are often, but not always, made through the use of words or phrases
      such as “anticipate,” “estimate,” “plan,” “project,” “expect,” “may,” “intend”
and similar words or phrases. Accordingly, these statements involve estimates,
      assumptions and uncertainties that could cause actual results to differ
      materially from those expressed in them. These statements are therefore subject
      to risks and uncertainties, known and unknown, which could cause actual results
      and developments to differ materially from those expressed or implied in such
      statements. Such risks and uncertainties relate to, among other
      factors:




·
            the
                development of our drug candidates;


·
            the
                regulatory approval of our drug
                candidates;


·
            our
                use of clinical research centers and other
                contractors;


·
            our
                ability to find collaborative partners for research, development
                and
                commercialization of potential
                products;


·
            acceptance
                of our products by doctors, patients or
                payers;


·
            our
                ability to market any of our
                products;


·
            our
                history of operating losses;


·
            our
                ability to compete against other companies and research
                institutions;


·
            our
                ability to secure adequate protection for our intellectual
                property;


·
            our
                ability to attract and retain key
                personnel;


·
            availability
                of reimbursement for our product
                candidates;


·
            the
                effect of potential strategic transactions on our
                business;


·
            our
                ability to obtain adequate financing;
                and


·
            the
                volatility of our stock price.







Further,
      any forward-looking statement speaks only as of the date on which it is made,
      and we undertake no obligation to update any forward-looking statement or
      statements to reflect events or circumstances after the date on which such
      statement is made or to reflect the occurrence of unanticipated events. New
      factors emerge from time to time, and it is not possible for us to predict
      which
      factors will arise. In addition, we cannot assess the impact of each factor
      on
      our business or the extent to which any factor, or combination of factors,
      may
      cause actual results to differ materially from those contained in any
      forward-looking statements.


3


**PART
      I - FINANCIAL INFORMATION**





**Item
      1. Unaudited Condensed Consolidated Financial
      Statements**


**MANHATTAN
                  PHARMACEUTICALS, INC. AND
                  SUBSIDIARIES**(A
                  Development Stage Company)Condensed
                  Consolidated Balance Sheets**March
                  31,**
              
              **December
                  31,****Assets**
              
              **2007**
              
              **2006**(Unaudited)
              
              (See
                  Note 1)Current
                  assets:Cash
                  and cash equivalents
              
              
              
              
              $
              8,689,792
              
              $
              3,029,118Subscription
                  receivable
              
              
              
              
              
              250,000
              
              
              —Prepaid
                  expenses
              
              
              
              
              
              252,092
              
              
              264,586Total
                  current assets
              
              
              
              
              
              9,191,884
              
              
              3,293,704Property
                  and equipment, net
              
              
              
              
              
              74,132
              
              
              83,743Other
                  assets
              
              
              
              
              
              70,506
              
              
              70,506Total
                  assets
              
              
              
              
              $
              9,336,522
              
              $
              3,447,953**Liabilities
                  and Stockholders’
                  Equity**Current
                  liabilities:Accounts
                  payable
              
              
              
              
              $
              1,523,663
              
              $
              1,393,296Accrued
                  expenses
              
              
              
              
              
              669,247
              
              
              550,029Total
                  liabilities
              
              
              
              
              
              2,192,910
              
              
              1,943,325Commitments
                  and contingenciesStockholders’
                  equity:Preferred
                  stock, $.001 par value. Authorized 1,500,000 shares;no
                  shares issued and outstanidng at March 31, 2007and
                  December 31, 2006, respectively
              
              
              
              
              
              —
              
              
              —Common
                  stock, $.001 par value. Authorized 150,000,000 shares;70,333,316
                  and 60,120,038 shares issued and outstandingat
                  March 31, 2007 and December 31, 2006, respectively
              
              
              
              
              
              70,334
              
              
              60,120Additional
                  paid-in capital
              
              
              
              
              
              52,604,353
              
              
              44,411,326Deficit
                  accumulated during the development stage
              
              
              
              
              
              (45,531,075
              )
              
              (42,966,818
              )Total
                  stockholders’ equity
              
              
              
              
              
              7,143,612
              
              
              1,504,628Total
                  liabilities and stockholders' equity
              
              
              
              
              $
              9,336,522
              
              $
              3,447,953See
                  accompanying notes to unaudited condensed consolidated financial
                  statements.




4


**MANHATTAN PHARMACEUTICALS, INC. AND SUBSIDIARIES**(A Development Stage Company)Condensed Consolidated Statements of Operations(Unaudited)
 **Cumulative****period from****August 6, 2001****(inception) to****Three months ended March 31,****March 31,****2007****2006****2007**
 Revenue$—$—$—Costs and expenses:Research and development(including stock based compensation expense of$102,739, $98,302 and $631,462 for the three monthsended March 31, 2007, March 31, 2006 and for thecumulative period from August 6, 2001 (inception) toMarch 31, 2007, respectively)1,679,4481,686,44119,632,804General and administrative(including stock based compensation expense of$232,471, $213,610 and $1,379,247 for the three monthsended March 31, 2007, March 31, 2006 and for thecumulative period from August 6, 2001 (inception) toMarch 31, 2007, respectively)914,724810,94511,158,817In-process research and development charge——11,887,807Impairment of intangible assets——1,248,230Loss on disposition of intangible assets——1,213,878Total operating expenses2,594,1722,497,38645,141,536Operating loss(2,594,172)(2,497,386)(45,141,536)Other (income) expense:Interest and other income(30,390)(98,7060)(740,106)Interest expense475—26,033Realized gain on sale of marketable equity securities—(490)(76,032)Total other income(29,915)(99,196)(790,105)Net loss(2,564,257)(2,398,190)(44,351,431)Preferred stock dividends (including imputed amounts)——(1,179,644)Net loss applicable to common shares$(2,564,257)$(2,398,190)$(45,531,075)Net loss per common share:Basic and diluted$(0.04)$(0.04)Weighted average shares of common stock outstanding:Basic and diluted60,235,67960,092,697See accompanying notes to unaudited condensed consolidated financial statements.
 5


**MANHATTAN
                  PHARMACEUTICALS, INC. AND
                  SUBSIDIARIES**(A
                  Development Stage
                  Company)Condensed
                  Consolidated Statement of
                  Stockholders' Equity (Deficiency)(Unaudited)**Deficit**
              
              
              **Dividends**
              
              
              
              
              
              
              
              
              **Total****Series
                  A**
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              **accumulated**
              
              
              **payable
                  in**
              
              
              **Accumulated**
              
              
              
              
              
              **stock–****convertible**
              
              
              
              
              
              
              
              
              **Additional**
              
              
              
              
              
              **during**
              
              
              **Series
                  A**
              
              
              **other**
              
              
              **Unearned**
              
              
              **holders'****preferred
                  stock**
              
              
              **Common
                  stock**
              
              
              **paid-in**
              
              
              **Subscription**
              
              
              **development**
              
              
              **preferred**
              
              
              **comprehensive**
              
              
              **consulting**
              
              
              **equity****Shares**
              
              
              **Amount**
              
              
              **Shares**
              
              
              **Amount**
              
              
              **capital**
              
              
              **receivable**
              
              
              **stage**
              
              
              **shares**
              
              
              **income(loss)**
              
              
              **services**
              
              
              **(deficiency)**Stock
                  issued at $0.0004 per share forsubscription
                    receivable
              
              
              —
              
              $
              —
              
              
              10,167,741
              
              $
              10,168
              
              $
              (6,168
              )
              $
              (4,000
              )
              $
              —
              
              $
              —
              
              $
              —
              
              $
              —
              
              $
              —Net
                  loss
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              (56,796
              )
              
              —
              
              
              —
              
              
              —
              
              
              (56,796
              )Balance
                  at December 31, 2001
              
              
              —
              
              
              —
              
              
              10,167,741
              
              
              10,168
              
              
              (6,168
              )
              
              (4,000
              )
              
              (56,796
              )
              
              —
              
              
              —
              
              
              —
              
              
              (56,796
              )Proceeds
                  from subscription receivable
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              4,000
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              4,000Stock
                  issued at $0.0004 per share for license rights
              
              
              —
              
              
              —
              
              
              2,541,935
              
              
              2,542
              
              
              (1,542
              )
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              1,000Stock
                  options issued for consulting services
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              60,589
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              (60,589
              )
              
              —Amortization
                  of unearned consulting services
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              22,721
              
              
              22,721Common
                  stock issued at $0.63 per share, net of expenses
              
              
              —
              
              
              —
              
              
              3,043,332
              
              
              3,043
              
              
              1,701,275
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              1,704,318Net
                  loss
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              
              
              
              —
              
              
              (1,037,320
              )
              
              —
              
              
              —
              
              
              —
              
              
              (1,037,320
              )Balance
                  at December 31, 2002
              
              
              —
              
              
              —
              
              
              15,753,008
              
              
              15,753
              
              
              1,754,154
              
              
              —
              
              
              (1,094,116
              )
              
              —
              
              
              —
              
              
              (37,868
              )
              
              637,923Common
                  stock issued at $0.63 per share, net of expenses
              
              
              —
              
              
              —
              
              
              1,321,806
              
              
              1,322
              
              
              742,369
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              743,691Effect
                  of reverse acquisition
              
              
              —
              
              
              —
              
              
              6,287,582
              
              
              6,287
              
              
              2,329,954
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              2,336,241Amortization
                  of unearned consulting costs
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              37,868
              
              
              37,868Unrealized
                  loss on short-term investments
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              (7,760
              )
              
              —
              
              
              (7,760
              )Payment
                  for fractional shares for stock combination
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              (300
              )
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              (300
              )Preferred
                  stock issued at $10 per share, net of expenses
              
              
              1,000,000
              
              
              1,000
              
              
              —
              
              
              —
              
              
              9,045,176
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              9,046,176Imputed
                  preferred stock dividend
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              418,182
              
              
              —
              
              
              (418,182
              )
              
              —
              
              
              
              
              
              
              
              
              —Net
                  loss
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              (5,960,907
              )
              
              —
              
              
              —
              
              
              —
              
              
              (5,960,907
              )Balance
                  at December 31, 2003
              
              
              1,000,000
              
              
              1,000
              
              
              23,362,396
              
              
              23,362
              
              
              14,289,535
              
              
              —
              
              
              (7,473,205
              )
              
              —
              
              
              (7,760
              )
              
              —
              
              
              6,832,932Exercise
                  of stock options
              
              
              —
              
              
              —
              
              
              27,600
              
              
              27
              
              
              30,073
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              30,100Common
                  stock issued at $1.10, net of expenses
              
              
              —
              
              
              —
              
              
              3,368,952
              
              
              3,369
              
              
              3,358,349
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              3,361,718Preferred
                  stock dividend accrued
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              (585,799
              )
              
              585,799
              
              
              —
              
              
              —
              
              
              —Preferred
                  stock dividends paid by issuance of shares
              
              
              24,901
              
              
              25
              
              
              —
              
              
              —
              
              
              281,073
              
              
              —
              
              
              —
              
              
              (282,388
              )
              
              —
              
              
              —
              
              
              (1,290
              )Conversion
                  of preferred stock to common stock at

                $1.10 per share
              
              
              (170,528
              )
              
              (171
              )
              
              1,550,239
              
              
              1,551
              
              
              (1,380
              )
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —Warrants
                  issued for consulting services
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              125,558
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              (120,968
              )
              
              4,590Amortization
                  of unearned consulting costs
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              100,800
              
              
              100,800Unrealized
                  gain on short-term investments and

                reversal of unrealized loss on short-term

                investments
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              20,997
              
              
              —
              
              
              20,997Net
                  loss
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              (5,896,031
              )
              
              —
              
              
              —
              
              
              —
              
              
              (5,896,031
              )Balance
                  at December 31, 2004
              
              
              854,373
              
              
              854
              
              
              28,309,187
              
              
              28,309
              
              
              18,083,208
              
              
              —
              
              
              (13,955,035
              )
              
              303,411
              
              
              13,237
              
              
              (20,168
              )
              
              4,453,816Common
                  stock issued at $1.11 and $1.15, net of expenses
              
              
              —
              
              
              —
              
              
              11,917,680
              
              
              11,918
              
              
              12,238,291
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              12,250,209Common
                  stock issued to vendor at $1.11 per share in

                satisfaction
                  of accounts payable
              
              
              —
              
              
              —
              
              
              675,675
              
              
              676
              
              
              749,324
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              750,000Exercise
                  of stock options
              
              
              —
              
              
              —
              
              
              32,400
              
              
              33
              
              
              32,367
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              32,400Exercise
                  of warrants
              
              
              —
              
              
              —
              
              
              279,845
              
              
              279
              
              
              68,212
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              68,491Preferred
                  stock dividend accrued
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              (175,663
              )
              
              175,663
              
              
              —
              
              
              —
              
              
              —Preferred
                  stock dividends paid by issuance of shares
              
              
              41,781
              
              
              42
              
              
              —
              
              
              —
              
              
              477,736
              
              
              —
              
              
              —
              
              
              (479,074
              )
              
              —
              
              
              —
              
              
              (1,296
              )Conversion
                  of preferred stock to common stock at

                $1.10 per share
              
              
              (896,154
              )
              
              (896
              )
              
              8,146,858
              
              
              8,147
              
              
              (7,251
              )
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —Share-based
                  compensation
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              66,971
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              20,168
              
              
              87,139Reversal
                  of unrealized gain on short-term investments
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              (12,250
              )
              
              —
              
              
              (12,250
              )Stock
                  issued in connection with acquisition of Tarpan

                Therapeutics, Inc.
              
              
              —
              
              
              —
              
              
              10,731,052
              
              
              10,731
              
              
              11,042,253
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              11,052,984Net
                  loss
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              (19,140,997
              )
              
              —
              
              
              —
              
              
              —
              
              
              (19,140,997
              )Balance
                  at December 31, 2005
              
              
              —
              
              
              —
              
              
              60,092,697
              
              
              60,093
              
              
              42,751,111
              
              
              —
              
              
              (33,271,695
              )
              
              —
              
              
              987
              
              
              —
              
              
              9,540,496Cashless
                  exercise of warrants
              
              
              —
              
              
              —
              
              
              27,341
              
              
              27
              
              
              (27
              )
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —Share-based
                  compensation
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              1,675,499
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              1,675,499Unrealized
                  loss on short-term investments
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              (987
              )
              
              —
              
              
              (987
              )Costs
                  associated with private placement
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              (15,257
              )
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              (15,257
              )Net
                  loss
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              (9,695,123
              )
              
              —
              
              
              —
              
              
              —
              
              
              (9,695,123
              )Balance
                  at December 31, 2006
              
              
              —
              
              
              —
              
              
              60,120,038
              
              
              60,120
              
              
              44,411,326
              
              
              —
              
              
              (42,966,818
              )
              
              —
              
              
              —
              
              
              —
              
              
              1,504,628Common
                  stock issued at $0.84 and $0.90, net of expenses
              
              
              —
              
              
              —
              
              
              10,185,502
              
              
              10,186
              
              
              7,837,845
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              7,848,031Common
                  stock issued to directors at $0.72 per share insatisfaction
                  of accounts payable
              
              
              —
              
              
              —
              
              
              27,776
              
              
              28
              
              
              19,972
              
              
              
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              20,000Share-based
                  compensation
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              335,210
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              335,210Net
                  loss
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              -
              
              
              —
              
              
              (2,564,257
              )
              
              —
              
              
              —
              
              
              —
              
              
              (2,564,257
              )Balance
                  at March 31, 2007
              
              
              —
              
              $
              —
              
              
              70,333,316
              
              $
              70,334
              
              $
              52,604,353
              
              $
              —
              
              $
              (45,531,075
              )
              $
              —
              
              $
              —
              
              $
              —
              
              $
              7,143,612
  See
                  accompanying notes to unaudited condensed consolidated financial
                  statements.




6




**MANHATTAN
                  PHARMACEUTICALS, INC. AND
                  SUBSIDIARIES**(A
                  Development Stage Company)Condensed
                  Consolidated Statements of Cash Flows(Unaudited)**Cumulative****period
                  from****August
                  6, 2001****(inception)
                  to****Three
                  months ended March 31,**
              
              **March
                  31,****2007**
              
              **2006**
              
              **2007**Cash
                  flows from operating activities:Net
                  loss
              
              
              
              
              $
              (2,564,257
              )
              $
              (2,398,190
              )
              $
              (44,351,431
              )Adjustments
                  to reconcile net loss tonet
                  cash used in operating activities:Share-based
                  compensation
              
              
              
              
              
              335,210
              
              
              311,912
              
              
              2,259,237Amortization
                  of intangible assets
              
              
              
              
              
              —
              
              
              —
              
              
              145,162Gain
                  on sale of marketable equity securities
              
              
              
              
              
              —
              
              
              (490
              )
              
              (76,032
              )Depreciation
              
              
              
              
              
              15,878
              
              
              14,853
              
              
              163,358Non
                  cash portion of in-process research and development charge
              
              
              
              
              
              —
              
              
              —
              
              
              11,721,623Loss
                  on impairment and disposition of intangible assets
              
              
              
              
              
              —
              
              
              —
              
              
              2,462,108Other
              
              
              
              
              
              —
              
              
              —
              
              
              5,590Changes
                  in operating assets and liabilities, net of acquisitions:(Increase)/decrease
                  in prepaid expenses and other current assets
              
              
              
              
              
              12,494
              
              
              (284,511
              )
              
              (193,847
              )Increase
                  in subscription receivable
              
              
              
              
              
              (250,000
              )
              
              
              
              
              (250,000
              )Increase
                  in other assets
              
              
              
              
              
              —
              
              
              —
              
              
              (70,506
              )Increase
                  in accounts payable
              
              
              
              
              
              150,367
              
              
              373,548
              
              
              1,943,877Increase
                  in accrued expenses
              
              
              
              
              
              119,218
              
              
              207,581
              
              
              128,926Net
                  cash used in operating activities
              
              
              
              
              
              (2,181,090
              )
              
              (1,775,297
              )
              
              (26,111,935
              )Cash
                  flows from investing activities:Purchase
                  of property and equipment
              
              
              
              
              
              (6,267
              )
              
              (8,499
              )
              
              (227,768
              )Cash
                  acquired (paid) in connection with acquisitions, net
              
              
              
              
              
              —
              
              
              —
              
              
              (26,031
              )Proceeds
                  from sale (payments for purchase) of short-term investments,
                  net
              
              
              
              
              
              —
              
              
              500,000
              
              
              435,938Proceeds
                  from sale of license
              
              
              
              
              
              —
              
              
              —
              
              
              200,001Net
                  cash provided by (used in) investing activities
              
              
              
              
              
              (6,267
              )
              
              491,501
              
              
              382,140Cash
                  flows from financing activities:Repayments
                  of notes payable to stockholders
              
              
              
              
              
              —
              
              
              —
              
              
              (884,902
              )Payment
                  for fractional shares for Preferred stock dividends
              
              
              
              
              
              —
              
              
              —
              
              
              (2,286
              )Proceeds
                  related to sale of common stock, net
              
              
              
              
              
              7,848,031
              
              
              (10,166
              )
              
              25,892,108Proceeds
                  from sale of preferred stock, net
              
              
              
              
              
              —
              
              
              —
              
              
              9,046,176Proceeds
                  from exercise of warrants and stock options
              
              
              
              
              
              —
              
              
              —
              
              
              130,991Other,
                  net
              
              
              
              
              
              —
              
              
              —
              
              
              237,500Net
                  cash (used in) provided by financing activities
              
              
              
              
              
              7,848,031
              
              
              (10,166
              )
              
              34,419,587Net
                  (decrease) increase in cash and cash equivalents
              
              
              
              
              
              5,660,674
              
              
              (1,293,962
              )
              
              8,689,792Cash
                  and cash equivalents at beginning of period
              
              
              
              
              
              3,029,118
              
              
              9,826,336
              
              
              —Cash
                  and cash equivalents at end of period
              
              
              
              
              $
              8,689,792
              
              $
              8,532,374
              
              $
              8,689,792Supplemental
                  disclosure of cash flow information:Interest
                  paid
              
              
              
              
              $
              475
              
              $
              —
              
              $
              26,033Supplemental
                  disclosure of noncash investing and financing activities:Common
                  stock issued in satisfaction of ccounts payable
              
              
              
              
              
              20,000
              
              
              —
              
              
              770,000Imputed
                  preferred stock dividend
              
              
              
              
              
              —
              
              
              —
              
              
              418,182Preferred
                  stock dividends accrued
              
              
              
              
              
              —
              
              
              —
              
              
              761,462Conversion
                  of preferred stock to common stock
              
              
              
              
              
              —
              
              
              —
              
              
              9,046,176Preferred
                  stock dividends paid by issuance of shares
              
              
              
              
              
              —
              
              
              —
              
              
              759,134Issuance
                  of common stock for acquisitions
              
              
              
              
              
              —
              
              
              —
              
              
              13,389,226Marketable
                  equity securities received in connection with sale of
                  license
              
              
              
              
              
              —
              
              
              —
              
              
              359,907Net
                  liabilities assumed over assets acquired in business
                  combination
              
              
              
              
              
              —
              
              
              —
              
              
              (675,416
              )Cashless
                  exercise of warrants
              
              
              
              
              
              —
              
              
              —
              
              
              27See
                  accompanying notes to unaudited condensed consolidated financial
                  statements.


7


MANHATTAN
      PHARMACEUTICALS, INC. and SUBSIDIARIES


(A
      Development Stage Company)





NOTES
      TO
      CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)




**(1)** **SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES**





***Basis
      of Presentation***





The
      accompanying unaudited condensed consolidated financial statements of Manhattan
      Pharmaceuticals, Inc. and its subsidiaries (“Manhattan” or the “Company”) have
      been prepared in accordance with accounting principles generally accepted in
      the
      United States of America for interim financial information and the rules and
      regulations of the Securities and Exchange Commission. Accordingly, the
      unaudited condensed consolidated financial statements do not include all
      information and footnotes required by accounting principles generally accepted
      in the United States of America for complete annual financial statements. In
      the
      opinion of management, the accompanying unaudited condensed consolidated
      financial statements reflect all adjustments, consisting of only normal
      recurring adjustments, considered necessary for a fair presentation. Interim
      operating results are not necessarily indicative of results that may be expected
      for the year ending December 31, 2007 or for any other interim period.
      These unaudited condensed consolidated financial statements should be read
      in
      conjunction with the Company’s audited consolidated financial statements as of
      and for the year ended December 31, 2006, which are included in the
      Company’s Annual Report on Form 10-KSB for such year. The condensed balance
      sheet as of December 31, 2006 has been derived from the audited financial
      statements included in the Form 10-KSB for that year.





As
      of
      December 31, 2006 all of the Company’s subsidiaries had either been dissolved or
      merged into Manhattan. As a result, the Company had no subsidiaries during
      the
      three month period ended March 31, 2007.





***Reclassifications***





Certain
      reclassifications have been made to prior-year amounts to conform to the
      current-year presentations.





***Segment
      Reporting***





The
      Company has determined that it operates in only one segment currently, which
      is
      biopharmaceutical research and development.





***Income
      Taxes***





Effective
      January1, 2007, the Company adopted the provisions of Financial Accounting
      Standards Board (“FASB”) Interpretation No. 48 (“FIN 48”), *Accounting
      for Uncertainty in Income Taxes - an interpretation of FASB No.
      109.* The
      implementation of FIN 48 had no impact on the Company’s financial statements as
      the Company has no unrecognized tax benefits. ** The
      Company’s policy is to recognize interest and penalties related to income tax
      matters in income tax expense. As of January 1 and March 31, 2007, the Company
      had no accruals for interest or penalties related to income taxes.





8


MANHATTAN
        PHARMACEUTICALS, INC. and SUBSIDIARIES
 (A
        Development Stage Company)
 
 NOTES
        TO
        CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
        (UNAUDITED)


**(2)** **LIQUIDITY**





The
      Company incurred a net loss of $2,564,257 and negative cash flows from operating
      activities of $2,181,090 for the three months ended March 31, 2007. The net
      loss
      from date of inception, August 6, 2001 to March 31, 2007 amounts to
      $44,351,431.





Management
      believes that the Company will continue to incur net losses through at least
      March 31, 2008 and for the foreseeable future thereafter. Based on the resources
      of the Company available at March 31, 2007, management believes that the Company
      will need additional equity or debt financing or will need to generate revenues
      through licensing of its products or entering into strategic alliances to be
      able to sustain its operations into 2008. Furthermore, we will need additional
      financing thereafter to complete development and commercialization of our
      product candidates.





The
      Company’s continued operations will depend on its ability to raise additional
      funds through various potential sources such as equity and debt financing,
      collaborative agreements, strategic alliances and its ability to realize the
      full potential of its technology in development. Additional funds may not become
      available on acceptable terms, and there can be no assurance that any additional
      funding that the Company does obtain will be sufficient to meet the Company’s
      needs in the long-term.




**(3)** **COMPUTATION
      OF NET LOSS PER COMMON SHARE**





Basic
      net
      loss per common share is calculated by dividing net loss applicable to common
      shares by the weighted-average number of common shares outstanding for the
      period. Diluted net loss per common share is the same as basic net loss per
      common share, since potentially dilutive securities from the assumed exercise
      of
      stock options and stock warrants would have an antidilutive effect because
      the
      Company incurred a net loss during each period presented. The amounts of
      potentially dilutive securities excluded from the calculation of diluted net
      loss per share were 17,886,567 and 13,782,396 as of March 31, 2007 and 2006,
      respectively.




**(4)** **SHARE-BASED
      COMPENSATION**





Effective
      January 1, 2006, the Company adopted Statement of Financial Accounting Standards
      No. 123(R), “Share-Based Payment,” (“Statement 123(R)”) for employee options
      using the modified prospective transition method. Statement 123(R) revised
      Statement 123 “Accounting for Stock-based Compensation” to eliminate the option
      to use the intrinsic value method and required the Company to expense the fair
      value of all employee options over the vesting period. Under the modified
      prospective transition method, the Company recognized compensation cost for
      the
      three month periods ending March 31, 2007 and 2006 based on the grant date
      fair
      value estimated in accordance with Statement 123(R). This includes a) period
      compensation cost related to share-based payments granted prior to, but not
      yet
      vested, as of January 1, 2006, based on the grant date fair value estimated
      in
      accordance with the original provisions of Statement 123; and b) period
      compensation cost related to share-based payments granted on or after January
      1,
      2006. In accordance with the modified prospective method, the Company has not
      restated prior period results.





9


MANHATTAN
        PHARMACEUTICALS, INC. and SUBSIDIARIES
 (A
        Development Stage Company)
 
 NOTES
        TO
        CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


The
      Company recognized compensation expense related to stock option grants on a
      straight-line basis over the vesting period. For the three month periods ended
      March 31, 2007 and 2006, the Company recognized share-based employee
      compensation cost of $335,210 and $311,912, respectively, in accordance with
      Statement 123(R). $270,451 and $285,745, respectively, of this expense resulted
      from the grants of stock options to employees, officers and directors of the
      Company on or prior to December 31, 2005. The balances of $64,759 and $26,167,
      respectively, relate to the granting of stock options to employees and officers
      on or after January 1, 2006. The Company did not capitalize any share-based
      compensation cost.





Options
      granted to consultants and other non-employees are accounted for in accordance
      with Emerging Issues Task Force (“EITF”) No. 96-18 "Accounting for Equity
      Instruments That Are Issued to Other than Employees for Acquiring, or in
      Conjunction with Selling, Goods or Services", and Financial Accounting Standards
      Board Interpretation No 28 “Accounting for Stock Appreciation Rights and Other
      Variable Option or Award Plans”.  Accordingly, such options are recorded at
      fair value at the date of grant and subsequently adjusted to fair value at
      the end of each reporting period until such options vest, and the fair
      value of the options, as adjusted, is amortized to consulting expense over
      the related vesting period.  As a result of adjusting consultant and other
      non-employee options to fair value as of March 31, 2007 and 2006, net of
      amortization, the Company recognized general and administrative and research
      and
      development expenses of $3,371 for the three-months ended March 31, 2007 and
      $23,971 for the three-months ended March 31, 2006.





The
      Company has allocated share-based compensation costs to general and
      administrative and research and development expenses as follows:


**Three
                  months ended**
              
              **Three
                  months ended****March
                  31, 2007**
              
              **March
                  31, 2006**General
                  and administrative expense:Share-based
                  employee compensation cost
              
              
              
              
              $
              221,921
              
              $
              208,021Share-based
                  consultant and non-employee cost
              
              
              
              
              
              10,550
              
              
              5,589$
              232,471
              
              $
              213,610Research
                  and development expenseShare-based
                  employee compensation cost
              
              
              
              
              $
              109,918
              
              $
              79,920Share-based
                  consultant and non-employee (credit) cost
              
              
              
              
              
              (7,179
              )
              
              18,382$
              102,739
              
              $
              98,302Total
                  share-based cost
              
              
              
              
              $
              335,210
              
              $
              311,912





10




MANHATTAN
        PHARMACEUTICALS, INC. and SUBSIDIARIES
 (A
        Development Stage Company)
 
 NOTES
        TO
        CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


The
      Company has shareholder-approved stock incentive plans for employees under
      which
      it has granted non-qualified and incentive stock options. In December 2003,
      the
      Company established the 2003 Stock Option Plan (the “2003 Plan”), which provided
      for the granting of up to 5,400,000 options to officers, directors, employees
      and consultants for the purchase of stock. In August 2005, the Company increased
      the number of shares of common stock reserved for issuance under the 2003 Plan
      by 2,000,000 shares. At March 31, 2007, 7,400,000 shares were authorized for
      issuance. Under the 2003 Plan at March 31, 2007 options to purchase 6,292,430
      shares were outstanding and 27,776 shares of common stock have been issued
      leaving a total of 1,079,794 shares reserved for future stock option grants.
      The
      options have a maximum term of 10 years and vest over a period determined by
      the
      Company’s Board of Directors (generally 3 years) and are issued at an exercise
      price equal to or greater than the fair market value of the shares at the date
      of grant. The 2003 Plan expires on December 10, 2013 or when all options have
      been granted, whichever is sooner. Under
      the
      2003 Plan, the Company granted options to purchase an aggregate of 472,500
      shares of common stock during the three months ended March 31, 2007 of which
      options to purchase 300,000 and 97,500 shares of common stock were granted
      at an
      exercise price of $0.72 to directors and employees, respectively, and options
      to
      purchase 75,000 shares of common stock were granted to an employee at an
      exercise price of $0.82. Additionally, on January 30, 2007, the Company’s
      non-employee directors agreed to accept an aggregate of 27,776 shares of the
      Company’s common stock, each valued at $0.72 per share (the closing sale price
      of the common stock on such date), in lieu of receiving $20,000 in aggregate
      cash fees owed to such directors for their services in 2006. Such shares were
      issued pursuant to the 2003 plan.





In
      July
      1995, the Company established the 1995 Stock Option Plan (the”1995 Plan”), which
      provided for the granting of options to purchase up to 130,000 shares of the
      Company’s common stock to officers, directors, employees and consultants. The
      1995 Plan was amended several times to increase the number shares reserved
      for
      stock option grants. In June 2005, the 1995 Plan expired and no further options
      can be granted. As of March 31, 2007, options to purchase 1,137,240 shares
      were
      outstanding under the 1995 Plan and no shares were reserved for future stock
      option grants.





To
      compute compensation expense in 2007 and 2006, the Company estimated the fair
      value of each option award on the date of grant using the Black-Scholes model.
      The Company based the expected volatility assumption on a volatility index
      of
      peer companies as the Company did not have a sufficient number of years of
      historical volatility of its common stock for the application of Statement
      123(R). The expected term of options granted represents the period of time
      that
      options are expected to be outstanding. The Company estimated the expected
      term
      of stock options by the simplified method as prescribed in The Securities and
      Exchange Commission’s Staff Accounting Bulletin No. 107. The expected forfeiture
      rates are based on the historical forfeiture experiences. To determine the
      risk-free interest rate, the Company utilized the U.S. Treasury yield curve
      in
      effect at the time of grant with a term consistent with the expected term of
      the
      Company’s awards. The Company has not declared a dividend on its common stock
      since its inception and has no intentions of declaring a dividend in the
      foreseeable future and therefore used a dividend yield of zero.





11


MANHATTAN
        PHARMACEUTICALS, INC. and SUBSIDIARIES
 (A
        Development Stage Company)
 
 NOTES
        TO
        CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


The
      following table shows the weighted average assumptions the Company used to
      develop the fair value estimates for the determination of the compensation
      charges in 2007 and 2006:


**Three
                  months ended**
              
              
              **Three
                  Months Ended****March
                  31, 2007**
              
              
              **March
                  31, 2006**Expected
                  Volatility
              
              
              80.2%
                  - 81.7%
              
              
              
              55%Dividend
                  yield
              
              
              —
              
              
              
              —Expected
                  term (in years)
              
              
              6
                  -
                  10
              
              
              
              6
                  -
                  10Risk-free
                  interest rate
              
              
              4.56%
                  - 4.86%
              
              
              
              4.25%




A
      summary
      of the status of the Company’s stock outstanding options as of March 31, 2007
      and changes during the three months then ended is presented below:





**Shares**
              
              **Weighted**

                **average**

                **exercise**

                **price**
              
              **Weighted**

                **Average**

                **Remaining**

                **Contractual**

                **Term
                  (years)**
              
              **Aggregate**

                **Intrinsic**

                **Value**Outstanding
                  at December 31, 2006
              
              
              7,000,504
              
              $
              1.31Granted
              
              
              472,500
              
              
              0.83Exercised
              
              
              -
              
              
              -Cancelled
              
              
              (43,334
              )
              
              1.18Outstanding
                  at March 31, 2007
              
              
              7,429,670
              
              $
              1.28
              
              
              7.54
              
              $
              560,285Options
                  exercisable atMarch
                  31,
                  2007
              
              
              5,085,879
              
              $
              1.30
              
              
              7.17
              
              $
              438,235Weighted-averagefair
                  value of
                  optionsgranted
                  during
                  thethree
                  months
                  endedMarch
                  31,
                  2007
              
              $
              0.53
  12




MANHATTAN
        PHARMACEUTICALS, INC. and SUBSIDIARIES
 (A
        Development Stage Company)
 
 NOTES
        TO
        CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


As
      of
      March 31, 2007, the total compensation cost related to non-vested option awards
      not yet recognized is $1,235,880. The weighted average period over which it
      is
      expected to be recognized is approximately 1.1 years.





In
      November 2005, the FASB issued FASB Staff Position No. FAS 123(R)-3 (“FSP
      123(R)-3”), “Transition Election Related to Accounting for the Tax Effects of
      Share-Based Payment Awards”. The Company has adopted this alternative
      transition method provided in FSP 123(R)-3 for calculating the tax effects
      of
      stock-based compensation pursuant to SFAS 123(R) in 2006. The alternative
      transition method includes simplified methods to establish the beginning balance
      of the additional paid-in capital pool (APIC pool) related to the tax effects
      of
      employee stock-based compensation, and to determine the subsequent impact on
      the
      APIC pool and consolidated statements of cash flows of the tax effects of
      employee stock-based compensation awards that are outstanding upon adoption
      of
      SFAS 123(R).  The adoption did not have a material impact on our results of
      operations and financial condition.




**(5)** **COMMITMENTS**





The
      Company often contracts with third parties to facilitate, coordinate and perform
      agreed upon research and development of its product candidates. To ensure that
      research and development costs are expensed as incurred, the Company records
      monthly accruals for clinical trials and preclinical testing costs based on
      the
      work performed under the contracts.





These
      contracts typically call for the payment of fees for services at the initiation
      of the contract and/or upon the achievement of certain milestones. This method
      of payment often does not match the related expense recognition resulting in
      either a prepayment, when the amounts paid are greater than the related research
      and development costs expensed, or an accrued liability, when the amounts paid
      are less than the related research and development costs expensed.





On
      March
      27, 2006, the Company entered into a research and development agreement with
      Swiss Pharma Contract Ltd. (“Swiss Pharma”) to perform a Phase IIa study in 100
      obese patients of the Company’s Oleoyl-estrone product candidate being developed
      for the treatment of obesity. The terms of the contract call for the Company
      to
      pay Swiss Pharma up to $2,151,840.





In
      the
      fourth quarter of 2006, the Company expanded its ongoing Phase IIa clinical
      trial of Oleoyle-estrone in obesity into two new clinical sites in the United
      States. Because the size of the study has not been expanded beyond the 100
      obese
      patients, the Company does not anticipate the additional sites will materially
      increase its total financial commitment of up to $2,151,840. Such financial
      commitment will now be paid to three clinical centers rather than one. This
      Phase IIa clinical trial is expected to conclude in the second quarter of
      2007.





At
      March
      31, 2007, the Company recognized a total expense of $1,676,408 and expects
      the
      balance of the financial commitment of approximately $500,000 to be incurred
      through the conclusion of the trial.





13


MANHATTAN
        PHARMACEUTICALS, INC. and SUBSIDIARIES
 (A
        Development Stage Company)
 
 NOTES
        TO
        CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
        (UNAUDITED)


In
      the
      fourth quarter of 2006, the Company commenced a Phase IIa clinical trial of
      its
      product candidate Oleoyl-estrone in the morbidly obese at St. Lukes/Roosevelt
      Hospital in New York City. The financial commitment for this study is
      approximately $685,000.





In
      the
      first quarter of 2007, the Company expanded its ongoing Phase IIa clinical
      trial
      in the morbidly obese into two new clinical sites, also in the United States.
      The scope and financial commitment of this study remains unchanged. The study
      is
      expected to conclude in the first half of 2007 .





At
      March
      31, 2007, the Company recognized expense of $119,302 for the study and expects
      the balance of the financial commitment of approximately $566,000 to be incurred
      through the conclusion of the trial.




**(6)** **PRIVATE
      PLACEMENT OF COMMON SHARES**





On
      March
      30, 2007, the Company entered into a series of subscription agreements with
      various institutional and other accredited investors for the issuance and sale
      in a private placement of an aggregate of 10,185,502 shares of its common stock
      for total net proceeds of approximately $7.85 million, after deducting
      commissions and other costs of the transaction. Of the total amount of shares
      issued, 10,129,947 were sold at a per share price of $0.84, and an additional
      55,555 shares were sold to an entity affiliated with a director of the Company,
      at a per share price of $0.90, the closing sale price of the common stock on
      March 29, 2007. Pursuant to the subscription agreements, the Company also issued
      to the investors 5-year warrants to purchase an aggregate of 3,564,897 shares
      of
      common stock at an exercise price of $1.00 per share. The warrants are
      exercisable during the period commencing September 30, 2007 and ending March
      30,
      2012. The private placement was completed on March 30, 2007, however, a portion
      of the proceeds was received subsequent to March 31, 2007, resulting in a
      $250,000 subscription receivable at March 31, 2007.





Pursuant
      to these subscription agreements the Company agreed to file a registration
      statement covering the resale of the shares issued in the private placement,
      including the shares issuable upon exercise of the investor warrants and the
      placement agent warrants, with the Securities and Exchange Commission on or
      before May 14, 2007 and use its reasonable best efforts to have such
      registration statement declared effective by the Securities and Exchange
      Commission on or before July 28, 2007. In the event the Company has not filed
      such registration statement on or before May 14, 2007 or if the registration
      statement has not been declared effective on or before July 28, 2007, then
      in
      either case the Company shall make compensatory payments to the investors in
      an
      amount equal to one percent (1%) of the aggregate purchase price paid by the
      investors for each monthly period (or prorated portion thereof) in which the
      Company is in default of either of these obligations. In
      no
      event shall the amount of compensatory payments payable by the Company exceed
      ten percent (10%) of the aggregate purchase price paid by the
      investors . The
      Company filed the registration statement of May 9, 2007.





The
      Company engaged Paramount BioCapital, Inc., an affiliate of a significant
      stockholder of the Company, as its placement agent in connection with the
      private placement. In consideration for its services, the Company paid aggregate
      cash commissions of approximately $600,000 and issued to Paramount a 5-year
      warrant to purchase an aggregate of 509,275 shares at an exercise price of
      $1.00
      per share.





14


MANHATTAN
        PHARMACEUTICALS, INC. and SUBSIDIARIES
 (A
        Development Stage Company)
 
 NOTES
        TO
        CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
        (UNAUDITED)


**(7)** **SUBSEQUENT
      EVENTS**


***a) 
***Altoderm
        License Agreement******




On
      April
      3, 2007, the Company entered into a license agreement for “Altoderm” (the
“Altoderm Agreement”) with Thornton & Ross LTD (“T&R”). Pursuant to the
      Altoderm Agreement, the Company acquired an exclusive North American license
      to
      certain patent rights and other intellectual property relating to Altoderm,
      a
      topical skin lotion product candidate using sodium cromoglicate for the
      treatment of atopic dermatitis. In accordance with the terms of the Altoderm
      Agreement, the Company issued 125,000 shares of its common stock, valued at
      $112,500, and made a cash payment of $475,000 to T&R upon the execution of
      the agreement. Further, the Company agreed to make future milestone payments
      to
      T&R comprised of various combinations of cash and common stock in respective
      aggregate amounts of $5,675,000 and 875,000 shares of common stock upon the
      achievement of various clinical and regulatory milestones. The Company also
      agreed to pay royalties on net sales of products using the licensed patent
      rights at rates ranging from 10% to 20%, depending on the level of annual net
      sales, and subject to an annual minimum royalty payment of $1 million in each
      year following the first commercial sale of Altoderm. The Company may sublicense
      the patent rights. The Company agreed to pay T&R 30% the royalties received
      by the Company under such sublicense agreements.




*b)            
      ***Altolyn
      License Agreement****




On
      April
      3, 2007, the Company and T&R also entered into a license agreement for
“Altolyn” (the “Altolyn Agreement”). Pursuant to the Altolyn Agreement, the
      Company acquired an exclusive North American license to certain patent rights
      and other intellectual property relating to Altolyn, an oral formulation product
      candidate using sodium cromoglicate for the treatment of mastocytosis, food
      allergies, and inflammatory bowel disorder. In accordance with the terms of
      the
      Altolyn Agreement, the Company made a cash payment of $475,000 to T&R upon
      the execution of the agreement. Further, the Company agreed to make future
      cash
      milestone payments to T&R in an aggregate amount of $5,675,000 upon the
      achievement of various clinical and regulatory milestones. The Company also
      agreed to pay royalties on net sales of products using the licensed patent
      rights at rates ranging from 10% to 20%, depending on the level of annual net
      sales, and subject to an annual minimum royalty payment of $1 million in each
      year following the first commercial sale of Altolyn. The Company may sublicense
      the patent rights. The Company agreed to pay T&R 30% the royalties received
      by the Company under such sublicense agreements.


15


**Item
      2.** **Management’s
      Discussion and Analysis Financial Condition and** **Results
      of Operations**





**You
      should read the following discussion of our results of operations and financial
      condition in conjunction with our Annual Report on Form 10-KSB for the year
      ended December 31, 2006 (the “Annual Report”) and our financial statements
      as of and for the three months ended March 31, 2007 included elsewhere in this
      report.**




We
      were
      incorporated in Delaware in 1993 under the name “Atlantic Pharmaceuticals, Inc.”
and, in March 2000, we changed our name to “Atlantic Technology Ventures, Inc.”
In 2003, we completed a “reverse acquisition” of privately held “Manhattan
      Research Development, Inc. In connection with this transaction, we also changed
      our name to “Manhattan Pharmaceuticals, Inc.” From an accounting perspective,
      the accounting acquirer is considered to be Manhattan Research Development,
      Inc.
      and accordingly, the historical financial statements are those of Manhattan
      Research Development, Inc.





During
      2005 we merged with Tarpan Therapeutics, Inc. (“Tarpan”). Tarpan was a privately
      held New York based biopharmaceutical company developing dermatological
      therapeutics. Through the merger, we acquired Tarpan’s primary product
      candidate, topical PTH (1-34) for the treatment of psoriasis. In consideration
      for their shares of Tarpan’s capital stock, the stockholders of Tarpan received
      an aggregate of approximately 10,731,000 shares of our common stock,
      representing approximately 20% of our then outstanding common shares. This
      transaction was accounted for as a purchase of Tarpan by the
      Company.





We
      are a
      development stage biopharmaceutical company focused on developing and
      commercializing innovative pharmaceutical therapies for underserved patient
      populations. We aim to acquire rights to these technologies by licensing or
      otherwise acquiring an ownership interest, funding their research and
      development and eventually either bringing the technologies to market or
      out-licensing. We currently have five product candidates in
      development:


·
            Oleoyl-estrone,
                an orally administered small molecule for the treatment of
                obesity;


·
            Topical
                PTH (1-34) for the treatment of
                psoriasis;


·
            Altoderm,
                a proprietary formulation of topical cromolyn sodium for the treatment
                of
                atopic dermatitis;


·
            Altolyn,
                a proprietary site specific tablet formulation of oral cromolyn sodium
                for
                the treatment of mastocytosis;


·
            and
                Lingual Spray Propofol for sedation prior to diagnostic, therapeutic
                or
                endoscopic procedures.




We
      have
      not received regulatory approval for, or generated commercial revenues from
      marketing or selling any drugs.





You
      should read the following discussion of our results of operations and financial
      condition in conjunction with the consolidated financial statements and notes
      thereto appearing elsewhere in this Quarterly report on Form 10-Q. This
      discussion includes “forward-looking” statements that reflect our current views
      with respect to future events and financial performance. We use words such
      as we
“expect,” “anticipate,” “believe,” and “intend” and similar expressions to
      identify forward-looking statements. Investors should be aware that actual
      results may differ materially from our expressed expectations because of risks
      and uncertainties inherent in future events, particularly those risks identified
      under the heading “Risk Factors” following Item 1 in the 2006 Annual Report, and
      should not unduly rely on these forward looking statements.




16


RESULTS
      OF OPERATIONS




THREE-MONTH
      PERIOD ENDED MARCH 31, 2007 VS 2006




**Quarter**

              **ended**

              **March
                31, 2007**
            
            **Quarter**

              **ended**

              **March
                31, 2006**
            
            **Increase**

              **(decrease)**
            
            **%
                Increase**

              **(decrease)****Costs
                and expenses*****Research
                and development***Stock
                based
                compensation
            
            $
            103,000
            
            $
            98,000
            
            $
            5,000
            
            
            5.1
            %Other
                research and
                development expense
            
            $
            1,576,000
            
            $
            1,588,000
            
            $
            (12,000
            )
            
            (0.8
            )%Total
                research and
                development expense
            
            $
            1,679,000
            
            $
            1,686,000
            
            $
            (7,000
            )
            
            (0.4
            )%***General
                and administrative***Stock
                based
                compensation
            
            $
            232,000
            
            $
            214,000
            
            $
            18,000
            
            
            8.4
            %Other
                general and
                administrative expense
            
            $
            683,000
            
            $
            597,000
            
            $
            86,000
            
            
            14.4
            %Total
                general and
                administrative expense
            
            $
            915,000
            
            $
            811,000
            
            $
            104,000
            
            
            12.8
            %**Other
                income**
            
            $
            30,000
            
            $
            99,000
            
            $
            (69,000
            )
            
            (69.7
            )%**Net
                loss**
            
            $
            2,564,000
            
            $
            2,398,000
            
            $
            166,000
            
            
            6.9
            %




During
      each of the quarters ended March 31, 2007 and 2006, we had no revenues, and
      are
      considered a development stage company. We do not expect to have revenues
      relating to our technologies prior to March 31, 2008, if at all.





For
      the
      quarter ended March 31, 2007 research and development expense was $1,679,000
      as
      compared to $1,686,000 for the quarter ended March 31, 2006. The decrease of
      $7,000, less than 1%, is comprised of a $5,000 increase in stock based
      compensation and an increase of $567,000 due to increased development activities
      of our Oleoyl-estrone product candidate offset by a decrease of $572,000 due
      to
      decreased development activities of our PTH (1-34) product
      candidate.




For
      the
      three months ended March 31, 2007, general and administrative expense was
      $915,000 as compared to $811,000 for the three months ended March 31, 2006.
      The
      increase of $104,000, or 12.8%, is due primarily to increases of $18,000 in
      stock based compensation, of $75,000 in payroll and related costs, of $46,000
      in
      spending on business development activities partially offset by a decrease
      of
      $13,000 in insurance costs.





For
      the
      quarter ended March 31, 2007, other income was $30,000 as compared to $99,000
      for the quarter ended March 31, 2006. The decrease of $69,000, or 69.7%, is
      due
      primarily to a decrease in interest income of approximately $68,000 which
      resulted from lower average balances in interest bearing cash and short-term
      investment accounts.





Net
      loss
      for the three months ended March 31, 2007, was $2,564,000 as compared to
      $2,398,000 for the three months ended March 31, 2006. The increase of $166,000,
      or 6.9%, in net loss is attributable to an increase in general and
      administrative expense of $104,000 and a decrease in other income of $69,000,
      partially offset by a decrease in research and development expense of
      $7,000.





17


LIQUIDITY
      AND CAPITAL RESOURCES




From
      inception to March 31, 2007, we incurred a deficit during the development stage
      of $45.5 million primarily as a result of our net losses and preferred stock
      dividends. We expect to continue to incur additional losses through at least
      March 31, 2008 and for the foreseeable future thereafter. These losses have
      been
      incurred through a combination of research and development activities related
      to
      the various technologies under our control and expenses supporting those
      activities.





We
      have
      financed our operations since inception primarily through equity financing
      and
      our licensing and sale of certain residual royalty rights. During the three
      months ended March 31, 2007, we had a net increase in cash and cash equivalents
      of $5.7 million. This increase resulted largely from net proceeds related to
      the
      sale of common stock of $7.8 million partially offset by net cash used in
      operating activities of $2.2 million. Total liquid resources as of March 31,
      2007 were $8.7 million compared to $3.0 million at December 31,
      2006.





Our
      current liabilities as of March 31, 2007 were $2.2 million compared to $1.9
      million at December 31, 2006, an increase of $300,000. This increase was
      primarily due to increases in accrued liabilities of $44,000 related to the
      ongoing clinical trials of OE, an increase in accounts payable of $130,000
      and
      an increase in accrued bonuses of $97,000. As of March 31, 2007, we had working
      capital of $7 million compared to $1.4 million at December 31, 2006. This $5.6
      million increase in working capital is primarily due to net proceeds related
      to
      the sale of common stock of approximately $7.8 million offset by net cash used
      in operating activities of $2.2 million during the three months ended March
      31,
      2007.





On
      March
      30, 2007, we entered into a series of subscription agreements with various
      institutional and other accredited investors for the issuance and sale in a
      private placement of an aggregate of 10,185,502 shares of our common stock
      for
      net proceeds of approximately $7.8 million. Of the total amount of shares
      issued, 10,129,947 were sold at a per share price of $0.84, and an additional
      55,555 shares were sold to an entity affiliated with a director of the Company,
      at a per share price of $0.90, the closing sale price of the common stock on
      March 29, 2007. Pursuant to the subscription agreements, we also issued to
      the
      investors 5-year warrants to purchase an aggregate of 3,564,897 shares of our
      common stock at an exercise price of $1.00 per share. The warrants are
      exercisable during the period commencing September 30, 2007 and ending March
      30,
      2012.





Pursuant
      to these subscription agreements the Company agreed to file a registration
      statement covering the resale of the shares issued in the private placement,
      including the shares issuable upon exercise of the investor warrants and the
      placement agent warrants with the Securities and Exchange Commission on or
      before May 14, 2007 and use its reasonable best efforts to have such
      registration statement declared effective by the Securities and Exchange
      Commission on or before July 28, 2007. In the event the Company has not filed
      such registration statement on or before May 14, 2007 or if the registration
      statement has not been declared effective on or before July 28, 2007, then
      in
      either case the Company shall make compensatory payments to the investors in
      an
      amount equal to one percent (1%) of the aggregate purchase price paid by the
      investors for each monthly period (or prorated portion thereof) in which the
      Company is in default of either of these obligations. In
      no
      event shall the amount of compensatory payments payable by the Company exceed
      ten percent (10%) of the aggregate purchase price paid by the
      investors . The
      Company filed the registration statement on May 9, 2007.





The
      Company engaged Paramount BioCapital, Inc., a related party, as its placement
      agent in connection with the private placement. In consideration for its
      services, we paid aggregate cash commissions of approximately $600,000 and
      issued to Paramount a 5-year warrant to purchase an aggregate of 509,275 shares
      at an exercise price of $1.00 per share.





18


We
      often
      contract with third parties to facilitate, coordinate and perform agreed upon
      research and development of our product candidates. To ensure that research
      and
      development costs are expensed as incurred, we record monthly accruals for
      clinical trials and preclinical testing costs based on the work performed under
      the contracts.





These
      contracts typically call for the payment of fees for services at the initiation
      of the contract and/or upon the achievement of certain milestones. This method
      of payment often does not match the related expense recognition resulting in
      either a prepayment, when the amounts paid are greater than the related research
      and development costs recognized, or an accrued liability, when the amounts
      paid
      are less than the related research and development costs
      recognized.





In
      March
      2006, we entered into a research and development agreement with Swiss Pharma
      Contract Ltd., or Swiss Pharma, to perform a Phase 2a clinical study in 100
      obese patients of our Oleoyl-estrone product candidate for the treatment of
      obesity. The contract requires us to pay up to $2,151,840 to Swiss Pharma for
      conducting the study.





In
      the
      fourth quarter of 2006, we expanded this ongoing Phase 2a clinical trial of
      Oleoyl-estrone in obesity study into two new clinical sites in the United
      States. Because the size of the study has not been expanded beyond the 100
      obese
      patients, we do not anticipate the addition of the two new sites to materially
      increase our total financial commitment of up to $2,152,000. Such financial
      commitment will now be paid to three clinical centers rather than one. We have
      completed dosing patients in this Phase 2 a study and expect it to conclude
      in
      mid-2007.





Expenses
      associated with the ongoing clinical trials are recognized on this activity
      based basis, therefore, the expense recognition differs from the payment
      schedules. Through March 31, 2007, we have recognized a cumulative expense
      of
      $1,676,000 for this clinical trial and expect the balance of the financial
      commitment of approximately $500,000 to be incurred through the conclusion
      of
      the trial. During the first quarter of 2007, we made cash payments of $535,000
      and recognized expense of $546,000. Our prepaid expenses decreased by $156,000
      and our accrued liabilities increased by $34,000 during the quarter.





In
      the
      fourth quarter of 2006, we commenced a Phase 2a study of Oleoyl-estrone in
      the
      morbidly obese at St. Lukes/Roosevelt hospital in New York. The financial
      commitment for this study is approximately $685,000.





In
      the
      first quarter of 2007, we expanded this ongoing Phase 2a clinical trial in
      the
      morbidly obese into two new clinical sites, also in the United States. The
      scope
      and financial commitment of this study remains unchanged. We have completed
      dosing patients in this Phase 2 a study and expect it to conclude in
      mid-2007.





Expenses
      associated with the ongoing clinical trials are recognized on this activity
      based basis, therefore, the expense recognition differs from the payment
      schedules. Through March 31, 2007, we have recognized a cumulative expense
      of
      $119,000 for this clinical trial and expect the balance of the financial
      commitment of approximately $570,000 to be incurred through the conclusion
      of
      the trial. During the first quarter of 2007, we made cash payments of $46,000
      and recognized expense of $65,000. Our prepaid expenses decreased by $4,000
      and
      our accrued liabilities decreased by $23,000 during the quarter.





Expenses
      associated with the ongoing clinical trials are recognized on this activity
      based basis, therefore, the expense recognition differs from the payment
      schedules. During the first quarter of 2007 we reduced our prepaid expenses
      by
      $156,000 and recognized $103,000 of accrued expense related to the common
      obesity clinical trial.





19


Our
      available working capital and capital requirements will depend upon numerous
      factors, including progress of our research and development programs, our
      progress in and the cost of ongoing and planned pre-clinical and clinical
      testing, the timing and cost of obtaining regulatory approvals, the cost of
      filing, prosecuting, defending, and enforcing patent claims and other
      intellectual property rights, competing technological and market developments,
      changes in our existing collaborative and licensing relationships, the resources
      that we devote to commercializing capabilities, the status of our competitors,
      our ability to establish collaborative arrangements with other organizations
      and
      our need to purchase additional capital equipment.




Our
      continued operations will depend on whether we are able to raise additional
      funds through various potential sources, such as equity and debt financing,
      other collaborative agreements, strategic alliances, and our ability to realize
      the full potential of our technology in development. Such additional funds
      may
      not become available on acceptable terms and there can be no assurance
      that any additional funding that we do obtain will be sufficient to meet our
      needs in the long term. Through
      March 31, 2007, a significant portion of our financing has been through private
      placements of common stock, preferred stock and warrants to purchase common
      stock. Until our operations generate significant revenues and cash flows from
      operating activities, we will continue to fund operations from cash on hand
      and
      through the similar sources of capital previously described. We can give no
      assurances that any additional capital that we are able to obtain will be
      sufficient to meet our needs. Management
      believes that we will continue to incur net losses and negative cash flows
      from
      operating activities for the foreseeable future. Based on the resources
      available to us at March 31, 2007, management believes that we will need
      additional equity or debt financing or will need to generate revenues through
      licensing our products or entering into strategic alliances to be able to
      sustain our operations into 2008 and we will need additional financing
      thereafter until we can achieve profitability, if ever.




Although
      we currently have sufficient capital to fund our anticipated 2007 expenditures,
      we will need to raise additional capital in order to complete the anticipated
      development programs for each of our research and development projects. If
      we
      are unable to raise such additional capital, we may have to sublicense our
      rights to a third party as a means of continuing development, or, although
      less
      likely, we may be required to abandon further development efforts altogether,
      either of which would have a material adverse effect on the prospects of our
      business.





In
      January 2007 we received notice from the staff of the American Stock Exchange,
      or AMEX, indicating that we were not in compliance with certain continued
      listing standards set forth in the American Stock Exchange Company Guide.
      Specifically, the American Stock Exchange notice cited our failure to comply,
      as
      of September 30, 2006, with section 1003(a)(ii) of the AMEX Company Guide as
      we
      had less than the $4,000,000 of stockholders’ equity and had losses from
      continuing operations and/or net losses in three of its four most recent fiscal
      years and with section 1003(a) (iii) which requires us to maintain $6,000,000
      of
      stockholders’ equity if we have experienced losses from continuing operations
      and /or net losses in its five most recent fiscal years.




In
      order
      to maintain our AMEX listing, we were required to submit a plan to AMEX advising
      the exchange of the actions we have taken, or will take, that would bring us
      into compliance with all the continued listing standards by April 16, 2008.
      We
      submitted such a plan in February 2007. AMEX accepted our plan in March 2007,
      so
      we are now able to continue our listing during the period ending April 16,
      2008,
      during which time we will be subject to periodic review to determine if we
      are
      making progress consistent with the plan. If we are not in compliance with
      the
      continued listing standards at the end of the plan period, or if we do not
      make
      progress consistent with the plan during the plan period, AMEX staff may
      initiate delisting proceedings. There can be no assurance that we will be able
      to make progress consistent with such plan.





20


If
      we
      fail to make sufficient progress under our plan, AMEX may initiate delisting
      proceedings. If our common stock is delisted
      from AMEX, trading in our common stock would likely be conducted on the OTC
      Bulletin Board, a regulated quotation service. If our common stock is delisted
      from the AMEX, the liquidity of our common stock may be reduced, not only in
      terms of the number of shares that can be bought and sold at a given price,
      but
      also through delays in the timing of transactions and reduction in security
      analysts’ and the media’s coverage of us. This may result in lower prices for
      our common stock than might otherwise be obtained and could also result in
      a
      larger spread between the bid and asked prices for our common stock. Further,
      if we are delisted from AMEX, we may find it more difficult to raise additional
      capital through sales of our common stock or other equity
      securities.




RESEARCH
      AND DEVELOPMENT PROJECTS




Our
      success in developing each of our research and development projects is dependent
      on numerous factors, including raising further capital, unforeseen safety
      issues, lack of effectiveness, significant unforeseen delays in the clinical
      trial and regulatory approval process, both of which could be extremely costly,
      and inability to monitor patients adequately before and after treatments. The
      existence of any of these factors could increase our development costs or make
      successful completion of development impractical, which would have a material
      adverse affect on the prospects of our business.




***Oleoyl-estrone***





We
      completed Phase 1a and Phase 1b clinical trials in May 2005 and July 2005,
      respectively, and released data on both trials in October 2005. The Phase 1a
      and
      Phase 1b clinical trials were dose escalation studies to determine the safety
      and tolerability of defined doses of orally administered Oleoyl-estrone in
      obese
      adult volunteers as well as the pharmacokinetic profile (i.e. the manner in
      which the drug is absorbed, distributed, metabolized and excreted by the body)
      of Oleoyl-estrone in both men and women.





Extensive
      preclinical studies of OE have shown evidence of weight loss, sustained weight
      loss after dosing stops, and reduced food intake. These studies have also shown
      evidence of beneficial changes in blood glucose and cholesterol levels. This
      work is supported by dozens of peer-reviewed journal publications over the
      past
      ten years. Results of the Phase 1 clinical studies with OE, reported in October
      2005, showed OE was clinically well tolerated at all dose levels. The Phase
      1
      data in humans points to similar beneficial effects of OE as shown in
      preclinical studies including weight loss, sustained weight loss and beneficial
      changes in blood glucose and cholesterol. Clinical laboratory findings included
      dose-dependent elevations in estrone and estradiol levels, as well as reductions
      in testosterone levels; all had returned to baseline by the first follow-up
      visit, 8 days after dosing stopped .





In
      March
      2006, we commenced a Phase 2a clinical study evaluating oral Oleoyl-estrone
      in
      obese adult subjects with a body mass index (BMI) of 27-38.9. This randomized,
      double-blind, placebo-controlled, parallel group study is designed to evaluate
      the safety and preliminary efficacy of oral Oleoyl-estrone in 100 common obese
      male and female subjects. Enrollment in this study was completed in February
      2007. We have completed patient dosing, expect the last patient to complete
      the
      study in mid-June 2007, and plan to complete data analysis in July
      2007 .





21


In
      the
      fourth quarter of 2006, we also commenced a Phase 2a clinical study evaluating
      oral Oleoyl-estrone in 24 morbidly obese male subjects (BMI 40-55). F. Xavier
      Pi-Sunyer, MD, of St. Luke’s-Roosevelt Hospital Center, University Hospital of
      Columbia University College of Physicians and Surgeons is serving as Principal
      Investigator. We have completed patient dosing and expect the study conclude
      mid-year 2007 .





To
      date,
      we have incurred $13,727,000 of project costs related to our development of
      Oleoyl-estrone, including milestone payments triggered under our license
      agreement for Oleoyl-estrone, of which $1,426,000 was incurred in the first
      three months of 2007. Since Oleoyl-estrone is regarded by the FDA as a new
      entity, it is not realistic to predict the size and the design of future studies
      at this time.




***PTH
      (1-34)***





We
      are
      developing PTH (1-34) as a topical treatment for psoriasis. In
      2003,
      researchers, led by Michael Holick, PhD, MD, Professor of Medicine, Physiology,
      and Biophysics at Boston University Medical Center, reported positive results
      from a US Phase 1 and 2 clinical trial evaluating the safety and efficacy of
      PTH
      (1-34) as a topical treatment for psoriasis. This double-blind, controlled
      trial
      in 15 patients compared PTH (1-34) formulated in the Novasome® Technology versus
      the Novasome® vehicle alone. Following 8 weeks of treatment, the topical
      application of PTH (1-34) resulted in complete clearing of the treated lesion
      in
      60% of patients and partial clearing in 85% of patients. Additionally, there
      was
      a statistically significant improvement in the global severity score. Ten
      patients continued receiving PTH (1-34) in an open label extension study in
      which the Psoriasis Area and Severity Index (PASI) was measured; PASI
      improvement across all 10 patients achieved statistically significant
      improvement compared to baseline. This study showed PTH (1-34) to be well
      tolerated and efficacious for the treatment of plaque psoriasis with no patients
      experiencing any clinically significant adverse events .





Due
      to
      the high response rate seen in patients in the initial trial with PTH (1-34),
      we
      believe that it may have an important clinical advantage over current topical
      psoriasis treatments. A physician sponsored Investigative New Drug application
      Phase 2a trial involving PTH (1-34) was initiated in December 2005 under the
      auspices of Boston University. In April 2006, we reported a delay in this
      planned Phase 2a clinical study of topical PTH (1-34) due to a formulation
      issue. We believe we have identified and resolved this issue. An improved
      formulation has been produced and several patent applications are being
      prepared. We expect to initiate clinical activities during 2007.





To
      date,
      we have incurred $2,939,000 of project costs related to our development of
      PTH
      (1-34). These project costs have been incurred since April 1, 2005, the date
      of
      the Tarpan Therapeutics acquisition, $243,000 of which was incurred in the
      first
      three months of 2007.




***Lingual
      spray propofol***





We
      are
      developing propofol lingual spray, which we in-licensed from NovaDel Pharma,
      Inc. for light to medium sedation, on a Section 505(b)(2) bioequivalence
      regulatory pathway toward approval by the U.S. Food and Drug Administration
      (FDA). In January 2005, the FDA accepted our IND for propofol lingual spray,
      allowing us to commence clinical trials. The FDA has indicated to us in
      discussions that we may proceed to a pivotal Phase 3 trial of propofol lingual
      spray following completion of Phase 1 trials. We continue to pursue a revised
      product presentation to meet the market opportunity and are working with several
      external experts to achieve these goals. As
      a
      result there was minimal spending on Propofol in the first three months of
      2007.





22


To
      date,
      we have incurred $2,967,000 of project costs related to our development of
      propofol lingual spray, of which $10,000 was incurred in the first three months
      of 2007.




***Altoderm***





In
      April
      2007 we entered into a license agreement with Thornton & Ross LTD, or
      T&R, pursuant to which we acquired exclusive North American rights to a
      dermatology product candidate called Altoderm ***TM*** .
      Altoderm ***TM*** is a
      novel, proprietary formulation of topical cromolyn sodium and is designed to
      enhance the absorption of cromolyn sodium in order to treat atopic dermatitis,
      or “eczema.” This product candidate is currently being tested in a Phase 3
      clinical trial in the United Kingdom. In a previously completed randomized,
      double-blind, placebo-controlled, parallel-group, Phase 3 clinical study in
      the
      United Kingdom the compound was administered for 12 weeks to 114 child subjects
      with moderately severe atopic dermatitis. In the study results, published in
      the
      British Journal of Dermatology in February 2005, Altoderm demonstrated a
      statistically significant reduction in symptoms. During the study, subjects
      were
      permitted to continue with their existing treatment, in most cases this
      consisted of emollients and topical steroids. A positive secondary outcome
      of
      the study was a reduction in the use of topical steroids for the
      Altoderm-treated subjects. See Note 7 - Subsequent Events .





***Altolyn***





In
      addition to the Altoderm ***TM*** license
      agreement, we entered into a separate license agreement with T&R pursuant to
      which we acquired exclusive North American rights to develop and commercialize
      Altolyn ***TM*** .
      Altolyn ***TM*** is a
      proprietary, site specific, tablet formulation of oral cromolyn sodium for
      the
      treatment of mastocytosis. This novel formulation is designed to provide optimal
      availability by preferentially releasing the drug in the upper part of the
      small
      intestine, the purported site of action. In addition to mastocytosis early
      clinical experience in the United Kingdom suggests promising activity in
      patients with various allergic disorders, including inflammatory bowel
      conditions. Oral cromolyn sodium is the active ingredient in Gastrocrom® an oral
      liquid solution that is currently FDA approved for the treatment of
      mastocytosis. See Note 7 - Subsequent Events .





**Off-Balance
      Sheet Arrangements**





We
      have
      not entered into any off-balance sheet arrangements.


23


**Item
      3.  Quantitative and Qualitative Disclosure About Market
      Risk**




Our
      exposure to market risk is confined to our cash and cash equivalents. We have
      attempted to minimize risk by investing in high-quality financial instruments,
      primarily money market funds with no security having an effective duration
      longer than 90 days. If the market interest rate decreases by 100 basis points
      or 1%, the fair value of our cash and cash equivalents portfolio would have
      minimal to no impact on the carrying value of our portfolio. We did not hold
      any
      derivative instruments as of March 31, 2007, and we have never held such
      instruments in the past.





**Item
      4. Controls and Procedures**





**Evaluation
      of Disclosure Controls and Procedures**





As
      of
      March 31, 2007, we carried out an evaluation, under the supervision and with
      the
      participation of our Chief Executive Officer and Chief Financial Officer, of
      the
      effectiveness of the design and operation of our disclosure controls and
      procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities
      Exchange Act of 1934, as amended). Based upon that evaluation, our Chief
      Executive Officer and Chief Financial Officer concluded that our disclosure
      controls and procedures as of that date were effective to ensure that
      information required to be disclosed in the reports we file under the Securities
      and Exchange Act is recorded, processed, summarized and reported on an accurate
      and timely basis.




The
      Company’s management, including its Chief Executive Officer and its Chief
      Financial Officer, does not expect that disclosure controls or internal controls
      over financial reporting will prevent all errors or all instances of fraud,
      even
      as the same are improved to address any deficiencies. The design of any system
      of controls is based in part upon certain assumptions about the likelihood
      of
      future events, and there can be no assurance that any design will succeed in
      achieving its stated goals under all potential future conditions. A control
      system, no matter how well designed and operated, can provide only reasonable,
      not absolute, assurance that the control system’s objectives will be met. Over
      time, controls may become inadequate because of changes in conditions or
      deterioration in the degree of compliance with policies or procedures. Further,
      the design of a control system must reflect the fact that there are resource
      constraints, and the benefits of controls must be considered relative to their
      costs. Because of the inherent limitations in all control systems, no evaluation
      of controls can provide absolute assurance that all control issues and instances
      of fraud, if any, within the Company have been detected.





Because
      of the inherent limitation of a cost-effective control system, misstatements
      due
      to error or fraud may occur and not be detected. These inherent limitations
      include the realities that judgments in decision-making can be faulty, and
      that
      breakdowns can occur because of a simple error or mistake. Controls can also
      be
      circumvented by the individual acts of some persons, by collusion of two or
      more
      people, or by management override of the controls.





**Changes
      in Internal Control**




During
      the quarter ended March 31, 2007, there were no changes in internal controls
      over financial reporting that have materially affected, or are reasonably likely
      to materially affect, our internal controls over financial
      reporting.


24


**PART
      II - OTHER INFORMATION**





**Item
      1A.** **Risk
      Factors**





We
      have
      not had material changes to our risk factor disclosure in our Annual Report
      on
      Form 10-KSB for the year ended December 31, 2006 under the caption “Risk
      Factors” following Item 1 of such report.




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


Exhibit No.
              Description4.1
              Form
                  of warrant issued to investors in March 30, 2007 private placement
                  (incorporated by reference to Exhibit 4.1 of the Company’s Form 8-K filed
                  April 5, 2007).4.2
              Form
                  of warrant issued to placement agent in connection with the March
                  30, 2007
                  private placement (incorporated by reference to Exhibit 4.2 of
                  the
                  Company’s Form 8-K filed April 5, 2007).10.1
              Summary
                  of terms of non-employee director compensation (incorporated by
                  reference
                  to Exhibit 10.1 of the Company’s Form 8-K filed February 5,
                  2007).10.2
              Form
                  of subscription agreement between the Company and investors in
                  the March
                  30, 2007 private placement (incorporated by reference to Exhibit
                  10.1 of
                  the Company’s Form 8-K filed April 5, 2007).31.1
              Certification
                  of Chief Executive Officer31.2
              Certification
                  of Chief Financial Officer32.
              Certifications
                of Chief Executive Officer and Chief Financial Officer pursuant to
                Section
                906 of the Sarbanes-Oxley Act of
                2002.




25


**SIGNATURES**





In
      accordance with the requirements of the Exchange Act of 1934, the registrant
      caused this report to be signed on its behalf by the undersigned, thereunto
      duly
      authorized.




MANHATTAN PHARMACEUTICALS, INC.Date: May 15, 2007
            By:/s/ Douglas Abel

              Douglas
                Abel

              President
                and Chief Executive OfficerDate:
              May 15, 2007
            By:/s/ Michael G. McGuinness

              Michael
                G. McGuinness

              Chief
                Financial Officer




26





**Index
      to Exhibits Filed with this Report**




Exhibit No.
              Description31.1
              Certification
                  of Chief Executive Officer31.2
              Certification
                  of Chief Financial Officer32.
              Certifications
                of Chief Executive Officer and Chief Financial Officer pursuant to
                Section
                906 of the Sarbanes-Oxley Act of
                2002.


27