**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      DC 20549**





**FORM
      10-QSB**





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




For
      the
      quarterly period ended June 30, 2006





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 Small Business Issuer 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 shell company (as defined by Rule
      12b-2 of the Exchange Act). Yes oNo x





As
      of
      August 8, 2006 there were 60,120,038 shares of the issuer’s common stock,
      $.001 par value, outstanding.





Traditional
      Small Business Disclosure Format (check one): Yes oNo x




1




**INDEX**




Page**PART
                I**
            **FINANCIAL
                INFORMATION**Item
                1.
            Unaudited
                Condensed Consolidated Balance Sheets
            4Unaudited
                Condensed Consolidated Statements of Operations
            5Unaudited
                Condensed Consolidated Statement of Stockholders’ Equity
                (Deficiency)
            6Unaudited
                Condensed Consolidated Statements of Cash Flows
            7Notes
                to Unaudited Condensed Consolidated Financial Statements
            8Item
                2.
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations
            15Item
                3.
            Controls
                and Procedures
            19**PART
                II**
            **OTHER
                INFORMATION**Item
                6.
            Exhibits
            21Signatures
            22





**Forward-Looking
      Statements**




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




·  the
      development of our drug candidates;


·  the
      regulatory approval of our drug candidates;


·  our
      use
      of clinical research centers and other contractors;


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


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


·  our
      ability to market any of our products;


·  our
      history of operating losses;


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


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


·  our
      ability to attract and retain key personnel;


·  availability
      of reimbursement for our product candidates;


·  the
      effect of potential strategic transactions on our business;


·  our
      ability to obtain adequate financing; and


·  the
      volatility of our stock price.




2





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




3




**PART
      I - FINANCIAL INFORMATION**





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





**MANHATTAN
                  PHARMACEUTICALS, INC. AND SUBSIDIARIES**(A
                  Development Stage Company)Condensed
                  Consolidated Balance Sheets
  **June
                  30,**
              
              **December
                  31,****2006**
              
              **2005****Assets**
              
              (Unaudited)
              
              (Note
                  1)Current
                  assets:Cash
                  and cash equivalents
              
              $
              6,045,287
              
              $
              9,826,336Short-term
                  investments, available for sale, at market
              
              
              506,326
              
              
              1,007,818Prepaid
                  expenses
              
              
              975,639
              
              
              194,776Total
                  current assets
              
              
              7,527,252
              
              
              11,028,930Property
                  and equipment, net
              
              
              90,225
              
              
              106,877Other
                  assets
              
              
              70,506
              
              
              70,506Total
                  assets
              
              $
              7,687,983
              
              $
              11,206,313**Liabilities
                  and Stockholders’ Equity**Current
                  liabilities:Accounts
                  payable
              
              $
              1,962,732
              
              $
              1,617,489Accrued
                  expenses
              
              
              252,106
              
              
              48,328Total
                  liabilities
              
              
              2,214,838
              
              
              1,665,817Commitments
                  and contingenciesStockholders’
                  equity:Common
                  stock, $.001 par value. Authorized 150,000,000 shares;60,120,038
                  and 60,092,697 shares issued and outstandingat
                  June 30, 2006 and December 31, 2005, respectively
              
              
              60,120
              
              
              60,093Additional
                  paid-in capital
              
              
              43,354,956
              
              
              42,751,111Deficit
                  accumulated during the development stage
              
              
              (37,940,936
              )
              
              (33,271,695
              )Accumulated
                  other comprehensive income (loss)
              
              
              (995
              )
              
              987Total
                  stockholders’ equity
              
              
              5,473,145
              
              
              9,540,496Total
                  liabilities and stockholders' equity
              
              $
              7,687,983
              
              $
              11,206,313See
                  accompanying notes to unaudited condensed consolidated financial
                  statements.




4




**MANHATTAN
                  PHARMACEUTICALS, INC. AND SUBSIDIARIES**(A
                  Development Stage Company)Condensed
                  Consolidated Statements of Operations(Unaudited)
  **Cumulative****period
                  from****August
                  6, 2001****(inception)
                  to****Three
                  Months ended June 30,**
              
              **Six
                  Months ended June 30,**
              
              **June
                  30,****2006**
              
              **2005**
              
              **2006**
              
              **2005**
              
              **2006**Revenue
              
              $
              —
              
              $
              —
              
              $
              —
              
              $
              —
              
              $
              —Costs
                  and expenses:Research
                  and development
              
              
              1,453,811
              
              
              957,235
              
              
              3,060,334
              
              
              1,921,275
              
              
              14,840,845General
                  and administrative
              
              
              903,483
              
              
              553,160
              
              
              1,794,348
              
              
              1,046,403
              
              
              8,210,959In-process
                  research and development charge
              
              
              —
              
              
              11,887,807
              
              
              —
              
              
              11,887,807
              
              
              11,887,807Impairment
                  of intangible assets
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              1,248,230Loss
                  on disposition of intangible assets
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              1,213,878Total
                  operating expenses
              
              
              2,357,294
              
              
              13,398,202
              
              
              4,854,682
              
              
              14,855,485
              
              
              37,401,719Operating
                  loss
              
              
              (2,357,294
              )
              
              (13,398,202
              )
              
              (4,854,682
              )
              
              (14,855,485
              )
              
              (37,401,719
              )Other
                  (income) expense:Interest
                  and other income
              
              
              (86,483
              )
              
              (37,142
              )
              
              (185,189
              )
              
              (68,346
              )
              
              (587,034
              )Interest
                  expense
              
              
              238
              
              
              —
              
              
              238
              
              
              —
              
              
              24,131Realized
                  gain on sale of marketable equity securities
              
              
              —
              
              
              —
              
              
              (490
              )
              
              —
              
              
              (77,524
              )Total
                  other income
              
              
              (86,245
              )
              
              (37,142
              )
              
              (185,441
              )
              
              (68,346
              )
              
              (640,427
              )Net
                  loss
              
              
              (2,271,049
              )
              
              (13,361,060
              )
              
              (4,669,241
              )
              
              (14,787,139
              )
              
              (36,761,292
              )Preferred
                  stock dividends (including imputed amounts)
              
              
              —
              
              
              (123,935
              )
              
              —
              
              
              (251,401
              )
              
              (1,179,644
              )Net
                  loss applicable to common shares
              
              $
              (2,271,049
              )
              $
              (13,484,995
              )
              $
              (4,669,241
              )
              $
              (15,038,540
              )
              $
              (37,940,936
              )Net
                  loss per common share:Basic
                  and diluted
              
              $
              (0.04
              )
              $
              (0.33
              )
              $
              (0.08
              )
              $
              (0.43
              )Weighted
                  average shares of common stock outstanding:Basic
                  and diluted
              
              
              60,116,174
              
              
              40,595,204
              
              
              60,104,500
              
              
              34,663,130See
                  accompanying notes to unaudited condensed consolidated financial
                  statements.




5




**MANHATTAN
                  PHARMACEUTICALS, INC. AND SUBSIDIARIES**(A
                  Development Stage Company)Condensed
                  Consolidated Statements of Stockholders' Equity
                  (Deficiency)(Unaudited)
  **Deficit**
                
                **Dividends**
                
                
                
                
                
                **Total****Series
                    A**
                
                
                
                
                
                
                
                
                
                **accumulated**
                
                **payable
                    in**
                
                **Accumulated**
                
                
                
                **stock–****convertible**
                
                
                
                
                
                **Additional**
                
                
                
                **during**
                
                **Series
                    A**
                
                **other**
                
                **Unearned**
                
                **holders'****preferred
                    stock**
                
                **Common
                    stock**
                
                **paid-in**
                
                **Subscription**
                
                **development**
                
                **preferred**
                
                **comprehensive**
                
                **consulting**
                
                **equity****Shares**
                
                **Amount**
                
                **Shares**
                
                **Amount**
                
                **capital**
                
                **receivable**
                
                **stage**
                
                **shares**
                
                **income
                    (loss)**
                
                **services**
                
                **(deficiency)**Stock
                    issued at $0.0004 per share forsubscription
                    receivable
                
                
                —
                
                $
                —
                
                
                10,167,741
                
                $
                10,168
                
                $
                (6,168
                )
                $
                (4,000
                )
                $
                —
                
                $
                —
                
                $
                —
                
                $
                —
                
                $
                —Net
                    loss
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                (56,796
                )
                
                —
                
                
                —
                
                
                —
                
                
                (56,796
                )Balance
                    at December 31, 2001
                
                
                —
                
                
                —
                
                
                10,167,741
                
                
                10,168
                
                
                (6,168
                )
                
                (4,000
                )
                
                (56,796
                )
                
                —
                
                
                —
                
                
                —
                
                
                (56,796
                )Proceeds
                    from subscription receivable
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                4,000
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                4,000Stock
                    issued at $0.0004 per share forlicense
                    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
                
                
                22,721Sales
                    of common stock at $0.63 pershare
                    through private placement,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 through private placement at $1.10per
                    share, net of expenses
                
                
                —
                
                
                —
                
                
                3,368,952
                
                
                3,369
                
                
                3,358,349
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                3,361,718Conversion
                    of preferred stock to common stock
                
                
                (170,528
                )
                
                (171
                )
                
                1,550,239
                
                
                1,551
                
                
                (1,380
                )
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —Preferred
                    stock dividends paid by issuance of shares
                
                
                24,901
                
                
                25
                
                
                —
                
                
                —
                
                
                281,073
                
                
                —
                
                
                —
                
                
                (282,388
                )
                
                —
                
                
                —
                
                
                (1,290
                )Preferred
                    stock dividend accrued
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                (585,799
                )
                
                585,799
                
                
                —
                
                
                —
                
                
                —Warrants
                    issued for consulting services
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                125,558
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                (120,968
                )
                
                4,590Amortization
                    of unearned consulting costs
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                100,800
                
                
                100,800Reversal
                    of unrealized loss on short-term investmentsand
                    unrealized gain 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 through private placement at $1.11 and $1.15per
                    share, net of expenses
                
                
                —
                
                
                —
                
                
                11,917,680
                
                
                11,918
                
                
                12,238,291
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                12,250,209Common
                    stock issued to vendor at $1.11 per share in satisfaction
                    ofaccounts
                    payable
                
                
                —
                
                
                —
                
                
                675,675
                
                
                676
                
                
                749,324
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                750,000Exercise
                    of stock options
                
                
                —
                
                
                —
                
                
                32,400
                
                
                33
                
                
                32,367
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                32,400Exercise
                    of warrants
                
                
                —
                
                
                —
                
                
                279,845
                
                
                279
                
                
                68,212
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                68,491Conversion
                    of preferred stock to common stock
                
                
                (896,154
                )
                
                (896
                )
                
                8,146,858
                
                
                8,147
                
                
                (7,251
                )
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —Preferred
                    stock dividends paid by issuance of shares
                
                
                41,781
                
                
                42
                
                
                —
                
                
                —
                
                
                477,736
                
                
                —
                
                
                —
                
                
                (479,074
                )
                
                —
                
                
                —
                
                
                (1,296
                )Preferred
                    stock dividend accrued
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                (175,663
                )
                
                175,663
                
                
                —
                
                
                —
                
                
                —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
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                619,128
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                619,128Unrealized
                    loss on short-term investments
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                (1,982
                )
                
                —
                
                
                (1,982
                )Costs
                    associated with private placement
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                (15,256
                )
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                (15,256
                )Net
                    loss
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                (4,669,241
                )
                
                —
                
                
                —
                
                
                —
                
                
                (4,669,241
                )Balance
                    at June 30, 2006
                
                
                —
                
                $
                —
                
                
                60,120,038
                
                $
                60,120
                
                $
                43,354,956
                
                $
                —
                
                $
                (37,940,936
                )
                $
                —
                
                $
                (995
                )
                $
                —
                
                $
                5,473,145See
                    accompanying notes to unaudited condensed consolidated financial
                    statements.




6




**MANHATTAN
                  PHARMACEUTICALS, INC. AND SUBSIDIARIES**(A
                  Development Stage Company)Condensed
                  Consolidated Statements of Cash Flows(Unaudited)
  **Cumulative****period
                  from****August
                  6, 2001****(inception)
                  to****Six
                  months ended June 30,**
              
              **June
                  30,****2006**
              
              **2005**
              
              **2006**Cash
                  flows from operating activities:Net
                  loss
              
              $
              (4,669,241
              )
              $
              (14,787,139
              )
              $
              (36,761,292
              )Adjustments
                  to reconcile net loss tonet
                  cash used in operating activities:Common
                  stock issued for license rights
              
              
              —
              
              
              —
              
              
              1,000Stock-based
                  compensation
              
              
              619,128
              
              
              28,270
              
              
              867,656Warrants
                  issued for consulting services
              
              
              —
              
              
              —
              
              
              4,590Amortization
                  of intangible assets
              
              
              —
              
              
              —
              
              
              145,162Gain
                  on sale of marketable equity securities
              
              
              (490
              )
              
              —
              
              
              (77,524
              )Depreciation
              
              
              29,484
              
              
              27,334
              
              
              116,778Non
                  cash portion of in-process research and development charge
              
              
              —
              
              
              11,721,623
              
              
              11,721,623Loss
                  on impairment of intangible assets
              
              
              —
              
              
              —
              
              
              1,248,230Loss
                  on disposition of intangible assets
              
              
              —
              
              
              —
              
              
              1,213,878Changes
                  in operating assets and liabilities, net of acquisitions:Decrease
                  (increase) in prepaid expenses and other current assets
              
              
              (780,863
              )
              
              23,114
              
              
              (917,394
              )Increase
                  in other assets
              
              
              —
              
              
              —
              
              
              (70,506
              )Increase
                  in accounts payable
              
              
              345,243
              
              
              133,307
              
              
              2,362,946Increase
                  (decrease) in accrued expenses
              
              
              203,778
              
              
              95,972
              
              
              (288,215
              )Net
                  cash used in operating activities
              
              
              (4,252,961
              )
              
              (2,757,519
              )
              
              (20,433,068
              )Cash
                  flows from investing activities:Purchase
                  of property and equipment
              
              
              (12,832
              )
              
              (22,171
              )
              
              (197,281
              )Cash
                  paid in connection with acquisitions
              
              
              —
              
              
              —
              
              
              (32,808
              )Purchase
                  of short-term investments
              
              
              —
              
              
              —
              
              
              (5,000,979
              )Proceeds
                  from sale of short-term investments
              
              
              500,000
              
              
              2,995,126
              
              
              4,931,088Proceeds
                  from sale of license
              
              
              —
              
              
              —
              
              
              200,001Cash
                  acquired in acquisition
              
              
              —
              
              
              6,777
              
              
              6,777Net
                  cash provided by (used in) investing activities
              
              
              487,168
              
              
              2,979,732
              
              
              (93,202
              )Cash
                  flows from financing activities:Proceeds
                  from issuances of notes payable to stockholders
              
              
              —
              
              
              —
              
              
              233,500Repayments
                  of notes payable to stockholders
              
              
              —
              
              
              (327,010
              )
              
              (884,902
              )Proceeds
                  from issuance of note payable to bank
              
              
              —
              
              
              —
              
              
              600,000Repayment
                  of note payable to bank
              
              
              —
              
              
              —
              
              
              (600,000
              )Proceeds
                  from subscriptions receivable
              
              
              —
              
              
              —
              
              
              4,000Payment
                  for fractional shares for Preferred stock dividends
              
              
              —
              
              
              (1,296
              )
              
              (2,286
              )(Costs)
                  proceeds related to sale of common stock, net
              
              
              (15,256
              )
              
              (10,590
              )
              
              18,044,078Proceeds
                  from sale of preferred stock, net
              
              
              —
              
              
              —
              
              
              9,046,176Proceeds
                  from exercise of stock options
              
              
              —
              
              
              32,400
              
              
              62,500Proceeds
                  from exercise of warrants
              
              
              —
              
              
              68,491
              
              
              68,491Net
                  cash (used in) provided by financing activities
              
              
              (15,256
              )
              
              (238,005
              )
              
              26,571,557Net
                  (decrease) increase in cash and cash equivalents
              
              
              (3,781,049
              )
              
              (15,792
              )
              
              6,045,287Cash
                  and cash equivalents at beginning of period
              
              
              9,826,336
              
              
              905,656
              
              
              —Cash
                  and cash equivalents at end of period
              
              $
              6,045,287
              
              $
              889,864
              
              $
              6,045,287Supplemental
                  disclosure of cash flow information:Interest
                  paid
              
              $
              238
              
              $
              —
              
              $
              24,131Supplemental
                  disclosure of noncash investing and financing activities:Common
                  stock issued in satisfaction of accounts payable
              
              $
              —
              
              $
              —
              
              $
              750,000Imputed
                  preferred stock dividend
              
              
              —
              
              
              —
              
              
              418,182Preferred
                  stock dividends accrued
              
              
              —
              
              
              251,401
              
              
              761,462Conversion
                  of preferred stock to common stock
              
              
              —
              
              
              164
              
              
              1,067Preferred
                  stock dividends paid by issuance of shares
              
              
              —
              
              
              477,778
              
              
              759,134Issuance
                  of common stock for acquisitions
              
              
              —
              
              
              11,052,984
              
              
              13,389,226Marketable
                  equity securities received in connection withsale
                  of license
              
              
              —
              
              
              —
              
              
              359,907Net
                  liabilities assumed over assets acquired in business
                  combination
              
              
              —
              
              
              (675,416
              )
              
              (675,416
              )Cashless
                  Exercise of warrants
              
              
              27
              
              
              —
              
              
              27See
                  accompanying notes to unaudited condensed consolidated financial
                  statements.




7




MANHATTAN
        PHARMACEUTICALS, INC. and SUBSIDIARIES
 (A
        Development Stage Company)
 
 NOTES
        TO
        CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
 June
        30,
        2006


(1)  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
      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,
      2006 or for any other interim period. These unaudited condensed consolidated
      financial statements should be read in conjunction with the Company’s audited
      financial statements as of and for the year ended December 31, 2005, which
      are included in the Company’s Annual Report on Form 10-KSB for such year. The
      condensed consolidated balance sheet as of December 31, 2005 has been derived
      from the audited consolidated financial statements included in the Form 10-KSB
      for that year.





(2)  LIQUIDITY





The
      Company realized a net loss of $4,669,241 and negative cash flows from operating
      activities of $4,252,961 for the six months ended June 30, 2006. The net loss
      from date of inception, August 6, 2001 to June 30, 2006 amounts to
      $36,761,292.





Management
      believes that the Company will continue to incur net losses through at least
      June 30, 2007 and for the foreseeable future thereafter. Based on the resources
      of the Company available at June 30, 2006, management believes that the Company
      will need additional equity or debt financing or will need to generate revenues
      during the remainder of 2006 through licensing of its products or entering
      into
      strategic alliances to be able to sustain its operations beyond 2006 and that
      it
      will need additional financing thereafter until it can achieve profitability,
      if
      ever.





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 amount of
      potentially dilutive securities excluded from the calculation was 13,142,729
      and
      16,349,537 as of June 30, 2006 and 2005, respectively.




8




MANHATTAN
        PHARMACEUTICALS, INC. and SUBSIDIARIES
 (A
        Development Stage Company)
 
 NOTES
        TO
        CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
 June
        30,
        2006




(4)  SHARE-BASED
      COMPENSATION





The
      Company has stockholder-approved stock incentive plans for employees, directors,
      officers and consultants. Prior to January 1, 2006, the Company accounted for
      the employee, director and officer plans using the intrinsic value method under
      the recognition and measurement provisions of Accounting Principles Board
      (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees” and
      related interpretations, as permitted by Statement of Financial Accounting
      Standards (“SFAS” or “Statement”) No. 123, “Accounting for Stock-Based
      Compensation.”





Effective
      January 1, 2006, the Company adopted SFAS No. 123(R), “Share-Based Payment,”
(“Statement 123(R)”) for employee options using the modified prospective
      transition method. Statement 123(R) revised Statement 123 to eliminate the
      option to use the intrinsic value method and required the Company to expense
      the
      fair value of all employee options over the vesting period. Under the modified
      prospective transition method, the Company recognized compensation cost for
      the
      three- and six-month periods ending June 30, 2006 which includes 1) 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 2) period
      compensation cost related to share-based payments granted on or after January
      1,
      2006, based on the grant date fair value estimated in accordance with Statement
      123(R). In accordance with the modified prospective method, the Company has
      not
      restated prior period results.





Options
      granted to consultants and other non-employees are accounted for in accordance
      with 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".  Accordingly, such options are recorded at fair value at the
      date of grant and subsequently adjusted to fair value at the end of each
      reporting period until such options vest, and the fair value of the
      options, as adjusted, is amortized to consulting expense over the related
      vesting period.  As a result of adjusting consultant and other non-employee
      options to fair value as of June 30, 2006, net of amortization, the Company
      recognized a reduction to general and administrative and research and
      development expenses of $28,450 and $21,842, respectively, for the three-months
      ended June 30, 2006 and $22,861 and $3,460, respectively, for the six-month
      period ended June 30, 2006.





For
      the
      three- and six-month periods ended June 30, 2006, the Company recognized
      share-based employee compensation cost of $357,507 and $645,449, respectively,
      in accordance with Statement 123(R), which was recorded as general and
      administrative expenses. $335,777 and $609,568, respectively, of this expense
      resulted from the grants of stock options to employees and directors of the
      Company from February 2002 to December 2005. The Company recognized compensation
      expense related to these stock options on a straight-line basis over the vesting
      period. The balance of $21,730 and $35,881, respectively, related to the
      granting of stock options to employees and officers on or after January 1,
      2006.
      The Company did not capitalize any share-based compensation cost.





As
      a
      result of adopting Statement 123(R), net losses for the three- and six-month
      periods ended June 30, 2006 were greater than if the Company had continued
      to
      account for share-based compensation under APB 25 by $357,507 and $645,449,
      respectively. The effect of adopting Statement 123(R) on basic and diluted
      earnings per share for the three- and six-month periods ended June 30, 2006
      was
      $0.01 and $0.01 per share, respectively.




As
        of
        June 30, 2006, the total compensation cost related to non-vested option awards
        not yet recognized is $2,070,343. The weighted average period over which
        it is
        expected to be recognized is approximately 1.67 years.


9


MANHATTAN
        PHARMACEUTICALS, INC. and SUBSIDIARIES
 (A
        Development Stage Company)
 
 NOTES
        TO
        CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
 June
        30,
        2006


The
      net
      loss for the three and six months ended June 30, 2005 does not include any
      compensation charges related to options granted to employees. The following
      table illustrates the pro forma effect on net loss and loss per share assuming
      the Company had applied the fair value recognition provisions of SFAS
      No. 123 instead of the intrinsic value method under APB 25 to stock-based
      employee compensation:


**Three
                  months ended**
              
              
              **Six
                  months ended****June
                  30, 2005**
              
              
              **June
                  30, 2005**Net
                  loss applicable to common shares, as reported
              
              $
              (13,484,995
              )
              $
              (15,038,540
              )Deduct: 
                  Total
                  stock-based employeecompensation
                  expense determinedunder
                  fair value method
              
              
              (393,307
              )
              
              (561,219
              )Net
                  loss applicable to common shares, pro forma
              
              $
              (13,878,302
              )
              $
              (15,599,759
              )Net
                  loss per common share - basicAs
                  reported
              
              $
              (0.33
              )
              $
              (0.43
              )Pro
                  forma
              
              
              (0.34
              )
              
              (0.45
              )




As
      noted
      above, the Company has shareholder-approved stock incentive plans for employees
      under which it has granted non-qualified and incentive stock options. Options
      granted under these plans must be at a price per share not less than the fair
      market value per share of common stock on the date the option is granted. The
      options generally vest over a three year period and expire ten years from the
      date of grant. Certain option and share awards provide for accelerated vesting
      upon a change in control of the Company, as defined.




In
      December 2003, the Company established the 2003 Stock Option Plan (the “2003
      Plan”), which provided for the granting of up to 5,400,000 options to officers,
      directors, employees and consultants for the purchase of stock. In August 2005,
      the Company increased the number of shares of common stock reserved for issuance
      under the 2003 Plan by 2,000,000 shares. At June 30, 2006, 7,400,000 shares
      were
      authorized for issuance. The options have a maximum term of 10 years and vest
      over a period determined by the Company’s Board of Directors (generally 3 years)
      and are issued at an exercise price equal to 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 employees options to purchase an aggregate of
      474,500 shares of common stock at an exercise price of $1.35 and 50,000 shares
      of common stock at an exercise price of $0.90 in the first and second quarters
      of 2006, respectively.




10




MANHATTAN
        PHARMACEUTICALS, INC. and SUBSIDIARIES
 (A
        Development Stage Company)
 
 NOTES
        TO
        CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
 June
        30,
        2006


In
      July
      1995, the Company established the 1995 Stock Option Plan (the “1995 Plan”),
      which provided for the granting of up to 130,000 options to officers, directors,
      employees and consultants for the purchase of stock. In July 1996, the 1995
      Plan
      was amended to increase the total number of shares authorized for issuance
      by
      60,000 shares to a total of 190,000 shares and beginning with the 1997 calendar
      year, by an amount equal to one percent (1%) of the shares of common stock
      outstanding on December 31 of the immediately preceding calendar year. The
      options have a maximum term of 10 years and vest over a period determined by
      the
      Company’s Board of Directors (generally 4 years) and were issued at an exercise
      price equal to the fair market value of the shares at the date of grant. The
      1995 Plan expired on June 30, 2005 and no further options are available for
      issuance under this plan.





The
      Company estimated the fair value of each option award on the date of grant
      using
      the Black-Scholes model. The Company based expected volatility on historical
      volatility. The expected term of options granted represents the period of time
      that options granted are expected to be outstanding. The Company estimated
      the
      expected term of stock options using historical exercise and employee forfeiture
      experience.





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 2006 and the pro forma charges in 2005:




**Three
                  months ended**
              
              **Six
                  months ended****June
                  30, 2006**
              
              **June
                  30, 2005**
              
              **June
                  30, 2006**
              
              **June
                  30, 2005**Expected
                  volatility
              
              
              55
              %
              
              71
              %
              
              55
              %
              
              70
              %Dividend
                  yield
              
              
              —
              
              
              —
              
              
              —
              
              
              —Expected
                  term (in years)
              
              
              4
              
              
              5
              
              
              4
              
              
              5Risk-free
                  interest rate
              
              
              4.875
              %
              
              3.7
              %
              
              4.875
              %
              
              3.7
              %




11




MANHATTAN
        PHARMACEUTICALS, INC. and SUBSIDIARIES
 (A
        Development Stage Company)
 
 NOTES
        TO
        CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
 June
        30,
        2006


A
      summary of the status of the Company’s stock outstanding options as of June 30,
      2006 and changes during the six months then ended is presented
      below:


**Shares**
              
              **Weighted
                  average exercise price**
              
              **Weighted
                  Average Remaining Contractual Term (years)**
              
              **Aggregate
                  Intrinsic Value**Outstanding
                  atDecember
                  31, 2005
              
              
              6,328,754
              
              $
              1.33Granted
              
              
              524,500
              
              
              1.31Exercised
              
              
              -
              
              
              -Cancelled
              
              
              (120,750
              )
              
              1.20Outstanding
                  atJune
                  30, 2006
              
              
              6,732,504
              
              $
              1.33
              
              
              8.15
              
              $
              350,586Options
                  exercisable atJune
                  30, 2006
              
              
              3,731,061
              
              $
              1.26
              
              
              7.63
              
              $
              350,586Weighted-averagefair
                  value of optionsgranted
                  during thesix
                  months endedJune
                  30, 2006
              
              $
              0.61








(5)  ACQUISITION
      OF TARPAN THERAPEUTICS, INC.





On
      April
      1, 2005, the Company entered into an Agreement and Plan of Merger (the “Merger
      Agreement”) with Tarpan Therapeutics, Inc., a Delaware corporation (“Tarpan”),
      and Tarpan Acquisition Corp., a Delaware corporation and wholly-owned subsidiary
      of the Company (“TAC”). The Merger Agreement provided that TAC would merge with
      and into Tarpan, with Tarpan remaining as the surviving corporation and a
      wholly-owned subsidiary of the Company (the “Merger”). The Merger was completed
      April 1, 2005 and accounted for as a purchase. Accordingly, the results of
      operations for the three months ended March 31, 2005 do not include the results
      of Tarpan.





The
      following unaudited pro forma financial information presents the condensed
      consolidated results of operations of the Company and Tarpan for the six months
      ended June 30, 2005, as if the acquisition had occurred on January 1, 2005
      instead of April 1, 2005, after giving effect to certain adjustments, including
      the issuance of the Company’s common stock as part of the purchase price. The
      unaudited pro forma information does not necessarily reflect the results of
      operations that would have occurred had the entities been a single company
      during these periods.




12


MANHATTAN
          PHARMACEUTICALS, INC. and SUBSIDIARIES
 (A
          Development Stage Company)
 
 NOTES
          TO
          CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
 June
          30,
          2006


**Six
                  months ended June 30, 2005**Net
                  loss applicable to common shares
              
              $
              (14,914,400
              )Weighted
                  average number of common shares outstanding
              
              
              40,058,300Loss
                  per common share - basic and fully diluted
              
              $
              (0.37
              )




(6)  COMMITMENTS





On
      March
      27, 2006, the Company entered into a research and development agreement with
      Swiss Pharma Contract Ltd. (“Swiss Pharma”) to perform a Phase IIa clinical
      study on the Company’s Oleoyl-estrone product. The terms of the contract call
      for the Company to pay Swiss Pharma a total of $2,151,840. The payment terms
      are: 20%, or $430,368, upon signing the agreement, 20% after the first patient
      has received the initial dose, 20% after  half
      the
      patients have received the initial dose, 20% after all patients have completed
      dosing, 10%, or $215,184, on receipt of statistical analyses and 10% on
      acceptance by the Company of the Phase IIa study.





As
      of
      June 30, 2006, the Company had incurred a liability to Swiss Pharma of 40%
      through the initial dosing of the first patient, or $860,736, and recognized
      $20,029 of research and development expense for the Phase IIa study. The
      remainder, $840,707, is included in prepaid expenses.





The
      services to be provided by Swiss Pharma under this agreement are expected to
      be
      provided during the third quarter of 2006 through the second quarter of 2007.





(7)  SUBSEQUENT
      EVENTS





Effective
      July 10, 2006, the Company appointed Michael G. McGuinness as its Chief
      Financial Officer and Secretary. The Company and Mr. McGuinness entered into
      an
      Employment Agreement dated July 7, 2006, whereby Mr. McGuinness will serve
      as
      the Company's Chief Financial Officer for a period of three years commencing
      on
      July 10, 2006 and will receive in exchange for his services: (i) an annual
      base
      salary of $205,000; (ii) an annual bonus payable in the discretion of the
      Company’s Board of Directors, of up to 30 percent of the base salary, and (iii)
      two stock options. The first is an option to purchase 220,000 shares of the
      Company's common stock at an exercise price of $0.70 per share which is equal
      to
      the last closing sale price of the Company's common stock on July 7, 2006.
      The
      second is an option to purchase 60,000 shares of the Company’s common stock at
      an exercise price of $1.35 per share. Both options have a term of 10 years
      and
      vest in three annual installments commencing July 10, 2007. To the extent Mr.
      McGuinness’ employment with the Company is terminated prior to the end of such
      10-year term, the options shall remain exercisable for a period of 90 days
      following such termination.




13


MANHATTAN
          PHARMACEUTICALS, INC. and SUBSIDIARIES
 (A
          Development Stage Company)
 
 NOTES
          TO
          CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
 June
          30,
          2006


The
      employment agreement further provides that in the event the Company terminates
      Mr. McGuinness’ employment with the Company other than as a result of death, for
“cause,” “disability” or upon a “change of control” (as those terms are defined
      in the agreement), then (1) Mr. McGuinness will continue receiving his base
      salary and fringe benefits for a period of six months following such
      termination, provided, that the Company’s obligation to pay such compensation
      shall be offset by any amounts received by Mr. McGuinness from subsequent
      employment during such 6-month period, and (2) the vesting of the stock options
      issued to Mr. McGuinness in accordance with the employment agreement will
      accelerate and be deemed vested as of the date of termination and will remain
      exercisable for a period of 90 days following such termination. In the event
      Mr.
      McGuinness’ employment is terminated during the term of the employment agreement
      upon a “change of control” and, if at the time of such termination, the
      aggregate value of the Company’s outstanding common stock is less than $80
      million, then (i) Mr. McGuinness will continue receiving his base salary and
      fringe benefits for a period of six months following such termination and (ii)
      the portions of the stock options issued in accordance with the employment
      agreement that have vested as of the date of such termination or that are
      scheduled to vest in the calendar year of such termination will be deemed vested
      and will remain exercisable for a period of 90 days following such termination.





On
      July
      7, 2006, the Company entered into a Separation Agreement with Nicholas J.
      Rossettos, its former Chief Financial Officer, Chief Operating Officer,
      Treasurer and Secretary, pursuant to which the parties agreed that Mr.
      Rossettos’ employment with the Company would end effective as of July 10,
      2006.




14




**Item
      2.**  **Management’s
      Discussion and Analysis of 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, 2005 (the “Annual Report”) and our financial statements
      as of and for the six months ended June 30, 2006 included elsewhere in this
      report.**




RESULTS
      OF OPERATIONS




THREE-MONTH
      PERIOD ENDED JUNE 30, 2006 VS 2005




During
      each of the quarters ended June 30, 2006 and 2005, we had no revenues, and
      are
      considered a development stage company. We do not expect to have revenues
      relating to our technologies prior to June 30, 2007.





For
      the
      quarter ended June 30, 2006 research and development expense was $1,453,811
      as
      compared to $957,235 for the quarter ended June 30, 2005. The increase of
      $496,576 is due primarily to an acceleration of pre-clinical and clinical
      development of our Oleoyl-estrone product candidate and the pre-clinical and
      clinical development of our PTH (1-34) product candidate. Increases in spending
      are attributable to our Oleoyl-estrone and PTH (1-34) development programs
      of
      approximately $220,000 and $343,000, respectively, and are partially offset
      by a
      decrease in development expenses incurred in connection with our propofol
      lingual spray program of approximately $67,000.





For
      the
      three months ended June 30, 2006, general and administrative expense was
      $903,483 as compared to $553,160 for the three months ended June 30, 2005.
      The
      increase of $350,323 is due primarily to increases in stock-based employee
      compensation expenses associated with the adoption of Statement 123(R) of
      approximately $357,000 and accrued bonuses of approximately $154,000.
      Additionally we had reductions in payroll expenses, investor services, legal
      expenses and all other expenses of approximately $100,000, $31,000 and $29,000
      and $1,000, respectively.





For
      the
      quarter ended June 30, 2006, other income was $86,245 as compared to $37,142
      for
      the quarter ended June 30, 2005. The increase of $49,103 is a result of
      additional interest income of approximately $49,000 due to higher average
      balances in cash and short-term investments earning higher yields.





Net
      loss
      for the three months ended June 30, 2006, was $2,271,049 as compared to
      $13,361,060 for the three months ended June 30, 2005. The decrease of
      $11,090,011 in net loss is attributable primarily to the in-process research
      and
      development charge of $11,887,807 taken in the 2005 period related to the
      acquisition of Tarpan Therapeutics, Inc. Additionally, there were increases
      in
      research and development expenses of $496,576 and general and administrative
      expenses of $350,323, partially offset by an increase in other income of
      $49,103.





Preferred
      stock dividends were $0 and $123,935 for the three months ended June 30, 2006
      and 2005, respectively, which had no impact on loss per share for such
      periods.


15


SIX-MONTH
      PERIOD ENDED JUNE 30, 2006 VS 2005




During
      the six months ended June 30, 2006 and 2005, we had no revenues, and are
      considered a development stage company. We do not expect to have revenues
      relating to our technologies prior to June 30, 2007.





For
      the
      six months ended June 30, 2006 research and development expense was $3,060,334
      as compared to $1,921,275 for the six months ended June 30, 2005. The increase
      of $1,139,059 is due primarily to an acceleration of pre-clinical and clinical
      development of our Oleoyl-estrone product candidate and the pre-clinical and
      clinical development of our PTH (1-34) product candidate. Increases in research
      and development spending are attributable to increases in our Oleoyl-estrone
      and
      PTH (1-34) development programs of approximately $134,000 and $1,140,000,
      respectively are partially offset by a decrease in our propofol
      lingual spray program of approximately $135,000.





For
      the
      six months ended June 30, 2006, general and administrative expense was
      $1,794,348 as compared to $1,046,403 for the six months ended June 30, 2005.
      The
      increase of $747,945 is due primarily to increases in stock-based employee
      compensation expenses associated with the adoption of Statement 123(R) of
      approximately $645,000, accrued bonuses of approximately $154,000 and accounting
      fees of approximately $33,000, partially offset by a reduction in consulting
      fees of approximately $86,000.





For
      the
      six months ended June 30, 2006, other income was $185,441 as compared to $68,346
      for the quarter ended June 30, 2005. The increase of $117,095 is primarily
      the
      result of additional interest income of approximately $117,000 due to higher
      average balances in cash and short-term investments earning higher
      yields.





Net
      loss
      for the six months ended June 30, 2006, was $4,669,241 as compared to
      $14,787,139 for the six months ended June 30, 2005. This decrease in net loss
      of
      $10,117,898 is attributable primarily to the in-process research and development
      charge of $11,887,807 related to the acquisition of Tarpan Therapeutics taken
      in
      the 2005 period. Additionally, there were increases in research and development
      expenses of $1,139,059 and general and administrative expenses of $747,945,
      partially offset by an increase in other income of $117,095.




Preferred
      stock dividends of $0 and $251,401 reduced earnings per share for the six months
      ended June 30, 2006 and 2005 by $0.00 and $0.01, respectively.







LIQUIDITY
      AND CAPITAL RESOURCES




From
      inception to June 30, 2006, we incurred a deficit during the development stage
      of $37,940,936 primarily as a result of our net losses, and we expect to
      continue to incur additional losses through at least June 30, 2007 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 residual royalty rights of CT-3 to Indevus. During
      the
      six months ended June 30, 2006, we had a net decrease in cash and cash
      equivalents of $3,781,049. This decrease resulted largely from net cash used
      in
      operating activities of $4,252,961 partially offset by net cash provided by
      investing activities of $487,168. Total liquid resources including short term
      investments as of June 30, 2006 were $6,551,613 compared to $10,834,154 at
      December 31, 2005.




16




Our
      current liabilities as of June 30, 2006 were $2,214,838 compared to $1,665,817
      at December 31, 2005, an increase of $549,021. The increase was primarily due
      to
      an increase in expenditures associated with our Phase I clinical trial for
      our
      Oleoyl-estrone product candidate and in preparing for the Phase II
      clinical trial for our PTH (1-34) product candidate. As of June 30, 2006, we
      had
      working capital of $5,312,414 compared to $9,363,113 at December 31,
      2005.





In
      March
      2006, we entered into a research and development agreement with Swiss Pharma
      Contract Ltd., or Swiss Pharma, to perform a Phase IIa clinical study of our
      Oleoyl-estrone product. The contract requires us to pay $2,151,840 to Swiss
      Pharma for conducting the study. The payment schedule is 20%, or $430,368,
      upon
      signing the agreement, which occurred in late March 2006, 20% at the start
      of
      the clinical study, which occurred in late June 2006, 20% after half the
      subjects had been enrolled, which we expect will occur in the second half of
      2006, 20% after completion of the clinical study, which we expect to occur
      in
      2007, 10% on receipt of the statistical analysis and the final 10% on our
      acceptance of the Phase IIa study,
      which we expect to occur in 2007.





Expenses
      will be recognized on an activity basis, therefore, expense recognition will
      differ from the payment schedule. Approximately $20,000 of expense was
      recognized in the six months ended June 30, 2006. Because of the difference
      in
      timing of payments to be made under the contract and the recognition of expense
      at June 30, 2006, we recognized a prepaid expense of approximately
      $840,000.





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 developing manufacturing and commercializing capabilities,
      the
      status of our competitors, our ability to establish collaborative arrangements
      with other organizations and our need to purchase additional capital
      equipment.




Our
      continued operations will depend on whether we are able to raise additional
      funds through various potential sources, such as equity and debt financing,
      other collaborative agreements, strategic alliances, and our ability to realize
      the full potential of our technology in development. Such additional funds
      may
      not become available on acceptable terms and there can be no assurance
      that any additional funding that we do obtain will be sufficient to meet our
      needs in the long term. Through
      June 30, 2006, a significant portion of our financing has been through private
      placements of common and preferred stock and warrants to purchase common stock.
      Until our operations generate significant revenues and cash flows from operating
      activities, we will continue to fund operations from cash on hand and through
      the similar sources of capital previously described. We can give no assurances
      that any additional capital that we are able to obtain will be sufficient to
      meet our needs. Management
      believes that we will continue to incur net losses and negative cash flows
      from
      operating activities for the foreseeable future. Based on the resources
      available to us at June 30, 2006, 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 during the remainder
      of 2006 to be able to sustain our operations beyond 2006 and we will need
      additional financing thereafter until we can achieve profitability, if
      ever.




Although
      we currently have sufficient capital to fund our anticipated 2006 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.





17




RESEARCH
      AND DEVELOPMENT PROJECTS




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




***Oleoyl-estrone***





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





The
      results indicated that Oleoyl-estrone was generally well-tolerated at all doses
      and no serious adverse events were reported. There were also no clinically
      significant changes in the physical exams, vital signs, ECGs, coagulation and
      liver function tests. The study demonstrated evidence of greater weight loss
      among the treated groups compared with the placebo group as well as evidence
      of
      reduction in desire to eat, hunger levels, fasting glucose and LDL cholesterol.
      Important clinical laboratories findings included reversible, dose-dependent
      elevations in estrone and estradiol levels, as well as reductions in
      testosterone levels. We recently received regulatory approval to commence our
      Phase IIa study with Oleoyl-estrone. We commenced dosing the first group of
      patients in late June 2006. Patient recruitment is ongoing.





To
      date,
      we have incurred $9,873,707 of project costs related to our development of
      oleoyl-estrone, including milestone payments triggered under our license
      agreement for oleoyl-estrone, of which $1,883,891 was incurred in the first
      six
      months of 2006. Since oleoyl-estrone is regarded by the FDA as a new entity,
      it
      is not realistic to predict the size and the design of future studies at this
      time.




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





PTH
      (1-34), which we acquired as a result of our April 2005 acquisition of Tarpan
      Therapeutics, Inc., is being developed as a topical treatment for psoriasis.
      In
      August 2003 positive results were reported from a US Phase I and II clinical
      trial evaluating the safety and efficacy of PTH (1-34) as a topical treatment
      for psoriasis. 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 into an open label extension
      study
      in which the Psoriasis Area and Severity Index (PASI) was measured; PASI
      improvement across all 10 patients achieved statistically significant
      improvement compared to baseline. This study showed PTH (1-34) to be a safe
      and
      effective treatment for plaque psoriasis with no patients experiencing any
      clinically significant adverse events.




18




A
      follow
      on physician IND Phase IIa trial involving PTH (1-34) was planned to commence
      in
      December 2005. This
      Phase IIa study has been delayed due to issues identified with the current
      formulation. We are working with formulation experts to assist in addressing
      the
      issues and anticipate a one- to two-quarter formulation effort.





To
      date,
      we have incurred $2,110,518 of project costs related to our development of
      PTH
      (1-34). These project costs have been incurred since April 1, 2005, the date
      of
      the Tarpan Therapeutics acquisition, $1,141,010 of which was incurred in the
      first six months of 2006.





***Lingual
      spray propofol***





We
      are
      developing propofol lingual spray, the right to which we license from NovaDel
      Pharma, Inc., for light to medium sedation on a Section 505b2 bioequivalence
      regulatory pathway toward FDA approval. In January 2005, the FDA accepted our
      IND for propofol lingual spray, allowing us to commence clinical trials. The
      FDA
      has indicated to us in discussions that we may proceed to a pivotal Phase III
      trial of propofol lingual spray following completion of Phase I trials. We
      are
      actively planning the next steps for the clinical development of this product
      candidate, meeting with our scientific advisors and other formulation partners
      regarding formulation, reviewing existing data, developing trial design and
      evaluating plans to re-enter the clinic. As a result there was minimal spending
      on Propofol in the first six months of 2006.





To
      date,
      we have incurred $2,856,620 of project costs related to our development of
      propofol lingual spray.





**Off-Balance
      Sheet Arrangements**





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





**Item
      3.**  **Controls
      and Procedures**





The
      Company’s management, with the participation of our Chief Executive Officer and
      Chief Financial Officer, has evaluated the effectiveness of the Company’s
      disclosure controls and procedures (as such term is defined in Rule 13a-15(e)
      and Rule 15d-15(e) of the Exchange Act of 1934, as amended) as of June 30,
      2006,
      the end of the period covered by this report. Based on that evaluation, the
      Company’s Chief Executive Officer and Chief Financial Officer have concluded
      that, as of the end of such period, the Company’s disclosure controls and
      procedures were not effective. As further discussed below, the Company’s
      management identified that a deficiency existed as of March 31, 2006 in the
      controls associated with the Company’s reporting of prepaid and research and
      development expenses, and the disclosure of a material commitment and that
      weakness continued to exist at June 30, 2006 . In accordance with Auditing
      Standard No. 2 and consistent with PCAOB Release No. 2005-023 issued in November
      2005, in determining whether a control deficiency existed at March 31, 2006,
      judgment must be applied to identify the cause of the misstatement, rather
      than
      merely attributing it to the period(s) affected. In this case, an error
      originated with respect to the Company’s recognition of a material commitment
      entered into during the first quarter ended March 31, 2006 and that weakness
      continued to exist at June 30, 2006. Accordingly, the Company’s management deems
      such control deficiency to be a material weakness in its controls and
      procedures. A material weakness is a control deficiency, or combination of
      control deficiencies, that results in a more than remote likelihood that a
      material misstatement of the annual or interim financial statements will not
      be
      prevented or detected.




19




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 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.




During
      the second quarter of 2006, there were no changes in our internal controls
      over financial reporting that have materially affected or are reasonably likely
      to materially affect our internal controls over financial reporting subsequent
      to the date of such evaluation.




**Restatement
      of Prior Financial Statements and  Remediation of Internal Control
      Weaknesses**





On
      July
      10, 2006, the Company hired a Chief Financial Officer, with substantial
      Sarbanes-Oxley compliance experience.  With the hiring of its Chief
      Financial Officer, the Company has been developing a detailed plan to address
      compliance with Section 404 of the Sarbanes-Oxley Act of 2002.  In July
      2006, the Company initiated and since then has made progress on several projects
      focused on assessing potential risks, better understanding and documenting
      its
      processes, and implementing certain preventative or detective controls to
      address key risks. These are important first steps toward designing and
      implementing an effective compliance plan.  As a non-accelerated filer with
      a calendar year end of December 31, the Company must first begin to comply
      with
      the requirements of Section 404 for the fiscal year ending December 31, 2007.





As
      part
      of its risk assessment, the Company undertook an extensive review of its
      controls associated with its research and development contract accounting
      process. The Company identified an error in the recording of a research and
      development contract during the quarter ended March 31, 2006. For this period,
      the Company’s research and development expense was overstated and prepaid
      expenses were understated by $416,798, and a related material commitment in
      excess of $2 million was not disclosed. The Company has restated its interim
      financial statements and filed an amended quarterly report on form 10-QSB for
      the quarterly period ended March 31, 2006.  Accordingly, the aforementioned
      error did not have any effect on the acompanying condensed consolidated
      financial statements in this quarterly report.





20




**PART
      II - OTHER INFORMATION**


**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.





21




**SIGNATURES**





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




MANHATTAN
              PHARMACEUTICALS, INC.Date: August
              14, 2006
            By:
            /s/ Douglas
              AbelDouglas
                Abel
              President
                and
                Chief Executive Officer Date: August
              14, 2006
            By:
            /s/ Michael
              G. McGuinnessMichael
                G. McGuinness
              Chief Financial Officer




22





**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.
  23