**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 June 30, 2007





OR





o
            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 o





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 o No
x





As
      of
      August 1, 2007 there were 70,474,232 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
            17Item
                3.
            Quantitative
                and Qualitative Disclosure About Market Risk
            25Item
                4.
            Controls
                and Procedures
            25**PART
                II**
            **OTHER
                INFORMATION**Item
                1A.
            Risk
                Factors
            26Item
                6.
            Exhibits
            26Signatures
            28




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 Securities and Exchange Act of 1934.
      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




**June
                  30,**
              
              **December
                  31,****2007**
              
              **2006**(Unaudited)
              
              (See
                  Note 1)**Assets**Current
                  assets:Cash
                  and cash equivalents
              
              $
              4,790,589
              
              $
              3,029,118Prepaid
                  expenses
              
              
              352,657
              
              
              264,586Total
                  current assets
              
              
              5,143,246
              
              
              3,293,704Property
                  and equipment, net
              
              
              62,904
              
              
              83,743Other
                  assets
              
              
              70,506
              
              
              70,506Total
                  assets
              
              $
              5,276,656
              
              $
              3,447,953**Liabilities
                  and Stockholders’ Equity**Current
                  liabilities:Accounts
                  payable
              
              $
              1,001,849
              
              $
              1,393,296Accrued
                  expenses
              
              
              1,528,406
              
              
              550,029Total
                  liabilities
              
              
              2,530,255
              
              
              1,943,325Commitments
                  and contingenciesStockholders’
                  equity:Preferred
                  stock, $.001 par value. Authorized 1,500,000 shares; no shares
                  issued and
                  outstanding at June 30, 2007 and December 31, 2006
              
              
              —
              
              
              —Common
                  stock, $.001 par value. Authorized 150,000,000 shares; 70,474,232
                  and
                  60,120,038 shares issued and outstanding at June 30, 2007 and December
                  31,
                  2006, respectively
              
              
              70,474
              
              
              60,120Additional
                  paid-in capital
              
              
              53,101,402
              
              
              44,411,326Deficit
                  accumulated during the development stage
              
              
              (50,425,475
              )
              
              (42,966,818
              )Total
                  stockholders’ equity
              
              
              2,746,401
              
              
              1,504,628Total
                  liabilities and stockholders' equity
              
              $
              5,276,656
              
              $
              3,447,953




See
      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 June 30,**
            
            **Six months ended June 30,**
            
            **June
                30,****2007**
            
            **2006**
            
            **2007**
            
            **2006**
            
            **2007**Revenue
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            —Costs
                and expenses:Research
                and development
            
            
            3,871,634
            
            
            1,570,905
            
            
            5,551,082
            
            
            3,257,346
            
            
            23,504,438General
                and administrative
            
            
            1,052,374
            
            
            786,391
            
            
            1,967,098
            
            
            1,597,336
            
            
            12,211,191In-process
                research and development charge
            
            
            -
            
            
            —
            
            
            —
            
            
            —
            
            
            11,887,807Impairment
                of intangible assets
            
            
            -
            
            
            —
            
            
            —
            
            
            —
            
            
            1,248,230Loss
                on disposition of intangible assets
            
            
            -
            
            
            —
            
            
            —
            
            
            —
            
            
            1,213,878Total
                operating expenses
            
            
            4,924,008
            
            
            2,357,296
            
            
            7,518,180
            
            
            4,854,682
            
            
            50,065,544Operating
                loss
            
            
            (4,924,008
            )
            
            (2,357,296
            )
            
            (7,518,180
            )
            
            (4,854,682
            )
            
            (50,065,544
            )Other
                (income) expense:Interest
                and other income
            
            
            (29,608
            )
            
            (86,483
            )
            
            (59,998
            )
            
            (185,189
            )
            
            (769,714
            )Interest
                expense
            
            
            -
            
            
            238
            
            
            475
            
            
            238
            
            
            26,033Realized
                gain on sale of marketable equity securities
            
            
            -
            
            
            —
            
            
            —
            
            
            (490
            )
            
            (76,032
            )Total
                other income
            
            
            (29,608
            )
            
            (86,245
            )
            
            (59,523
            )
            
            (185,441
            )
            
            (819,713
            )Net
                loss
            
            
            (4,894,400
            )
            
            (2,271,051
            )
            
            (7,458,657
            )
            
            (4,669,241
            )
            
            (49,245,831
            )Preferred
                stock dividends (including imputed amounts)
            
            
            -
            
            
            —
            
            
            —
            
            
            —
            
            
            (1,179,644
            )Net
                loss applicable to common shares
            
            $
            (4,894,400
            )
            $
            (2,271,051
            )
            $
            (7,458,657
            )
            $
            (4,669,241
            )
            $
            (50,425,475
            )Net
                loss per common share:Basic
                and diluted
            
            $
            (0.07
            )
            $
            (0.04
            )
            $
            (0.11
            )
            $
            (0.08
            )Weighted
                average shares of common stock outstanding:Basic
                and diluted
            
            
            70,463,543
            
            
            60,116,174
            
            
            65,377,865
            
            
            60,104,500




See
      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 for subscription
                    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 unrealizedloss
                  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 ofaccounts
                  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
            
            
            7,843,967
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            7,854,153Common
                  stock issued to directors at $0.72 per share in satisfaction ofaccounts
                  payable
            
            
            —
            
            
            —
            
            
            27,776
            
            
            28
            
            
            19,972
            
            
            
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            20,000Common
                  stock issued in connection with in-licensing agreementat
                  $0.90 per share
            
            
            —
            
            
            —
            
            
            125,000
            
            
            125
            
            
            112,375
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            112,500Share-based
                compensation
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            706,549
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            706,549Exercise
                of warrants
            
            
            —
            
            
            —
            
            
            10,327
            
            
            15
            
            
            7,219
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            7,234Cashless
                exercise of warrants
            
            
            —
            
            
            —
            
            
            5,589
            
            
            —
            
            
            (6
            )
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (6
            )Net
                loss
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            -
            
            
            —
            
            
            (7,458,657
            )
            
            —
            
            
            —
            
            
            —
            
            
            (7,458,657
            )Balance
                at June 30, 2007
            
            
            —
            
            $
            —
            
            
            70,474,232
            
            $
            70,474
            
            $
            53,101,402
            
            $
            —
            
            $
            (50,425,475
            )
            $
            —
            
            $
            —
            
            $
            —
            
            $
            2,746,401




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****Six
                  months ended June 30,**
              
              **June
                  30,****2007**
              
              **2006**
              
              **2007**Cash
                  flows from operating activities:Net
                  loss
              
              $
              (7,458,657
              )
              $
              (4,669,241
              )
              $
              (49,245,831
              )Adjustments
                    to reconcile net loss to net cash used in operating
                    activities:Share-based
                  compensation
              
              
              706,549
              
              
              619,128
              
              
              2,630,576Shares
                  issued in connection with in-licensing agreement
              
              
              112,500
              
              
              —
              
              
              112,500Amortization
                  of intangible assets
              
              
              —
              
              
              —
              
              
              145,162Gain
                  on sale of marketable equity securities
              
              
              —
              
              
              (490
              )
              
              (76,032
              )Depreciation
              
              
              29,974
              
              
              29,484
              
              
              177,454Non
                  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
                  in prepaid expenses and other current assets
              
              
              (88,071
              )
              
              (780,863
              )
              
              (294,412
              )Increase
                  in other assets
              
              
              —
              
              
              —
              
              
              (70,506
              )Increase/(decrease)
                  in accounts payable
              
              
              (371,447
              )
              
              345,243
              
              
              1,422,063Increase
                  in accrued expenses
              
              
              978,377
              
              
              203,778
              
              
              988,085Net
                  cash used in operating activities
              
              
              (6,090,775
              )
              
              (4,252,961
              )
              
              (30,021,620
              )Cash
                  flows from investing activities:Purchase
                  of property and equipment
              
              
              (9,135
              )
              
              (12,832
              )
              
              (230,636
              )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
              
              
              (9,135
              )
              
              487,168
              
              
              379,272Cash
                  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
              
              
              7,854,153
              
              
              (15,256
              )
              
              25,898,230Proceeds
                  from sale of preferred stock, net
              
              
              —
              
              
              —
              
              
              9,046,176Proceeds
                  from exercise of warrants and stock options
              
              
              7,228
              
              
              —
              
              
              138,219Other,
                  net
              
              
              —
              
              
              —
              
              
              237,500Net
                  cash (used in) provided by financing activities
              
              
              7,861,381
              
              
              (15,256
              )
              
              34,432,937Net
                  (decrease) increase in cash and cash equivalents
              
              
              1,761,471
              
              
              (3,781,049
              )
              
              4,790,589Cash
                  and cash equivalents at beginning of period
              
              
              3,029,118
              
              
              9,826,336
              
              
              —Cash
                  and cash equivalents at end of period
              
              $
              4,790,589
              
              $
              6,045,287
              
              $
              4,790,589Supplemental
                  disclosure of cash flow information:Interest
                  paid
              
              $
              475
              
              $
              238
              
              $
              26,033Supplemental
                  disclosure of noncash investing and financing activities:Common
                  stock issued in satisfaction of accounts 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
              
              
              —
              
              
              —
              
              
              13,389,226Issuance
                  of common stock in connection with in-licensing agreement
              
              
              112,500
              
              
              —
              
              
              112,500Marketable
                    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
              
              
              6
              
              
              27
              
              
              33
  See
        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 and six month periods ended June 30, 2007.
 
 As
        of
        June 30, 2007, the Company has not generated any revenues from its operations
        and is considered to be a development stage company.
 
 ***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
        January 1, 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.
 
 8
  MANHATTAN
          PHARMACEUTICALS, INC. and SUBSIDIARIES
 (A
          Development Stage Company)
 
 NOTES
          TO
          CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 ***New
        Accounting Pronouncements***
 
 In
        March
        2007, the FASB issued FASB Staff Position EITF 07-03 (“FSP 07-03”), Accounting
        for Nonrefundable Advance Payments for Goods or Services to Be Used in Future
        Research and Development Activities. FSP 07-03 addresses whether nonrefundable
        advance payments for goods or services that will be used or rendered for
        research and development activities should be expensed when the advance payment
        is made or when the research and development activity has been performed.
        FSP
        07-03 will be effective for fiscal years beginning after December 15, 2007,
        and interim periods within those fiscal years. The Company currently believes
        that the adoption of FSP 07-03 will have no material impact on its financial
        position or results of operations.
  **(2)**
              **LIQUIDITY**
 
 The
        Company incurred a net loss of $7,458,657 and negative cash flows from operating
        activities of $6,090,775 for the six months ended June 30, 2007. The net
        loss
        from date of inception, August 6, 2001 to June 30, 2007 amounts to
        $49,245,831.
 
 Management
        believes that the Company will continue to incur net losses through at least
        June 30, 2008, and for the foreseeable future thereafter. Based on the resources
        of the Company available at June 30, 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 18,634,521 and 13,142,729 as of June 30, 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 and six month periods ending June 30, 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. The Company recognized share-based
        compensation cost of $371,339 and $307,216, for the three month periods ended
        June 30, 2007 and 2006 respectively, and $706,549 and $619,128 for the six
        month
        periods ended June 30, 2007 and 2006, respectively in accordance with Statement
        123(R). 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 June 30, 2007 and 2006, net of
        amortization, the Company recognized general and administrative and research
        and
        development expenses of $185 and $3,556, respectively for the three-and six
        months ended June 30, 2007 and $(50,292) and $(26,321) for the three and
        six
        months ended June 30, 2006.
  The
        Company has allocated share-based compensation costs to general and
        administrative and research and development expenses as follows:
  10
  MANHATTAN
          PHARMACEUTICALS, INC. and SUBSIDIARIES
 (A
          Development Stage Company)
 
 NOTES
          TO
          CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 **Three months ended June 30,**
              
              **Six months ended June 30,****2007**
              
              **2006**
              
              **2007**
              
              **2006**General
                  and administrative expense:Share-based
                  employee compensation cost
              
              $
              249,623
              
              $
              252,361
              
              $
              471,544
              
              $
              444,977Share-based
                  consultant and non-employee (credit) cost
              
              
              —
              
              
              (28,450
              )
              
              10,550
              
              
              (22,861
              )$
              249,623
              
              $
              223,911
              
              $
              482,094
              
              $
              422,116Research
                  and development expenseShare-based
                  employee compensation cost
              
              $
              121,531
              
              $
              105,147
              
              $
              231,449
              
              $
              200,472Share-based
                  consultant and non-employee (credit) cost
              
              
              185
              
              
              (21,842
              )
              
              (6,994
              )
              
              (3,460
              )$
              121,716
              
              $
              83,305
              
              $
              224,455
              
              $
              197,012Total
                  share-based cost
              
              $
              371,339
              
              $
              307,216
              
              $
              706,549
              
              $
              619,128
  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. The Company increased the number
        of
        shares of common stock reserved for issuance under the 2003 Plan in August
        2005
        by 2,000,000 shares and in May 2007 by 3,000,000 shares. At June 30, 2007,
        10,400,000 shares were authorized for issuance. Under the 2003 Plan at June
        30,
        2007 options to purchase 7,096,598 shares were outstanding and 27,776 shares
        of
        common stock have been issued leaving a total of 3,275,626 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 three
        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 1,342,500
        shares of common stock during the six months ended June 30, 2007 of which
        options to purchase 300,000 and 97,500 shares of common stock were granted
        at an
        exercise price of $0.72 per share to directors and employees, respectively,
        options to purchase 75,000 shares of common stock were granted to an employee
        at
        an exercise price of $0.82 per share, and options to purchase 870,000 shares
        of
        common stock were granted to officers at an exercise price of $0.95 per share.
        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 June 30, 2007, options to purchase 1,137,240 shares
        were
        outstanding under the 1995 Plan and no shares were reserved for future stock
        option grants.
  11
  MANHATTAN
            PHARMACEUTICALS, INC. and SUBSIDIARIES
 (A
            Development Stage Company)
 
 NOTES
            TO
            CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
  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.
 
 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 June 30,**
                
                **Six
                    months ended June 30,****2007**
                
                **2006**
                
                **2007**
                
                **2006**Expected
                    Volatility
                
                
                79.7
                    - 93.2
                %
                
                55
                %
                
                79.7
                    - 93.2
                %
                
                55
                %Dividend
                    yield
                
                
                —
                
                
                —
                
                
                —
                
                
                —Expected
                    term (in years)
                
                
                6
                    - 8
                
                
                4
                
                
                6
                    - 8
                
                
                4Risk-free
                    interest rate
                
                
                4.56%
                    - 4.96
                %
                
                4.88
                %
                
                4.56%
                    - 4.96
                %
                
                4.88
                %
  12
  MANHATTAN
            PHARMACEUTICALS, INC. and SUBSIDIARIES
 (A
            Development Stage Company)
 
 NOTES
            TO
            CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 A
          summary
          of the status of the Company’s outstanding stock options as of June 30, 2007 and
          changes during the six months then ended is presented below:
  **Shares**
                
                **Weighted**
                  **average**
                  **exercise**
                  **price**
                
                **Weighted
                    Average Remaining Contractual**
                  **Term
                    (years)**
                
                **Aggregate**
                  **Intrinsic**
                  **Value**Outstanding
                    atDecember
                    31, 2006
                
                
                7,000,504
                
                $
                1.31GrantedOfficers
                
                
                870,000Directors
                
                
                300,000Employees
                
                
                172,500Total
                    Granted
                
                
                1,342,500
                
                
                0.88Exercised
                
                
                -
                
                
                -Cancelled
                
                
                (109,166
                )
                
                0.95Outstanding
                    atJune
                    30, 2007
                
                
                8,233,838
                
                $
                1.25
                
                
                7.43
                
                $
                387,171Options
                    exercisable atJune
                    30, 2007
                
                
                5,102,546
                
                $
                1.30
                
                
                6.95
                
                $
                341,821Weighted-averagefair
                    value of optionsgranted
                    during thesix
                    months endedJune
                    30, 2007
                
                $
                0.63
 
  As
          of
          June 30, 2007, the total compensation cost related to non-vested option
          awards
          not yet recognized is $1,419,413. The weighted average period over which
          it is
          expected to be recognized is approximately 1.2 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.
 
 13
 MANHATTAN
            PHARMACEUTICALS, INC. and SUBSIDIARIES
 (A
            Development Stage Company)
 
 NOTES
            TO
            CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
  **(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.
 
 Expenses
          associated with the recently concluded clinical trials of
          Oleoyl-estrone  in
          common
          obesity and morbid obesity were recognized on this activity-based basis.
          At June
          30, 2007 we recognized prepaid expense of $9,000 and accrued expenses of
          $267,000 related to these clinical trials. The remaining financial commitments
          for these clinical trials are negligible.
 
 
 **(6)**
                **RECENTLY
                    COMPLETED IN-LICENSING
                    TRANSACTIONS**
  ***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. These amounts have been included in research and development
          as
          fees associated with the in-licensing 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.
  ***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. This amount is included in research and
          development as a fee associated with the in-licensing 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%
          of the royalties received by the Company under such sublicense agreements.
  14
  MANHATTAN
            PHARMACEUTICALS, INC. and SUBSIDIARIES
 (A
            Development Stage Company)
 
 NOTES
            TO
            CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
  ***Hedrin
            License Agreement***
 On
          June
          26, 2007, the Company entered into an exclusive license agreement for “Hedrin”
(the “Hedrin Agreement”) with T&R and Kerris, S.A. (“Kerris”). Pursuant to
          the Hedrin Agreement, the Company has acquired an exclusive North American
          license to certain patent rights and other intellectual property relating
          to
          Hedrin(TM), a non-insecticide product candidate for the treatment of head
          lice.
          In addition, on June 26, 2007, the Company entered into a Supply Agreement
          with
          T&R pursuant to which T&R will be the Company’s exclusive supplier of
          Hedrin product.
 
 In
          consideration for the license, the Company agreed to issue to T&R and Kerris
          (jointly, the “Licensor”) a combined total of 150,000 shares of its common stock
          upon the execution of the Hedrin Agreement, which were issued in August
          2007. In
          addition, the Company also agreed to make a cash payment of $600,000 to
          the
          Licensor no later than July 3, 2007. These amounts have been accrued and
          included in research and development as fees associated with the in-licensing
          agreement. Further, the Company agreed to make future milestone payments
          to the
          Licensor in the aggregate amount of $2,500,000 upon the achievement of
          various
          clinical, regulatory, and patent issuance milestones, as well as up to
          $2,500,000 in a one-time success fee based on aggregate sales of the product
          by
          the Company and its licensees of at least $50,000,000. The Company also
          agreed
          to pay royalties of 8% (or, under certain circumstances, 4%) on net sales
          of
          licensed products. On a country-by-country basis, in the event there are
          no
          patent issues covering the Hedrin product, the obligation to pay royalties
          ends
          10 years from the date of first commercial sale. The Company’s exclusivity under
          the License Agreement is subject to an annual minimum royalty payment of
          $1,000,000 (or, under certain circumstances, $500,000) in each of the third
          through seventh years following the first commercial sale of Hedrin. The
          Company
          may sublicense its rights under the Hedrin Agreement with the consent of
          Licensor and the proceeds resulting from such sublicenses will be shared
          with
          the Licensor.
 
 Pursuant
          to the Supply Agreement, the Company has agreed that it and its sublicensees
          will purchase their respective requirements of the Hedrin product from
          T&R
          at agreed upon prices. Under certain circumstances where T&R is unable to
          supply Hedrin products in accordance with the terms and conditions of the
          Supply
          Agreement, the Company may obtain products from an alternative supplier
          subject
          to certain conditions. The term of the Supply Agreement ends upon termination
          of
          the Hedrin Agreement.
 
 15
  MANHATTAN
            PHARMACEUTICALS, INC. and SUBSIDIARIES
 (A
            Development Stage Company)
 
 NOTES
            TO
            CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
  **(7)**
                **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.
 
 Pursuant
          to these subscription agreements the Company filed 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 May 9, 2007, which
          was
          declared effective by the Securities and Exchange Commission on May 18,
          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.
 
 **(8)**
                **SUBSEQUENT
                    EVENTS**
 
 ***Oleoyl-estrone –
          results of Phase 2a studies***
 
 On
          July
          9, 2007 the Company announced the results of its two Phase 2a clinical
          trials of
          oral Oleoyl-estrone (“OE”). The results of both randomized, double-blind,
          placebo controlled studies, one in common obesity and the other in morbid
          obesity, demonstrated no statistically or clinically meaningful placebo
          adjusted
          weight loss for any of the treatment arms evaluated. Based on these results,
          the
          Company is discontinuing its Oleoyl-estrone programs in both common obesity
          and
          morbid obesity.
 
 ***Propofol
          Lingual Spray***
 
 On
          July
          9, 2007 the Company announced that it is discontinuing development and
          intends
          to pursue appropriate out-licensing opportunities for Propofol Lingual
          Spray for
          pre-procedural sedation.
  16
  **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 and six month periods ended June 30, 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 four product candidates in
            development:
 ·
                  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
                      Hedrin, a novel, non-insecticide treatment for head
                      lice.
 We
            have
            not received regulatory approval for, or generated commercial revenues
            from
            marketing or selling any drugs.
 We
            have
            recently announced that we are discontinuing development of two product
            candidates, oral OE and Propofol Lingual Spray.
 
 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. You 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 Annual Report, and
            should not unduly rely on these forward looking statements.
  17
  RESULTS
            OF OPERATIONS
  SIX-MONTH
            PERIOD ENDED JUNE 30, 2007 VS 2006
  **Six monthperiod endedJune 30, 2007**
                  
                  **Six monthperiod endedJune 30, 2006**
                  
                  **Increase(decrease)**
                  
                  **% Increase(decrease)****Costs
                      and expenses*****Research
                      and development***Stock
                      based compensation
                  
                  $
                  224,000
                  
                  $
                  197,000
                  
                  $
                  27,000
                  
                  
                  13.7
                  %In-license
                      and related fees
                  
                  $
                  1,803,000
                  
                  $
                  250,000
                  
                  $
                  1,553,000
                  
                  
                  621.2
                  %Other
                      research and development expense
                  
                  $
                  3,524,000
                  
                  $
                  2,810,000
                  
                  $
                  714,000
                  
                  
                  25.4
                  %Total
                      research and development expense
                  
                  $
                  5,551,000
                  
                  $
                  3,257,000
                  
                  $
                  2,294,000
                  
                  
                  70.4
                  %***General
                      and administrative***Stock
                      based compensation
                  
                  $
                  482,000
                  
                  $
                  422,000
                  
                  $
                  60,0000
                  
                  
                  14.2
                  %Other
                      general and administrative expense
                  
                  $
                  1,485,000
                  
                  $
                  1,175,000
                  
                  $
                  310,000
                  
                  
                  26.4
                  %Total
                      general and administrative expense
                  
                  $
                  1,967,000
                  
                  $
                  1,597,000
                  
                  $
                  370,000
                  
                  
                  23.2
                  %**Other
                      income**
                  
                  $
                  60,000
                  
                  $
                  185,000
                  
                  $
                  (125,000
                  )
                  
                  (67.6
                  )%**Net
                      loss**
                  
                  $
                  7,458,000
                  
                  $
                  4,669,000
                  
                  $
                  2,789,000
                  
                  
                  59.7
                  %
  During
            each of the six months ended June 30, 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 June 30, 2008, if at all.
 
 For
            the
            six months ended June 30, 2007 total research and development expense
            was
            $5,551,000 as compared to $3,257,000 for the six months ended June 30,
            2006. The
            increase of $2,294,000, or 70.4% is primarily comprised of an increase
            of
            $1,553,000 in in-license and associated fees, an increase of $740,000
            in
            clinical activities of Oleoyl-estrone and an increase in development
            costs for
            Altoderm, Altolyn and Hedrin of $251,000, partially offset by decreases
            in
            development costs for PTH of $253,000 and for Propofol of $25,000 .
  For
            the
            six months ended June 30, 2007, total general and administrative expense
            was
            $1,967,000 as compared to $1,597,000 for the six months ended June 30,
            2006. The
            increase of $370,000, or 23.2%, is primarily due to increases of $60,000
            in
            stock based compensation, of $107,000 in spending on business development
            activities, of $82,000 in payroll and related costs, of $63,000 in director
            compensation costs, of $35,000 in insurance costs and of $30,000 in office
            expenses.
 
 For
            the
            six months ended June 30, 2007, other income was $60,000 as compared
            to $185,000
            for the six months ended June 30, 2006. The decrease of $125,000, or
            67.6%, is
            due primarily to a decrease in interest income which resulted from lower
            average
            balances in interest bearing cash and short-term investment
            accounts.
 
 Net
            loss
            for the six months ended June 30, 2007, was $7,458,000 as compared to
            $4,669,000
            for the six months ended June 30, 2006. The increase of $2,789,000, or
            59.7%, in
            net loss is attributable to an increase in research and development expense
            of
            $2,294,000, an increase in general and administrative expense of $370,000
            and a
            decrease in other income of $125,000.
 
 18
  THREE-MONTH
            PERIOD ENDED JUNE 30, 2007 VS 2006
  **Quarterended June30, 2007**
                  
                  **Quarterended June30, 2006**
                  
                  **Increase(decrease)**
                  
                  **% Increase(decrease)****Costs
                      and expenses*****Research
                      and development***Stock
                      based compensation
                  
                  $
                  122,000
                  
                  $
                  83,000
                  
                  $
                  39,000
                  
                  
                  47.0
                  %In-license
                      and related fees
                  
                  $
                  1,803,000
                  
                  $
                  250,000
                  
                  $
                  1,553,000
                  
                  
                  621.2
                  %Other
                      research and development expense
                  
                  $
                  1,947,000
                  
                  $
                  1,238,000
                  
                  $
                  709,000
                  
                  
                  57.3
                  %Total
                      research and development expense
                  
                  $
                  3,872,000
                  
                  $
                  1,571,000
                  
                  $
                  2,301,000
                  
                  
                  146.5
                  %***General
                      and administrative***Stock
                      based compensation
                  
                  $
                  250,000
                  
                  $
                  224,000
                  
                  $
                  26,000
                  
                  
                  11.6
                  %Other
                      general and administrative expense
                  
                  $
                  802,000
                  
                  $
                  562,000
                  
                  $
                  240,000
                  
                  
                  42.7
                  %Total
                      general and administrative expense
                  
                  $
                  1,052,000
                  
                  $
                  786,000
                  
                  $
                  266,000
                  
                  
                  33.8
                  %**Other
                      income**
                  
                  $
                  30,000
                  
                  $
                  86,000
                  
                  $
                  (56,000
                  )
                  
                  (65.1
                  )%**Net
                      loss**
                  
                  $
                  4,894,000
                  
                  $
                  2,271,000
                  
                  $
                  2,623,000
                  
                  
                  115.5
                  %
  During
            each of the quarters ended June 30, 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 June 30, 2008, if at all.
 
 For
            the
            quarter ended June 30, 2007 total research and development expense was
            $3,872,000 as compared to $1,571,000 for the quarter ended June 30, 2006.
            The
            increase of $2,301,000, or 146.5%, is primarily attributable to a $1,553,000
            increase in in-license and associated fees, an increase of $174,000 in
            clinical
            activities of Oleoyl-estrone, an increase of $318,000 in development
            costs for
            PTH and an increase in development costs for Altoderm, Altolyn and Hedrin
            of
            $251,000, partially offset by a decreases in development costs for Propofol
            of
            $20,000.
 
 For
            the
            three months ended June 30, 2007, total general and administrative expense
            was
            $1,052,000 as compared to $786,000 for the three months ended June 30,
            2006. The
            increase of $266,000, or 33.8%, is primarily due to increases of $26,000
            in
            stock based compensation, of $63,000 in spending on business development
            activities, of $33,000 in payroll and related costs, of $36,000 in director
            compensation costs, of $26,000 in insurance costs, of $42,000 in professional
            fees and of $22,000 in investor relations costs.
  For
            the
            three months ended June 30, 2007, other income was $30,000 as compared
            to
            $86,000 for the three months ended June 30, 2006. The decrease of $56,000,
            or
            65.1%, is due primarily to a decrease in interest income which resulted
            from
            lower average balances in interest bearing cash and short-term investment
            accounts.
 
 Net
            loss
            for the three months ended June 30, 2007, was $4,894,000 as compared
            to
            $2,271,000 for the three months ended June 30, 2006. The increase of
            $2,623,000,
            or 115.5%, in net loss is attributable to an increase in research and
            development expense of $2,301,000, an increase in general and administrative
            expense of $266,000 and a decrease in other income of $56,000.
  19
  LIQUIDITY
            AND CAPITAL RESOURCES
  From
            inception to June 30, 2007, we incurred a deficit during the development
            stage
            of $50.4 million primarily as a result of our net losses and preferred
            stock
            dividends. We expect to continue to incur additional losses through at
            least
            June 30, 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
            six months
            ended June 30, 2007, we had a net increase in cash and cash equivalents
            of $1.8
            million. This increase resulted largely from net proceeds related to
            the sale of
            common stock of $7.9 million partially offset by net cash used in operating
            activities of $6.1 million. Total liquid resources as of June 30, 2007
            were $4.8
            million compared to $3.0 million at December 31, 2006.
 
 *Liquidity*
 As
            of
            June 30, 2007, we had working capital of $2.6 million compared to $1.4
            million
            at December 31, 2006. This $1.2 million increase in working capital is
            primarily
            due to net proceeds related to the sale of common stock of approximately
            $7.9
            million offset by net cash used in operating activities of $6.1 million
            during
            the six months ended June 30, 2007 and an increase in accounts payable
            and
            accrued expenses of $0.6 million.
 
 *March
            2007 Private Placement*
 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 $7.9 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 filed 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 May 9, 2007,
            which was
            declared effective by the Securities and Exchange Commission on May 18,
            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.
  *Commitments*
 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.
  20
  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.
 
 Expenses
            associated with the recently concluded clinical trials in common obesity
            and
            morbid obesity were recognized on this activity based basis. At June
            30, 2007 we
            recognized prepaid expense of $9,000 and accrued expenses of $267,000
            related to
            these clinical trials. The remaining financial commitments for these
            clinical
            trials are negligible.
 
 *Capital
            Resources*
 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
            June 30, 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 June 30, 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 our 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.
  21
  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.
 
 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.
 
 ***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 .
  22
  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 $3,676,000 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, $961,000 of which was incurred in
            the first
            six 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.
 
 To
            date,
            we have incurred $681,000 of project costs related to our development
            of
            Altoderm, all of which was incurred in the first six months of 2007.
 
 ***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.
 
 To
            date,
            we have incurred $526,000 of project costs related to our development
            of
            Altolyn, all of which was incurred in the first six months of 2007.
 
 ***Hedrin***
 
 In
            June
            2007, we entered into an exclusive license agreement for Hedrin with
            T&R and
            Kerris, S.A. (“Kerris”). We previously entered into exclusive license agreements
            with T&R with respect to two other products, Altoderm and Altolyn, with
            respect to rights in North America. We acquired an exclusive North American
            license to certain patent rights and other intellectual property relating
            to
            Hedrin(TM), a non-insecticide product candidate for the treatment of
            head lice.
            In addition, and at the same time, we also entered into a Supply Agreement
            with
            T&R pursuant to which T&R will be the Company’s exclusive supplier of
            Hedrin product.
  23
  To
            date,
            we have incurred $872,000 of project costs related to our development
            of Hedrin,
            all of which was incurred in the first six months of 2007.
 
 ***Oleoyl-estrone***
 
 On
            July
            9, 2007 we announced the results of our two Phase 2a clinical trials
            of oral
            Oleoyl-estrone. The results of both randomized, double-blind, placebo
            controlled
            studies, one in common obesity and the other in morbid obesity, demonstrated
            no
            statistically or clinically meaningful placebo adjusted weight loss for
            any of
            the treatment arms evaluated. Based on these results, we will discontinue
            our
            Oleoyl-estrone programs in both common obesity and morbid obesity.
 
 To
            date,
            we have incurred $14,784,000 of project costs related to our development
            of
            Oleoyl-estrone, including milestone payments triggered under our license
            agreement for Oleoyl-estrone, of which $2,499,000 was incurred in the
            first six
            months of 2007.
 
 ***Lingual
            spray propofol***
 
 On
            July
            9, 2007 we announced that we will discontinue development and we intend
            to
            pursue appropriate out-licensing opportunities for Propofol Lingual Spray
            for
            pre-procedural sedation.
 
 To
            date,
            we have incurred $2,966,000 of project costs related to our development
            of
            propofol lingual spray, of which $12,000 was incurred in the first six
            months of
            2007.
 
 **Off-Balance
            Sheet Arrangements**
 
 We
            have
            not entered into any off-balance sheet arrangements.
 
 **New
            Accounting Pronouncements**
 
 In
            March
            2007, the FASB issued FASB Staff Position EITF 07-03 (“FSP 07-03”), Accounting
            for Nonrefundable Advance Payments for Goods or Services to Be Used in
            Future
            Research and Development Activities. FSP 07-03 addresses whether nonrefundable
            advance payments for goods or services that will be used or rendered
            for
            research and development activities should be expensed when the advance
            payment
            is made or when the research and development activity has been performed.
            FSP
            07-03 will be effective for fiscal years beginning after December 15, 2007,
            and interim periods within those fiscal years. We currently believe that
            the
            adoption of FSP 07-03 will have no material impact on our financial position
            or
            results of operations.
  24
  **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 June 30, 2007, and we have never held such
            instruments in the past.
 
 **Item
            4. Controls and Procedures**
 
 **Evaluation
            of Disclosure Controls and Procedures**
 
 As
            of
            June 30, 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 June 30, 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.
  25
  **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
            4. Submission of matters to a vote of security holders.**
  We
            held
            our Annual Meeting of Stockholders at the American Stock Exchange, 86
            Trinity
            Place, New York, New York on May 24, 2007. The stockholders took the
            following
            actions:
  (i)    The
            stockholders elected seven directors to serve until the next Annual Meeting
            of
            Stockholders. The stockholders present in person or by proxy cast the
            following
            numbers of votes in connection with the election of directors, resulting
            in the
            election of all nominees:
  **Nominee**
                  
                  **Votes For**
                  
                  **Votes Withheld**Douglas
                      Abel
                  
                  
                  35,536,892
                  
                  
                  65,132Neil
                      Herskowitz
                  
                  
                  35,376,093
                  
                  
                  225,931Malcolm
                      Hoenlein
                  
                  
                  35,518,495
                  
                  
                  83,529Timothy
                      McInerney
                  
                  
                  35,538,692
                  
                  
                  63,332Joan
                      Pons Gimbert
                  
                  
                  35,154,378
                  
                  
                  447,646Richard
                      I. Steinhart
                  
                  
                  35,529,736
                  
                  
                  72,288Michael
                      Weiser
                  
                  
                  34,493,245
                  
                  
                  1,108,779
 
 (ii) 
              The stockholders ratified the amendment to our 2003 Stock Option
            Plan increasing the number of shares available for issuance thereunder
            from
            7,400,000 to 10,400,000. 34,440,971 votes were cast for the proposal;
            1,107,853
            votes were cast against the proposal, shares representing 53,200 votes
            abstained; and there were no broker non-votes.
 
 (iii) 
              The stockholders ratified the appointment of J.H. Cohn LLP as our
            independent registered public accounting firm for fiscal 2007. 35,519,099
            votes
            were cast for the proposal; 8,205 votes were cast against the proposal,
            shares
            representing 74,720 votes abstained; and there were no broker
            non-votes.
 
 
 **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).
  26
  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).10.3
                  
                  Exclusive
                      License Agreement for “Altoderm” between Thornton & Ross Ltd. and
                      Manhattan Pharmaceuticals, Inc. dated April 3, 2007.10.4
                  
                  Exclusive
                      License Agreement for “Altolyn” between Thornton & Ross Ltd. and
                      Manhattan Pharmaceuticals, Inc. dated April 3, 2007.10.5
                  
                  Exclusive
                      License Agreement for “Hedrin” between Thornton & Ross Ltd., Kerris,
                      S.A. and Manhattan Pharmaceuticals, Inc. dated June 26,
                      2007.10.6
                  
                  Supply
                      Agreement for “Hedrin” between Thornton & Ross Ltd. and Manhattan
                      Pharmaceuticals, Inc. dated June 26, 2007.31.1
                  
                  Certification
                      of Chief Executive Officer31.2
                  
                  Certification
                      of Chief Financial Officer32.1
                  
                  Certifications
                      of Chief Executive Officer and Chief Financial Officer pursuant
                      to Section
                      906 of the Sarbanes-Oxley Act of 2002.
  27
  **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: August
                    14, 2007
                  By:
                  /s/ Douglas
                    AbelDouglas
                    AbelPresident
                    and
                    Chief Executive Officer
 Date: August
                    14, 2007
                  By:
                  /s/ Michael
                    G. McGuinnessMichael
                    G. McGuinnessChief
                    Financial Officer
  28
  **Index
            to Exhibits Filed with this Report**
 
 Exhibit
                      No.
                  
                  Description10.3
                  
                  Exclusive
                    License
                    Agreement for “Altoderm” between Thornton & Ross Ltd. and Manhattan
                    Pharmaceuticals, Inc. dated April 3, 2007.10.4
                  
                  Exclusive
                    License
                    Agreement for “Altolyn” between Thornton & Ross Ltd. and Manhattan
                    Pharmaceuticals, Inc. dated April 3, 2007.10.5
                  
                  Exclusive
                    License
                    Agreement for “Hedrin” between Thornton & Ross Ltd., Kerris, S.A. and
                    Manhattan Pharmaceuticals, Inc. dated June 26, 2007.10.6
                  
                  Supply
                    Agreement for
                    “Hedrin” between Thornton & Ross Ltd. and Manhattan Pharmaceuticals,
                    Inc. dated June 26, 2007.31.1
                  
                  Certification
                      of Chief Executive Officer31.2
                  
                  Certification
                      of Chief Financial Officer32.1
                  
                  Certifications
                      of Chief Executive Officer and Chief Financial Officer pursuant
                      to Section
                      906 of the Sarbanes-Oxley Act of
                      2002.
  29