**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      DC 20549**





**FORM
      10-Q**





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




For
      the
      quarterly period ended September 30, 2007





OR





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





For
      the
      transition period from _______ to _______




Commission
      file number 001-32639





**Manhattan
      Pharmaceuticals, Inc.**


(Exact
      Name of Registrant as Specified in Its Charter)





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




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


(Address
      of principal executive offices)





(212)
      582-3950


(Issuer’s
      telephone number)




Check
      whether the issuer: (1) filed all reports required to be filed by Section 13
      or
      15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
      (or
      for such shorter period that the issuer was required to file such reports),
      and
      (2) has been subject to such filing requirements for the past 90 days. Yes
xNo o





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





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




Indicate
      by check mark whether the registrant is a shell company (as defined by Rule
      12b-2 of the Exchange Act).


Yes
oNo
x





As
      of
      November 9, 2007 there were 70,624,232 shares of the issuer’s common stock,
      $.001 par value, outstanding.









**INDEX**




Page**PART
                I**
            
            **FINANCIAL
                INFORMATION**Item
                1.
            
            Unaudited
                Condensed Consolidated Balance Sheets
            
            4Unaudited
                Condensed Consolidated Statements of Operations
            
            5Unaudited
                Condensed Consolidated Statement of Stockholders’ Equity
                (Deficiency)
            
            6Unaudited
                Condensed Consolidated Statements of Cash Flows
            
            7Notes
                to Unaudited Condensed Consolidated Financial Statements
            
            8Item
                2.
            
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations
            
            18Item
                3.
            
            Quantitative
                and Qualitative Disclosure About Market Risk
            
            28Item
                4T.
            
            Controls
                and Procedures
            
            28**PART
                II**
            
            **OTHER
                INFORMATION**Item
                1.
            
            Legal
                Proceedings
            
            29Item
                1A.
            
            Risk
                Factors
            
            29Item
                6.
            
            Exhibits
            
            29Signatures
            
            30




2




**Forward-Looking
      Statements**




This
      quarterly report on Form 10-Q contains forward-looking statements within the
      meaning of Section 27A of the Securities Act of 1933, as amended, or the
      Securities Act, and Section 21E of the Securities and Exchange Act of 1934.
      Any statements about our expectations, beliefs, plans, objectives, assumptions
      or future events or performance are not historical facts and may be
      forward-looking. These statements are often, but not always, made through the
      use of words or phrases such as “anticipate,” “estimate,” “plan,” “project,”
“expect,” “may,” “intend” and similar words or phrases. Accordingly, these
      statements involve estimates, assumptions and uncertainties that could cause
      actual results to differ materially from those expressed in them. These
      statements are therefore subject to risks and uncertainties, known and unknown,
      which could cause actual results and developments to differ materially from
      those expressed or implied in such statements. Such risks and uncertainties
      relate to, among other factors:




·
            the
                development of our drug candidates;


·
              the
                  regulatory approval of our drug
                  candidates;
 ·
                our
                    use of clinical research centers and other
                    contractors;
 ·
                  our
                      ability to find collaborative partners for research, development
                      and
                      commercialization of potential
                      products;
 ·
                    acceptance
                        of our products by doctors, patients or
                        payers;
 ·
                      our
                          history of operating losses;
 ·
                        our
                            ability to compete against other companies and research
                            institutions;
 ·
                          our
                              ability to secure adequate protection for our intellectual
                              property;
 ·
                            our
                                ability to attract and retain key
                                personnel;
 ·
                              availability
                                  of reimbursement for our product
                                  candidates;
 ·
                                the
                                    effect of potential strategic transactions on
                                    our
                                    business;
 ·
                                  our
                                      ability to obtain adequate financing;
                                      and
 ·
                                    the
                                        volatility of our stock
                                        price.




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




3




**PART
      I - FINANCIAL INFORMATION**





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





**MANHATTAN
      PHARMACEUTICALS, INC. AND SUBSIDIARIES**





(A
      Development Stage Company)





Condensed
      Consolidated Balance Sheets





**September
                30,**
            
            **December
                31,****2007**
            
            **2006**(Unaudited)
            
            (See
                Note 1)**Assets**Current
                assets:Cash
                and cash equivalents
            
            $
            2,032,655
            
            $
            3,029,118Prepaid
                expenses
            
            
            202,161
            
            
            264,586Total
                current assets
            
            
            2,234,816
            
            
            3,293,704Property
                and equipment, net
            
            
            52,472
            
            
            83,743Other
                assets
            
            
            70,506
            
            
            70,506Total
                assets
            
            $
            2,357,794
            
            $
            3,447,953**Liabilities
                and Stockholders’ Equity**Current
                liabilities:Accounts
                payable
            
            $
            852,490
            
            $
            1,393,296Accrued
                expenses
            
            
            938,656
            
            
            550,029Total
                current liabilities
            
            
            1,791,146
            
            
            1,943,325Commitments
                and contingenciesStockholders’
                equity:Preferred
                stock, $.001 par value. Authorized 1,500,000 shares; no shares issued
                and
                outstanding at September 30, 2007 and December 31, 2006,
                respectively
            
            
            -
            
            
            -Common
                stock, $.001 par value. Authorized 150,000,000 shares; 70,624,232
                and
                60,120,038 shares issued and outstanding at September 30, 2007 and
                December 31, 2006, respectively
            
            
            70,624
            
            
            60,120Additional
                paid-in capital
            
            
            53,590,920
            
            
            44,411,326Deficit
                accumulated during the development stage
            
            
            (53,094,896
            )
            
            (42,966,818
            )Total
                stockholders’ equity
            
            
            566,648
            
            
            1,504,628Total
                liabilities and stockholders' equity
            
            $
            2,357,794
            
            $
            3,447,953





See
      accompanying notes to unaudited condensed consolidated financial
      statements.




4




**MANHATTAN
      PHARMACEUTICALS, INC. AND SUBSIDIARIES**





(A
      Development Stage Company)


Condensed
      Consolidated Statements of Operations


(Unaudited)





**Three
                Months**
              **ended
                September 30,**
            
            **Nine
                months**
              **ended
                September 30,**
            
            **Cumulative
                period from August 6, 2001 (inception) to September
                30,****2007**
            
            **2006**
            
            **2007**
            
            **2006**
            
            **2007**Revenue
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            —Costs
                and expenses:Research
                and development
            
            
            1,808,958
            
            
            1,041,693
            
            
            7,360,040
            
            
            4,299,039
            
            
            25,313,396General
                and administrative
            
            
            898,063
            
            
            923,755
            
            
            2,865,161
            
            
            2,521,091
            
            
            13,109,254In-process
                research and development charge
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            11,887,807Impairment
                of intangible assets
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            1,248,230Loss
                on disposition of intangible assets
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            1,213,878Total
                operating expenses
            
            
            2,707,021
            
            
            1,965,448
            
            
            10,225,201
            
            
            6,820,130
            
            
            52,772,565Operating
                loss
            
            
            (2,707,021
            )
            
            (1,965,448
            )
            
            (10,225,201
            )
            
            (6,820,130
            )
            
            (52,772,565
            )Other
                (income) expense:Interest
                and other income
            
            
            (37,600
            )
            
            (68,740
            )
            
            (97,598
            )
            
            (253,929
            )
            
            (807,314
            )Interest
                expense
            
            
            -
            
            
            714
            
            
            475
            
            
            952
            
            
            26,033Realized
                gain on sale of marketable equity securities
            
            
            -
            
            
            -
            
            
            -
            
            
            (490
            )
            
            (76,032
            )Total
                other income
            
            
            (37,600
            )
            
            (68,026
            )
            
            (97,123
            )
            
            (253,467
            )
            
            (857,313
            )Net
                loss
            
            
            (2,669,421
            )
            
            (1,897,422
            )
            
            (10,128,078
            )
            
            (6,566,663
            )
            
            (51,915,252
            )Preferred
                stock dividends (including imputed amounts)
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (1,179,644
            )Net
                loss applicable to common shares
            
            $
            (2,669,421
            )
            $
            (1,897,422
            )
            $
            (10,128,078
            )
            $
            (6,566,663
            )
            $
            (53,094,896
            )Net
                loss per common share:Basic
                and diluted
            
            $
            (0.04
            )
            $
            (0.03
            )
            $
            (0.15
            )
            $
            (0.11
            )Weighted
                average shares of common stock outstanding:Basic
                and diluted
            
            
            70,591,623
            
            
            60,120,038
            
            
            67,134,882
            
            
            60,109,737





See
      accompanying notes to unaudited condensed consolidated financial
      statements.




5
 
  **MANHATTAN
        PHARMACEUTICALS, INC. AND SUBSIDIARIES**
 (A
        Development Stage Company)
 
 Condensed
        Consolidated Statement of Stockholders' Equity (Deficiency)
 (Unaudited)
 **Series
                      A convertiblepreferred stock**
                
                **Common
                    stock**
                
                **Additionalpaid-in**
                  **capital**
                
                **Subscription**
                  **receivable**
                
                **Deficit
                        accumulated during development**
                  **stage**
                
                **payable
                      in Series A preferred**
                  **shares**
                
                **Accumulated
                      other comprehensive**
                  **income
                    (loss)**
                
                **Unearned
                      consulting**
                  **services**
                
                **Total
                      stock- holders'equity**
                  **(deficiency)****Shares**
                
                **Amount**
                
                **Shares**
                
                **Amount**Stock
                      issued at $0.0004 per share for subscription
                      receivable
                
                
                —
                
                $
                —
                
                
                10,167,741
                
                $
                10,168
                
                $
                (6,168
                )
                $
                (4,000
                )
                $
                —
                
                $
                —
                
                $
                —
                
                $
                —
                
                $
                —Net
                    loss
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                (56,796
                )
                
                —
                
                
                —
                
                
                —
                
                
                (56,796
                )Balance
                    at December 31, 2001
                
                
                —
                
                
                —
                
                
                10,167,741
                
                
                10,168
                
                
                (6,168
                )
                
                (4,000
                )
                
                (56,796
                )
                
                —
                
                
                —
                
                
                —
                
                
                (56,796
                )Proceeds
                    from subscription receivable
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                4,000
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                4,000Stock
                    issued at $0.0004 per share for license rights
                
                
                —
                
                
                —
                
                
                2,541,935
                
                
                2,542
                
                
                (1,542
                )
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                1,000Stock
                    options issued for consulting services
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                60,589
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                (60,589
                )
                
                —Amortization
                    of unearned consulting services
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                22,721
                
                
                22,721Common
                    stock issued at $0.63 per share, net of expenses
                
                
                —
                
                
                —
                
                
                3,043,332
                
                
                3,043
                
                
                1,701,275
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                1,704,318Net
                    loss
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                
                
                
                —
                
                
                (1,037,320
                )
                
                —
                
                
                —
                
                
                —
                
                
                (1,037,320
                )Balance
                    at December 31, 2002
                
                
                —
                
                
                —
                
                
                15,753,008
                
                
                15,753
                
                
                1,754,154
                
                
                —
                
                
                (1,094,116
                )
                
                —
                
                
                —
                
                
                (37,868
                )
                
                637,923Common
                    stock issued at $0.63 per share, net of expenses
                
                
                —
                
                
                —
                
                
                1,321,806
                
                
                1,322
                
                
                742,369
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                743,691Effect
                    of reverse acquisition
                
                
                —
                
                
                —
                
                
                6,287,582
                
                
                6,287
                
                
                2,329,954
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                2,336,241Amortization
                    of unearned consulting costs
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                37,868
                
                
                37,868Unrealized
                    loss on short-term investments
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                (7,760
                )
                
                —
                
                
                (7,760
                )Payment
                    for fractional shares for stock combination
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                (300
                )
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                (300
                )Preferred
                    stock issued at $10 per share, net of expenses
                
                
                1,000,000
                
                
                1,000
                
                
                —
                
                
                —
                
                
                9,045,176
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                9,046,176Imputed
                    preferred stock dividend
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                418,182
                
                
                —
                
                
                (418,182
                )
                
                —
                
                
                
                
                
                
                
                
                —Net
                    loss
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                (5,960,907
                )
                
                —
                
                
                —
                
                
                —
                
                
                (5,960,907
                )Balance
                    at December 31, 2003
                
                
                1,000,000
                
                
                1,000
                
                
                23,362,396
                
                
                23,362
                
                
                14,289,535
                
                
                —
                
                
                (7,473,205
                )
                
                —
                
                
                (7,760
                )
                
                —
                
                
                6,832,932Exercise
                    of stock options
                
                
                —
                
                
                —
                
                
                27,600
                
                
                27
                
                
                30,073
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                30,100Common
                    stock issued at $1.10, net of expenses
                
                
                —
                
                
                —
                
                
                3,368,952
                
                
                3,369
                
                
                3,358,349
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                3,361,718Preferred
                    stock dividend accrued
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                (585,799
                )
                
                585,799
                
                
                —
                
                
                —
                
                
                —Preferred
                    stock dividends paid by issuance of shares
                
                
                24,901
                
                
                25
                
                
                —
                
                
                —
                
                
                281,073
                
                
                —
                
                
                —
                
                
                (282,388
                )
                
                —
                
                
                —
                
                
                (1,290
                )Conversion
                    of preferred stock to common stock at $1.10 per share
                
                
                (170,528
                )
                
                (171
                )
                
                1,550,239
                
                
                1,551
                
                
                (1,380
                )
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —Warrants
                    issued for consulting services
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                125,558
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                (120,968
                )
                
                4,590Amortization
                    of unearned consulting costs
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                100,800
                
                
                100,800Unrealized
                      gain on short-term investments and reversal of unrealized loss
                      on
                      short-term investments
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                20,997
                
                
                —
                
                
                20,997Net
                    loss
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                (5,896,031
                )
                
                —
                
                
                —
                
                
                —
                
                
                (5,896,031
                )Balance
                    at December 31, 2004
                
                
                854,373
                
                
                854
                
                
                28,309,187
                
                
                28,309
                
                
                18,083,208
                
                
                —
                
                
                (13,955,035
                )
                
                303,411
                
                
                13,237
                
                
                (20,168
                )
                
                4,453,816Common
                    stock issued at $1.11 and $1.15, net of expenses
                
                
                —
                
                
                —
                
                
                11,917,680
                
                
                11,918
                
                
                12,238,291
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                12,250,209Common
                        stock issued to vendor at $1.11 per share in satisfaction
                        of accounts
                        payable
                
                
                —
                
                
                —
                
                
                675,675
                
                
                676
                
                
                749,324
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                750,000Exercise
                    of stock options
                
                
                —
                
                
                —
                
                
                32,400
                
                
                33
                
                
                32,367
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                32,400Exercise
                    of warrants
                
                
                —
                
                
                —
                
                
                279,845
                
                
                279
                
                
                68,212
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                68,491Preferred
                    stock dividend accrued
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                (175,663
                )
                
                175,663
                
                
                —
                
                
                —
                
                
                —Preferred
                    stock dividends paid by issuance of shares
                
                
                41,781
                
                
                42
                
                
                —
                
                
                —
                
                
                477,736
                
                
                —
                
                
                —
                
                
                (479,074
                )
                
                —
                
                
                —
                
                
                (1,296
                )Conversion
                    of preferred stock to common stock at $1.10 per share
                
                
                (896,154
                )
                
                (896
                )
                
                8,146,858
                
                
                8,147
                
                
                (7,251
                )
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —Share-based
                    compensation
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                66,971
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                20,168
                
                
                87,139Reversal
                    of unrealized gain on short-term investments
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                (12,250
                )
                
                —
                
                
                (12,250
                )Stock
                    issued in connection with acquisition of Tarpan Therapeutics,
                    Inc.
                
                
                —
                
                
                —
                
                
                10,731,052
                
                
                10,731
                
                
                11,042,253
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                11,052,984Net
                    loss
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                (19,140,997
                )
                
                —
                
                
                —
                
                
                —
                
                
                (19,140,997
                )Balance
                    at December 31, 2005
                
                
                —
                
                
                —
                
                
                60,092,697
                
                
                60,093
                
                
                42,751,111
                
                
                —
                
                
                (33,271,695
                )
                
                —
                
                
                987
                
                
                —
                
                
                9,540,496Cashless
                    exercise of warrants
                
                
                —
                
                
                —
                
                
                27,341
                
                
                27
                
                
                (27
                )
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —Share-based
                    compensation
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                1,675,499
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                1,675,499Unrealized
                    loss on short-term investments
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                (987
                )
                
                —
                
                
                (987
                )Costs
                    associated with private placement
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                (15,257
                )
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                (15,257
                )Net
                    loss
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                (9,695,123
                )
                
                —
                
                
                —
                
                
                —
                
                
                (9,695,123
                )Balance
                    at December 31, 2006
                
                
                —
                
                
                —
                
                
                60,120,038
                
                
                60,120
                
                
                44,411,326
                
                
                —
                
                
                (42,966,818
                )
                
                —
                
                
                —
                
                
                —
                
                
                1,504,628Common
                    stock issued at $0.84 and $0.90, net of expenses
                
                
                —
                
                
                —
                
                
                10,185,502
                
                
                10,186
                
                
                7,841,999
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                7,852,185Common
                        stock issued to directors at $0.72 per share in satisfaction
                        of accounts
                        payable
                
                
                —
                
                
                —
                
                
                27,776
                
                
                28
                
                
                19,972
                
                
                
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                20,000Common
                      stock issued in connection with in-licensing agreement at $0.90
                      per
                      share
                
                
                —
                
                
                —
                
                
                125,000
                
                
                125
                
                
                112,375
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                112,500Common
                        stock issued in connection with in-licensing agreement at
                        $0.80 per
                        share
                
                
                —
                
                
                —
                
                
                150,000
                
                
                150
                
                
                119,850
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                120,000Share-based
                    compensation
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                1,078,185
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                1,078,185Exercise
                    of warrants
                
                
                —
                
                
                —
                
                
                10,327
                
                
                15
                
                
                7,219
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                7,234Cashless
                    exercise of warrants
                
                
                —
                
                
                —
                
                
                5,589
                
                
                —
                
                
                (6
                )
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                (6
                )Net
                    loss
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                -
                
                
                —
                
                
                (10,128,078
                )
                
                —
                
                
                —
                
                
                —
                
                
                (10,128,078
                )Balance
                    at September 30, 2007
                
                
                —
                
                $
                —
                
                
                70,624,232
                
                $
                70,624
                
                $
                53,590,920
                
                $
                —
                
                $
                (53,094,896
                )
                $
                —
                
                $
                —
                
                $
                —
                
                $
                566,648
 See
          accompanying notes to unaudited condensed consolidated financial
          statements.
  6
  **MANHATTAN
          PHARMACEUTICALS, INC. AND SUBSIDIARIES**
 
 (A
          Development Stage Company)
 Condensed
          Consolidated Statements of Cash Flows
 (Unaudited)
 
 **Cumulative****period
                    from****August
                    6, 2001****Nine
                    months
                    ended**
                
                **(inception)
                    to****September
                    30,**
                
                **September
                    30,****2007**
                
                **2006**
                
                **2007**Cash
                    flows from operating activities:Net
                    loss
                
                $
                (10,128,078
                )
                $
                (6,566,663
                )
                $
                (51,915,252
                )Adjustments
                    to reconcile net loss tonet
                    cash used in operating activities:Share-based
                    compensation
                
                
                1,078,185
                
                
                945,858
                
                
                3,002,212Shares
                    issued in connection with in-licensing agreements
                
                
                232,500
                
                
                -
                
                
                232,500Amortization
                    of intangible assets
                
                
                -
                
                
                -
                
                
                145,162Gain
                    on sale of marketable equity securities
                
                
                -
                
                
                (490
                )
                
                (76,032
                )Depreciation
                
                
                40,406
                
                
                44,581
                
                
                187,886Non
                    cash portion of in-process research and development charge
                
                
                -
                
                
                -
                
                
                11,721,623Loss
                    on impairment and disposition of intangible assets
                
                
                -
                
                
                -
                
                
                2,462,108Other
                
                
                -
                
                
                -
                
                
                5,590Changes
                    in operating assets and liabilities, net of acquisitions:(Increase)/decrease
                    in prepaid expenses and other current assets
                
                
                62,425
                
                
                (554,274
                )
                
                (143,916
                )Increase
                    in other assets
                
                
                -
                
                
                -
                
                
                (70,506
                )Increase/(decrease)
                    in accounts payable
                
                
                (520,806
                )
                
                (531,941
                )
                
                1,272,704Increase
                    in accrued expenses
                
                
                388,627
                
                
                280,405
                
                
                398,335Net
                    cash used in operating activities
                
                
                (8,846,741
                )
                
                (6,382,524
                )
                
                (32,777,586
                )Cash
                    flows from investing activities:Purchase
                    of property and equipment
                
                
                (9,135
                )
                
                (15,872
                )
                
                (230,636
                )Cash
                    paid in connection with acquisitions, net
                
                
                -
                
                
                -
                
                
                (26,031
                )Proceeds
                    from sale of short-term investments, net
                
                
                -
                
                
                500,000
                
                
                435,938Proceeds
                    from sale of license
                
                
                -
                
                
                -
                
                
                200,001Net
                    cash (used in) provided by investing activities
                
                
                (9,135
                )
                
                484,128
                
                
                379,272Cash
                    flows from financing activities:Repayments
                    of notes payable to stockholders
                
                
                -
                
                
                -
                
                
                (884,902
                )Payment
                    for fractional shares for preferred stock dividends
                
                
                -
                
                
                -
                
                
                (2,286
                )Proceeds
                    related to sale of common stock, net
                
                
                7,852,185
                
                
                (15,256
                )
                
                25,896,262Proceeds
                    from sale of preferred stock, net
                
                
                -
                
                
                -
                
                
                9,046,176Proceeds
                    from exercise of warrants and stock options
                
                
                7,228
                
                
                -
                
                
                138,219Other,
                    net
                
                
                -
                
                
                -
                
                
                237,500Net
                    cash provided by (used in) financing activities
                
                
                7,859,413
                
                
                (15,256
                )
                
                34,430,969Net
                    (decrease) increase in cash and cash equivalents
                
                
                (996,463
                )
                
                (5,913,652
                )
                
                2,032,655Cash
                    and cash equivalents at beginning of period
                
                
                3,029,118
                
                
                9,826,336
                
                
                —Cash
                    and cash equivalents at end of period
                
                $
                2,032,655
                
                $
                3,912,684
                
                $
                2,032,655Supplemental
                    disclosure of cash flow information:Interest
                    paid
                
                $
                475
                
                $
                952
                
                $
                26,033Supplemental
                    disclosure of noncash investing and financing activities:Common
                    stock issued in satisfaction of accounts payable
                
                $
                20,000
                
                $
                -
                
                $
                770,000Imputed
                    preferred stock dividend
                
                
                -
                
                
                -
                
                
                418,182Preferred
                    stock dividends accrued
                
                
                -
                
                
                -
                
                
                761,462Conversion
                    of preferred stock to common stock
                
                
                -
                
                
                -
                
                
                9,046,176Preferred
                    stock dividends paid by issuance of shares
                
                
                -
                
                
                -
                
                
                759,134Issuance
                    of common stock for acquisitions
                
                
                -
                
                
                -
                
                
                13,389,226Issuance
                    of common stock in connection with in-licensing agreements
                
                
                232,500
                
                
                -
                
                
                232,500Marketable
                    equity securities received in connection withsale
                    of license
                
                
                -
                
                
                -
                
                
                359,907Net
                    liabilities assumed over assets acquired in business
                    combination
                
                
                -
                
                
                -
                
                
                (675,416
                )Cashless
                    exercise of warrants
                
                
                6
                
                
                27
                
                
                33
 
 See
          accompanying notes to unaudited condensed consolidated financial
          statements.
  7
  MANHATTAN
        PHARMACEUTICALS, INC. and SUBSIDIARIES
 (A
        Development Stage Company)
 
 NOTES
        TO
        CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)




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




**Basis
      of Presentation**





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





As
      of
      December 31, 2006 all of the Company’s subsidiaries had either been dissolved or
      merged into Manhattan. As a result, the Company had no subsidiaries during
      the
      three and nine month periods ended September 30, 2007.





As
      of
      September 30, 2007, the Company has not generated any revenues from its
      operations and is considered to be a development stage company.





**Reclassifications**





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





**Segment
      Reporting**





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





**Income
      Taxes**





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





8


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


**New
      Accounting Pronouncements**





In
      March
      2007, the FASB issued FASB Staff Position EITF 07-03 (“FSP 07-03”), Accounting
      for Nonrefundable Advance Payments for Goods or Services to Be Used in Future
      Research and Development Activities. FSP 07-03 addresses whether nonrefundable
      advance payments for goods or services that will be used or rendered for
      research and development activities should be expensed when the advance payment
      is made or when the research and development activity has been performed. FSP
      07-03 will be effective for fiscal years beginning after December 15, 2007,
      and interim periods within those fiscal years. The Company currently believes
      that the adoption of FSP 07-03 will have no material impact on its financial
      position or results of operations.




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





The
      Company incurred a net loss of $10,128,078 and negative cash flows from
      operating activities of $8,866,741 for the nine months ended September 30,
      2007.
      The net loss from date of inception, August 6, 2001, to September 30, 2007
      amounts to $51,915,252.





Management
      believes that the Company will continue to incur net losses through at least
      September 30, 2008, and for the foreseeable future thereafter. Based on the
      resources of the Company available at September 30, 2007, management believes
      that the Company will need additional equity or debt financing or will need
      to
      generate revenues through licensing of its products or entering into strategic
      alliances to be able to sustain its operations into 2008. Furthermore, we will
      need additional financing thereafter to complete development and
      commercialization of our product candidates.





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




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





Basic
      net
      loss per common share is calculated by dividing net loss applicable to common
      shares by the weighted-average number of common shares outstanding for the
      period. Diluted net loss per common share is the same as basic net loss per
      common share, since potentially dilutive securities from the assumed exercise
      of
      stock options and stock warrants would have an antidilutive effect because
      the
      Company incurred a net loss during each period presented. The amounts of
      potentially dilutive securities excluded from the calculation of diluted net
      loss per share were 18,634,521 and 13,422,729 as of September 30, 2007 and
      2006,
      respectively.





9


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




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





Effective
      January 1, 2006, the Company adopted Statement of Financial Accounting Standards
      No. 123(R), “Share-Based Payment,” (“Statement 123(R)”) for employee options
      using the modified prospective transition method. Statement 123(R) revised
      Statement 123 “Accounting for Stock-based Compensation” to eliminate the option
      to use the intrinsic value method and required the Company to expense the fair
      value of all employee options over the vesting period. Under the modified
      prospective transition method, the Company recognized compensation cost for
      the
      three and nine month periods ending September 30, 2007 and 2006 based on the
      grant date fair value estimated in accordance with Statement 123(R). This
      includes (a) period compensation cost related to share-based payments granted
      prior to, but not yet vested, as of January 1, 2006, based on the grant date
      fair value estimated in accordance with the original provisions of Statement
      123; and (b) period compensation cost related to share-based payments granted
      on
      or after January 1, 2006. In accordance with the modified prospective method,
      the Company has not restated prior period results.





The
      Company recognized compensation expense related to stock option grants on a
      straight-line basis over the vesting period. The Company recognized share-based
      compensation cost of $371,636 and $326,730 for the three month periods ended
      September 30, 2007 and 2006 respectively, and $1,078,185 and $945,858 for the
      nine month periods ended September 30, 2007 and 2006, respectively in accordance
      with Statement 123(R). The Company did not capitalize any share-based
      compensation cost.





Options
      granted to consultants and other non-employees are accounted for in accordance
      with Emerging Issues Task Force (“EITF”) No. 96-18 "Accounting for Equity
      Instruments That Are Issued to Other than Employees for Acquiring, or in
      Conjunction with Selling, Goods or Services", and Financial Accounting Standards
      Board Interpretation No 28 “Accounting for Stock Appreciation Rights and Other
      Variable Option or Award Plans”.  Accordingly, such options are recorded at
      fair value at the date of grant and subsequently adjusted to fair value at
      the end of each reporting period until such options vest, and the fair
      value of the options, as adjusted, is amortized to consulting expense over
      the related vesting period.  As a result of adjusting consultant and other
      non-employee options to fair value as of September 30, 2007 and 2006, net of
      amortization, the Company recognized share-based compensation cost (credits)
      of
      $(8,767) and $(6,775), for the three month periods ended September 30, 2007
      and
      2006, respectively, and $(5,212) and $(33,096) for the nine month periods ended
      September 30, 2007 and 2006, respectively.





10


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


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


**Three
                    months ended September 30,**
                
                **Nine
                    months endedSeptember 30,****2007**
                
                **2006**
                
                **2007**
                
                **2006**General
                    and administrative expense:Share-based
                    employee compensation costs
                
                $
                254,870
                
                $
                225,394
                
                $
                726,414
                
                $
                670,371Share-based
                    consultant and non-employee (credits) costs
                
                
                —
                
                
                (2,962
                )
                
                10,550
                
                
                (25,823
                )Total
                    general and administrative expense
                
                $
                254,870
                
                $
                222,432
                
                $
                736,964
                
                $
                644,548Research
                    and development expense:Share-based
                    employee compensation costs
                
                $
                125,533
                
                $
                108,111
                
                $
                356,983
                
                $
                308,583Share-based
                    consultant and non-employee (credits) costs
                
                
                (8,767
                )
                
                (3,813
                )
                
                (15,762
                )
                
                (7,273
                )Total
                    research and development expense
                
                $
                116,766
                
                $
                104,298
                
                $
                341,221
                
                $
                301,310Total
                    share-based costs
                
                $
                371,636
                
                $
                326,730
                
                $
                1,078,185
                
                $
                945,858




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





11


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


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


**Three
                  months ended September 30,**
              
              **Nine
                  months ended September 30,****2007**
              
              **2006**
              
              **2007**
              
              **2006**Expected
                  Volatility
              
              
              93
              %
              
              55
              %
              
              80%
                  - 93
              %
              
              55
              %Dividend
                  yield
              
              
              —
              
              
              —
              
              
              —
              
              
              —Expected
                  term (in years)
              
              
              6
                  - 8
              
              
              6
              
              
              6
                  - 8
              
              
              6Risk-free
                  interest rate
              
              
              4.38%
                  - 4.96
              %
              
              4.88
              %
              
              4.38%
                  - 4.96
              %
              
              4.88
              %




The
      Company has shareholder-approved stock incentive plans for employees under
      which
      it has granted non-qualified and incentive stock options. In December 2003,
      the
      Company established the 2003 Stock Option Plan (the “2003 Plan”), which provided
      for the granting of up to 5,400,000 options to officers, directors, employees
      and consultants for the purchase of common stock. The Company increased the
      number of shares of common stock reserved for issuance under the 2003 Plan
      in
      August 2005 by 2,000,000 shares and in May 2007 by 3,000,000 shares. At
      September 30, 2007, under the 2003 Plan, 10,400,000 shares of common stock
      were
      authorized for issuance. At September 30, 2007, under the 2003 Plan, options
      to
      purchase 7,096,598 shares of common stock were outstanding. In addition, 27,776
      shares of common stock were issued under the 2003 Plan leaving 3,275,626 shares
      of common stock reserved for future stock option grants as of September 30,
      2007. The options have a maximum term of 10 years and vest over a period
      determined by the Company’s Board of Directors (generally three years) and are
      issued at an exercise price equal to or greater than the fair market value
      of
      the shares at the date of grant. The 2003 Plan expires on December 10, 2013
      or
      when all options have been granted, whichever is sooner. Under
      the
      2003 Plan, the Company granted options to purchase an aggregate of 1,342,500
      shares of common stock during the nine months ended September 30, 2007 of which
      options to purchase 300,000 and 97,500 shares of common stock were granted
      at an
      exercise price of $0.72 per share to directors and employees, respectively,
      options to purchase 75,000 shares of common stock were granted to an employee
      at
      an exercise price of $0.82 per share, and options to purchase 870,000 shares
      of
      common stock were granted to officers at an exercise price of $0.95 per share.
      Additionally, on January 30, 2007, the Company’s non-employee directors agreed
      to accept an aggregate of 27,776 shares of the Company’s common stock, each
      valued at $0.72 per share (the closing sale price of the common stock on such
      date), in lieu of receiving $20,000 in aggregate cash fees owed to such
      directors for their services in 2006. Such shares were issued pursuant to the
      2003 plan.





In
      July
      1995, the Company established the 1995 Stock Option Plan (the”1995 Plan”), which
      provided for the granting of options to purchase up to 130,000 shares of the
      Company’s common stock to officers, directors, employees and consultants. The
      1995 Plan was amended several times to increase the number of shares
      reserved for stock option grants. In June 2005, the 1995 Plan expired and no
      further options can be granted. As of September 30, 2007, options to purchase
      1,137,240 shares were outstanding under the 1995 Plan and no shares were
      reserved for future stock option grants.





12


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


A
      summary
      of the status of the Company’s outstanding stock options as of September 30,
      2007 and changes during the nine months then ended is presented
      below:


**Weighted****Weighted**
              
              **Average****average**
              
              **Remaining**
              
              **Aggregate****exercise**
              
              **Contractual**
              
              **Intrinsic****Shares**
              
              **price**
              
              **Term
                  (years)**
              
              **Value**Outstanding
                  atDecember
                  31, 2006
              
              
              7,000,504
              
              $
              1.31GrantedOfficers
              
              
              870,000Directors
              
              
              300,000Employees
              
              
              172,500Total
                  Granted
              
              
              1,342,500
              
              
              0.88Exercised
              
              
              -
              
              
              -Cancelled
              
              
              (109,166
              )
              
              0.95Outstanding
                  atSeptember
                  30, 2007
              
              
              8,233,838
              
              $
              1.25
              
              
              7.19
              
              $
              -Options
                  exercisable atSeptember
                  30, 2007
              
              
              5,247,546
              
              $
              1.29
              
              
              6.74
              
              $
              -Weighted-average
                          fair value of options granted during the nine months ended
                          September 30,
                          2007
              
              $
              0.63





As
      of
      September 30, 2007, the total compensation cost related to non-vested option
      awards not yet recognized is $1,039,009. The weighted average period over which
      it is expected to be recognized is approximately 0.9 years.





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





13


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


**(5)**  **COMMITMENTS
      AND CONTINGENCIES**





**Research
      and development contracts**




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





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





Expenses
      associated with the recently concluded clinical trials of
      Oleoyl-estrone  in
      common
      obesity and morbid obesity were recognized on this activity-based method. At
      September 30, 2007 there are no remaining financial commitments for these
      clinical trials.





The
      Company is developing PTH (1-34) as a topical treatment for psoriasis. Expenses
      associated with the manufacture of clinical and non-clinical supplies of PTH
      (1-34) are recognized on this activity based method. At September 30, 2007
      we
      recognized prepaid expense of $30,000 and accrued expenses of $100,135. The
      remaining financial commitment related to the manufacture of PTH (1-34) is
      negligible.





During
      the three months ended September 30, 2007 we entered into an agreement with
      Therapeutics, Inc. for the conduct of a clinical trial of PTH (1-34). The total
      amount payable under the agreement is approximately $845,000. At September
      30,
      2007 we recognized research and development expense and accrued expenses of
      approximately $60,000. The remaining financial commitment related to the conduct
      of the clinical trial is approximately $785,000. This clinical trial is expected
      to conclude in the second quarter of 2008.




**Swiss
      Pharma Contract LTD**




Swiss
      Pharma Contract LTD (“Swiss Pharma”), a clinical site that the Company used in
      one of its obesity trials, gave notice to the Company that Swiss Pharma believes
      it is entitled to receive an additional payment of $322,776 for services in
      connection with that clinical trial. While the contract between the Company
      and
      Swiss Pharma provides for additional payments if certain conditions are met,
      Swiss Parma has not specified which conditions they believe have been achieved
      and the Company does not believe that Swiss Pharma is entitled to additional
      payments and has not accrued any of these costs as of September 30, 2007. The
      contract between the Company and Swiss Pharma provides for arbitration in the
      event of a dispute, such as this claim for an additional payment. Swiss Pharma
      has filed a demand for arbitration. As the Company does not believe that Swiss
      Pharma is entitled to additional payments, it intends to defend its position
      in
      arbitration.




14


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


**Contentions
      of a former employee**




In
      February 2007, a former employee of the Company alleged an ownership interest
      in
      two of the Company’s provisional patent applications covering our discontinued
      product development program for Oleoyl-estrone. Also, without articulating
      precise legal claims, the former employee contends that the Company wrongfully
      characterized the former employee’s separation from employment as a resignation
      instead of a dismissal in an effort to harm the former employee’s immigration
      sponsorship efforts, and, further, to wrongfully deprive the former employee
      of
      the former employee’s alleged rights in two of the Company’s provisional patent
      applications.  The former employee is seeking an unspecified amount in
      damages. The Company refutes the former employee’s contentions and intends to
      vigorously defend itself should the former employee file claims against the
      Company. There have been no further developments with respect to these
      contentions.




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





On
      March
      30, 2007, the Company entered into a series of subscription agreements with
      various institutional and other accredited investors for the issuance and sale
      in a private placement of an aggregate of 10,185,502 shares of its common stock
      for total net proceeds of approximately $7.85 million, after deducting
      commissions and other costs of the transaction. Of the total amount of shares
      issued, 10,129,947 were sold at a per share price of $0.84, and an additional
      55,555 shares were sold to an entity affiliated with a director of the Company,
      at a per share price of $0.90, the closing sale price of the common stock on
      March 29, 2007. Pursuant to the subscription agreements, the Company also issued
      to the investors 5-year warrants to purchase an aggregate of 3,564,897 shares
      of
      common stock at an exercise price of $1.00 per share. The warrants are
      exercisable during the period commencing September 30, 2007 and ending March
      30,
      2012. Gross and net proceeds from the private placement were $8,559,155 and
      $7,852,185, respectively.





Pursuant
      to these subscription agreements the Company filed a registration statement
      on
      Form S-3 covering the resale of the shares issued in the private placement,
      including the shares issuable upon exercise of the investor warrants and the
      placement agent warrants, with the Securities and Exchange Commission on May
      9,
      2007, which was declared effective by the Securities and Exchange Commission
      on
      May 18, 2007.





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





15


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


**(7)**  **RECENTLY
      COMPLETED IN-LICENSING TRANSACTIONS**





**Altoderm
      License Agreement**




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





**Altolyn
      License Agreement**




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




**Hedrin
      License Agreement**




On
      June
      26, 2007, the Company entered into an exclusive license agreement for “Hedrin”
(the “Hedrin Agreement”) with T&R and Kerris, S.A. (“Kerris”). Pursuant to
      the Hedrin Agreement, the Company has acquired an exclusive North American
      license to certain patent rights and other intellectual property relating to
      Hedrin(TM), a non-insecticide product candidate for the treatment of head lice.
      In addition, on June 26, 2007, the Company entered into a Supply Agreement
      with
      T&R pursuant to which T&R will be the Company’s exclusive supplier of
      Hedrin product.




16


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


In
      consideration for the license, the Company issued to T&R and Kerris
      (jointly, the “Licensor”) a combined total of 150,000 shares of its common stock
      valued at $120,000. In addition, the Company also made a cash payment of
      $600,000 to the Licensor. These amounts are included in research and development
      expense. Further, the Company agreed to make future milestone payments to the
      Licensor in the aggregate amount of $2,500,000 upon the achievement of various
      clinical, regulatory, and patent issuance milestones, as well as up to
      $2,500,000 in a one-time success fee based on aggregate sales of the product
      by
      the Company and its licensees of at least $50,000,000. The Company also agreed
      to pay royalties of 8% (or, under certain circumstances, 4%) on net sales of
      licensed products. The Company’s exclusivity under the License Agreement is
      subject to an annual minimum royalty payment of $1,000,000 (or, under certain
      circumstances, $500,000) in each of the third through seventh years following
      the first commercial sale of Hedrin. The Company may sublicense its rights
      under
      the Hedrin Agreement with the consent of Licensor and the proceeds resulting
      from such sublicenses will be shared with the Licensor.





Pursuant
      to the Supply Agreement, the Company has agreed that it and its sublicensees
      will purchase their respective requirements of the Hedrin product from T&R
      at agreed upon prices. Under certain circumstances where T&R is unable to
      supply Hedrin products in accordance with the terms and conditions of the Supply
      Agreement, the Company may obtain products from an alternative supplier subject
      to certain conditions. The term of the Supply Agreement ends upon termination
      of
      the Hedrin Agreement.




**(8)**  **RECENTLY
      DISCONTINUED PRODUCT DEVELOPMENT PROGRAMS**





**Oleoyl-estrone
      - results of Phase 2a studies**





On
      July
      9, 2007 the Company announced the results of its two Phase 2a clinical trials
      of
      oral Oleoyl-estrone (“OE”). The results of both randomized, double-blind,
      placebo controlled studies, one in common obesity and the other in morbid
      obesity, demonstrated no statistically or clinically meaningful placebo adjusted
      weight loss for any of the treatment arms evaluated. Based on these results,
      the
      Company is discontinuing its Oleoyl-estrone programs in both common obesity
      and
      morbid obesity.





**Propofol
      Lingual Spray**





On
      July
      9, 2007 the Company announced that it is discontinuing development and intends
      to pursue appropriate out-licensing opportunities for Propofol Lingual Spray
      for
      pre-procedural sedation.




17


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





**You
      should read the following discussion of our results of operations and financial
      condition in conjunction with our Annual Report on Form 10-KSB for the year
      ended December 31, 2006 (the “Annual Report”) and our financial statements
      as of and for the three and nine month periods ended September 30, 2007 included
      elsewhere in this report.**




We
      were
      incorporated in Delaware in 1993 under the name Atlantic Pharmaceuticals, Inc.
      and, in March 2000, we changed our name to Atlantic Technology Ventures, Inc.
      In
      2003, we completed a “reverse acquisition” of privately held Manhattan Research
      Development, Inc. In connection with this transaction, we also changed our
      name
      to Manhattan Pharmaceuticals, Inc.





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





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




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


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


·
            Hedrin,
                a novel, non-insecticide treatment for head
                lice;


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





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




We
      announced in July 2007 that we are discontinuing development of two product
      candidates, oral Oleoyl-estrone (“OE”) and Propofol Lingual Spray.





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




18


RESULTS
      OF OPERATIONS


NINE-MONTH
          PERIOD ENDED SEPTEMBER 30, 2007 VS
          2006
 **Nine
                  months ended September
                  30,**
              
              **Increase**
              
              **%
                  Increase****2007**
              
              **2006**
              
              **(decrease)**
              
              **(decrease)****Costs
                  and expenses*****Research
                  and development***Stock
                  based compensation
              
              $
              341,000
              
              $
              301,000
              
              $
              40,000
              
              
              13.3
              %In-license
                  and related fees
              
              $
              1,804,000
              
              $
              250,000
              
              $
              1,554,000
              
              
              621.6
              %Consulting
                  costs related to in-license activities
              
              $
              134,000
              
              $
              -
              
              $
              134,000
              
              
              N/AOther
                  research and development expense
              
              $
              5,081,000
              
              $
              3,748,000
              
              $
              1,333,000
              
              
              35.6
              %Total
                  research and development expense
              
              $
              7,360,000
              
              $
              4,299,000
              
              $
              3,061,000
              
              
              71.2
              %***General
                  and administrative***Stock
                  based compensation
              
              $
              737,000
              
              $
              645,000
              
              $
              92,000
              
              
              14.3
              %Other
                  general and administrative expense
              
              $
              2,128,000
              
              $
              1,876,000
              
              $
              252,000
              
              
              13.4
              %Total
                  general and administrative expense
              
              $
              2,865,000
              
              $
              2,521,000
              
              $
              344,000
              
              
              13.6
              %**Other
                  income**
              
              $
              97,000
              
              $
              253,000
              
              $
              (156,000
              )
              
              -61.7
              %**Net
                  loss**
              
              $
              (10,128,000
              )
              $
              (6,567,000
              )
              $
              3,561,000
              
              
              54.2
              %




During
      each of the nine months ended September 30, 2007 and 2006, we had no revenues,
      and are considered a development stage company. We do not expect to have
      revenues relating to our technologies prior to September 30, 2008, if at
      all.





For
      the
      nine months ended September 30, 2007 total research and development expense
      was
      $7,360,000 as compared to $4,299,000 for the nine months ended September 30,
      2006. The increase of $3,061,000, or 71.2% is primarily comprised of an increase
      of $1,804,000 in in-license and associated fees, an increase in consulting
      costs
      related to in-license activities of $134,000, an increase of $40,000 in stock
      based compensation, an increase of $446,000 in development costs for PTH, an
      increase in development costs for Altoderm, Altolyn and Hedrin of $424,000
      and
      an increase of $514,000 in clinical activities of Oleoyl-estrone, partially
      offset by decreases in development costs for Propofol of $51,000. Research
      and
      development expense for the nine months ended September 30, 2007 includes
      non-cash costs of $657,000, comprised of $233,000 of in-license fees paid in
      common stock, $84,000 of consulting costs related to in-license activities
      paid
      in warrants to purchase common stock and $341,000 in stock based compensation.
      By comparison research and development costs for the nine months ended September
      30, 2006 includes non-cash costs of $301,000, comprised entirely of stock based
      compensation.




For
      the
      nine months ended September 30, 2007, total general and administrative expense
      was $2,865,000 as compared to $2,521,000 for the nine months ended September
      30,
      2006. The increase of $344,000, or 13.6%, is primarily due to increases of
      $92,000 in stock based compensation, of $79,000 in spending on business
      development activities, of $71,000 in payroll and related costs, of $88,000
      in
      director compensation costs and of $31,000 in professional fees.





For
      the
      nine months ended September 30, 2007, other income was $97,000 as compared
      to
      $253,000 for the nine months ended September 30, 2006. The decrease of $156,000,
      or 61.7%, is due primarily to a decrease in interest income which resulted
      from
      lower average balances in interest bearing cash and short-term investment
      accounts.




19





Net
      loss
      for the nine months ended September 30, 2007 was $10,128,000 as compared to
      $6,567,000 for the nine months ended September 30, 2006. The increase of
      $3,561,000, or 54.2%, in net loss is principally attributable to an increase
      in
      in-license and related fees of $1,804,000, increases in spending on research
      and
      development programs of $1,333,000, an increase in general and administrative
      expense of $344,000 and a decrease in other income of $156,000.





THREE-MONTH
      PERIOD ENDED SEPTEMBER 30, 2007 VS 2006


**Quarter
                  ended September 30,**
              
              **Increase**
              
              **%
                  Increase****2007**
              
              **2006**
              
              **(decrease)**
              
              **(decrease)****Costs
                  and expenses*****Research
                  and development***Stock
                  based compensation
              
              $
              117,000
              
              $
              104,000
              
              $
              13,000
              
              
              12.5
              %Other
                  research and development expense
              
              $
              1,692,000
              
              $
              938,000
              
              $
              754,000
              
              
              80.4
              %Total
                  research and development expense
              
              $
              1,809,000
              
              $
              1,042,000
              
              $
              767,000
              
              
              73.6
              %***General
                  and administrative***Stock
                  based compensation
              
              $
              255,000
              
              $
              222,000
              
              $
              33,000
              
              
              14.9
              %Other
                  general and administrative expense
              
              $
              643,000
              
              $
              702,000
              
              $
              (59,000
              )
              
              -8.4
              %Total
                  general and administrative expense
              
              $
              898,000
              
              $
              924,000
              
              $
              (26,000
              )
              
              -2.8
              %**Other
                  income**
              
              $
              37,000
              
              $
              68,000
              
              $
              (31,000
              )
              
              -45.6
              %**Net
                  loss**
              
              $
              (2,670,000
              )
              $
              (1,898,000
              )
              $
              772,000
              
              
              40.7
              %




During
      each of the quarters ended September 30, 2007 and 2006, we had no revenues,
      and
      are considered a development stage company. We do not expect to have revenues
      relating to our technologies prior to September 30, 2008, if at
      all.





For
      the
      quarter ended September 30, 2007 total research and development expense was
      $1,809,000 as compared to $1,042,000 for the quarter ended September 30, 2006.
      The increase of $767,000, or 73.6%, is primarily attributable to an increase
      of
      $699,000 in development costs for PTH, an increase in development costs for
      Altoderm, Altolyn and Hedrin of $307,000 and an increase in stock based
      compensation of $13,000 partially offset by decreases in development costs
      for
      Oleoyl-estrone and Propofol of $252,000.





For
      the
      three months ended September 30, 2007, total general and administrative expense
      was $898,000 as compared to $924,000 for the three months ended September 30,
      2006. The decrease of $26,000, or 2.8%, is primarily due to decreases of $23,000
      in spending on business development activities, of $26,000 in payroll and
      related costs, of $26,000 in insurance costs and of $16,000 in travel and
      entertainment costs partially offset by increases of $33,000 in stock based
      compensation, of $25,000 in directors’ fees and of $19,000 in professional
      fess.




For
      the
      three months ended September 30, 2007, other income was $37,000 as compared
      to
      $68,000 for the three months ended September 30, 2006. The decrease of $31,000,
      or 45.6%, is due primarily to a decrease in interest income which resulted
      from
      lower average balances in interest bearing cash and short-term investment
      accounts.




20





Net
      loss
      for the three months ended September 30, 2007 was $2,670,000 as compared to
      $1,898,000 for the three months ended September 30, 2006. The increase of
      $772,000, or 40.7%, in net loss is principally attributable to an increase
      in
      research and development expense of $767,000, a decrease in general and
      administrative expense of $26,000 and a decrease in other income of
      $31,000.





LIQUIDITY
      AND CAPITAL RESOURCES




From
      inception to September 30, 2007, we incurred a deficit during the development
      stage of $53.1 million primarily as a result of our net losses and preferred
      stock dividends. We expect to continue to incur additional losses through at
      least September 30, 2008 and for the foreseeable future thereafter. These losses
      have been incurred through a combination of research and development activities
      related to the various technologies under our control and expenses supporting
      those activities.





We
      have
      financed our operations since inception primarily through equity financing
      and
      our licensing and sale of certain residual royalty rights. During the nine
      months ended September 30, 2007, we had a net decrease in cash and cash
      equivalents of $1.0 million. This decrease resulted principally from net cash
      used in operating activities of $8.8 million partially offset by net proceeds
      received from the sale of common stock of $7.9 million. Total liquid resources
      as of September 30, 2007 were $2.0 million compared to $3.0 million at December
      31, 2006.





*Liquidity*




As
      of
      September 30, 2007, we had working capital of $0.4 million compared to $1.4
      million at December 31, 2006. This $1.0 million decrease in working capital
      is
      primarily due to net cash used in operating activities of $8.8 million partially
      offset by net proceeds received from the sale of common stock of approximately
      $7.9 million offset.





*March
      2007 Private Placement*




On
      March
      30, 2007, we entered into a series of subscription agreements with various
      institutional and other accredited investors for the issuance and sale in a
      private placement of an aggregate of 10,185,502 shares of our common stock
      for
      net proceeds of approximately $7.9 million. Of the total amount of shares
      issued, 10,129,947 were sold at a per share price of $0.84, and an additional
      55,555 shares were sold to an entity affiliated with a director of the Company,
      at a per share price of $0.90, the closing sale price of the common stock on
      March 29, 2007. Pursuant to the subscription agreements, we also issued to
      the
      investors 5-year warrants to purchase an aggregate of 3,564,897 shares of our
      common stock at an exercise price of $1.00 per share. The warrants are
      exercisable during the period commencing September 30, 2007 and ending March
      30,
      2012.





Pursuant
      to these subscription agreements the Company filed a registration statement
      covering the resale of the shares issued in the private placement, including
      the
      shares issuable upon exercise of the investor warrants and the placement agent
      warrants, with the Securities and Exchange Commission on May 9, 2007, which
      was
      declared effective by the Securities and Exchange Commission on May 18,
      2007.





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




21





*Commitments
      and Contingencies*




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





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





Expenses
      associated with the recently concluded clinical trials in common obesity and
      morbid obesity were recognized on this activity based basis. At September 30,
      2007 we recognized prepaid expense of $14,000 and accrued expenses of $140,000
      related to these clinical trials. There are no remaining financial commitments
      for these clinical trials.





The
      Company is developing PTH (1-34) as a topical treatment for psoriasis. Expenses
      associated with the manufacture of clinical and non-clinical supplies of PTH
      (1-34) are recognized on this activity based method. At September 30, 2007
      we
      recognized prepaid expense of $30,000 and accrued expenses of $100,135. The
      remaining financial commitment related to the manufacture of PTH (1-34) is
      negligible.





During
      the three months ended September 30, 2007 we entered into an agreement
      with Therapeutics, Inc. for the conduct of a clinical trial of PTH (1-34).
      The
      total amount payable under the agreement is approximately $845,000. At September
      30, 2007 we recognized research and development expense and accrued expenses
      of
      approximately $60,000. The remaining financial commitment related to the conduct
      of the clinical trial is approximately $785,000. This clinical trial is expected
      to conclude in the second quarter of 2008.





Swiss
      Pharma Contract LTD (“Swiss Pharma”), a clinical site that the Company used in
      one of its obesity trials, gave notice to the Company that Swiss Pharma believes
      it is entitled to receive an additional payment of $322,776 for services in
      connection with that clinical trial. While the contract between the Company
      and
      Swiss Pharma provides for additional payments if certain conditions are met,
      Swiss Parma has not specified which conditions they believe have been achieved
      and the Company does not believe that Swiss Pharma is entitled to additional
      payments and has not accrued any of these costs as of September 30, 2007. The
      contract between the Company and Swiss Pharma provides for arbitration in the
      event of a dispute, such as this claim for an additional payment. Swiss Pharma
      has filed a demand for arbitration. As the Company does not believe that Swiss
      Pharma is entitled to additional payments, it intends to defend its position
      in
      arbitration.





In
      February 2007, a former employee of the Company alleged an ownership interest
      in
      two of the Company’s provisional patent applications covering our discontinued
      product development program for Oleoyl-estrone. Also, without articulating
      precise legal claims, the former employee contends that the Company wrongfully
      characterized the former employee’s separation from employment as a resignation
      instead of a dismissal in an effort to harm the former employee’s immigration
      sponsorship efforts, and, further, to wrongfully deprive the former employee
      of
      the former employee’s alleged rights in two of the Company’s provisional patent
      applications.  The former employee is seeking an unspecified amount in
      damages. The Company refutes the former employee’s contentions and intends to
      vigorously defend itself should the former employee file claims against the
      Company. There have been no further developments with respect to these
      contentions.




22





*Capital
      Resources*




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




Our
      continued operations will depend on whether we are able to raise additional
      funds through various potential sources, such as equity and debt financing,
      other collaborative agreements, strategic alliances, and our ability to realize
      the full potential of our technology in development. Such additional funds
      may
      not become available on acceptable terms and there can be no assurance
      that any additional funding that we do obtain will be sufficient to meet our
      needs in the long term. Through
      September 30, 2007, substantially all of our financing has been through private
      placements of common stock, preferred stock and warrants to purchase common
      stock. Until our operations generate significant revenues and cash flows from
      operating activities, we will continue to fund operations from cash on hand
      and
      through the similar sources of capital previously described. We can give no
      assurances that any additional capital that we are able to obtain will be
      sufficient to meet our needs. Management
      believes that we will continue to incur net losses and negative cash flows
      from
      operating activities for the foreseeable future. Based on the resources
      available to us at September 30, 2007, management believes that we will need
      additional equity or debt financing or will need to generate revenues through
      licensing our products or entering into strategic alliances to be able to
      sustain our operations into 2008 and we will need additional financing
      thereafter until we can achieve profitability, if ever.




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





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




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




23





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




RESEARCH
      AND DEVELOPMENT PROJECTS




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





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





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





Due
      to
      the high response rate seen in patients in the Phase I/II trial with topical
      PTH
      (1-34), we believe that it may have an important clinical advantage over current
      topical psoriasis treatments.





A
      physician sponsored Investigational New Drug (IND) Phase 2a trial involving
      PTH
      (1-34) was initiated in December 2005, again under the auspices of Boston
      University, but in April 2006 we reported a delay in this planned Phase 2a
      clinical study due to a formulation issue. We have identified and resolved
      this
      issue, and a new formulation of topical PTH (1-34) has been
      produced.





A
      corporate IND application for the new formulation of topical PTH (1-34) was
      accepted by the U.S. Food and Drug Administration (FDA) in September 2007.
      In
      October 2007, the company announced that it had initiated and begun dosing
      in a
      Phase 2a multi-center, randomized, double-blind, vehicle-controlled, parallel
      group clinical study. This study will enroll and treat approximately 54 subjects
      in a 1:1:1 randomization of two doses of topical PTH (1-34) compared to vehicle
      for an eight week treatment period. The vehicle is the topical PTH (1-34)
      product without the active ingredient, PTH (1-34).




24





To
      date,
      we have incurred $4,586,000 of project costs related to our development of
      topical PTH (1-34). These project costs have been incurred since April 1, 2005,
      the date of the Tarpan Therapeutics acquisition, $1,871,000 of which was
      incurred in the first nine months of 2007.





***Altoderm***





In
      April
      2007 we entered into a license agreement with Thornton & Ross LTD, or
      T&R, pursuant to which we acquired exclusive North American rights to a
      dermatology product candidate called Altoderm ***TM*** .
      Altoderm is a novel, proprietary formulation of topical cromolyn sodium and
      is
      designed to enhance the absorption of cromolyn sodium in order to treat atopic
      dermatitis, or “eczema.”





In
      a
      previously completed Phase 3 randomized, double-blind, placebo-controlled,
      parallel-group study, conducted in Europe by T&R, the compound was
      administered for 12 weeks to 114 child subjects with moderately severe atopic
      dermatitis. In the study results, published in the British Journal of
      Dermatology in February 2005, Altoderm demonstrated a statistically significant
      reduction in symptoms. During the study, subjects were permitted to continue
      with their existing treatment, in most cases this consisted of emollients and
      topical steroids. A positive secondary outcome of the study was a reduction
      in
      the use of topical steroids for the Altoderm treated subjects.





This
      product candidate is currently being tested by T&R in a second, ongoing
      Phase 3 clinical study in Europe. Analysis of the preliminary data from the
      initial 12 week, blinded portion of this randomized, double-blind, vehicle
      controlled clinical trial has been completed. In this study the vehicle was
      the
      Altoderm product without the active ingredient, cromolyn sodium.





Data
      indicate that Altoderm was safe and well tolerated, and showed a trend toward
      improvement in pruritus (itching), but the efficacy results were inconclusive.
      Altoderm treated subjects and vehicle only treated subjects experienced a
      similar improvement (each greater than 30%), and therefore, the study did not
      achieve statistical significance. The Company believes these outcomes were
      due
      to a suboptimal study design where subjects were unrestricted in their use
      of
      concomitant therapies such as topical steroids and
      immunomodulators.





The
      data
      obtained from these studies will be submitted in support of Altoderm to both
      European and US regulatory agencies. Given the promising clinical data obtained
      from the first European Phase 3 study, and the symptom improvements reported
      in
      the ongoing European Phase 3 study, both Manhattan Pharmaceuticals and Thornton
      & Ross Limited believe there is significant potential for Altoderm and will
      continue development of this product candidate. Manhattan Pharmaceuticals is
      scheduled for a pre-IND meeting with the U.S. FDA in January 2008 and is
      finalizing a pre-IND package in anticipation of that meeting. The Company
      intends to pursue Altoderm as a Phase 2 product candidate with indications
      in
      pruritus associated with atopic dermatitis and other pruritic conditions. The
      Company also expects Altoderm clinical studies to be required in the U.S. with
      the first of these studies to commence in the first half of 2008.





To
      date,
      we have incurred $877,000 of project costs, including license fees of $587,000
      of which $475,000 was paid in cash and $112,500 of which was satisfied through
      the issuance of 125,000 shares of our common stock, related to our development
      of Altoderm, all of which was incurred in the first nine months of 2007.




25





***Hedrin***





In
      June
      2007, we entered into an exclusive license agreement with T&R and Kerris,
      S.A. (“Kerris”) for a product candidate called Hedrin. We acquired an exclusive
      North American license to certain patent rights and other intellectual property
      relating to Hedrin, a non-insecticide product candidate for the treatment of
      head lice. In addition, and at the same time, we also entered into a Supply
      Agreement with T&R pursuant to which T&R will be the Company’s exclusive
      supplier of Hedrin product.





Hedrin
      is
      currently marketed as a device in Western Europe and as a pharmaceutical in
      the
      U.K. In Western Europe Hedrin has achieved sales of $45 million (21% market
      share) within 12 months of product launch, and is the market leader in the
      U.K.
      with $1 million in sales (23% market share). Manhattan Pharmaceuticals is
      pursuing a Premarket Approval (PMA) application development pathway for Hedrin
      as a medical device, and will request a meeting with the FDA's Center for
      Devices and Radiological Health in the fourth quarter of 2007. The Company
      expects to be required to complete at least one clinical trial with this product
      candidate. Pending the outcome of these regulatory discussions, the Company
      expects to initiate clinical activities in 2008.





To
      date,
      we have incurred $824,000 of project costs, including license fees of $720,000
      of which $600,000 was paid in cash and $120,000 of which was satisfied through
      the issuance of 150,000 shares of our common stock, related to our development
      of Hedrin, all of which was incurred in the first nine months of
      2007.





***Altolyn***





In
      addition to the Altoderm license agreement, we entered into a separate license
      agreement with T&R pursuant to which we acquired exclusive North American
      rights to develop and commercialize Altolyn *TM* .
      Altolyn
      is a proprietary, site specific, tablet formulation of oral cromolyn sodium
      for
      the treatment of mastocytosis. This novel formulation is designed to provide
      optimal availability by preferentially releasing the drug in the upper part
      of
      the small intestine, the purported site of action.





The
      Company is working with Thornton and Ross Limited and the current U.K.
      manufacturer of Altolyn to develop a GMP compliant manufacturing process.
      Pending finalization of this process the company will request a pre-IND meeting
      with the FDA and will prepare a pre-IND package. The company believes that
      Altolyn may be a candidate for an accelerated 505(b)2 regulatory pathway or
      orphan drug designation in the indication of mastocytosis. Oral cromolyn sodium
      is the active ingredient in Gastrocrom ® an oral
      liquid solution that is currently FDA approved for the treatment of
      mastocytosis.





Early
      U.K. clinical experience also suggests that Altolyn may have potential for
      patients with food allergy and gastrointestinal functional disorders, and the
      company intends to pursue these as additional indications.





To
      date,
      we have incurred $625,000 of project costs, including a license fee of $475,000,
      related to our development of Altolyn, all of which was incurred in the first
      nine months of 2007.





26




***Oleoyl-estrone***





On
      July
      9, 2007 we announced the results of our two Phase 2a clinical trials of oral
      Oleoyl-estrone. The results of both randomized, double-blind, placebo controlled
      studies, one in common obesity and the other in morbid obesity, demonstrated
      no
      statistically or clinically meaningful placebo adjusted weight loss for any
      of
      the treatment arms evaluated. Based on these results, we have discontinued
      our
      Oleoyl-estrone programs in both common obesity and morbid obesity.





To
      date,
      we have incurred $15,319,000 of project costs related to our development of
      Oleoyl-estrone, including milestone payments triggered under our license
      agreement for Oleoyl-estrone, of which $3,034,000 was incurred in the first
      nine
      months of 2007.





***Lingual
      spray propofol***





On
      July
      9, 2007 we announced that we will discontinue development and we intend to
      pursue appropriate out-licensing opportunities for Propofol Lingual Spray for
      pre-procedural sedation.





To
      date,
      we have incurred $2,984,000 of project costs related to our development of
      propofol lingual spray, of which $30,000 was incurred in the first nine months
      of 2007.





**Off-Balance
      Sheet Arrangements**





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





**New
      Accounting Pronouncements**





In
      March
      2007, the FASB issued FASB Staff Position EITF 07-03 (“FSP 07-03”), Accounting
      for Nonrefundable Advance Payments for Goods or Services to Be Used in Future
      Research and Development Activities. FSP 07-03 addresses whether nonrefundable
      advance payments for goods or services that will be used or rendered for
      research and development activities should be expensed when the advance payment
      is made or when the research and development activity has been performed. FSP
      07-03 will be effective for fiscal years beginning after December 15, 2007,
      and interim periods within those fiscal years. We currently believe that the
      adoption of FSP 07-03 will have no material impact on our financial position
      or
      results of operations.




27


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




Our
      exposure to market risk is confined to our cash and cash equivalents. We have
      attempted to minimize risk by investing in high-quality financial instruments,
      primarily money market funds with no security having an effective duration
      longer than 90 days. If the market interest rate decreases by 100 basis points
      or 1%, the fair value of our cash and cash equivalents portfolio would have
      minimal to no impact on the carrying value of our portfolio. We did not hold
      any
      derivative instruments as of September 30, 2007, and we have never held such
      instruments in the past.





**Item
      4T. Controls and Procedures**





**Evaluation
      of Disclosure Controls and Procedures**





As
      of
      September 30, 2007, we carried out an evaluation, under the supervision and
      with
      the participation of our Chief Executive Officer and Chief Financial Officer,
      of
      the effectiveness of the design and operation of our disclosure controls and
      procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities
      Exchange Act of 1934, as amended). Based upon that evaluation, our Chief
      Executive Officer and Chief Financial Officer concluded that our disclosure
      controls and procedures as of that date were effective to ensure that
      information required to be disclosed in the reports we file under the Securities
      and Exchange Act is recorded, processed, summarized and reported on an accurate
      and timely basis.




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





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





**Changes
      in Internal Control**




During
      the quarter ended September 30, 2007, there were no changes in internal controls
      over financial reporting that have materially affected, or are reasonably likely
      to materially affect, our internal controls over financial
      reporting.




28


**PART
      II - OTHER INFORMATION**





**Item
      1. Legal Proceedings**





Swiss
      Pharma Contract LTD (“Swiss Pharma”), a clinical site that the Company used in
      one of its obesity trials, gave notice to the Company that Swiss Pharma believes
      it is entitled to receive an additional payment of $322,776 for services in
      connection with that clinical trial. While the contract between the Company
      and
      Swiss Pharma provides for additional payments if certain conditions are met,
      Swiss Parma has not specified which conditions they believe have been achieved
      and the Company does not believe that Swiss Pharma is entitled to additional
      payments and has not accrued any of these costs as of September 30, 2007. The
      contract between the Company and Swiss Pharma provides for arbitration in the
      event of a dispute, such as this claim for an additional payment. Swiss Pharma
      has filed a demand for arbitration. As the Company does not believe that Swiss
      Pharma is entitled to additional payments, it intends to defend its position
      in
      arbitration.





**Item
      1A. Risk Factors**





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




**Item
      6. Exhibits**


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




29


**SIGNATURES**





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


MANHATTAN
                PHARMACEUTICALS, INC.Date:
              November 13, 2007
            By:
            /s/
              Douglas AbelDouglas
                Abel
              President
                and Chief Executive Officer




Date:
              November 13, 2007
            By:
            /s/
              Michael G. McGuinnessMichael
                G. McGuinness
              Chief
                Financial Officer





30


**Index
      to Exhibits Filed with this Report**


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




31