| x | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|---|-----------------------------------------------------------------------------------|

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

| Delaware(State or other jurisdiction ofincorporation or organization) | 36-3898269(I.R.S. Employer Identification No.) |
|-----------------------------------------------------------------------|------------------------------------------------|

| Large accelerated filer       ̈ | Accelerated filer       ̈ | Non-accelerated filer       ̈ | Smaller reporting company  x |
|----------------------------------------------------|----------------------------------------------|--------------------------------------------------|-----------------------------------|

----

|     |                                                                                        | Page   |
|----------|---------------------------------------------------------------------------------------------|--------|
|     |                                                                                        |   |
| PART I   | FINANCIAL INFORMATION                                                                       |   |
|     |                                                                                        |   |
| Item 1.  | Financial Statements:                                                                       |   |
|     |                                                                                        |   |
|     | Unaudited Condensed Consolidated Balance Sheets                                             | 4      |
|     |                                                                                        |   |
|     | Unaudited Condensed Consolidated Statements of Operations                                   | 5      |
|     |                                                                                        |   |
|     | Unaudited Condensed Consolidated Statements of Stockholders’ Equity (Deficiency)      | 6      |
|     |                                                                                        |   |
|     | Unaudited Condensed Consolidated Statements of Cash Flows                                   | 8      |
|     |                                                                                        |   |
|     | Notes to Unaudited Condensed Consolidated Financial Statements                              | 10     |
|     |                                                                                        |   |
| Item 2.  | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 25     |
|     |                                                                                        |   |
| Item 3.  | Quantitative and Qualitative Disclosure About Market Risk                                   | 34     |
|     |                                                                                        |   |
| Item 4.  | Controls and Procedures                                                                     | 34     |
|     |                                                                                        |   |
| PART II  | OTHER INFORMATION                                                                           |   |
|     |                                                                                        |   |
| Item 1.  | Legal Proceedings                                                                           | 35     |
|     |                                                                                        |   |
| Item 1A. | Risk Factors                                                                                | 35     |
|     |                                                                                        |   |
| Item 6.  | Exhibits                                                                                    | 35     |
|     |                                                                                        |   |
|     | Signatures                                                                                  | 36     |

----

|   | · | 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. |
|--------|--------|------------------------------------|

----

|                                                                                                                                                                                         |   | March 31, |        |   | December 31, |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------|-------------|--------|-------------------|--------|
|                                                                                                                                                                                         |   | 2011           |        |   | 2010              |   |
|                                                                                                                                                                                         |   | (unaudited)    |        |   | (See Note 1)      |   |
| Assets                                                                                                                                                                                       |   |           |        |   |              |   |
| Current assets:                                                                                                                                                                              |   |           |        |   |              |   |
| Cash and cash equivalents                                                                                                                                                                    |   | $              | 591,316     |   |              | $      | 478,668 |   |
| Grant receivable                                                                                                                                                                             |   |           | 244,479     |   |              |   | 244,479 |   |
| Debt issue costs                                                                                                                                                                             |   |           | -           |   |              |   | 4,408 |   |
| Other current assets                                                                                                                                                                         |   |           | 65,807      |   |              |   | 141,622 |   |
| Total current assets                                                                                                                                                                         |   |           | 901,602     |   |              |   | 869,177 |   |
|                                                                                                                                                                                         |   |           |        |   |              |   |   |   |
| In-process research and development                                                                                                                                                          |   |           | 17,742,110  |   |              |   | 17,742,110 |   |
| Property and equipment, net                                                                                                                                                                  |   |           | 2,227       |   |              |   | 2,984 |   |
| Other assets                                                                                                                                                                                 |   |           | 7,750       |   |              |   | 21,370 |   |
| Total assets                                                                                                                                                                                 |   | $              | 18,653,689  |   |              | $      | 18,635,641 |   |
|                                                                                                                                                                                         |   |           |        |   |              |   |   |   |
| Liabilities and Stockholders' Deficiency                                                                                                                                                     |   |           |        |   |              |   |   |   |
| Current Liabilities:                                                                                                                                                                         |   |           |        |   |              |   |   |   |
| Notes payable, current portion, net                                                                                                                                                          |   | $              | 2,309,647   |   |              | $      | 2,054,246 |   |
| Accounts payable and accrued expenses                                                                                                                                                        |   |           | 183,280     |   |              |   | 223,516 |   |
| Interest payable, current portion                                                                                                                                                            |   |           | 565,879     |   |              |   | 480,890 |   |
| Derivative liability                                                                                                                                                                         |   |           | 292,982     |   |              |   | 534,846 |   |
| Total current liabilities                                                                                                                                                                    |   |           | 3,351,788   |   |              |   | 3,293,498 |   |
| Notes payable, noncurrent portion, net                                                                                                                                                       |   |           | 16,555,463  |   |              |   | 16,130,571 |   |
| Interest payable, noncurrent portion                                                                                                                                                         |   |           | 49,578      |   |              |   | 626,697 |   |
| Exchange obligation                                                                                                                                                                          |   |           | -           |   |              |   | 3,949,176 |   |
| Total liabilities                                                                                                                                                                            |   |           | 19,956,829  |   |              |   | 23,999,942 |   |
|                                                                                                                                                                                         |   |           |        |   |              |   |   |   |
| Commitments and contingencies                                                                                                                                                                |   |           |        |   |              |   |   |   |
| Stockholders’ deficiency:                                                                                                                                                              |   |           |        |   |              |   |   |   |
| Preferred stock, $.001 par value. Authorized 1,500,000 shares; no shares issued and outstanding at March 31, 2011 and December 31, 2010                                                      |   |           | -           |   |              |   | - |   |
| Common stock, $.001 par value. Authorized 500,000,000 shares; 129,793,289 shares issued and outstanding at March 31, 2011 and 120,965,260 shares issued and outstanding at December 31, 2010 |   |           | 129,794     |   |              |   | 120,966 |   |
| Contingently issuable shares                                                                                                                                                                 |   |           | 15,890      |   |              |   | 15,890 |   |
| Additional paid-in capital                                                                                                                                                                   |   |           | 56,028,583  |   |              |   | 55,808,633 |   |
| Deficit accumulated during the development stage                                                                                                                                             |   |           | (57,477,407 | )      |              |   | (61,309,790 | ) |
| Total stockholders’ deficiency                                                                                                                                                         |   |           | (1,303,140  | )      |              |   | (5,364,301 | ) |
| Total liabilities and stockholders' deficiency                                                                                                                                               |   | $              | 18,653,689  |   |              | $      | 18,635,641 |   |

----

|                                                  |   | Three months endedMarch 31, |        |   | Cumulative periodfrom August 6, 2001(inception) to March |   |
|-------------------------------------------------------|--------|--------------------------------------------|-------------|--------|----------------------------------------------------------------------------------------|--------|
|                                                  |   | 2011                                       |        |   | 2010                                                                                   |   |   | 31, 2011 |   |
| Revenue                                               |   | $                                          | -           |   |                                                                                   | $      | - |   |   | $ | - |   |
|                                                  |   |                                       |        |   |                                                                                   |   |   |   |   |   |   |   |
| Costs and expenses:                                   |   |                                       |        |   |                                                                                   |   |   |   |   |   |   |   |
| Research and development                              |   |                                       | 355,177     |   |                                                                                   |   | 17,767 |   |   |   | 29,183,181 |   |
| General and administrative                            |   |                                       | 210,908     |   |                                                                                   |   | 511,678 |   |   |   | 19,925,305 |   |
| In-process research and development charge            |   |                                       | -           |   |                                                                                   |   | - |   |   |   | 11,887,807 |   |
| Impairment of intangible assets                       |   |                                       | -           |   |                                                                                   |   | - |   |   |   | 1,248,230 |   |
| Loss on disposition of intangible assets              |   |                                       | -           |   |                                                                                   |   | - |   |   |   | 1,213,878 |   |
| Total operating expenses                              |   |                                       | 566,085     |   |                                                                                   |   | 529,445 |   |   |   | 63,458,401 |   |
|                                                  |   |                                       |        |   |                                                                                   |   |   |   |   |   |   |   |
| Operating loss                                        |   |                                       | (566,085    | )      |                                                                                   |   | (529,445 | ) |   |   | (63,458,401 | ) |
|                                                  |   |                                       |        |   |                                                                                   |   |   |   |   |   |   |   |
| Other (income) expense:                               |   |                                       |        |   |                                                                                   |   |   |   |   |   |   |   |
| Equity in losses of Hedrin JV                         |   |                                       | -           |   |                                                                                   |   | - |   |   |   | 750,000 |   |
| Gain on Nordic Settlement                             |   |                                       | (4,517,488  | )      |                                                                                   |   |   |   |   |   | (4,517,488 | ) |
| Change in fair value of derivative liability          |   |                                       | (170,435    | )      |                                                                                   |   | 942,261 |   |   |   | (3,262,418 | ) |
| Interest and other income                             |   |                                       | (143        | )      |                                                                                   |   | (75,314 | ) |   |   | (2,415,817 | ) |
| Interest expense                                      |   |                                       | 289,598     |   |                                                                                   |   | 236,777 |   |   |   | 2,202,046 |   |
| Loss on early extinguishment of debt                  |   |                                       | -           |   |                                                                                   |   | - |   |   |   | 159,070 |   |
| Realized gain on sale of marketable equity securities |   |                                       | -           |   |                                                                                   |   | - |   |   |   | (76,032 | ) |
| Total other (income) expense                          |   |                                       | (4,398,468  | )      |                                                                                   |   | 1,103,724 |   |   |   | (7,160,639 | ) |
|                                                  |   |                                       |        |   |                                                                                   |   |   |   |   |   |   |   |
| Net income (loss)                                     |   |                                       | 3,832,383   |   |                                                                                   |   | (1,633,169 | ) |   |   | (56,297,762 | ) |
|                                                  |   |                                       |        |   |                                                                                   |   |   |   |   |   |   |   |
| Preferred stock dividends (including imputed amounts) |   |                                       | -           |   |                                                                                   |   | - |   |   |   | (1,179,645 | ) |
|                                                  |   |                                       |        |   |                                                                                   |   |   |   |   |   |   |   |
| Net income (loss) applicable to common shares         |   | $                                          | 3,832,383   |   |                                                                                   | $      | (1,633,169 | ) |   | $ | (57,477,407 | ) |
|                                                  |   |                                       |        |   |                                                                                   |   |   |   |   |   |   |   |
| Net income (loss) per common share:                   |   |                                       |        |   |                                                                                   |   |   |   |   |   |   |   |
| Basic and diluted                                     |   | $                                          | 0.03        |   |                                                                                   | $      | (0.02 | ) |   |   |   |   |
|                                                  |   |                                       |        |   |                                                                                   |   |   |   |   |   |   |   |
| Weighted average shares of common stock outstanding:  |   |                                       |        |   |                                                                                   |   |   |   |   |   |   |   |
| Basic and diluted                                     |   |                                       | 127,439,132 |   |                                                                                   |   | 84,638,502 |   |   |   |   |   |

----

|                                                                 |   | Common stockshares |       |   | Common stockamount |   |   | Additional paid-in capital |   |   | Deficitaccumulatedduringdevelopmentstage |   |   | Other  |        |   | Totalstockholders'equity(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                                   | )      |   |   | (56,796     | )      |                                 |   | (4,000 | ) |   |   | (56,796 | ) |
| Proceeds from subscription receivable                                     |   |                    | -          |   |                    |   | -      |                                 |   |   | -                                        |   |   |   | -           |   |                                 |   | 4,000 |   |   |   | 4,000 |   |
| Stock issued at $0.0004 per share for license rights                      |   |                    | 2,541,935  |   |                    |   | 2,542  |                                 |   |   | (1,542                                   | )      |   |   | -           |   |                                 |   | - |   |   |   | 1,000 |   |
| Stock options issued for consulting services                              |   |                    | -          |   |                    |   | -      |                                 |   |   | 60,589                                   |   |   |   | -           |   |                                 |   | (60,589 | ) |   |   | - |   |
| Common stock issued at $0.63 per share, net of expenses                   |   |                    | 3,043,332  |   |                    |   | 3,043  |                                 |   |   | 1,701,275                                |   |   |   | -           |   |                                 |   | - |   |   |   | 1,704,318 |   |
| Amortization of unearned consulting services                              |   |                    | -          |   |                    |   | -      |                                 |   |   | -                                        |   |   |   | -           |   |                                 |   | 22,721 |   |   |   | 22,721 |   |
| Net 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 | ) |   |   | 637,923 |   |
| Common stock issued at $0.63 per share, net of expenses                   |   |                    | 1,321,806  |   |                    |   | 1,322  |                                 |   |   | 742,369                                  |   |   |   | -           |   |                                 |   | - |   |   |   | 743,691 |   |
| Effect of reverse acquisition                                             |   |                    | 6,287,582  |   |                    |   | 6,287  |                                 |   |   | 2,329,954                                |   |   |   | -           |   |                                 |   | - |   |   |   | 2,336,241 |   |
| Payment for fraction shares for stock combination                         |   |                    | -          |   |                    |   | -      |                                 |   |   | (300                                     | )      |   |   | -           |   |                                 |   | - |   |   |   | (300 | ) |
| Preferred stock issued at $10 per share, net of expenses                  |   |                    | -          |   |                    |   | -      |                                 |   |   | 9,045,176                                |   |   |   | -           |   |                                 |   | 1,000 |   |   |   | 9,046,176 |   |
| Imputed preferred stock dividend                                          |   |                    | -          |   |                    |   | -      |                                 |   |   | 418,182                                  |   |   |   | (418,182    | )      |                                 |   | - |   |   |   | - |   |
| Amortization of unearned consulting services                              |   |                    | -          |   |                    |   | -      |                                 |   |   | -                                        |   |   |   | -           |   |                                 |   | 37,868 |   |   |   | 37,868 |   |
| Unrealized loss on short-term investments                                 |   |                    | -          |   |                    |   | -      |                                 |   |   | -                                        |   |   |   | -           |   |                                 |   | (7,760 | ) |   |   | (7,760 | ) |
| Net loss                                                                  |   |                    | -          |   |                    |   | -      |                                 |   |   | -                                        |   |   |   | (5,960,907  | )      |                                 |   | - |   |   |   | (5,960,907 | ) |
| Balance at December 31, 2003                                              |   |                    | 23,362,396 |   |                    |   | 23,362 |                                 |   |   | 14,289,535                               |   |   |   | (7,473,205  | )      |                                 |   | (6,760 | ) |   |   | 6,832,932 |   |
| Exercise of stock options                                                 |   |                    | 27,600     |   |                    |   | 27     |                                 |   |   | 30,073                                   |   |   |   | -           |   |                                 |   | - |   |   |   | 30,100 |   |
| Common stock issued at $1.10 per share, net of expenses                   |   |                    | 3,368,952  |   |                    |   | 3,369  |                                 |   |   | 3,358,349                                |   |   |   | -           |   |                                 |   | - |   |   |   | 3,361,718 |   |
| Preferred stock dividend accrued                                          |   |                    | -          |   |                    |   | -      |                                 |   |   | -                                        |   |   |   | (585,799    | )      |                                 |   | - |   |   |   | (585,799 | ) |
| Preferred stock dividend paid by issuance of preferred shares             |   |                    | -          |   |                    |   | -      |                                 |   |   | 281,073                                  |   |   |   | -           |   |                                 |   | 25 |   |   |   | 281,098 |   |
| Conversion of preferred stock to common stock at $1.10 per share          |   |                    | 1,550,239  |   |                    |   | 1,551  |                                 |   |   | (1,380                                   | )      |   |   | -           |   |                                 |   | (171 | ) |   |   | - |   |
| Warrants issued for consulting services                                   |   |                    | -          |   |                    |   | -      |                                 |   |   | 125,558                                  |   |   |   | -           |   |                                 |   | (120,968 | ) |   |   | 4,590 |   |
| Amortization of unearned consulting services                              |   |                    | -          |   |                    |   | -      |                                 |   |   | -                                        |   |   |   | -           |   |                                 |   | 100,800 |   |   |   | 100,800 |   |
| Unrealized gain and reversal of unrealized loss on short-term investments |   |                    | -          |   |                    |   | -      |                                 |   |   | -                                        |   |   |   | -           |   |                                 |   | 20,997 |   |   |   | 20,997 |   |
| Net loss                                                                  |   |                    | -          |   |                    |   | -      |                                 |   |   | -                                        |   |   |   | (5,896,031  | )      |                                 |   | - |   |   |   | (5,896,031 | ) |
| Balance at December 31, 2004                                              |   |                    | 28,309,187 |   |                    |   | 28,309 |                                 |   |   | 18,083,208                               |   |   |   | (13,955,035 | )      |                                 |   | (6,077 | ) |   |   | 4,150,405 |   |
| Common stock issued at $1.11 and $1.15 per share, net of expenses         |   |                    | 11,917,680 |   |                    |   | 11,918 |                                 |   |   | 12,238,291                               |   |   |   | -           |   |                                 |   | - |   |   |   | 12,250,209 |   |
| Common stock issued at $1.11 in satisfaction of accounts payable          |   |                    | 675,675    |   |                    |   | 676    |                                 |   |   | 749,324                                  |   |   |   | -           |   |                                 |   | - |   |   |   | 750,000 |   |
| Exercise of stock options                                                 |   |                    | 32,400     |   |                    |   | 33     |                                 |   |   | 32,367                                   |   |   |   | -           |   |                                 |   | - |   |   |   | 32,400 |   |
| Exercise of warrants                                                      |   |                    | 279,845    |   |                    |   | 279    |                                 |   |   | 68,212                                   |   |   |   | -           |   |                                 |   | - |   |   |   | 68,491 |   |
| Preferred stock dividend accrued                                          |   |                    | -          |   |                    |   | -      |                                 |   |   | -                                        |   |   |   | (175,663    | )      |                                 |   | - |   |   |   | (175,663 | ) |
| Preferred stock dividend paid by issuance of preferred shares             |   |                    | -          |   |                    |   | -      |                                 |   |   | 477,736                                  |   |   |   | -           |   |                                 |   | 42 |   |   |   | 477,778 |   |
| Conversion of preferred stock to common stock at $1.10 per share          |   |                    | 8,146,858  |   |                    |   | 8,147  |                                 |   |   | (7,251                                   | )      |   |   | -           |   |                                 |   | (896 | ) |   |   | - |   |
| Stock issued in connection with acquisition of Tarpan Therapeutics, Inc.  |   |                    | 10,731,052 |   |                    |   | 10,731 |                                 |   |   | 11,042,253                               |   |   |   | -           |   |                                 |   | - |   |   |   | 11,052,984 |   |
| Reversal of unrealized gain on short-term investments                     |   |                    | -          |   |                    |   | -      |                                 |   |   | -                                        |   |   |   | -           |   |                                 |   | (12,250 | ) |   |   | (12,250 | ) |
| Share-based compensation                                                  |   |                    | -          |   |                    |   | -      |                                 |   |   | 66,971                                   |   |   |   | -           |   |                                 |   | 20,168 |   |   |   | 87,139 |   |
| Net loss                                                                  |   |                    | -          |   |                    |   | -      |                                 |   |   | -                                        |   |   |   | (19,140,997 | )      |                                 |   | - |   |   |   | (19,140,997 | ) |
| Balance at December 31, 2005                                              |   |                    | 60,092,697 |   |                    |   | 60,093 |                                 |   |   | 42,751,111                               |   |   |   | (33,271,695 | )      |                                 |   | 987 |   |   |   | 9,540,496 |   |
| Cashless exercise of warrants                                             |   |                    | 27,341     |   |                    |   | 27     |                                 |   |   | (27                                      | )      |   |   | -           |   |                                 |   | - |   |   |   | - |   |
| Costs associated with private placement                                   |   |                    | -          |   |                    |   | -      |                                 |   |   | (15,257                                  | )      |   |   | -           |   |                                 |   | - |   |   |   | (15,257 | ) |
| Unrealized loss on short-term investments                                 |   |                    | -          |   |                    |   | -      |                                 |   |   | -                                        |   |   |   | -           |   |                                 |   | (987 | ) |   |   | (987 | ) |
| Share-based compensation                                                  |   |                    | -          |   |                    |   | -      |                                 |   |   | 1,675,499                                |   |   |   | -           |   |                                 |   | - |   |   |   | 1,675,499 |   |
| Net loss                                                                  |   |                    | -          |   |                    |   | -      |                                 |   |   | -                                        |   |   |   | (9,695,123  | )      |                                 |   | - |   |   |   | (9,695,123 | ) |
| Balance at December 31, 2006                                              |   |                    | 60,120,038 |   |                    |   | 60,120 |                                 |   |   | 44,411,326                               |   |   |   | (42,966,818 | )      |                                 |   | - |   |   |   | 1,504,628 |   |

----

|                                                                  |   | Common stockshares |        |   | Common stockamount |   |    | Additional paid-in capital |   |   | Deficitaccumulatedduringdevelopmentstage |   |   | Other  |        |   | Totalstockholders'equity(deficiency) |   |
|----------------------------------------------------------------------------|--------|-------------------------|-------------|--------|-------------------------|--------|---------|--------------------------------------|--------|--------|------------------------------------------|--------|--------|--------|-------------|--------|--------------------------------------|--------|
| Common stock issued at $0.84 and $0.90 per share, net of expenses          |   |                    | 10,185,502  |   |                    | $      | 10,186  |                                 |   | $      | 7,841,999                                |   |   | $      | -           |   |                                 | $      | - |   |   | $ | 7,852,185 |   |
| Common stock issued at $0.72 per share in satisfaction of accounts payable |   |                    | 27,776      |   |                    |   | 28      |                                 |   |   | 19,972                                   |   |   |   | -           |   |                                 |   | - |   |   |   | 20,000 |   |
| Common stock issued with in-licensing agreement at $0.90 per share         |   |                    | 125,000     |   |                    |   | 125     |                                 |   |   | 112,375                                  |   |   |   | -           |   |                                 |   | - |   |   |   | 112,500 |   |
| Common stock issued with in-licensing agreement at $0.80 per share         |   |                    | 150,000     |   |                    |   | 150     |                                 |   |   | 119,850                                  |   |   |   | -           |   |                                 |   | - |   |   |   | 120,000 |   |
| Warrants issued for consulting services                                    |   |                    | -           |   |                    |   | -       |                                 |   |   | 83,670                                   |   |   |   | -           |   |                                 |   | - |   |   |   | 83,670 |   |
| Exercise of warrants                                                       |   |                    | 10,327      |   |                    |   | 15      |                                 |   |   | 7,219                                    |   |   |   | -           |   |                                 |   | - |   |   |   | 7,234 |   |
| Cashless exercise of warrants                                              |   |                    | 5,589       |   |                    |   | -       |                                 |   |   | (6                                       | )      |   |   | -           |   |                                 |   | - |   |   |   | (6 | ) |
| Share-based compensation                                                   |   |                    | -           |   |                    |   | -       |                                 |   |   | 1,440,956                                |   |   |   | -           |   |                                 |   | - |   |   |   | 1,440,956 |   |
| Net loss                                                                   |   |                    | -           |   |                    |   | -       |                                 |   |   | -                                        |   |   |   | (12,032,252 | )      |                                 |   | - |   |   |   | (12,032,252 | ) |
| Balance at December 31, 2007                                               |   |                    | 70,624,232  |   |                    |   | 70,624  |                                 |   |   | 54,037,361                               |   |   |   | (54,999,070 | )      |                                 |   | - |   |   |   | (891,085 | ) |
| Sale of warrant                                                            |   |                    | -           |   |                    |   | -       |                                 |   |   | 150,000                                  |   |   |   | -           |   |                                 |   | - |   |   |   | 150,000 |   |
| Warrants issued with 12% notes                                             |   |                    | -           |   |                    |   | -       |                                 |   |   | 170,128                                  |   |   |   | -           |   |                                 |   | - |   |   |   | 170,128 |   |
| Share-based compensation                                                   |   |                    | -           |   |                    |   | -       |                                 |   |   | 463,890                                  |   |   |   | -           |   |                                 |   | - |   |   |   | 463,890 |   |
| Net loss                                                                   |   |                    | -           |   |                    |   | -       |                                 |   |   | -                                        |   |   |   | (4,268,858  | )      |                                 |   | - |   |   |   | (4,268,858 | ) |
| Balance at December 31, 2008                                               |   |                    | 70,624,232  |   |                    |   | 70,624  |                                 |   |   | 54,821,379                               |   |   |   | (59,267,928 | )      |                                 |   | - |   |   |   | (4,375,925 | ) |
| Cumulative effect of a change in accounting principle                      |   |                    | -           |   |                    |   | -       |                                 |   |   | (150,000                                 | )      |   |   | 127,778     |   |                                 |   | - |   |   |   | (22,222 | ) |
| Balance at January 1, 2009, as adjusted                                    |   |                    | 70,624,232  |   |                    |   | 70,624  |                                 |   |   | 54,671,379                               |   |   |   | (59,140,150 | )      |                                 |   | - |   |   |   | (4,398,147 | ) |
| Warrants issued with secured 12% notes                                     |   |                    | -           |   |                    |   | -       |                                 |   |   | 46,125                                   |   |   |   | -           |   |                                 |   | - |   |   |   | 46,125 |   |
| Warrants issued to placement agent - secured 12% notes                     |   |                    | -           |   |                    |   | -       |                                 |   |   | 6,919                                    |   |   |   | -           |   |                                 |   | - |   |   |   | 6,919 |   |
| Share-based compensation                                                   |   |                    | -           |   |                    |   | -       |                                 |   |   | 353,438                                  |   |   |   | -           |   |                                 |   | - |   |   |   | 353,438 |   |
| Net loss                                                                   |   |                    | -           |   |                    |   | -       |                                 |   |   | -                                        |   |   |   | (2,793,285  | )      |                                 |   | - |   |   |   | (2,793,285 | ) |
| Balance at December 31, 2009                                               |   |                    | 70,624,232  |   |                    |   | 70,624  |                                 |   |   | 55,077,861                               |   |   |   | (61,933,435 | )      |                                 |   | - |   |   |   | (6,784,950 | ) |
| Common stock issued at $0.07 per share, net of expenses                    |   |                    | 43,278,605  |   |                    |   | 43,279  |                                 |   |   | 2,542,207                                |   |   |   | -           |   |                                 |   | - |   |   |   | 2,585,486 |   |
| Derivative liability associated with warrants issued with common stock     |   |                    | -           |   |                    |   | -       |                                 |   |   | (3,497,898                               | )      |   |   | -           |   |                                 |   | - |   |   |   | (3,497,898 | ) |
| Shares issued and issuable in Merger with Ariston                          |   |                    | 7,062,423   |   |                    |   | 7,063   |                                 |   |   | 1,468,984                                |   |   |   | -           |   |                                 |   | 15,890 |   |   |   | 1,491,937 |   |
| Share-based compensation                                                   |   |                    | -           |   |                    |   | -       |                                 |   |   | 217,479                                  |   |   |   | -           |   |                                 |   | - |   |   |   | 217,479 |   |
| Net income                                                                 |   |                    | -           |   |                    |   | -       |                                 |   |   | -                                        |   |   |   | 623,645     |   |                                 |   | - |   |   |   | 623,645 |   |
| Balance at December 31, 2010                                               |   |                    | 120,965,260 |   |                    |   | 120,966 |                                 |   |   | 55,808,633                               |   |   |   | (61,309,790 | )      |                                 |   | 15,890 |   |   |   | (5,364,301 | ) |
| Share-based compensation                                                   |   |                    | -           |   |                    |   | -       |                                 |   |   | 8,077                                    |   |   |   | -           |   |                                 |   | - |   |   |   | 8,077 |   |
| Shares issued on achievement of Ariston milestone                          |   |                    | 8,828,029   |   |                    |   | 8,828   |                                 |   |   | 211,873                                  |   |   |   | -           |   |                                 |   | - |   |   |   | 220,701 |   |
| Net income                                                                 |   |                    | -           |   |                    |   | -       |                                 |   |   | -                                        |   |   |   | 3,832,383   |   |                                 |   | - |   |   |   | 3,832,383 |   |
| Balance at March 31, 2011                                                  |   |                    | 129,793,289 |   |                    | $      | 129,794 |                                 |   | $      | 56,028,583                               |   |   | $      | (57,477,407 | )      |                                 | $      | 15,890 |   |   | $ | (1,303,140 | ) |
|                                                                       |   |                    |        |   |                    |   |    |                                 |   |   |                                     |   |   |   |        |   |                                 |   |   |   |   |   |   |   |

----

|                                                                                               |   | Three months ended March 31, |       |   | Cumulative periodfrom August 6, 2001(inception) to March |   |
|----------------------------------------------------------------------------------------------------|--------|--------------------------------------------------|------------|--------|----------------------------------------------------------------------------------------|--------|
|                                                                                               |   | 2011                                             |       |   | 2010                                                                                   |   |   | 31, 2011 |   |
| Cash flows from operating activities:                                                              |   |                                             |       |   |                                                                                   |   |   |   |   |
| Net income/(loss)                                                                                  |   | $                                                | 3,832,383  |   |                                                                                   | $      | (1,633,169 | ) |   | $ | (56,297,762 | ) |
|                                                                                               |   |                                             |       |   |                                                                                   |   |   |   |   |   |   |   |
| Adjustments to reconcile net income/(loss) to net cash provided by/(used in) operating activities: |   |                                             |       |   |                                                                                   |   |   |   |   |   |   |   |
| Equity in losses of Hedrin JV                                                                      |   |                                             | -          |   |                                                                                   |   | - |   |   |   | 750,000 |   |
| Non cash gain on Nordic settlement                                                                 |   |                                             | (4,017,488 | )      |                                                                                   |   | - |   |   |   | (4,017,488 | ) |
| Share-based compensation                                                                           |   |                                             | 8,077      |   |                                                                                   |   | 190,882 |   |   |   | 4,407,867 |   |
| Amortization of OID and issue costs                                                                |   |                                             | 12,062     |   |                                                                                   |   | 110,507 |   |   |   | 948,693 |   |
| Change in fair value of derivative liability                                                       |   |                                             | (170,435   | )      |                                                                                   |   | 942,261 |   |   |   | (3,262,417 | ) |
| Loss on early extinguishment of debt                                                               |   |                                             | -          |   |                                                                                   |   | - |   |   |   | 159,070 |   |
| Shares issued in connection with in-licensing agreement                                            |   |                                             | -          |   |                                                                                   |   | - |   |   |   | 232,500 |   |
| Shares issued in connection with Ariston milestone                                                 |   |                                             | 220,701    |   |                                                                                   |   | - |   |   |   | 220,701 |   |
| Warrants issued to consultant                                                                      |   |                                             | -          |   |                                                                                   |   | - |   |   |   | 83,670 |   |
| Amortization of intangible assets                                                                  |   |                                             | -          |   |                                                                                   |   | - |   |   |   | 145,162 |   |
| Gain on sale of marketable equity securities                                                       |   |                                             | -          |   |                                                                                   |   | - |   |   |   | (76,032 | ) |
| Depreciation                                                                                       |   |                                             | 757        |   |                                                                                   |   | 796 |   |   |   | 231,620 |   |
| Noncash portion of in-process research and development charge                                      |   |                                             | -          |   |                                                                                   |   | - |   |   |   | 11,721,623 |   |
| Loss on impairment and disposition of intangible assets                                            |   |                                             | -          |   |                                                                                   |   | - |   |   |   | 2,462,108 |   |
| Other                                                                                              |   |                                             | -          |   |                                                                                   |   | - |   |   |   | 23,917 |   |
| Changes in operating assets and liabilities, net of acquisitions:                                  |   |                                             |       |   |                                                                                   |   |   |   |   |   |   |   |
| Increase in grant receivable                                                                       |   |                                             | -          |   |                                                                                   |   | - |   |   |   | (244,479 | ) |
| Increase in prepaid expenses and other current assets                                              |   |                                             | 75,459     |   |                                                                                   |   | 88,343 |   |   |   | 112,950 |   |
| Decrease/(increase) in other assets                                                                |   |                                             | 10,859     |   |                                                                                   |   | - |   |   |   | (25,511 | ) |
| Decrease in accounts payable and accrued expenses                                                  |   |                                             | (40,236    | )      |                                                                                   |   | (426,062 | ) |   |   | (162,544 | ) |
| Increase in interest payable                                                                       |   |                                             | 280,509    |   |                                                                                   |   | 121,615 |   |   |   | 1,159,523 |   |
| Net cash provided by/(used in) operating activities                                                |   |                                             | 212,648    |   |                                                                                   |   | (604,827 | ) |   |   | (41,426,829 | ) |
| Cash flows from investing activities:                                                              |   |                                             |       |   |                                                                                   |   |   |   |   |   |   |   |
| Purchase of property and equipment                                                                 |   |                                             | -          |   |                                                                                   |   | - |   |   |   | (242,452 | ) |
| Cash acquired in connection with acquisitions                                                      |   |                                             | -          |   |                                                                                   |   | 519,365 |   |   |   | 493,334 |   |
| Net cash provided from the purchase and sale of short-term investments                             |   |                                             | -          |   |                                                                                   |   | - |   |   |   | 435,938 |   |
| Proceeds from sale of license                                                                      |   |                                             | -          |   |                                                                                   |   | - |   |   |   | 200,001 |   |
| Net cash provided by investing activities                                                          |   |                                             | -          |   |                                                                                   |   | 519,365 |   |   |   | 886,821 |   |
| Cash flows from financing activities:                                                              |   |                                             |       |   |                                                                                   |   |   |   |   |   |   |   |
| Proceeds related to sale of common stock, net                                                      |   |                                             | -          |   |                                                                                   |   | 2,111,746 |   |   |   | 28,059,748 |   |
| Proceeds from sale of preferred stock, net                                                         |   |                                             | -          |   |                                                                                   |   | - |   |   |   | 9,046,176 |   |
| Proceeds from the Hedrin JV agreement                                                              |   |                                             | -          |   |                                                                                   |   | - |   |   |   | 3,199,176 |   |
| Proceeds from sale of notes payable                                                                |   |                                             | -          |   |                                                                                   |   | - |   |   |   | 1,509,915 |   |
| Sale of warrant                                                                                    |   |                                             | -          |   |                                                                                   |   | - |   |   |   | 150,000 |   |
| Net repayments of notes payable                                                                    |   |                                             | (100,000   | )      |                                                                                   |   | (27,000 | ) |   |   | (1,207,124 | ) |
| Other, net                                                                                         |   |                                             | -          |   |                                                                                   |   | - |   |   |   | 373,433 |   |
| Net cash provided by/(used in) financing activities                                                |   |                                             | (100,000   | )      |                                                                                   |   | 2,084,746 |   |   |   | 41,131,324 |   |
| Net increase in cash and cash equivalents                                                          |   |                                             | 112,648    |   |                                                                                   |   | 1,999,284 |   |   |   | 591,316 |   |
| Cash and cash equivalents at beginning of period                                                   |   |                                             | 478,668    |   |                                                                                   |   | 17,996 |   |   |   | - |   |
| Cash and cash equivalents at end of period                                                         |   | $                                                | 591,316    |   |                                                                                   | $      | 2,017,280 |   |   | $ | 591,316 |   |

----

|                                                                     |   | Three months ended March 31, |    |   | Cumulative periodfrom August 6, 2001(inception) to March |   |
|--------------------------------------------------------------------------|--------|--------------------------------------------------|---------|--------|----------------------------------------------------------------------------------------|--------|
|                                                                     |   | 2011                                             |    |   | 2010                                                                                   |   |   | 31, 2011 |   |
| Supplemental disclosure of cash flow information:                        |   |                                             |    |   |                                                                                   |   |   |   |   |
| Interest paid                                                            |   | $                                                | 330     |   |                                                                                   | $      | 1,506 |   |   | $ | 67,835 |   |
| Supplemental disclosure of noncash investing and financing activities:   |   |                                             |    |   |                                                                                   |   |   |   |   |   |   |   |
| Conversion of interest into principal, 5% Notes                          |   | $                                                | 772,640 |   |                                                                                   | $      | - |   |   | $ | 772,640 |   |
| Issuance of common stock for acquisitions                                |   |                                             | -       |   |                                                                                   |   | 1,491,937 |   |   |   | 14,881,163 |   |
| Investment in Hedrin JV                                                  |   |                                             | -       |   |                                                                                   |   | - |   |   |   | 1,250,000 |   |
| Imputed and accrued preferred stock dividend                             |   |                                             | -       |   |                                                                                   |   | - |   |   |   | 1,179,644 |   |
| Common stock issued in satisfaction of accounts payable                  |   |                                             | -       |   |                                                                                   |   | - |   |   |   | 770,000 |   |
| Preferred stock dividends paid by issuance of shares                     |   |                                             | -       |   |                                                                                   |   | - |   |   |   | 759,134 |   |
| Conversion of debt to common stock and warrants                          |   |                                             | -       |   |                                                                                   |   | - |   |   |   | 422,000 |   |
| Marketable equity securities received in connection with sale of license |   |                                             | -       |   |                                                                                   |   | - |   |   |   | 359,907 |   |
| Warrants issued with notes payable                                       |   |                                             | -       |   |                                                                                   |   | - |   |   |   | 223,172 |   |
| Issuance of common stock in connection with in-licensing agreement       |   |                                             | -       |   |                                                                                   |   | - |   |   |   | 232,500 |   |
| Note issued to settle accrued expenses                                   |   |                                             | -       |   |                                                                                   |   | - |   |   |   | 211,900 |   |
| Warrants issued to consultant                                            |   |                                             | -       |   |                                                                                   |   | - |   |   |   | 83,670 |   |
| Conversion of preferred stock to common stock                            |   |                                             | -       |   |                                                                                   |   | - |   |   |   | 1,067 |   |
| Cashless exercise of warrants                                            |   |                                             | -       |   |                                                                                   |   | - |   |   |   | 33 |   |
| Net liabilities assumed over assets acquired in business combination     |   |                                             | -       |   |                                                                                   |   | - |   |   |   | (675,416 | ) |

----

----

|                     |   | 2011              |   | 2010              |   |
|--------------------------|--------|-------------------|--------|-------------------|--------|
| Fair value               |   | $0.0040 - $0.0043 |   | $0.0508 - $0.0613 |   |
| Expected volatility      |   | 89%               |   | 88%               |   |
| Dividend yield           |   | -                 |   | -                 |   |
| Expected term (in years) |   | 3.58 - 4.02       |   | 3.01 - 4.58       |   |
| Risk-free interest rate  |   | 1.78%             |   | 2.47%             |   |

|                                        |   | 2011   |     |   | 2010   |   |
|---------------------------------------------|--------|--------|----------|--------|--------|--------|
| Fair value at January 1                     |   | $      | 534,846  |   |   | $      | 784,777 |   |
| Purchases, sales, issuances and settlements |   |   | (71,429  | )      |   |   | 2,893,960 |   |
| Net unrealized (gain)/loss                  |   |   | (170,435 | )      |   |   | 942,261 |   |
| Fair value at March 31                      |   | $      | 292,982  |   |   | $      | 4,620,998 |   |

----

| 2. | LIQUIDITY |
|----|-----------|

----

| 3. | COMPUTATION OF NET INCOME (LOSS) PER COMMON SHARE |
|----|---------------------------------------------------|

| 4. | SHARE-BASED COMPENSATION |
|----|--------------------------|

|                                         |   | Three months endedMarch 31, |   |
|----------------------------------------------|--------|--------------------------------------------|--------|
|                                         |   | 2011                                       |   |   | 2010 |   |
| General and administrative expense:          |   |                                       |   |   |   |   |
| Share-based employee compensation cost       |   | $                                          | 8,807  |   |   | $ | 190,633 |   |
| Share-based consultant and non-employee cost |   |                                       | -      |   |   |   | 25 |   |
| Total general and administrative expense     |   |                                       | 8,807  |   |   |   | 190,658 |   |
| Research and development expense:            |   |                                       |   |   |   |   |   |   |
| Share-based employee compensation cost       |   |                                       | -      |   |   |   | - |   |
| Share-based consultant and non-employee cost |   |                                       | -      |   |   |   | 224 |   |
| Total research and development expense       |   |                                       | -      |   |   |   | 224 |   |
| Total share-based cost                       |   | $                                          | 8,807  |   |   | $ | 190,882 |   |

----

|                     |   | Three months ended March 31, |   |
|--------------------------|--------|--------------------------------------------------|--------|
|                     |   | 2011                                             |   |   | 2010 |   |
| Expected volatility      |   |                                             | -      |   |   |   | 88 | % |
| Dividend yield           |   |                                             | -      |   |   |   | - |   |
| Expected term (in years) |   |                                             | -      |   |   |   | 6 |   |
| Risk-free interest rate  |   |                                             | -      |   |   |   | 2.47 | % |

----

|                                          |   | Shares |       |   | Weightedaverageexercise price |   |   | WeightedAverageRemainingContractualTerm (years) |   |   | AggregateIntrinsic Value |   |
|-----------------------------------------------|--------|--------|------------|--------|------------------------------------|--------|--------|------------------------------------------------------|--------|--------|-------------------------------|--------|
| Outstanding at December 31, 2010              |   |   | 11,574,936 |   |                               | $      | 0.487  |                                                 |   |   | 6.970                         |   |   |   |   |
| Granted                                       |   |   | -          |   |                               |   |   |                                                 |   |   |                          |   |   |   |   |
| Exercised                                     |   |   | -          |   |                               |   |   |                                                 |   |   |                          |   |   |   |   |
| Cancelled                                     |   |   | (10,000    | )      |                               | $      | 0.280  |                                                 |   |   |                          |   |   |   |   |
| Outstanding at March 31, 2011                 |   |   | 11,564,936 |   |                               | $      | 0.487  |                                                 |   |   | 5.690                         |   |   | $ | - |   |
|                                          |   |   |       |   |                               |   |   |                                                 |   |   |                          |   |   |   |   |   |
| Exercisable at March 31, 2011                 |   |   | 10,514,937 |   |                               | $      | 0.529  |                                                 |   |   | 5.360                         |   |   | $ | - |   |
| Vested and expected to vest at March 31, 2011 |   |   | 11,473,272 |   |                               | $      | 0.049  |                                                 |   |   | 6.177                         |   |   | $ | - |   |

| 5. | JOINT VENTURE |
|----|---------------|

----

|   | · | The Nordic Put has been terminated.  The Company believed the Nordic Put permitted Nordic to become the owner, upon exercise of the Nordic Put, of 71,428,571 shares of the Company’s common stock.  Nordic asserted that the Nordic Put would have permitted Nordic to become the owner of 183,333,333 shares of the Company’s common stock. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | The Nordic Warrant has been terminated.  The Company believed the Nordic Warrant covered 14,285,714 shares of the Company’s common stock.  Nordic asserted that the Nordic Warrant covered 33,333,333 shares of the Company’s common stock. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Nordic was required to make an additional, non-dilutive capital contribution to the Hedrin JV of $1,500,000, which includes $300,000 contributed to the Hedrin JV by Nordic on December 15, 2010. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | The Hedrin JV has paid to the Company a settlement amount of $500,000, less any "Excess Payment" (defined below).  An "Excess Payment" is the amount by which Nordic’s and the Hedrin JV’s reasonable out-of-pocket legal and other costs incurred with respect to the Settlement and Release Agreement exceed $70,000.  To date there have been no Excess Payments. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Our equity interest in the Hedrin JV was reduced to 15%, and further reductions in our equity interest are possible if and when Nordic makes additional capital contributions to the Hedrin JV.  In no event shall the capital contributions by Nordic reduce our ownership in the Hedrin JV below 5%. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | The Hedrin JV has paid $75,000 to the Company under the Services Agreement, dated February 21, 2008, and that Services Agreement is terminated as of December 31, 2010. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | The Hedrin JV Agreement, dated January 31, 2008, as amended on February 18, 2008, and as further amended by an Omnibus Amendment on June 9, 2008, between the Company and Nordic; the Shareholders’ Agreement, dated February 21, 2008, as amended by an Omnibus Amendment on June 9, 2008, with respect to the Hedrin JV, and the Registration Rights Agreement, dated February 25, 2009, are terminated. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                               |   | Total  |      |   | Cash portion |   |    | Non cash portion |   |
|----------------------------------------------------|--------|--------|-----------|--------|-------------------|--------|---------|----------------------------|--------|
| Exchange obligation, termination of the Nordic Put |   | $      | 3,949,176 |   |              | $      | -       |                       |   | $ | 3,949,176 |   |
| Termination of the Nordic Warrant                  |   |   | 71,429    |   |              |   | -       |                       |   |   | 71,429 |   |
| Payment of settlement amount                       |   |   | 500,000   |   |              |   | 500,000 |                       |   |   | - |   |
| Other                                              |   |   | (3,117    | )      |              |   | -       |                       |   |   | (3,117 | ) |
| Totals                                             |   | $      | 4,517,488 |   |              | $      | 500,000 |                       |   | $ | 4,017,488 |   |

----

|   | · | Termination of the License Agreement |
|--------|--------|--------------------------------------|

|   | § | In March 2011, T&R claimed that it had terminated the License Agreement by a letter dated October 19, 2010. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------|

|   | § | The October 19, 2010 letter was marked “DRAFT”, made no reference to termination, but rather sought reassurances that the Hedrin JV would make an anticipated milestone payment (it did) and that the Hedrin JV is ready, able and willing to meet its obligations under the License Agreement (it was and is). |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | T&R’s Breach of the License Agreement |
|--------|--------|-------------------------------------------------|

|   | § | T&R failed to provide the necessary Drug Master File or Master Access File references for the two ingredients of the Hedrin lotion, despite numerous, ongoing requests for the information.  T&R’s breaches hindered the Hedrin JV’s ability to secure approvals from the FDA. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 6. | 2010 EQUITY FINANCING |
|----|-----------------------|

----

| 7. | ARISTON MERGER |
|----|----------------|

|   | · | Upon the affirmative decision of Manhattan’s Board of Directors, provided that such decision is made prior to March 8, 2011, to further develop the AST-915, either internally or through a corporate partnership, Manhattan  would issue 8,828,029 of the Milestone Shares.  This milestone was attained in January 2011 and the shares were issued in March 2011.  The Company recognized approximately $220,000 of research and development expense during the three months ended March 31, 2011 from the issuance of these shares. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Upon the acceptance by the FDA of the Ariston’s filing of the first New Drug Application for the AST-726 product candidate, Manhattan would issue 7,062,423 of the Milestone Shares. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Upon the Company receiving FDA approval to market the AST-726 product candidate in the United States of America, Manhattan would issue 8,828,029 of the Milestone Shares. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | · | Timothy McInerney, a director of Manhattan, owned 16,668 shares of Ariston common stock which represented less than 1% of Ariston’s outstanding common stock as of the closing of the Merger. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Neil Herskowitz, a director of Manhattan, indirectly owned convertible promissory notes of Ariston with interest and principal in the amount of $192,739. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Michael Weiser, a former director of Manhattan, owned 117,342 shares of Ariston common stock, which represented approximately 2.1% of Ariston’s outstanding common stock as of the closing of the Merger. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Lindsay Rosenwald, a more than 5% beneficial owner of Manhattan common stock, in his individual capacity and indirectly through trusts and companies he controls, owned 497,911 shares of Ariston common stock, which represented approximately 8.9% of Ariston’s outstanding common stock as of the closing of the Merger and indirectly owned convertible promissory notes of Ariston in the amount of $141,438. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Cash and cash equivalents                    |   | $      | 519,365     |   |
|----------------------------------------------|--------|--------|-------------|--------|
| Other assets                                 |   |   | 120,870     |   |
| Total identifiable assets                    |   |   | 640,235     |   |
| Accounts payable and accrued expenses        |   |   | 437,615     |   |
| ICON convertible note payable                |   |   | 1,000,000   |   |
| 5% convertible notes payable                 |   |   | 15,452,793  |   |
| Total identifiable liabilities               |   |   | 16,890,408  |   |
| Net identifiable assets (liabilities)        |   |   | (16,250,173 | )      |
| In-process research and development acquired |   |   | 17,742,110  |   |
|                                         |   |   |        |   |
| Net assets acquired                          |   | $      | 1,491,937   |   |
|                                         |   |   |        |   |

| Pro forma consolidated results: |   |                                                            |       |
|------------------------------------------------|--------|-----------------------------------------------------------------|------------|
|                                           |   | Three Month PeriodEnded March 31, 2010 |       |
| Revenue                                        |   | $                                                               | -          |   |
| Net loss                                       |   | $                                                               | (1,787,172 | ) |
| Basic and diluted loss per share               |   | $                                                               | (0.02      | ) |

----

| 8. | NOTES PAYABLE |
|----|---------------|

|                         |   | At March 31, 2011 |      |   | At December 31, 2010 |   |
|-----------------------------------|--------|----------------------------------|-----------|--------|-------------------------------------|--------|
|                              |   | Currentportion, net         |      |   | Non-currentportion, net        |   |   | Total |   |   | Currentportion, net |   |   | Non-currentportion, net |   |   | Total |   |
| Secured 12% Note Payable          |   | $                                | 1,725,000 |   |                                | $      | - |   |   | $ | 1,725,000 |   |   | $ | 1,722,346 |   |   | $ | - |   |   | $ | 1,722,346 |   |
| Non-interest Bearing Note Payable |   |                             | 236,900   |   |                                |   | - |   |   |   | 236,900 |   |   |   | 231,900 |   |   |   | - |   |   |   | 231,900 |   |
| Convertible 5% Notes Payable      |   |                             | -         |   |                                |   | 16,225,433 |   |   |   | 16,225,433 |   |   |   | - |   |   |   | 15,452,793 |   |   |   | 15,452,793 |   |
| ICON Convertible Note             |   |                             | 347,747   |   |                                |   | 330,030 |   |   |   | 677,777 |   |   |   | 100,000 |   |   |   | 677,778 |   |   |   | 777,778 |   |
| Total                             |   | $                                | 2,309,647 |   |                                | $      | 16,555,463 |   |   | $ | 18,865,110 |   |   | $ | 2,054,246 |   |   | $ | 16,130,571 |   |   | $ | 18,184,817 |   |

----

|                            |   | As of March 31, 2011 |        |   | Conversion ofSecured 12%Notes |   |   | After Conversion |   |
|---------------------------------|--------|------------------------------------------|-------------|--------|-----------------------------------------|--------|--------|-----------------------|--------|
|                            |   | Shares                                   |        |   | %                                       |   |   | Shares (1)       |   |   | Shares |   |   | % |   |
| Shares outstanding:             |   |                                     |        |   |                                    |   |   |                  |   |   |   |   |   |   |   |
| Before conversion               |   |                                     | 129,793,289 |   |                                    |   | 45.66  | %                     |   |   |   |   |   | 129,793,289 |   |   |   | 8.78 | % |
| Conversion of Secured 12% Notes |   |                                     |        |   |                                    |   |   |                  |   |   | 231,826,600 |   |   |   | 231,826,600 |   |   |   | 15.67 | % |
| Total outstanding               |   |                                     | 129,793,289 |   |                                    |   |   |                  |   |   | 231,826,600 |   |   |   | 361,619,889 |   |   |   |   |   |
| Shares issuable:                |   |                                     |        |   |                                    |   |   |                  |   |   |   |   |   |   |   |   |   |   |   |   |
| Options                         |   |                                     | 11,564,936  |   |                                    |   | 4.07   | %                     |   |   |   |   |   |   | 11,564,936 |   |   |   | 0.78 | % |
| Warrants:                       |   |                                     |        |   |                                    |   |   |                  |   |   |   |   |   |   |   |   |   |   |   |   |
| With antidilution rights:       |   |                                     |        |   |                                    |   |   |                  |   |   |   |   |   |   |   |   |   |   |   |   |
| Issued with Secured 12% Notes   |   |                                     | 57,500,115  |   |                                    |   | 20.23  | %                     |   |   | 460,000,920 |   |   |   | 517,501,035 |   |   |   | 34.99 | % |
| Other                           |   |                                     | 72,411,248  |   |                                    |   | 25.47  | %                     |   |   | 503,037,467 |   |   |   | 575,448,715 |   |   |   | 38.90 | % |
| Without antidilution rights     |   |                                     | 12,989,189  |   |                                    |   | 4.57   | %                     |   |   |   |   |   |   | 12,989,189 |   |   |   | 0.88 | % |
| Total issuable                  |   |                                     | 154,465,488 |   |                                    |   |   |                  |   |   | 963,038,387 |   |   |   | 1,117,503,875 |   |   |   |   |   |
| Total outstanding and issuable  |   |                                     | 284,258,777 |   |                                    |   | 100.00 | %                     |   |   | 1,194,864,987 |   |   |   | 1,479,123,764 |   |   |   | 100.00 | % |

----

----

----

|                                       |   | March 31,2011 |    |   | December 31,2010 |   |    | Purchases,sales, issuancesand settlements |   |   | Change in Fair ValueDuring Three MonthsEnded March 31,2011 |   |
|--------------------------------------------|--------|--------------------|---------|--------|-----------------------|--------|---------|-----------------------------------------------------|--------|--------|-----------------------------------------------------------------------------------------------|--------|
| Nordic Warrant                             |   | $                  | -       |   |                  | $      | 71,429  |                                                |   | $      | (71,429                                                                                       | )      |   | $ | - |   |
| Warrants issued with Convertible 12% Notes |   |               | 9,778   |   |                  |   | 15,644  |                                                |   |   | -                                                                                             |   |   |   | (5,866 | ) |
| Warrants issued in 2010 Equity Financing   |   |               | 283,204 |   |                  |   | 447,773 |                                                |   |   | -                                                                                             |   |   |   | (164,569 | ) |
| Total                                      |   | $                  | 292,982 |   |                  | $      | 534,846 |                                                |   | $      | (71,429                                                                                       | )      |   | $ | (170,435 | ) |

----

----

|                                         |   | Three months ended March 31, |      |   | Increase/ |   |       | % Increase/ |   |
|----------------------------------------------|--------|--------------------------------------------------|-----------|--------|-----------|--------|------------|------------------|--------|
|                                         |   | 2011                                             |      |   | 2010      |   |       | (decrease)       |   |   | (decrease) |   |
| Costs and expenses:                          |   |                                             |      |   |      |   |       |             |   |   |   |   |
| Research and development:                    |   |                                             |      |   |      |   |       |             |   |   |   |   |
| Share-based compensation                     |   | $                                                | -         |   |      | $      | -          |             |   | $ | - |   |   |   | N/A |   |
| Other research and development expenses      |   |                                             | 355,000   |   |      |   | 18,000     |             |   |   | 337,000 |   |   |   | 1872.22 | % |
| Total research and development expenses      |   |                                             | 355,000   |   |      |   | 18,000     |             |   |   | 337,000 |   |   |   | 1872.22 | % |
| General and administrative:                  |   |                                             |      |   |      |   |       |             |   |   |   |   |   |   |   |   |
| Share-based compensation                     |   |                                             | 9,000     |   |      |   | 191,000    |             |   |   | (182,000 | ) |   |   | -95.29 | % |
| Other general and administrative expenses    |   |                                             | 202,000   |   |      |   | 320,000    |             |   |   | (118,000 | ) |   |   | -36.88 | % |
| Total general and administrative expenses    |   |                                             | 211,000   |   |      |   | 511,000    |             |   |   | (300,000 | ) |   |   | -58.71 | % |
| Other income/(expense):                      |   |                                             |      |   |      |   |       |             |   |   |   |   |   |   |   |   |
| Gain on Nordic Settlement                    |   |                                             | 4,517,000 |   |      |   | -          |             |   |   | 4,517,000 |   |   |   | N/A |   |
| Change in fair value of derivative liability |   |                                             | 170,000   |   |      |   | (942,000   | )                |   |   | 1,112,000 |   |   |   | -118.05 | % |
| Interest expense                             |   |                                             | (290,000  | )      |      |   | (237,000   | )                |   |   | (53,000 | ) |   |   | 22.36 | % |
| Interest and other (income)/expense          |   |                                             | 1,000     |   |      |   | 75,000     |             |   |   | (74,000 | ) |   |   | -98.67 | % |
| Total other income/(expense)                 |   |                                             | 4,398,000 |   |      |   | (1,104,000 | )                |   |   | 5,502,000 |   |   |   | -498.37 | % |
|                                         |   |                                             |      |   |      |   |       |             |   |   |   |   |   |   |   |   |
| Net income/(loss)                            |   | $                                                | 3,832,000 |   |      | $      | (1,633,000 | )                |   | $ | 5,465,000 |   |   |   | -334.66 | % |

----

----

|   | · | The Nordic Put has been terminated.  The Company believed the Nordic Put permitted Nordic to become the owner, upon exercise of the Nordic Put, of 71,428,571 shares of the Company’s common stock.  Nordic asserted that the Nordic Put would have permitted Nordic to become the owner of 183,333,333 shares of the Company’s common stock. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | The Nordic Warrant has been terminated.  The Company believed the Nordic Warrant covered 14,285,714 shares of the Company’s common stock.  Nordic asserted that the Nordic Warrant covered 33,333,333 shares of the Company’s common stock. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Nordic was required to make an additional, non-dilutive capital contribution to the Hedrin JV of $1,500,000, which includes $300,000 contributed to the Hedrin JV by Nordic on December 15, 2010. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | The Hedrin JV has paid to the Company a settlement amount of $500,000, less any "Excess Payment" (defined below).  An "Excess Payment" is the amount by which Nordic’s and the Hedrin JV’s reasonable out-of-pocket legal and other costs incurred with respect to the Settlement and Release Agreement exceed $70,000.  To date there have been no Excess Payments. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Our equity interest in the Hedrin JV was reduced to 15%, and further reductions in our equity interest are possible if and when Nordic makes additional capital contributions to the Hedrin JV.  In no event shall the capital contributions by Nordic reduce our ownership in the Hedrin JV below 5%. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | · | The Hedrin JV has paid $75,000 to the Company under the Services Agreement, dated February 21, 2008, and that Services Agreement is terminated as of December 31, 2010. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | The Hedrin JV Agreement, dated January 31, 2008, as amended on February 18, 2008, and as further amended by an Omnibus Amendment on June 9, 2008, between the Company and Nordic; the Shareholders’ Agreement, dated February 21, 2008, as amended by an Omnibus Amendment on June 9, 2008, with respect to the Hedrin JV, and the Registration Rights Agreement, dated February 25, 2009, are terminated. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                               |   | Total  |      |   | Cash portion |   |    | Non cash portion |   |
|----------------------------------------------------|--------|--------|-----------|--------|-------------------|--------|---------|----------------------------|--------|
| Exchange obligation, termination of the Nordic Put |   | $      | 3,949,176 |   |              | $      | -       |                       |   | $ | 3,949,176 |   |
| Termination of the Nordic Warrant                  |   |   | 71,429    |   |              |   | -       |                       |   |   | 71,429 |   |
| Payment of settlement amount                       |   |   | 500,000   |   |              |   | 500,000 |                       |   |   | - |   |
| Other                                              |   |   | (3,117    | )      |              |   | -       |                       |   |   | (3,117 | ) |
| Totals                                             |   | $      | 4,517,488 |   |              | $      | 500,000 |                       |   | $ | 4,017,488 |   |

|   | · | Termination of the License Agreement |
|--------|--------|--------------------------------------|

|   | § | In March 2011, T&R claimed that it had terminated the License Agreement by a letter dated October 19, 2010. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------|

|   | § | The October 19, 2010 letter was marked “DRAFT”, made no reference to termination, but rather sought reassurances that the Hedrin JV would make an anticipated milestone payment (it did) and that the Hedrin JV is ready, able and willing to meet its obligations under the License Agreement (it was and is). |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | T&R’s Breach of the License Agreement |
|--------|--------|-------------------------------------------------|

|   | § | T&R failed to provide the necessary Drug Master File or Master Access File references for the two ingredients of the Hedrin lotion, despite numerous, ongoing requests for the information.  T&R’s breaches hindered the Hedrin JV’s ability to secure approvals from the FDA. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                            |   | As of March 31, 2011 |        |   | Conversion ofSecured 12%Notes |   |   | After Conversion |   |
|---------------------------------|--------|------------------------------------------|-------------|--------|-----------------------------------------|--------|--------|-----------------------|--------|
|                            |   | Shares                                   |        |   | %                                       |   |   | Shares (1)       |   |   | Shares |   |   | % |   |
| Shares outstanding:             |   |                                     |        |   |                                    |   |   |                  |   |   |   |   |   |   |   |
| Before conversion               |   |                                     | 129,793,289 |   |                                    |   | 45.66  | %                     |   |   |   |   |   | 129,793,289 |   |   |   | 8.78 | % |
| Conversion of Secured 12% Notes |   |                                     |        |   |                                    |   |   |                  |   |   | 231,826,600 |   |   |   | 231,826,600 |   |   |   | 15.67 | % |
| Total outstanding               |   |                                     | 129,793,289 |   |                                    |   |   |                  |   |   | 231,826,600 |   |   |   | 361,619,889 |   |   |   |   |   |
| Shares issuable:                |   |                                     |        |   |                                    |   |   |                  |   |   |   |   |   |   |   |   |   |   |   |   |
| Options                         |   |                                     | 11,574,936  |   |                                    |   | 4.07   | %                     |   |   |   |   |   |   | 11,574,936 |   |   |   | 0.78 | % |
| Warrants:                       |   |                                     |        |   |                                    |   |   |                  |   |   |   |   |   |   |   |   |   |   |   |   |
| With antidilution rights:       |   |                                     |        |   |                                    |   |   |                  |   |   |   |   |   |   |   |   |   |   |   |   |
| Issued with Secured 12% Notes   |   |                                     | 57,500,115  |   |                                    |   | 20.23  | %                     |   |   | 460,000,920 |   |   |   | 517,501,035 |   |   |   | 34.99 | % |
| Other                           |   |                                     | 72,411,248  |   |                                    |   | 25.47  | %                     |   |   | 503,037,467 |   |   |   | 575,448,715 |   |   |   | 38.90 | % |
| Without antidilution rights     |   |                                     | 12,989,189  |   |                                    |   | 4.57   | %                     |   |   |   |   |   |   | 12,989,189 |   |   |   | 0.88 | % |
| Total issuable                  |   |                                     | 154,475,488 |   |                                    |   |   |                  |   |   | 963,038,387 |   |   |   | 1,117,513,875 |   |   |   |   |   |
| Total outstanding and issuable  |   |                                     | 284,268,777 |   |                                    |   | 100.00 | %                     |   |   | 1,194,864,987 |   |   |   | 1,479,133,764 |   |   |   | 100.00 | % |

----

----

----

----

----

| ExhibitNo. |         | Description                                                                                                            |
|------------|--------------|------------------------------------------------------------------------------------------------------------------------|
|       |         |                                                                                                                   |
| 31.1       |         | Certification of Principal Executive and Financial Officer                                                             |
|       |         |                                                                                                                   |
| 32.1       |    | Certifications of Principal Executive and Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |

----

|               | MANHATTAN PHARMACEUTICALS, INC. |
|--------------------|---------------------------------|
|               |                            |   |   |
| Date: May 16, 2011 | By:                             | /s/  Michael G. McGuinness |   |
|               | Michael G. McGuinness           |
|               | Principal Executive Officer     |

----

| Exhibit No. |   | Description                                                               |
|------------------|--------|---------------------------------------------------------------------------|
|             |   |                                                                      |
| 31.1             |   | Certification of Principal Executive and Financial Officer.               |
|             |   |                                                                      |
| 32.1             |   | Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |

----