**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, 2005





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 0-27282





**Manhattan
      Pharmaceuticals, Inc.**


(Exact
      Name of Registrant as Specified in Its Charter)





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




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


(Address
      of principal executive offices)





(212)
      582-3950


(Issuer’s
      telephone number)





Check
      whether the issuer: (1) filed all reports required to be filed by Section 13
      or
      15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
      (or
      for such shorter period that the issuer was required to file such reports),
      and
      (2) has been subject to such filing requirements for the past 90 days.
      Yes x No o





As
      of
      August 10, 2005 there were 40,858,692 shares of the issuer’s common stock, $.001
      par value, outstanding.





Traditional
      Small Business Disclosure Format (check one): Yes o No x





1





**INDEX**




Page**PART
                I**
            **FINANCIAL
                INFORMATION**Item
                1.
            Unaudited
                Condensed Consolidated Balance Sheets
            3Unaudited
                Condensed Consolidated Statements of Operations
            4Unaudited
                Condensed Consolidated Statement of Stockholders’ Equity
                (Deficiency)
            5Unaudited
                Condensed Consolidated Statements of Cash Flows
            6Notes
                to Unaudited Condensed Consolidated Financial Statements
            7Item
                2.
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations
            12Item
                3.
            Controls
                and Procedures
            16**PART
                II**
            **OTHER
                INFORMATION**Item
                5.
            Other
                Information
            17Item
                6.
            Exhibits
            17Signatures
            18





**Forward-Looking
      Statements**





This
      Quarterly Report on Form 10-QSB contains statements that are not historical
      but
      are forward-looking in nature, including statements regarding the expectations,
      beliefs, intentions or strategies regarding the future. In particular, the
      “Management's Discussion and Analysis of Financial Condition and Results of
      Operations” section in Item 2 of Part I of this Quarterly Report includes
      forward-looking statements that reflect our current views with respect to future
      events and financial performance. We use words such as we
“expect,”“anticipate,”“believe,” and “intend” and similar expressions to
      identify forward-looking statements. Investors should be aware that actual
      results may differ materially from our expressed expectations because of risks
      and uncertainties inherent in future events. Such
      risks and uncertainties include, but are not limited to, uncertainties related
      to the ability to attract and retain partners for our technologies, the
      identification of lead compounds, the successful preclinical development
      thereof, the completion of clinical trials, the FDA review process and other
      governmental regulation, our pharmaceutical collaborator's ability to
      successfully develop and commercialize drug candidates, competition from other
      pharmaceutical companies, product pricing and third party reimbursement.
      Additional risks are described under the caption “Risk
      Factors” following Item 1 of our Annual Report on Form 10-KSB for the year ended
      December 31, 2004. Accordingly, you should
      not unduly rely on these forward looking statements.





2




PART
      I - FINANCIAL
      INFORMATION




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


**MANHATTAN
        PHARMACEUTICALS, INC. AND SUBSIDIARIES**


(A
        Development Stage Company)
 Condensed
        Consolidated Balance Sheets
 (Unaudited)
 **June
                    30,**
                
                **December
                    31,****Assets**
                
                **2005**
                
                **2004**Current
                    assets:Cash
                    and cash equivalents
                
                $
                889,864
                
                $
                905,656Short-term
                    investments, available for sale, at market
                
                
                1,505,853
                
                
                4,514,216Prepaid
                    expenses
                
                
                17,012
                
                
                40,126Total
                    current assets
                
                
                2,412,729
                
                
                5,459,998Property
                    and equipment, net
                
                
                115,891
                
                
                119,017Other
                    assets
                
                
                70,506
                
                
                70,506Total
                    assets
                
                $
                2,599,126
                
                $
                5,649,521**Liabilities
                    and Stockholders’ Equity**Current
                    liabilities:Accounts
                    payable
                
                $
                1,302,961
                
                $
                1,143,603Accrued
                    expenses
                
                
                148,074
                
                
                52,102Total
                    current liabilities
                
                
                1,451,035
                
                
                1,195,705Notes
                    payable to related parties
                
                
                324,392
                
                
                —Total
                    liabilities
                
                
                1,775,427
                
                
                1,195,705Commitments
                    and ContingenciesStockholders’
                    equity:Series
                    A convertible preferred stock, $.001 par value.Authorized
                    1,500,000 shares; 731,964 and 854,373 shares issued andoutstanding
                    at June 30, 2005 and December 31, 2004, respectively(liquidation
                    preference aggregating $7,369,640 and $8,973,730 atJune
                    30, 2005 and December 31, 2004, respectively)
                
                
                732
                
                
                854Common
                    stock, $.001 par value. Authorized 150,000,000 shares;40,820,601
                    and 28,309,187 shares issued and outstandingat
                    June 30, 2005 and December 31, 2004, respectively
                
                
                40,821
                
                
                28,309Additional
                    paid-in capital
                
                
                29,789,111
                
                
                18,083,208Deficit
                    accumulated during development stage
                
                
                (28,993,575
                )
                
                (13,955,035
                )Dividends
                    payable in Series A preferred shares
                
                
                75,738
                
                
                303,411Accumulated
                    other comprehensive income
                
                
                —
                
                
                13,237Unearned
                    consulting services
                
                
                (89,128
                )
                
                (20,168
                )Total
                    stockholders’ equity
                
                
                823,699
                
                
                4,453,816Total
                    liabilities and stockholders' equity
                
                $
                2,599,126
                
                $
                5,649,521
 See
        accompanying notes to unaudited condensed consolidated financial
        statements.


3





**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,****2005**
                
                **2004**
                
                **2005**
                
                **2004**
                
                **2005**Revenue
                
                $
                —
                
                $
                —
                
                $
                —
                
                $
                —
                
                $
                —Costs
                    and expenses:Research
                    and development
                
                
                957,235
                
                
                518,961
                
                
                1,921,275
                
                
                1,228,234
                
                
                8,523,709General
                    and administrative
                
                
                553,160
                
                
                467,755
                
                
                1,046,403
                
                
                880,993
                
                
                5,171,893In-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
                
                
                13,398,202
                
                
                986,716
                
                
                14,855,485
                
                
                2,109,227
                
                
                28,045,517Operating
                    loss
                
                
                (13,398,202
                )
                
                (986,716
                )
                
                (14,855,485
                )
                
                (2,109,227
                )
                
                (28,045,517
                )Other
                    (income) expense:Interest
                    and other income
                
                
                (37,142
                )
                
                (53,928
                )
                
                (68,346
                )
                
                (81,091
                )
                
                (260,035
                )Interest
                    expense
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                23,893Realized
                    gain on sale of marketable equity securities
                
                
                —
                
                
                (71,182
                )
                
                —
                
                
                (71,182
                )
                
                (71,182
                )Total
                    other income
                
                
                (37,142
                )
                
                (125,110
                )
                
                (68,346
                )
                
                (152,273
                )
                
                (307,324
                )Net
                    loss
                
                
                (13,361,060
                )
                
                (861,606
                )
                
                (14,787,139
                )
                
                (1,956,954
                )
                
                (27,738,193
                )Preferred
                    stock dividends (including imputed amounts)
                
                
                (123,935
                )
                
                (180,682
                )
                
                (251,401
                )
                
                (392,805
                )
                
                (1,255,382
                )Net
                    loss applicable to common shares
                
                $
                (13,484,995
                )
                $
                (1,042,288
                )
                $
                (15,038,540
                )
                $
                (2,349,759
                )
                $
                (28,993,575
                )Net
                    loss per common share:Basic
                    and diluted
                
                $
                (0.33
                )
                $
                (0.04
                )
                $
                (0.43
                )
                $
                (0.09
                )Weighted
                    average shares of common stock outstanding:Basic
                    and diluted
                
                
                40,595,204
                
                
                26,744,875
                
                
                34,663,130
                
                
                26,444,118
 See
        accompanying notes to unaudited condensed consolidated financial
        statements.





4





**MANHATTAN
        PHARMACEUTICALS, INC. AND SUBSIDIARIES**
 (A
        Development Stage Company)
 Condensed
        Consolidated Statement of Stockholders' Equity (Deficiency)
 (Unaudited)
 **Dividends****Deficit**
                
                **payable**
                
                
                
                
                
                **Total****Series
                    A**
                
                
                
                
                
                
                
                
                
                **accumulated**
                
                **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)**
                
                **costs**
                
                **(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 per sharethrough
                    private placement, net ofexpenses
                
                
                —
                
                
                —
                
                
                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 $1.10 per share, net
                    of
                    expensesper
                    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
                )
                
                4,453,816Exercise
                    of stock options
                
                
                —
                
                
                —
                
                
                32,400
                
                
                33
                
                
                32,367
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                32,400Exercise
                    of warrants
                
                
                —
                
                
                —
                
                
                255,342
                
                
                255
                
                
                68,236
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                68,491Conversion
                    of preferred stock to common stock
                
                
                (164,190
                )
                
                (164
                )
                
                1,492,620
                
                
                1,493
                
                
                (1,329
                )
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —Preferred
                    stock dividends paid by issuance of shares
                
                
                41,781
                
                
                42
                
                
                —
                
                
                —
                
                
                477,736
                
                
                —
                
                
                —
                
                
                (479,074
                )
                
                —
                
                
                —
                
                
                (1,296
                )Preferred
                    stock dividend accrued
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                (251,401
                )
                
                251,401
                
                
                —
                
                
                —
                
                
                —Options
                    issued for consulting services
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                97,230
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                (97,230
                )
                
                —Amortization
                    of unearned consulting costs
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                28,270
                
                
                28,270Reversal
                    of unrealized gain on short-term investments
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                (13,237
                )
                
                —
                
                
                (13,237
                )Costs
                    associated with private placement
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                (10,590
                )
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                (10,590
                )Stock
                    issued in connection with acquisition of Tarpan Therapeutics,
                    Inc.
                
                
                —
                
                
                —
                
                
                10,731,052
                
                
                10,731
                
                
                11,042,253
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                11,052,984Net
                    loss
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                (14,787,139
                )
                
                —
                
                
                —
                
                
                —
                
                
                (14,787,139
                )Balance
                    at June 30, 2005
                
                
                731,964
                
                $
                732
                
                
                40,820,601
                
                $
                40,821
                
                $
                29,789,111
                
                $
                —
                
                $
                (28,993,575
                )
                $
                75,738
                
                $
                —
                
                $
                (89,128
                )
                $
                823,699
 See
        accompanying notes to unaudited condensed consolidated financial
        statements.





5




**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,****2005**
                
                **2004**
                
                **2005**Cash
                    flows from operating activities:Net
                    loss
                
                $
                (14,787,139
                )
                $
                (1,956,954
                )
                $
                (27,738,193
                )Adjustments
                    to reconcile net loss tonet
                    cash used in operating activities:Common
                    stock issued for license rights
                
                
                —
                
                
                —
                
                
                1,000Amortization
                    of unearned consulting costs
                
                
                28,270
                
                
                40,320
                
                
                189,659Warrants
                    issued for consulting services
                
                
                —
                
                
                —
                
                
                4,590Amortization
                    of intangible assets
                
                
                —
                
                
                —
                
                
                145,162Gain
                    on sale of marketable equity securities
                
                
                —
                
                
                —
                
                
                (71,182
                )Depreciation
                
                
                27,334
                
                
                7,350
                
                
                60,894Non
                    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
                
                
                23,114
                
                
                (2,492
                )
                
                41,233Increase
                    in other assets
                
                
                —
                
                
                —
                
                
                (70,506
                )Increase
                    (decrease) in accounts payable
                
                
                133,307
                
                
                (135,088
                )
                
                953,175Increase
                    (decrease) in accrued expenses
                
                
                95,972
                
                
                (206,518
                )
                
                (392,247
                )Net
                    cash used in operating activities
                
                
                (2,757,519
                )
                
                (2,253,382
                )
                
                (12,692,684
                )Cash
                    flows from investing activities:Purchase
                    of property and equipment
                
                
                (22,171
                )
                
                (53,992
                )
                
                (167,065
                )Cash
                    paid in connection with acquisitions
                
                
                —
                
                
                —
                
                
                (32,808
                )Purchase
                    of short-term investments
                
                
                —
                
                
                —
                
                
                (5,000,979
                )Proceeds
                    from sale of short-term investments
                
                
                2,995,126
                
                
                431,089
                
                
                3,926,215Proceeds
                    from sale of license
                
                
                —
                
                
                —
                
                
                200,001Cash
                    acquired in acquisition
                
                
                6,777
                
                
                —
                
                
                6,777Net
                    cash provided by (used in) investing activities
                
                
                2,979,732
                
                
                377,097
                
                
                (1,067,859
                )Cash
                    flows from financing activities:Proceeds
                    from issuances of notes payable to stockholders
                
                
                —
                
                
                —
                
                
                233,500Repayments
                    of notes payable to stockholders
                
                
                (327,010
                )
                
                —
                
                
                (560,510
                )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 stock combination
                
                
                (1,296
                )
                
                —
                
                
                (2,286
                )Proceeds
                    from sale of common stock, net
                
                
                —
                
                
                3,431,165
                
                
                5,809,126Costs
                    associated with private placement
                
                
                (10,590
                )
                
                (46,423
                )
                
                (10,590
                )Proceeds
                    from sale of preferred stock, net
                
                
                —
                
                
                —
                
                
                9,046,176Proceeds
                    from exercise of stock options
                
                
                32,400
                
                
                14,500
                
                
                62,500Proceeds
                    from exercise of warrants
                
                
                68,491
                
                
                —
                
                
                68,491Net
                    cash provided by (used in) financing activities
                
                
                (238,005
                )
                
                3,399,242
                
                
                14,650,407Net
                    increase (decrease) in cash and cash equivalents
                
                
                (15,792
                )
                
                1,522,957
                
                
                889,864Cash
                    and cash equivalents at beginning of period
                
                
                905,656
                
                
                7,413,803
                
                
                —Cash
                    and cash equivalents at end of period
                
                $
                889,864
                
                $
                8,936,760
                
                $
                889,864Supplemental
                    disclosure of cash flow information:Interest
                    paid
                
                $
                —
                
                $
                —
                
                $
                26,934Supplemental
                    disclosure of noncash investing and financing activities:Stock
                    options/warrants issued for consulting services
                
                $
                97,230
                
                $
                120,968
                
                $
                278,787Preferred
                    stock dividends accrued
                
                
                251,401
                
                
                392,805
                
                
                837,200Conversion
                    of preferred stock to common stock
                
                
                164
                
                
                —
                
                
                335Preferred
                    stock dividends paid by issuance of shares
                
                
                477,778
                
                
                —
                
                
                759,176Issuance
                    of common stock for acquisitions
                
                
                11,052,984
                
                
                —
                
                
                13,389,226Marketable
                    equity securities received in connection withsale
                    of license
                
                
                —
                
                
                —
                
                
                359,907Subscription
                    receivable from exercise of options
                
                
                —
                
                
                15,600
                
                
                —Net
                    liabilities assumed in business combination
                
                
                (675,416
                )
                
                —
                
                
                (675,416
                )
 See
        accompanying notes to unaudited condensed consolidated financial
        statements.





6





MANHATTAN
      PHARMACEUTICALS, INC. and SUBSIDIARIES


(A
      Development Stage Company)





NOTES
      TO
      CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


June
      30,
      2005





(1)
            BASIS
                OF PRESENTATION





The
      accompanying unaudited condensed consolidated financial statements have been
      prepared in accordance with accounting principles generally accepted in the
      United States of America for interim financial information. 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,
      2005 or for any subsequent period. These unaudited condensed consolidated
      financial statements should be read in conjunction with audited financial
      statements of Manhattan Pharmaceuticals, Inc. and its subsidiaries (“Manhattan”
      or the “Company”) as of and for the year ended December 31, 2004, 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, 2004 has been derived
      from the audited consolidated financial statements included in the Form 10-KSB
      for that year.





(2)
            LIQUIDITY





The
      Company reported a net loss of $14,787,139 and negative cash flows from
      operating activities of $2,757,519 for the six months ended June 30, 2005.
      The
      net loss from date of inception, August 6, 2001, to June 30, 2005 amounts to
      $27,738,193.





Management
      believes that the Company will continue to incur net losses and negative cash
      flows from operating activities through at least June 30, 2006. Based on the
      resources of the Company available at June 30, 2005, management believes that
      the Company will need additional equity or debt financing or will need to
      generate revenues during 2005 through licensing of its products or entering
      into
      strategic alliances to be able to sustain its operations through 2005 and that
      it will need additional financing thereafter until it can achieve profitability,
      if ever. These matters raise substantial doubt about the Company’s ability to
      continue as a going concern.





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. Through June 30, 2005, a significant portion of the
      Company’s financing has been through private placements of common and preferred
      stock. Until and unless the Company’s operations generate significant revenues
      and cash flows from operating activities, the Company will attempt to continue
      to fund operations from cash on hand and through the sources of capital
      previously described.





(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 stock options, stock
      warrants and convertible preferred stock 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 16,349,537
      and 15,970,578 as of June 30, 2005 and 2004, respectively.





7


MANHATTAN
        PHARMACEUTICALS, INC. and SUBSIDIARIES
 (A
        Development Stage Company)
 
 NOTES
        TO
        CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 June
        30,
        2005




(4)
            STOCK
                OPTIONS





On
      January 11, 2005, the Company granted directors and employees options to
      purchase an aggregate of 367,280 shares of common stock under the Company’s 2003
      Stock Option Plan at an exercise price of $1.00 per share. 168,030 shares
      subject to these options vest in three equal annual installments starting on
      the
      grant date and
      continuing each anniversary thereafter ,
      provided the optionee continues in service. 50,000 shares subject to these
      options vest in two equal annual installments starting on January 3, 2006,
      provided the optionee continues in service, and 149,250 shares subject to these
      options vest in three equal annual installments starting one year from the
      grant
      date, provided the optionee continues in service. On April 1, 2005, the Company
      granted its chief executive officer an option to purchase an
      aggregate
      of 2,923,900 shares of common stock under the Company’s 2003 Stock Option Plan
      at an exercise price of $1.50 per share. The option vests in three equal
      installments, on November 1, 2005, November 1, 2006 and November 1, 2007. On
      June 16, 2005, the Company granted a consultant options to purchase an aggregate
      of 100,000 shares of common stock under the Company’s 2003 Stock Option Plan at
      an exercise price of $1.60 per share. All shares subject to these options vest
      in thirty-six equal monthly installments beginning on the first month
      anniversary of the date of the grant, provided the consultant continues to
      provide services to the Company.





The
      Company uses the intrinsic value method of accounting for employee stock options
      pursuant to the provisions of APB Opinion No. 25. Since all of the options
      granted by the Company have been at exercise prices that were at least equal
      to
      the market value at the date of grant, there were no charges to operations
      upon
      issuance. Had compensation costs been determined using the Black-Scholes option
      pricing model in accordance with the fair value method prescribed by SFAS
      No. 123 for all options issued to employees and amortized over the vesting
      period, the Company’s net loss applicable to common shares and net loss per
      common share (basic and diluted) would have been increased to the pro forma
      amounts indicated below.




**Three
                    months ended**
                
                **Six
                    months ended****June
                    30,**
                
                **June
                    30,****2005**
                
                **2004**
                
                **2005**
                
                **2004**Net
                    loss applicable to common shares, as reported
                
                $
                (13,484,995
                )
                $
                (1,042,288
                )
                $
                (15,038,540
                )
                $
                (2,349,759
                )Deduct: 
                    Total stock-based employeecompensation
                    expense determinedunder
                    fair value method
                
                
                (393,307
                )
                
                (282,120
                )
                
                (561,219
                )
                
                (564,288
                )Net
                    loss applicable to common shares, pro forma
                
                $
                (13,878,302
                )
                $
                (1,324,408
                )
                $
                (15,599,759
                )
                $
                (2,914,047
                )Net
                    loss per common share – basicAs
                    reported
                
                $
                (0.33
                )
                $
                (0.04
                )
                $
                (0.43
                )
                $
                (0.09
                )Pro
                    forma
                
                
                (0.34
                )
                
                (0.05
                )
                
                (0.45
                )
                
                (0.11
                )


As
      a
      result of amendments to SFAS No. 123, the Company will be required to expense
      the fair value of employee stock options over the vesting period, beginning
      January 1, 2006.





8




MANHATTAN
        PHARMACEUTICALS, INC. and SUBSIDIARIES
 (A
        Development Stage Company)
 
 NOTES
        TO
        CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 June
        30,
        2005


The
      fair
      value of each option granted is estimated on the date of the grant using the
      Black-Scholes option pricing model with the following weighted average
      assumptions used for the grants in the six months ended June 30, 2005: dividend
      yield of 0%; expected volatility of 70%; risk-free interest rate of 3.7%; and
      expected lives of five years. The following assumptions were used for the grants
      in the six months ended June 30, 2004: dividend yield of 0%; expected volatility
      of 82%; risk-free interest rate of 3.2%; and expected lives of eight years.
      The
      following weighted average assumptions used for the grants in the three months
      ended June 30, 2005: dividend yield of 0%; expected volatility of 71%; risk-free
      interest rate of 3.7%; and expected lives of five years. No stock options were
      granted during the three months ended June 30, 2004.








(5)
            ACQUISITION
                OF TARPAN THERAPEUTICS, INC.





On
      April
      1, 2005, the Company entered into an Agreement and Plan of Merger
      (the
“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 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. In consideration for their shares of Tarpan capital stock and
      in
      accordance with the Agreement, the stockholders of Tarpan received 10,731,052
      shares of the Company’s common stock such that, upon the effective time of the
      Merger, the Tarpan stockholders collectively received approximately
      20
      percent of the Company’s outstanding common stock on a fully-diluted basis.
      Based on the five day average price of the Company’s common stock of $1.03 per
      share, the purchase price totaled $11,052,984, plus $166,184 of acquisition
      costs. At the time of the Merger, Tarpan had outstanding indebtedness of
      $651,000 resulting from a series of promissory notes issued to Paramount
      BioCapital Investments, LLC and Horizon BioMedical Ventures, LLC, both of which
      are owned or controlled by Dr. Lindsay Rosenwald. The notes were amended at
      the
      time of the Merger to provide that one-half of the outstanding indebtedness
      was
      payable upon completion of the Merger and the remaining one-half will be payable
      at such time as the Company raises at least $5 million in new
      financing.





The
      acquisition of Tarpan has been accounted for by the Company under the purchase
      method of accounting in accordance with Statement of Financial Accounting
      Standards No. 141 “Business Combinations”. Under the purchase method, assets
      acquired and liabilities assumed by the Company are recorded at their estimated
      fair values and the results of operations of the acquired company are
      consolidated with those of the Company from the date of
      acquisition.





Several
      of Tarpan’s former stockholders are directors or significant stockholders of the
      Company. Dr. Rosenwald and various trusts established for the benefit of Dr.
      Rosenwald and members of his immediate family collectively beneficially owned
      approximately 46 percent of Tarpan’s common stock and beneficially own
      approximately 26 percent of the Company’s common stock. In addition,
      Joshua Kazam, David Tanen, Dr. Michael Weiser and Timothy McInerney, all of
      whom
      are members of the Company’s board of directors, collectively owned
      approximately 13.4 percent of Tarpan’s outstanding common stock. Dr. Weiser and
      Mr. McInerney are also employed by Paramount BioCapital, Inc., an entity owned
      and controlled by Dr. Rosenwald. As a result of such relationships between
      the
      Company and Tarpan, the Company’s board of directors established a special
      committee to consider and approve the Agreement. The members of the special
      committee did not have any prior relationship with
      Tarpan.





9
 
  MANHATTAN
          PHARMACEUTICALS, INC. and SUBSIDIARIES
 (A
          Development Stage Company)
 
 NOTES
          TO
          CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 June
          30,
          2005


Upon
      completion of the Merger, Douglas Abel, formerly chief executive officer of
      Tarpan, was appointed President and Chief Executive Officer of the Company.
      Pursuant to the agreement, the Company entered into an employment agreement
      dated April 1, 2005 with Mr. Abel. This agreement has a three-year term
      commencing on April 1, 2005, which may be extended for additional one year
      periods thereafter. Under the agreement, Mr. Abel is entitled to an annual
      salary of $300,000, in addition to health, disability insurance and other
      benefits. The annual salary shall be increased to $325,000 at such time as
      the
      Company completes a financing transaction that results in aggregate gross
      proceeds to the Company of at least $5,000,000, retroactive to the date of
      the
      employment agreement. In addition, the Company will pay Mr. Abel a cash bonus
      of
      $200,000 in the first year and he may receive a discretionary bonus in the
      first
      and subsequent years of up to 50 percent of his base salary. Pursuant to his
      employment agreement, Mr. Abel was granted an option to purchase an aggregate
      of
      2,923,900 shares of common stock at a price of $1.50 per share. The option
      vests
      in three equal installments, on November 1, 2005, November 1, 2006, and November
      1, 2007.





The
      excess purchase price paid by the Company to acquire the net assets of Tarpan
      was allocated to acquired in-process research and development totaling
      $11,887,807. As required by FASB Interpretation No. 4, “Applicability of FASB
      Statement No. 2 to Business combinations Accounted for by the Purchase Method
“
      (“FIN4”), the Company recorded a charge in its statements of operations for the
      three and six months ended June 30, 2005 for the in-process research and
      development. Tarpan is a biopharmaceutical company engaged in the development
      of
      the Phase II pharmaceutical product candidate, PTH (1-34). The acquisition
      of
      Tarpan gives Manhattan this third product candidate. Results of operations
      of
      Tarpan are included in the consolidated financials since April 1, 2005.





A
      summary
      of the purchase price is as follows:


Assets
                  purchased:Cash
              
              $
              6,777Property
                  and equipment
              
              
              2,037Acquired
                  in-process research and development
              
              
              11,887,807Total
              
              
              11,896,621Liabilities:Accounts
                  payable
              
              
              26,051Notes
                  payable - related parties
              
              
              651,402Total
              
              
              677,453Net
                  purchase price
              
              $
              11,219,168





The
      following unaudited pro forma financial information presents the condensed
      consolidated results of operations of the Company and Tarpan, as if the
      acquisition had occurred on January 1, 2005 and 2004 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 pro forma information
      does not necessarily reflect the results of operations that would have occurred
      had the entities been a single company during the period.





10





MANHATTAN
      PHARMACEUTICALS, INC. and SUBSIDIARIES


(A
      Development Stage Company)





NOTES
      TO
      CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


June
      30,
      2005


**Three
                    months ended**
                
                **Six
                    months ended****June
                    30,**
                
                **June
                    30,****2005**
                
                **2004**
                
                **2005**
                
                **2004**Net
                    loss
                
                $
                (13,361,060
                )
                $
                (13,030,115
                )
                $
                (14,914,400
                )
                $
                (14,150,463
                )Weighted
                    average number of common shares outstanding
                
                
                40,713,128
                
                
                37,475,927
                
                
                40,058,300
                
                
                37,175,170Loss
                    per common share - basic and fully diluted
                
                $
                (0.33
                )
                $
                (0.35
                )
                $
                (0.37
                )
                $
                (0.38
                )





11





**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, 2004 (the “Annual Report”). This discussion includes
“forward-looking” statements that reflect our current views with respect to
      future events and financial performance. We use words such as we
“expect,”“anticipate,”“believe,” and “intend” and similar expressions to
      identify forward-looking statements. Investors should be aware that actual
      results may differ materially from our expressed expectations because of risks
      and uncertainties inherent in future events, particularly those risks identified
      in the “Risk Factors” section of the Annual Report, and should not unduly rely
      on these forward looking statements.**




RESULTS
      OF OPERATIONS




THREE-MONTH
      PERIOD ENDED JUNE 30, 2005 VS 2004




During
      the quarters ended June 30, 2005 and 2004, we had no revenue. We do not expect
      to have significant revenues relating to our product candidates in development
      prior to June 30, 2006.




For
      the
      quarter ended June 30, 2005, research and development expense was $957,235
      as
      compared to $518,961 for the second quarter of 2004. The increase of $438,274
      is
      due primarily to an acceleration of pre-clinical development of our
      Oleoyl-estrone drug candidate.




For
      the
      quarter ended June 30, 2005, general and administrative expense was $553,160
      as
      compared to $467,755 for the quarter ended June 30, 2004. The increase of
      $85,405 is due primarily to increases in payroll, travel and entertainment,
      investor relations and rent expense of approximately $98,000, $18,000, $17,000
      and $16,000 respectively. In addition we had increases in expenses related
      to
      directors’ fees and all other expenses of $8,000 and $7,000, respectively. These
      increases are partially offset by reductions in consulting and meetings of
      approximately $65,000 and $14,000, respectively.




For
      the
      quarter ended June 30, 2005, interest and other income was $37,142 as compared
      to $53,928 for the quarter ended June 30, 2004. The decrease of $16,786 is
      due
      primarily to a reduction in cash balances and short-term
      investments.




Net
      loss
      for the quarter ended June 30, 2005, was $13,361,060 as compared to $861,606
      for
      the quarter ended June 30, 2004. This increase in net loss is attributable
      primarily to the in-process research and development charge of $11,887,807
      relating to the acquisition of Tarpan. Additionally, there were increases in
      research and development expenses of $438,274 and general and administrative
      expenses of $85,405, as well as a reduction in interest and other income of
      $16,786. Finally in 2004 we had a realized gain on sale of marketable equity
      securities of $71,182, which we did not have in the current year.




Preferred
      stock dividends of $123,935 and $180,682 reduced earnings per share for the
      three months ended June 30, 2005 and 2004 by $0.00 and $0.01,
      respectively.




SIX-MONTH
      PERIOD ENDED JUNE 30, 2005 VS 2004




During
      the six months ended June 30, 2005 and 2004, we had no revenue. We do not expect
      to have significant revenues relating to our product candidates in development
      prior to June 30, 2006.




12




For
      the
      six months ended June 30, 2005, research and development expense was $1,921,275
      as compared to $1,228,234 for the six months ended June 30, 2004. The increase
      of $693,041 is due primarily to an acceleration of pre-clinical development
      of
      our Oleoyl-estrone drug candidate.




For
      the
      six months ended June 30, 2005, general and administrative expense was
      $1,046,403 as compared to $880,993 for the six months ended June 30, 2004.
      The
      increase of $165,410 is due primarily to increases in payroll and investor
      relations expenses of approximately $97,000 and $52,000 respectively. In
      addition we had increases in expenses related to rent, directors’ fees,
      telephone and all other expenses of $32,000, $23,000, $17,000 and $16,000,
      respectively. These increases are partially offset by reductions in consulting
      and meetings of approximately $46,000 and $26,000, respectively.




For
      the
      six months ended June 30, 2005, interest and other income was $68,346 as
      compared to $81,091 for the six months ended June 30, 2004. The decrease of
      $12,745 is due primarily to a reduction in cash balances and short-term
      investments.




Net
      loss
      for the six months ended June 30, 2005, was $14,787,139 as compared to
      $1,956,954 for the six months ended June 30, 2004. This increase in net loss
      is
      attributable primarily to the in-process research and development charge of
      $11,887,807 related to the acquisition of Tarpan. Additionally, there were
      increases in research and development expenses of $693,041 and general and
      administrative expenses of $165,410 as well as a reduction in interest and
      other
      income of $12,745. Finally in 2004 we had a realized gain on sale of marketable
      equity securities of $71,182, which we did not have in the current
      year.




Preferred
      stock dividends of $251,401 and $392,805 reduced earnings per share for the
      six
      months ended June 30, 2005 and 2004 by $0.01 and $0.01,
      respectively.




LIQUIDITY
      AND CAPITAL RESOURCES




From
      inception to June 30, 2005, we incurred a deficit during the development stage
      of $28,993,575 primarily as a result of losses, and we expect to continue to
      incur additional losses and negative cash flows from operating activities
      through at least June 30, 2006 and for the foreseeable future. The acquisition
      of Tarpan will increase these losses. 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, 2005, we had a net decrease in cash and cash
      equivalents of $15,792. This decrease resulted from net cash used in operating
      activities of $2,757,519, net cash provided by investing activities of
      $2,979,732 and net cash used in financing activities of $238,005. Total liquid
      resources including short term investments as of June 30, 2005 were $2,395,717
      compared to $5,419,872 at December 31, 2004. In addition, during the six months
      ended June 30, 2005, we accrued a preferred stock dividend of
      $251,401.




Our
      current liabilities as of June 30, 2005 were $1,451,035 compared to $1,195,705
      at December 31, 2004, an increase of $255,330. The increase was primarily due
      to
      an increase in expenditures associated with the commencement of our Phase I
      clinical trial for our Oleoyl-estrone product candidate and a payable to related
      parties as a result of the Tarpan acquisition. As of June 30, 2005, we had
      working capital of $961,694 compared to $4,264,293 at December 31,
      2004.




13




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, 2005, a significant portion of our financing has been through private
      placements of common stock and warrants. Unless 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, 2005, management believes that we will need
      additional equity or debt financing or will need to generate revenues during
      2005 through licensing our products or entering into strategic alliances to
      be
      able to sustain our operations through 2005 and we will need additional
      financing thereafter until we can achieve profitability, if ever.




We
      have
      reported net losses of $14,787,139 and $1,956,954 for the six months ended
      June
      30, 2005 and 2004, respectively. The net loss from date of inception, excluding
      preferred stock dividends, August 6, 2001 to June 30, 2005, amounts to
      $27,738,193. Management believes that we will continue to incur net losses
      through at least June 30, 2006 and in the foreseeable future thereafter. Based
      on the current resources available to us, we will need additional equity or
      debt
      or financing or we will need to generate revenues through licensing our products
      or entering into strategic alliances to be able to sustain our operations until
      we can achieve profitability, if ever. These matters raise substantial doubt
      about our ability to continue as a going concern.




RESEARCH
      AND DEVELOPMENT PROJECTS





***Oleoyl-estrone.*** In
      January 2005, t he
      United
      States Food and Drug Administration (FDA) accepted our filed Investigational
      New
      Drug Application (IND) for the human clinical testing of oleoyl estrone. This
      IND allowance was granted on the preclinical chemistry, manufacturing, and
      safety data submitted to the FDA by the Company.





In
      February 2005, we began dosing patients in our first Phase I trial in Basel,
      Switzerland to evaluate the safety and tolerability of defined doses of orally
      administered oleoyl-estrone in obese adults, in accordance with FDA guidelines
      after obtaining formal approval from the Swiss medical regulatory authority,
      Swissmedic. The objective of this human Phase I dose-escalation study was to
      determine the pharmacokinetic profile of oleoyl-estrone, as well as its safety
      and tolerability in obese adult volunteers of both genders. The study was
      completed in two parts, Phase Ia and Phase Ib. In May 2005, we concluded Phase
      Ia, in which 36 obese volunteers received a single dose of either OE or a
      placebo, in a dose escalating manner. The Phase Ib trial was a 7-day
      repeat-dose, dose escalation trial that evaluated 24 obese volunteers in four
      cohorts, randomized 2 to 1, active to placebo. Both Phase Ia and Phase Ib have
      been completed. Results from both studies will also be used, in conjunction
      with
      extensive preclinical work, to establish the protocol and obtain approval from
      the FDA to begin Phase II clinical trials. The Phase Ia trial was conducted
      under the IND accepted by the FDA in January 2005. Under
      our
      license agreement with Oleoyl-Estrone Developments, we made a $250,000 milestone
      payment upon the treatment of the first patient in the Phase I trial.


14





To
      date,
      we have incurred $5,735,870 **** of
      project costs related to our development of oleoyl-estrone, of which $1,750,376
      and $462,305 was incurred in the first six months of 2005 and 2004,
      respectively. Currently, we anticipate that we will need to expend approximately
      an additional $1,500,000 to $2,500,000 in development costs in fiscal 2005.
      Since oleoyl-estrone is regarded by the FDA as a new entity, it is not realistic
      to predict the size and the design of the study at this time.





We
      do not
      have sufficient capital to fund our anticipated 2005 R&D expenditures
      relating to oleoyl-estrone in their entirety. We will need to raise additional
      capital from debt financings or by selling shares of our capital stock in order
      to complete the anticipated five or six year development program for the
      product. If we are unable to raise such additional capital, we may have to
      sublicense our rights to oleoyl-estrone to a third party as a means of
      continuing development, or though less likely, we may be required to abandon
      further development efforts altogether, either of which would have a material
      adverse effect on the prospects of our business.





In
      addition to raising additional capital, whether we are successful in developing
      oleoyl-estrone is dependent on numerous other factors, including 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. Additional
      risks and uncertainties are also described in our Annual Report on Form 10-KSB
      for the year ended December 31, 2004. 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.





***Lingual
      Spray Propofol.*** We
      are currently working with NovaDel to develop, manufacture and commercialize
      a
      propofol lingual spray. In July 2004, we released the results of the first
      human
      trial for our proprietary lingual spray formulation of propofol. In
      January 2005, the FDA accepted our IND for the initiation of the human clinical
      trials in the United States required for FDA approval of Propofol Lingual Spray
      (Propofol LS). We continue to pursue FDA approval of Propofol LS under 505(b)2
      regulatory pathway. Section
      505(b)2 of the U.S. Food, Drug & Cosmetic Act allows the FDA to approve a
      drug on the basis of existing data in the scientific literature or data used
      by
      the FDA in the approval of other drugs. Accordingly, the FDA has indicated
      to us
      that we will be able to utilize Section 505(b)2 to proceed directly to a pivotal
      Phase III trial for lingual spray propofol following completion of Phase I
      trials. We are actively planning the next steps of the clinical development
      process for Propofol LS, meeting with scientific advisors and Novadel regarding
      formulation, reviewing existing data, developing trial design, and evaluating
      plans to re-enter the clinic.




To
      date,
      we have incurred $2,787,839 of project costs related to our development of
      propofol lingual spray, of which $170,899 and $797,198 was incurred during
      the
      first six months of 2005 and 2004, respectively. Currently, we anticipate that
      we will need to expend approximately an additional $1,000,000 to $1,500,000
      in
      development costs in fiscal 2005 and at least an aggregate of approximately
      $3,000,000 to $5,000,000 until we receive FDA approval for propofol, should
      we
      opt to continue development until then, including anticipated 2005 costs. As
      with our development of oleoyl-estrone, we do not have sufficient capital to
      fund our development activities of propofol lingual spray in their entirety
      during 2005. Since our business does not generate any cash flow, however, we
      will need to raise additional capital to continue development of the product
      beyond 2005. We expect to raise such additional capital through debt financings
      or by selling shares of our capital stock. To the extent additional capital
      is
      not available when we need it, we may be forced to sublicense our rights to
      propofol lingual spray or abandon our development efforts altogether, either
      of
      which would have a material adverse effect on the prospects of our
      business.





15


PTH
        (1-34).  As
        of
        April 1, 2005 and as a result of the expenses we absorbed from Tarpan
        Therapeutics, Inc. following completion of our acquisition of that Company,
        we
        have incurred $307,555 of projects costs related to our development of PTH
        (1-34), of which $300,000 was incurred in the first six months of 2004.
        Currently, we anticipate that we will need to expend approximately an additional
        $1,000,000 to $1,500,000 in development costs in fiscal 2005. We are working
        toward a meeting with the FDA to run our development plan for PTH (1-34).
        In
        light of the information available from the development of FORTEO® (which
        contains recombinant human parathyroid hormone (1-34), [rhPTH(1-34)]) and
        in the
        absence of the meeting with the FDA, we are not able to realistically predict
        the size and the design of the study at this time. As with the development
        of
        our other product candidates, we do not have sufficient capital to fund our
        development activities of PTH (1-34) in their entirety during 2005. FORTEO® is
        registered trademark of Eli Lilly and Company.





**Off-Balance
      Sheet Arrangements**




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




**Recently
      Issued Accounting Standards**





In
      December 2004, the FASB issued SFAS No. 123(R) (revised 2004), “Share-Based
      Payment”, which amends SFAS Statement No. 123 and will be effective for our
      quarter ending March 31, 2006. The new standard will require us to expense
      employee stock options and other share-based payments over the vesting period.
      The new standard may be adopted in one of three ways - the modified prospective
      transition method, a variation of the modified prospective transition method
      or
      the modified retrospective transition method. We are currently evaluating how
      we
      will adopt the standard and evaluating the effect that the adoption of SFAS
      123(R) will have on our financial position and results of
      operations.





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





As
      of
      June 30, 2005, we carried out an evaluation, under the supervision and with
      the
      participation of our chief executive officer and chief financial officer, of
      the
      effectiveness of the design and operation of our disclosure controls and
      procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities
      Exchange Act of 1934, as amended). Based upon that evaluation, our Chief
      Executive Officer and Chief Financial Officer concluded that our disclosure
      controls and procedures are effective in alerting them on a timely basis to
      material information required to be disclosed in our periodic reports to the
      Securities and Exchange Commission. During the second quarter of 2005, 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 such evaluation.




As
      a
      non-accelerated filer with a fiscal year end of December 31, we must first
      begin
      to comply with the requirements of Section 404 of the Sarbanes-Oxley Act of
      2002
      for the fiscal year ending December 31, 2006. We believe that our present
      internal control program has been effective at a reasonable assurance level
      to
      ensure that our financial reporting has not been materially misstated.
      Nonetheless, during the remaining periods through December 31, 2006, we will
      review, and where necessary, enhance our internal control design and
      documentation, management review, and ongoing risk assessment as part of our
      internal control program, including implementing the requirements of Section
      404
      of the Sarbanes-Oxley Act of 2002.





16





**PART
      II - OTHER INFORMATION**





**Item
      5.**  **Other
      Information**





Mr. Rossettos’
      employment with us is pursuant to a January 2005 employment agreement. This
      agreement has a two-year term ending on January 3, 2007, which may be extended
      for additional one (1) year periods thereafter. Under the agreement, Mr.
      Rossettos is entitled to an annual salary of $175,000 in addition to health,
      disability insurance and other benefits. Pursuant to his employment agreement,
      on January 3, 2005, Mr. Rossettos was granted an option to purchase an aggregate
      of 50,000 shares of common stock at a price of $1.00 per share. The option
      vests
      in two equal installments on each of January 3, 2006 and January 3, 2007.
      Mr. Rossettos and his dependents are eligible to receive paid medical
      and
      long term disability insurance and such other health benefits as we make
      available to other senior officers and directors. Mr. Rossettos reports
      to
      the Board of Directors of the Company with primary direction being given by
      the
      Chief Executive Officer and President.





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





Exhibit
              No.
            Description





10.1
            Employment
                Agreement between the Company and Nicholas J. Rossettos dated January
                3,
                2005.





10.2
              Employment
                  Agreement between the Company and Douglas Abel dated April 1, 2005
                  (incorporated by reference to Exhibit 10.1 to the Company’s Current Report
                  on Form 8-K/A filed June 15, 2005).
 
 31.1
              Certification of Chief Executive
                Officer
 
 31.2
              Certification of Chief Financial
                Officer
 
 32.1
              Certifications of Chief Executive Officer and
                Chief
                Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act
                of
                2002.





17





**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 15, 2005
              By:
              /s/
                Douglas AbelDouglas
                AbelPresident
                and Chief Executive OfficerDate: August 15, 2005
              By:
              /s/ Nicholas J. RossettosNicholas
                J. RossettosChief Financial Officer and Chief Operating
                Officer


18





**Exhibit
      Index**





Exhibit
                No.
              Description
 
 10.1
              Employment Agreement between the
                Company and
                Nicholas J. Rossettos dated January 3, 2005.  31.1
              Certification of Chief Executive
                Officer
 
 31.2
              Certification of Chief Financial
                Officer
 
 32.1
              Certifications of Chief Executive
                Officer and
                Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley
                Act
                of 2002.







19