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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K



|x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ------------------------------------------------------------------------------------

For the fiscal year ended December 31, 2008



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

Commission File Number: 001-33004

LOGO

Opexa Therapeutics, Inc.



(Exact Name of Registrant as Specified in Its
Charter)



|                                |  |                    
|------------------------------- |  | -------------------
|Texas                           |  | 76-0333165         
|(State or Other Jurisdiction of |  | (IRS Employer      
|Incorporation or Organization)  |  | Identification No.)



|                                                  |  |           
|------------------------------------------------- |  | ----------
|2635 N Crescent Ridge Drive, The Woodlands, Texas |  | 77381     
|(Address of Principal Executive Offices)          |  | (Zip Code)

Registrants Telephone Number, Including Area Code: (281) 272-9331

Securities registered pursuant to Section 12(b) of the Act: Series E Warrant

Securities registered pursuant to Section 12(g) of the Act: Common Stock

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes   ̈    No  þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or
Section 15(d) of the Act.    Yes   ̈    No  þ

Indicate by check mark whether the registrant (1) has 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 registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.    Yes  þ    No   ̈

Indicate by check mark if
disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  þ

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated
filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (check one):



|                          |  |                     |  |                                              |  |                            
|------------------------- |  | ------------------- |  | -------------------------------------------- |  | ---------------------------
| ̈  Large acceleratedfiler |  |  ̈  Acceleratedfiler |  |  ̈  Non-accelerated filer                     |  | þ  Smaller reportingcompany
|                          |  |                     |  | (Do not check if a smaller reportingcompany) |  |                            

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).    Yes   ̈    No  þ

As of April 13, 2009, 12,245,858 shares of the registrants common stock, par value $0.50 per share, were outstanding. The aggregate market value of the voting and non-voting common equity held by
non-affiliates of the registrant as of April 13, 2009 based upon the closing price as of such date was approximately $4.4 million.









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TABLE OF CONTENTS



|                                                                                                                      |  |   
|--------------------------------------------------------------------------------------------------------------------- |  | --
|PART I                                                                                                                |  | 2 
|Item 1. Business                                                                                                      |  | 2 
|Item 1A. Risk Factors                                                                                                 |  | 12
|Item 1B. Unresolved Staff Comments                                                                                    |  | 18
|Item 2. Properties                                                                                                    |  | 18
|Item 3. Legal Proceedings                                                                                             |  | 18
|Item 4. Submission Of Matters To A Vote Of Security Holders                                                           |  | 19
|PART II                                                                                                               |  | 19
|Item 
5. Market For Registrants Common Equity, Related Stockholder Matters And Issuer Purchases Of Equity Securities |  | 19
|Item 6. Selected Financial Data                                                                                       |  | 20
|Item 7. Managements Discussion And Analysis Of Financial Condition And Results Of
Operations                         |  | 20
|Item 7A. Quantitative And Qualitative Disclosure About Market Risk                                                    |  | 25
|Item 8. Financial Statements And Supplementary Data                                                                   |  | 25
|Item 9. Changes In And Disagreements With Accountants On Accounting And Financial Disclosure                          |  | 25
|Item 9A. Controls And Procedures                                                                                      |  | 25
|Item 9B. Other Information                                                                                            |  | 26
|PART III                                                                                                              |  | 27
|Item 10. Directors, Executive Officers And Corporate Governance                                                       |  | 27
|Item 11. Executive Compensation                                                                                       |  | 31
|Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters               |  | 38
|Item 13. Certain Relationships and Related Transactions, and Director Independence                                    |  | 42
|Item 14. Principal Accountant Fees And Services                                                                       |  | 42
|PART IV                                                                                                               |  | 43
|Item 15. Exhibits Financial Statement Schedules                                                                       |  | 43



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Forward Looking Statements

The statements contained in this report, other than statements of historical fact, constitute forward-looking statements. Such statements include, without limitation, all statements as to expectation, belief,
estimation, intent, anticipation, development, trial, contingency and statements as to our future results of operations, the progress of our research and product development programs, the need for, and timing of, additional capital and capital
expenditures, partnering prospects, the need for additional intellectual property rights, effects of regulations, and the potential market opportunities. These statements relate to events and/or future financial performance and involve known and
unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements or the industry in which we operate to be materially different from any future results, levels of activity, performance
or achievements expressed or implied by the forward-looking statements. These risks and other factors include those listed under Risk Factors and those described elsewhere in this report.

In some cases, you can identify forward-looking statements by our use of terms such as may, will, should,
expects, plans, anticipates, believes, estimates, intends, predicts, potential, or the negative of these terms or other comparable terminology. These
statements are only predictions. Actual events or results may differ materially. In evaluating these statements, you should specifically consider various factors, including the risks outlined under Risk Factors. These factors may cause
our actual results to differ materially from any forward-looking statement. Factors that could affect our actual results and could cause actual results to differ materially from those in forward-looking statements include, but are not limited to,
the following:



| |  |  | Our ability to raise capital to finance our operations and continue as a going concern beyond August 2009;
| | - |  | ----------------------------------------------------------------------------------------------------------



| |  |  | Our ability to advance the clinical development of our products in a timely manner;
| | - |  | -----------------------------------------------------------------------------------



| |  |  | Our ability to compete in the markets in which we expect to market our products;
| | - |  | --------------------------------------------------------------------------------



| |  |  | Our ability to generate revenue from the commercialization and sale of our products;
| | - |  | ------------------------------------------------------------------------------------



| |  |  | Our ability to obtain regulatory approval for our products from the FDA;
| | - |  | ------------------------------------------------------------------------



| |  |  | Our ability to ensure the safety and efficacy of our products;
| | - |  | --------------------------------------------------------------



| |  |  | Our ability to obtain and protect proprietary technologies;
| | - |  | -----------------------------------------------------------



| |  |  | Our ability to attract and retain talented employees;
| | - |  | -----------------------------------------------------



| |  |  | Our ability to manufacture our products on a commercial-scale;
| | - |  | --------------------------------------------------------------



| |  |  | Our ability to meet our obligations under our license agreements;
| | - |  | -----------------------------------------------------------------



| |  |  | The availability of third party reimbursement policies to sustain a market for our products;
| | - |  | --------------------------------------------------------------------------------------------



| |  |  | The acceptance of our product candidates in the medical community; and
| | - |  | ----------------------------------------------------------------------



| |  |  | A variety of other risks common to our industry and development stage companies, including ongoing regulatory review, legislative and regulatory changes and
public and investment community perceptions of our industry.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Although we believe that the expectations reflected
in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of these
forward-looking statements. We do not intend to update any of the forward-looking statements after the date of this report to conform prior statements to actual results.



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PART I



|ITEM 1. | BUSINESS.
|------- | ---------

Overview

Unless otherwise indicated, we use Opexa, the Company, we, our and us in this annual report to
refer to the businesses of Opexa Therapeutics, Inc.

We are a biopharmaceutical company developing autologous cellular therapies with the
potential to treat major illnesses, including multiple sclerosis (MS) and diabetes. These therapies are based on our proprietary T-cell and adult stem cell technologies. The information discussed related to our product candidates is preliminary and
investigative. Our product candidates are not approved by the Food and Drug Administration (FDA).

T-Cell Therapy

We have an exclusive worldwide license from Baylor College of Medicine (or Baylor) to an
individualized T-cell therapeutic vaccine, Tovaxin®, which is in clinical development for the treatment of MS.

Multiple sclerosis is the result of a persons own T-cells attacking the myelin sheath that coats the nerve cells of the central nervous system (CNS). Tovaxin consists of attenuated patient-specific myelin
reactive T-cells (MRTCs) against peptides from one or more of the primary proteins on the surface of the myelin sheath (myelin basic protein (MBP), proteolipid protein (PLP) and myelin oligodendrocyte glycoprotein (MOG)). Patient-specific MRTCs are
expanded in culture with specific peptides identified by our proprietary test of the patients peripheral blood. The cells are then attenuated by gamma irradiation, and returned to the patient as a subcutaneous injection. Although further
testing is necessary, results from our initial human trials appear to indicate that these attenuated T-cells cause an immune response directed at the autoreactive T-cells in the patients body, resulting in a reduction in the level of harmful
T-cells. In 2008, we completed an FDA cleared Phase IIb clinical trial of Tovaxin which enrolled 150-patients. The trial was entitled, A Multicenter, Randomized, Double-Blind, Placebo-Controlled Study of Subcutaneous Tovaxin in Subjects with
Clinically Isolated Syndrome or Relapsing Remitting Multiple Sclerosis. (Tovaxin for Early Relapsing-remitting MS, TERMS).

The
TERMS study was a Phase IIb multi-center, randomized, double blind, placebo-controlled trial in 150 patients with Relapsing-Remitting Multiple Sclerosis or high risk Clinically Isolated Syndrome (CIS). The study involved 2:1 randomization with 100
patients receiving Tovaxin and 50 receiving placebo. According to the study protocol, patients received a total of five subcutaneous injections at weeks 0, 4, 8, 12 and 24. Top-line data from the TERMS trial is as follows:



| |  |  | Annualized relapse rate (ARR) for Tovaxin-treated patients was 0.214 as compared to 0.339 for placebo-treated patients, which represented a 37 percent decrease in
ARR for Tovaxin as compared to placebo in the general population;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | For patients who had more active disease as indicated by an ARR > 1 in the year prior to the study, Tovaxin demonstrated a 55 percent reduction in ARR as
compared to placebo; and an 87% reduction in relapse rate was observed in Tovaxin patients in this population compared to placebo during the 24 week period following the administration of the full course of treatment (p=0.039).
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Patients who had an ARR>1 at entry demonstrated a statistically significant improvement in disability score as measured by the Expanded Disability Status Scale
(EDSS) (p =0.045) for patients treated with Tovaxin as compared to those receiving placebo. The EDSS score is a measure of disability ranging from 0-10. In addition 28.1% of the Tovaxin patients showed an improvement in EDSS of at least one point as
compared to 5.6% in the placebo group.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | Patients who had an ARR>1 at entry and were treated with Tovaxin experienced an 88% reduction in brain atrophy and a 59% reduction in absolute T-2 lesion volume
as compared to placebo.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Tovaxin was safe and well tolerated with no serious adverse events related to Tovaxin treatment. The most common adverse event was injection site irritation;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------

Stem Cell Therapy

We have developed a proprietary adult stem cell technology to produce monocyte-derived stem cells (MDSC) from blood. These MDSC can be derived from a patients monocytes, expanded in our laboratories, and then
administered to the same patient. We believe that because this is an autologous therapy, there should be no immunological problems. Normally, allogenic cells trigger host immune responses and require the use of anti-rejection drugs.

Our multi-potent stem cell is derived from peripheral blood monocytes which when cultured under defined conditions are able to further differentiate into
several cellular lineages. Molecular biology and cellular analysis studies have shown that these MDSCs have specific markers that distinguish them from other stem cells. In addition these studies have also shown a time-dependence for the expression
of these markers during the growth and differentiation of MDSCs. In vitro experiments with MDSCs have shown their capacity to differentiate as hematopoietic, epithelial, endothelial, endocrine and neuronal cells. Our main focus is the further
development of this monocyte-derived stem cell (MDSC) technology as a platform for the in vitro generation of highly specialized cells for potential application in autologous cell therapy for patients with diseases such diabetes mellitus and
cardiovascular disease.

Other Opportunities

We may conduct basic research to determine the potential use of stem cells and differentiated cells in other indications, such as macular degeneration, stroke, myocardial infarction, wound healing and Parkinsons
disease. We will attempt to partner or sublicense some of these indications if they are not pursued for internal development. For those indications where we believe we can participate commercially, we also desire to partner in key commercial markets
outside of the U.S.

Our proprietary T-cell technology has enabled us to develop intellectual property and a knowledge/sample database that
may enable discovery of the most relevant peptides to be used to treat MS patients. We may conduct research to identify the most promising peptide targets that could lead to customized off the shelf approaches based on a patients shifting
epitope profile.

Our Products and Services

Our T-cell Platform

Multiple SclerosisBackground

In the U.S., approximately 400,000 people suffer from MS, a chronic progressive autoimmune disease of the central nervous system (CNS) that is caused by
myelin autoreactive T-cells progressively eroding the myelin that surrounds and insulates nerve fibers of the brain and spinal cord resulting in varying amounts of disability. Globally, there are approximately 2.5 million MS patients
representing a drug market believed to be approximately $6 billion in 2007. The US markets accounted for slightly more than 65 percent of global MS sales in 2007, approximately $3.5 billion. From 2004 to 2007, the market grew at a compound annual
growth rate (CAGR) of 15%. The MS market is forecast to continue growing at a CAGR of approximately 7%, reaching $10 billion by 2016.

Multiple sclerosis remains a challenging autoimmune disease to treat because the pathophysiologic mechanisms are diverse, and the chronic, unpredictable course of the disease makes it difficult to determine



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whether the favorable effects of short-term treatment will be sustained. Therapies that are easy to use and can safely prevent or stop the progression of
disease represent the greatest unmet need in MS.

In recent years, the understanding of MS pathogenesis has evolved to comprise an initial,
T-cell-mediated inflammatory activity followed by selective demyelination (erosion of the myelin coating of the nerve fibers) and then neurodegeneration. The discovery of disease-relevant immune responses has accelerated the development of targeted
therapeutic products for the treatment of the early stages of MS.

Some subjects, who have the appropriate genetic background, have
increased susceptibility for the in vivo activation and expansion of myelin autoreactive T-cells. These myelin autoreactive T-cells may remain dormant, but at some point they are activated in the periphery, thus enabling them to cross the
blood-brain barrier (BBB) and infiltrate the healthy tissue of the brain and spinal cord. The cascade of pathogenic events leads to demyelination of axons, which causes nerve impulse transmissions to diffuse into the tissue resulting in disability
to the subject.

Current Therapy for Multiple Sclerosis

Current MS disease modifying drugs on the market are mostly palliative and generally work by
modulation or suppression of the immune system. These therapies for MS are dominated by three forms of interferon that when used as therapies, require frequent subcutaneous or intramuscular injections (Avonex®, Betaseron® and Rebif®). Copaxone®
is an immunomodulator that is administered daily. Novantrone® (mitoxanthrone) is an immunosuppressive drug that can only be given four times per year with a lifetime limit of 8 to 12 doses.
All of the current therapies only claim to slow the progression of MS and present significant patient compliance challenges because of the dosing schedule, limited decrease in relapse rate and side effects profile. The interferon formulations
produce severe flu-like symptoms, injection site reactions, infection and neutralizing antibodies (ranging from 5% to 45%) that limit the efficacy of treatment. Copaxone® causes significant
injection site reactions; while Novantrone® causes infections, bone marrow suppression, nausea, hair thinning, bladder infections, and mouth sores. These drugs must be administered daily to
weekly. Tysabri®, a selective adhesion molecule inhibitor (an alpha 4 integrin antagonist), represents another class of MS drugs that works by preventing immune system cells from crossing
the BBB and from moving into the central nervous system (CNS). Tysabri® requires a once per month infusion and has been reintroduced to the market after being originally withdrawn in 2005
based on safety concerns over several patient deaths due to a virally mediated brain inflammation.

Tovaxin for Multiple Sclerosis

We believe that Tovaxin works selectively on the myelin autoreactive T-cells by harnessing the bodys natural immune defense
system and feedback mechanisms to deplete these T-cells and induce favorable immune regulatory responses by rebalancing the immune system. Tovaxin is manufactured by taking the MRTCs from the blood, expanding them to a therapeutic dose
ex-vivo, and attenuating them with gamma irradiation to prevent DNA replication. These attenuated MRTCs are then injected subcutaneously into the body in large quantities. The body recognizes specific T-cell receptor molecules of these MRTCs
as foreign and mounts an immune response reaction against them, not only destroying the injected attenuated MRTCs, but also the circulating, myelin autoreactive T-cells carrying the peptide-specific T-cell receptor molecules. In addition, T-cell
activation molecules on the surface of the activated MRTCs used as vaccine induce favorable immune regulatory responses, which promote anti-inflammatory responses. Because the therapy uses an individuals own cells, the only directly
identifiable side effect, observed thus far, is injection site reaction in a small percentage of the patients. These reactions are minor and generally clear within 24 hours.

We believe that this technology platform may have applications in other T-cell mediated autoimmune diseases such as Crohns disease, psoriasis,
rheumatoid arthritis and Type 1 diabetes.



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Tovaxin Manufacturing

We manufacture our TCV therapy in our own Good Manufacturing Practice (cGMP) facility. The TCV technology used to produce Tovaxin is similar
to that of traditional microbial vaccine technology, where the pathogen (or the attenuated derivative) is used to derive the protective antigens necessary to induce protective immune responses. In preparing the Tovaxin for a patient, the myelin
autoreactive T-cells causing the disease are taken from the blood, specifically identified, and expanded ex vivo by incubating these T-cells with selected peptides in the presence of antigen-presenting cells and growth factors. Myelin-peptide
reactive T-cells are grown to therapeutic levels and cryopreserved. Prior to use, the MRTCs are expanded, formulated, and attenuated (by irradiation) to render them incompetent to replicate but viable for therapy. These attenuated T-cells are
administered in a defined schedule of subcutaneous injections. We have shown that a single draw of a 500 ml bag of patient blood is sufficient to provide a full years therapeutic regimen of Tovaxin.

Clinical Development of Tovaxin

In August 2008 we completed a Phase IIb clinical trial of Tovaxin in patients with Relapsing Remitting Multiple Sclerosis, which demonstrated a positive trend in the reduction in annualized relapse rate (ARR) for patients treated with
Tovaxin as compared to placebo. Top-line results from the study showed that Tovaxin-treated patients experienced an ARR of 0.214 as compared to 0.339 for placebo-treated patients, which represented a 37 percent decrease in ARR for Tovaxin as
compared to placebo in the general population. Additionally, in the group of patients with more active disease as measured by an ARR > 1 at study entry, Tovaxin demonstrated a 55 percent reduction in ARR as compared to placebo.

The study also demonstrated that Tovaxin was safe and well tolerated with no serious adverse events related to treatment. The most common adverse event
related to Tovaxin was mild injection site reaction. We believe that this favorable safety profile may be an important advantage as patient compliance represents a significant challenge due to serious side effects associated with many currently
available and in development MS treatments.

In November 2008, Opexa implemented a
restructuring plan to terminate the one-year open label extension of the TERMS Phase IIb Clinical Trial of Tovaxin® therapy for multiple sclerosis (OLTERMS). The trial was enrolled with
patients that had previously completed one year in the TERMS, Tovaxin Phase IIb multi-center, randomized, double blind, placebo-controlled trial. The Company terminated OLTERMS to conserve financial resources for clinical data analysis, future
clinical trial planning and seeking a development partner for Tovaxin. Our ability to move forward the clinical development of Tovaxin will rely on obtaining a development partner.

Our Adult Stem Cell Platform

Stem CellsBackground

Stem cells are undifferentiated primary cells that have the potential to become any
tissue or organ of the body. They hold therapeutic promise for the development of effective treatments and possibly cure for various diseases. The current stem cell research efforts have been divided between embryonic and tissue specific adult stem
cells as potential therapeutic progenitor cells. Recent experiments with embryonic stem (ES) cells have demonstrated that these highly proliferative, pluripotent cells can differentiate into pancreatic-like ß-cells. A major concern with ES
cells is their pluripotency and risk that these cells, once transplanted, could form tumors. Adult tissue-specific stem cells may be an attractive alternative to ES cells due to several key advantages; first, these cells can be isolated from a more
manageable source such as bone marrow or other tissues; second, they proliferate in a controlled fashion and without the likelihood of tumorogenicity; and third, they can be used in an autologous setting and avoid the potential for rejection which
exists for allogenic use of stem cells.

Hematopoietic stem cells (HSCs), present in the bone marrow and precursors to all blood
cells, are currently the only type of stem cells commonly used for therapy. Doctors have been transferring HSCs in bone marrow transplants for more than 40 years. Advanced techniques for collecting or harvesting HSCs are now
used to treat leukemia, lymphoma and several inherited blood disorders.



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The clinical potential of stem cells has also been demonstrated in the treatment of other human diseases,
including diabetes and advanced kidney cancer. However, these new therapies have been offered only to a very limited number of patients using adult stem cells.

To realize the promise of novel cell-based therapies for such pervasive and debilitating diseases such as diabetes and kidney cancer, scientists must be able to easily and reproducibly manipulate stem cells so that
they possess the necessary characteristics for successful differentiation, transplantation and engraftment. To be useful for transplant purposes, stem cells must be reproducibly made to: proliferate extensively and generate sufficient quantities of
tissue, differentiate into the desired cell type(s), survive in the recipient after transplant, integrate into the surrounding tissue after transplant, function appropriately for the duration of the recipients life, avoid harming the recipient
in any way, and avoid the problem of immune rejection. There is no assurance that any commercialized cell-based therapies will ever be developed.

Therapies Utilizing Our Stem Cell Platform

We have developed a proprietary adult stem cell technology to produce
monocyte-derived stem cells (MDSC) from blood. These MDSC can be derived from a patients monocytes, expanded ex vivo, and then administered to the same patient. We believe that because this is an autologous therapy, there should be no
allogenic rejection issues. Normally, allogenic cells are deleted by host immune responses and require the use of anti-rejection drugs.

Our multi-potent stem cell is derived from peripheral blood monocytes which when cultured under defined conditions are able to further differentiate into several cellular lineages. Molecular biology and cellular analysis studies have shown
that these MDSCs have specific markers that distinguish them from other stem cells. In addition these studies have also shown a time-dependence for the expression of these markers during the growth and differentiation of MDSCs. In vitro experiments
with MDSCs have shown their capacity to differentiate towards hematopoietic, epithelial, endothelial, endocrine and neuronal cells. Our initial focus is the further development of this monocyte-derived stem cell technology as a platform for the
in vitro generation of highly specialized cells for potential application in autologous cell therapy for patients with diabetes mellitus.

The diabetes program is currently in pre-clinical development and we may choose to continue the development program with a strategic partner.

Pancreatic Islet Cell Development

Diabetes is a disease characterized by the failure or loss
of pancreatic ß-cells to generate sufficient levels of the hormone insulin required to maintain normal healthy glucose levels. Type 1 diabetes is caused by the complete loss of pancreatic ß-cells when the bodys own immune system
mistakenly attacks and destroys a persons ß-cells. While for Type 2 diabetes the causes are far more complicated and poorly understood, the results of the disease are similar in that often the ß-cells fail to generate sufficient
amounts of insulin to maintain normal healthy glucose levels. The loss of insulin results in an increase in blood glucose levels that may eventually lead to the development of premature cardiovascular disease, stroke, and kidney failure. Currently
there is no permanent cure for diabetes; however, cadaveric-sourced islet cell transplantations have shown good success in restoring long-term endogenous insulin production and glycemic stability in subjects who have Type 1 diabetes mellitus with
unstable baseline control. Persistent islet function without injected insulin dependence provides considerable health benefit.

Current
cell transplant therapy for the treatment of diabetes is limited by an inadequate supply of insulin-producing cells. Cadaveric sources are limited and up to three pancreata are required to obtain clinically significant quantities of ß-cells
for one patient. The identification of adult human stem cells provides a new prospect for obtaining a sufficient number of insulin-producing ß-cells for transplantation. Using our technology a single blood draw may be adequate to produce
clinical quantities of ß-cells for a patient.



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In vitro experiments with MDSC have shown their capacity to differentiate toward a wide variety of
cell types including pancreatic ß-like cells. These cells aggregate into clusters resembling pancreatic Islets of Langerhans termed monocyte derived islets (MDI). The cluster aggregates show endocrine gene expression. Biochemical assays have
demonstrated that MDI can synthesize and secrete significant amounts of insulin during their growth and respond in a glucose-dependent manner. In addition, MDI can be stimulated or repressed by the addition of agonists or antagonists of insulinin vitro.

These stem cells are important because of our ability to easily and cost effectively derive them from an individuals
circulating monocytes, expand them and administer them back into the same patient. This autologous approach provides a method to overcome any rejection issues and the need to suppress the immune system, which are often associated with current
transplantations.

Stem Cell Pre-Clinical and Clinical Development

We are planning to conduct pre-clinical studies to demonstrate proof of concept and method of delivery towards preparation of an IND (Investigational New
Drug) submission to the FDA.

Licenses, Patents and Proprietary Rights

We believe that proprietary protection of our technologies is critical to the development of our business. We intend to continue to protect our proprietary intellectual property through patents and other appropriate
means. We rely upon trade-secret protection for some confidential and proprietary information and take active measures to control access to that information. We currently have non-disclosure agreements with all of our employees, consultants,
vendors, advisory board members and contract research organizations.

Our intellectual property strategy includes developing proprietary
technology for the sourcing, scale up, manufacturing, and storage of T cells and multipotent adult stem cells and the use of these cells in multiple therapeutic applications. This strategy will include expanding on technologies in-licensed to
us as well as in-licensing additional technologies through collaborations with universities and biotech companies.

We have exclusive,
worldwide licenses to certain patents and patent applications that relate to our T-cell technology and our multipotent adult stem cell technology. We have begun to engage companies in discussions to possibly partner these technologies.

T-Cell Therapy Intellectual Property

Our T-cell technology is based on discoveries made by Dr. Jingwu Zang at the Baylor College of Medicine in Houston. We have an exclusive, worldwide license from Baylor College of Medicine to develop and commercialize three technology
areas for MS, namely T-cell vaccination, peptides, and diagnostics. Under the License Agreement with Baylor College of Medicine, we have rights to a total of 11 issued patents (2 U.S. and 9 foreign) and 80 pending patent applications (6 U.S. and 74
foreign).

The license was granted to us by Baylor in exchange for common stock in Opexa Pharmaceuticals, a company we acquired in November
2004. The license requires us to pay royalties on sales of products covered by the license. We have filed additional patent applications related to T-Cell vaccination for MS.

Stem Cell Therapy Intellectual Property

We have an exclusive, worldwide license from the University of Chicago, through its prime contractor relationship with Argonne National Laboratory, to a patent application related to the development of adult multipotent stem cells from
monocytes isolated from adult human peripheral blood. The technology was discovered and developed at the Argonne National Laboratory, a U.S. Department of Energy Laboratory.



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Pursuant to the license we have issued a total of 53,462 shares of our common stock and paid $232,742 to
the University of Chicago. We will owe milestone payments upon demonstration of efficacy in Phase II clinical studies, submission for product approval to the FDA and approval of licensed products totaling $1,350,000. We will also pay royalties on
net sales of products covered by the license.

We have filed additional patent applications related to the process of obtaining
monocyte-derived stem cells. In addition, we have filed a patent application for the process of differentiation of MDSCs into monocyte-derived islets which function like pancreatic islet cells.

Our Product Pipeline

Multiple Sclerosis T-Cell
Therapy

Tovaxin is being developed as a therapeutic vaccine approach for treating MS, in that it induces the bodys immune system
to attack the MRTCs that we believe are responsible for destroying the myelin sheath coating of the axons in the central nervous system. We believe that the depletion and regulation of the MRTCs may stop progression of multiple sclerosis. We
completed a Phase IIb clinical trial of Tovaxin in August 2008 with 150 MS patients.

Diabetes Stem Cell Therapy

We believe that there are approximately 21 million people in the U.S. who have diabetes. More than 1 million of these people have Type 1
diabetes mellitus. Among adults with diagnosed diabetes, approximately 31% take insulin to control their disease. Research studies have found that improved glycemic control benefits people with either Type 1 or Type 2 diabetes. Islet transplantation
using Opexas proprietary monocyte-derived islet cell may offer the potential to improve glycemic control in a subgroup of patients with Type 1 and Type 2 diabetes mellitus who are disabled by refractory hypoglycemia. We are in preclinical
development and we may choose to continue the development program with a strategic partner.

Research Collaborations

We anticipate that from time to time in the future we will enter into collaborative research agreements with other academic and research institutions. We
will use such agreements to enhance our research capabilities. Typically, in the industry, such agreements provide the industry partner with rights to license the intellectual property created through the collaboration. We may also enter into
collaborative research agreements with other pharmaceutical companies when we believe such collaboration will support the development and commercialization of our technology.

Commercialization Through Third Parties

We anticipate that we will grant sublicenses for certain
applications of our technologies. We believe that by sublicensing some of the rights to our technology to pharmaceutical companies and other third parties, we will be able to more efficiently develop some applications of our technologies. We
currently do not have any sublicenses.

Competition

The development of therapeutic agents for human disease is intensely competitive. Major pharmaceutical companies currently offer a number of pharmaceutical products to treat MS, heart attack, stroke, Parkinsons
disease, diabetes, liver diseases, arthritis and other diseases for which our technologies may be applicable. Many pharmaceutical and biotechnology companies are investigating new drugs and therapeutic approaches for the same purposes, which may
achieve new efficacy profiles, extend the therapeutic window for such products, alter the prognosis of these diseases, or prevent their onset. We believe that our products, when and if successfully



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##### Index to Financial Statements

developed, will compete with these products principally on the basis of improved and extended efficacy and safety and their overall economic benefit to the
health care system. We expect competition to increase. We believe that our most significant competitors will be fully integrated pharmaceutical companies and more established biotechnology companies. Smaller companies may also be significant
competitors, particularly through collaborative arrangements with large pharmaceutical or biotechnology companies. Some of our primary competitors in the current treatment of and in the development of treatments for MS include Biogen-Idec, Elan,
Merck-Serono, Sanofi-Aventis, Teva, and Bayer/Schering AG. Some of our primary competitors in the development of stem cell therapies include Aastrom Biosciences, Geron, Gamida-Cell Ltd, Stem Cells Inc., Cellerant Therapeutics, and Osiris
Therapeutics. Many of these competitors have significant products in development that could be competitive with our potential products.

Sales and
Marketing

We may choose to partner with large biotech or pharmaceutical companies for sales and marketing or alternatively develop our
own sales force to market our MS cell therapy products in the U.S. Given the concentration of MS treatment among a relatively small number of specialized neurologists, we believe that a modest size sales force would be sufficient to market the MS
products.

We will consider partnering with large biotech and pharmaceutical companies to assist with marketing and sales of our MS T-cell
products outside the U.S. and for our stem cell therapy products.

Government Regulation

Our research and development activities and the future manufacturing and marketing of our potential products are, and will be, subject to regulation for
safety and efficacy by a number of governmental authorities in the United States and other countries.

In the U.S., pharmaceuticals,
biologicals and medical devices are subject to FDA regulation. The Federal Food, Drug and Cosmetic Act, as amended, and the Public Health Service Act, as amended, the regulations promulgated thereunder, and other Federal and state statutes and
regulations govern, among other things, the testing in human subjects, manufacture, safety, efficacy, labeling, storage, export, record keeping, approval, marketing, advertising and promotion of our potential products. Product development and
approval within this regulatory framework takes a number of years and involves significant uncertainty combined with the expenditure of substantial resources.

FDA Approval

We will need to obtain FDA approval of any therapeutic product we plan to market and sell. The FDA will only
grant marketing approval if it determines that a product is both safe and effective. The testing and approval process will require substantial time, effort and expense. The steps required before our potential products may be marketed in the U.S.
include:

Preclinical Laboratory and Animal Tests. Preclinical tests include laboratory evaluation of the product and animal studies
in specific disease models to assess the potential safety and efficacy of the product and our formulation as well as the quality and consistency of the manufacturing process.

Submission to the FDA of an Application for an Investigational New Drug Exemption, or IND, Which Must Become Effective Before U.S. Human Clinical
Trials May Commence.The results of the preclinical tests are submitted to the FDA as part of marketing approval authorization, and the IND becomes effective 30 days following its receipt by the FDA, as long as there are no questions, requests
for delay or objections from the FDA. The sponsor of an IND must keep the FDA informed during the duration of the study through required amendments and reports, including adverse event reports.



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Adequate and Well-Controlled Human Clinical Trials to Establish the Safety and Efficacy of the
Product.Clinical trials, which test the safety and efficacy of the product in humans, are conducted in accordance with protocols that detail the objectives of the study, the parameters to be used to monitor safety and the efficacy criteria to
be evaluated. Any product administered in a U.S. clinical trial must be manufactured in accordance with Current Good Manufacturing Practice (cGMP or GMP). Each protocol is submitted to the FDA as part of the IND.

The protocol for each clinical study must be approved by an independent Institutional Review Board, or IRB, at the institution at which the study is
conducted and the informed consent of all participants must be obtained. The IRB will consider, among other things, the existing information on the product, ethical factors, the safety of human subjects, the potential benefits of the therapy and the
possible liability of the institution.

Clinical development is traditionally conducted in three sequential phases, which may overlap:



| |  |  | In Phase I, products are typically introduced into healthy human subjects or into selected patient populations (i.e., patients with a serious disease or condition
under study, under physician supervision, as may be the case with our potential products) to test for adverse reactions, dosage tolerance, absorption and distribution, metabolism, excretion and clinical pharmacology.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Phase II involves studies in a limited population of patients with the disease or condition under study to (i) determine the efficacy of the product for
specific targeted indications and populations, (ii) determine optimal dosage and dosage tolerance and (iii) identify possible and common adverse effects and safety risks. (Phase II may divided into Phase IIa and Phase IIb studies to
address these issues.) When a dose is chosen and a candidate product is found to have preliminary evidence of effectiveness, and to have an acceptable safety profile in Phase II evaluations, Phase III trials begin.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Phase III trials are undertaken to develop additional safety and effectiveness information from an expanded patient population, generally at multiple study sites.
This information obtained is used to develop a better understanding of the risks and benefits of the product, and to determine appropriate labeling for use.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Based on clinical trial progress and results, the FDA may request changes or may require discontinuance of the trials at any time if significant safety
issues arise.

Submission to the FDA of Marketing Authorization Applications and FDA Review.The results of the preclinical studies
and clinical studies are submitted to the FDA as part of marketing approval authorization applications such as New Drug Applications (NDAs) or Biologics License Applications (BLAs). The FDA will evaluate such applications for the demonstration of
safety and effectiveness. A BLA is required for biological products subject to licensure under the Public Health Service Act and must show that the product is safe, pure and potent. In addition to preclinical and clinical data, the BLA must contain
other elements such as manufacturing materials, stability data, samples and labeling. FDA approval of a BLA (granted by issuance of a license) is required prior to commercial sale or shipment of a biologic, A BLA shall only be approved once the FDA
examines the product and inspects the manufacturing establishment to assure conformity to the BLA and all applicable regulations and standards for biologics. The Center for Biologics Evaluation and Research has regulatory responsibility for review
of biologics including cellular products and human cells, tissues and cellular and tissue-based products (HCT/Ps), while the Center for Drug Evaluation and Research is responsible for review of certain therapeutic biological products.

The time for approval may vary widely depending on the specific product and disease to be treated, and a number of factors, including the risk/benefit
profile identified in clinical trials, the availability of alternative treatments, and the severity of the disease. Additional animal studies or clinical trials may be requested during the FDA review period, which might add to the review time.



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The FDAs marketing approval for a product for the treatment of a specific disease or condition in
specified populations in certain clinical circumstances, as described on the approved labeling. The approved use is known as the indication. After the FDA approves a product for the initial indication, further clinical trials may be
required to gain approval for the use of the product for additional indications. The FDA may also require post-marketing testing (Phase IV studies) and surveillance to monitor for adverse effects, which could involve significant expense, or may
elect to grant only conditional approvals.

Interaction with the FDA During the Application and Review Process.Generally, early
interaction and ongoing communication with the FDA can facilitate the testing and approval process by helping to clarify FDA expectations, obtain FDA guidance and directions, and resolve disputed issues. In addition, expectations can be formalized
in a Special Protocol Assessment, in which the FDA provides official evaluation and guidance on proposed protocols for pivotal Phase III clinical trials. An SPA documents the FDAs agreement that the design and plan analysis of the
Phase III study adequately addresses objectives in support of a regulatory submission such as a BLA.

Ongoing Compliance Requirements

Even after product approval or licensure, there are a number of ongoing FDA regulatory requirements, including:



| |  |  | Registration and listing;
| | - |  | -------------------------



| |  |  | Regulatory submissions relating to changes in an NDA or BLA (such as the manufacturing process or labeling) and annual reports;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------



| |  |  | Adverse event reporting;
| | - |  | ------------------------



| |  |  | Compliance with advertising and promotion restrictions that relate to drugs and biologics;
| | - |  | ------------------------------------------------------------------------------------------



| |  |  | Compliance with GMP and biological product standards (subject to FDA inspection of facilities to determine compliance);
| | - |  | -----------------------------------------------------------------------------------------------------------------------



| |  |  | Compliance with Good Tissue Practice regulations, as applicable. (As defined by regulation, human cell, tissue and cellular and tissue-based
products (HCT/P), which are subject to additional regulatory requirement, include stem cells that are progenitors of blood cells; however, the FDA makes no explicit statement in the regulations regarding the inclusion of other types of stem
cells.)
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Other Regulations

In addition to safety regulations enforced by the FDA, we are also subject to regulations under the Occupational Safety and Health Act, the Environmental Protection Act, the Toxic Substances Control Act and other
present and potential future foreign, Federal, state and local regulations. For instance, Product manufacturing establishments located in certain states also may be subject to separate regulatory and licensing requirements.

Outside the U.S., we will be subject to regulations that govern the import of drug products from the U.S. or other manufacturing sites and foreign
regulatory requirements governing human clinical trials and marketing approval for our products. The requirements governing the conduct of clinical trials, product licensing, pricing and reimbursements vary widely from country to country. In
particular, the European Union is revising its regulatory approach to high tech products, and representatives from the U.S., Japan and the European Union are in the process of harmonizing and making more uniform the regulations for the registration
of pharmaceutical products in these three markets.



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Research and Development

Research and development expenses for the year ended December 31, 2008 were approximately $8.4 million, mainly reflecting the costs of the Phase IIb clinical trial for Tovaxin and research and development in
support of pre-clinical diabetes stem cell therapies. Research and development expenses for the year ended December 31, 2007, were approximately $13.1 million.

Organizational History

We are a development-stage company and have a limited operating history. Our
predecessor company for financial reporting purposes was formed on January 22, 2003 to acquire rights to our adult stem cell technology. In November 2004 we acquired Opexa Pharmaceuticals, Inc. and its MS treatment technology. We are still
developing all of our technology, and to date, we have not generated any revenues from our operations. As we continue to execute our operations plan, we expect our development and operating expenses to increase.

Employees

As of March 31, 2009 we had 10 full
time employees. We believe that our relations with our employees are good. None of our employees is represented by a union or covered by a collective bargaining agreement.

Available Information

We are subject to the information and reporting requirements of the Securities
Exchange Act of 1934, or the Exchange Act, under which we file periodic reports, proxy and information statements and other information with the United States Securities and Exchange Commission, or SEC. Copies of the reports, proxy statements and
other information may be examined without charge at the Public Reference Room of the SEC, 100 F Street, N.E., Room 1580, Washington, D.C. 20549, or on the Internet at http://www.sec.gov. Copies of all or a portion of such materials can be
obtained from the Public Reference Room of the SEC upon payment of prescribed fees. Please call the SEC at 1-800-SEC-0330 for further information about the Public Reference Room.

Financial and other information about Opexa is available on our website (www.opexatherapeutics.com). Information on our website is not
incorporated by reference into this report. We make available on our website, free of charge, copies of our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished
pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after filing such material electronically or otherwise furnishing it to the SEC. Copies are available in print to any Opexa shareholder upon request in
writing to Attention: Investor Relations, Opexa Therapeutics, Inc., 2635 N. Crescent Ridge Drive, The Woodlands, TX 77381.



|ITEM 1A. | RISK FACTORS.
|-------- | -------------

Risks Related to Our Business

The following factors affect our business and the industry in which we operate. The risks and uncertainties described below are not the only ones we face.
Additional risks and uncertainties not presently known or which we currently consider immaterial may also have an adverse effect on our business. If any of the matters discussed in the following risk factors were to occur, our business, financial
condition, results of operations, cash flows, or prospects could be materially adversely affected.

Our business is at an early stage of development.

Our business is at an early stage of development. We do not have any products in late-stage clinical trials or on the market. We
are still in the early stages of identifying and conducting research on potential products. Only one of our products has progressed to the stage of being studied in human clinical trials in the United States. Our



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potential products will require regulatory approval prior to marketing in the United States and other countries. Obtaining such approval will require
significant research and development and preclinical and clinical testing. We may not be able to develop any products, to obtain regulatory approvals, to enter clinical trials for any of our product candidates, or commercialize any products. Our
product candidates may prove to have undesirable and unintended side effects or other characteristics adversely affecting their safety, efficacy or cost-effectiveness that could prevent or limit their use. Any product using any of our technology may
fail to provide the intended therapeutic benefits, or achieve therapeutic benefits equal to or better than the standard of treatment at the time of testing or production.

We have a history of operating losses and do not expect to be profitable in the near future.

We have not generated any profits since our entry into the biotechnology business, have no source of revenues, and have incurred significant operating losses. We expect to incur additional operating losses for the foreseeable future. We do
not have any sources of revenues and may not have any in the foreseeable future.

We will need additional capital to conduct our operations beyond
August 2009 and our ability to obtain the necessary funding is uncertain.

We need to obtain significant amounts of additional
capital to continue our business beyond August 2009. The capital may come from many sources, including equity and/or debt financings, license arrangements, grants and/or collaborative research arrangements. As of December 31, 2008, we had cash
and cash equivalents of approximately $1.2 million. Our current burn rate is approximately $300,000 per month. Effective, April 14, 2009, the Company closed on an initial tranche of a private offering of secured convertible notes and
warrants for approximately $1.1 million. We must rely upon third-party debt or equity funding and we can provide no assurance that we will be successful in any funding effort. The failure to raise such funds will necessitate the curtailment or
ceasing of operations.

The timing and degree of any future capital requirements will depend on many factors, including:



| |  |  | our ability to establish, enforce and maintain strategic arrangements for research, development, clinical testing, manufacturing and marketing;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the accuracy of the assumptions underlying our estimates for capital needs in 2009 and beyond;
| | - |  | ----------------------------------------------------------------------------------------------



| |  |  | scientific progress in our research and development programs;
| | - |  | -------------------------------------------------------------



| |  |  | the magnitude and scope of our research and development programs;
| | - |  | -----------------------------------------------------------------



| |  |  | our progress with preclinical development and clinical trials;
| | - |  | --------------------------------------------------------------



| |  |  | the time and costs involved in obtaining regulatory approvals;
| | - |  | --------------------------------------------------------------



| |  |  | the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims; and
| | - |  | -------------------------------------------------------------------------------------------------------------



| |  |  | the number and type of product candidates that we pursue.
| | - |  | ---------------------------------------------------------

We do not have any committed sources of capital, although we have issued and outstanding warrants that, if exercised, would result in an equity capital raising transaction. Additional financing through strategic
collaborations, public or private equity financings, capital lease transactions or other financing sources may not be available on acceptable terms, or at all. Additional equity financings could result in significant dilution to our stockholders.
Further, if additional funds are obtained through arrangements with collaborative partners, these arrangements may require us to relinquish rights to some of our technologies, product candidates or products that we would otherwise seek to develop
and commercialize ourselves. If sufficient capital is not available we may not be able to continue operations as proposed, requiring us to modify our business plan, curtail various aspects of our operations or cease operations.



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Our independent auditors opinion expresses substantial doubt about our ability to continue as a going concern
which may make raising capital more difficult and could require us to cease operations.

The opinion of our independent
auditors in respect of the 2008 fiscal year, included elsewhere in this annual report, expresses substantial doubt about our ability to continue as a going concern. Specifically, it indicates an absence of obvious or reasonably assured sources
of future funding that will be required by us to maintain ongoing operations. Although Opexa has been successfully funded to date by attracting investors in our equity, there is no assurance that our capital raising efforts will be able to attract
the capital needed to sustain our operations. The opinion from our auditors expressing substantial doubt about our ability to continue as a going concern may make it more difficult for us to raise funds. If we are unable to obtain additional
funding for operations, we may not be able to continue operations as proposed, requiring us to modify our business plan, curtail various aspects of our operations or cease operations. In such event, investors may lose a portion or all of their
investment.

We will need regulatory approvals for all of our product candidates which require that all of our product candidates be tested in
clinical trials. Clinical trials are subject to extensive regulatory requirements, very expensive, time-consuming and difficult to design and implement. Our products may fail to achieve necessary safety and efficacy endpoints during clinical trials
in which case we will be unable to generate revenue from the commercialization and sale of our products.

Human clinical trials are
very expensive and difficult to design and implement, in part because they are subject to rigorous Food and Drug Administration (FDA) requirements, and must otherwise comply with federal, state and local requirements and policies of the medical
institutions where they are conducted. The clinical trial process is also time-consuming. We estimate that clinical trials of our product candidates will take at least several years to complete. Furthermore, failure can occur at any stage of the
trials, and we could encounter problems that cause us to abandon or repeat clinical trials. The commencement and completion of clinical trials may be delayed by several factors, including:



| |  |  | FDA or Institutional Review Board (IRB) objection to proposed protocols;
| | - |  | ------------------------------------------------------------------------



| |  |  | discussions or disagreement with the FDA over the adequacy of trial design to potentially demonstrate effectiveness, and subsequent design modifications;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | unforeseen safety issues;
| | - |  | -------------------------



| |  |  | determination of dosing issues and related adjustments;
| | - |  | -------------------------------------------------------



| |  |  | lack of effectiveness during clinical trials;
| | - |  | ---------------------------------------------



| |  |  | slower than expected rates of patient recruitment;
| | - |  | --------------------------------------------------



| |  |  | product quality problems (e.g., sterility or purity)
| | - |  | ----------------------------------------------------



| |  |  | challenges to patient monitoring and data collection during or after treatment (for example, patients failure to return for follow-up visits); and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | failure of medical investigators to follow our clinical protocols.
| | - |  | ------------------------------------------------------------------

In addition we or the FDA (based on its authority over clinical studies) may delay a proposed investigation or suspend clinical trials in progress at any time if it appears that the study may pose significant risks to
the study participants or other serious deficiencies are identified. Prior to approval of our product the FDA must determine that the data demonstrate safety and effectiveness. The large majority of drug candidates that begin human clinical trials
fail to demonstrate the desired safety and efficacy characteristics.

Even if we obtain regulatory approvals for certain of our product
candidates, that approval may be subject to limitations on the indicated uses for which it may be marketed. Our ability to generate revenues from the commercialization and sale of our products will be limited by any failure to obtain necessary
regulatory approvals.



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##### Index to Financial Statements

We are dependent upon our management team and a small number of employees.

Our business strategy is dependent upon the skills and knowledge of our management team. If any critical employee leaves, we may be unable on a timely
basis to hire suitable replacements to effectively operate our business. We also operate with a very small number of employees and thus have little or no backup capability for their activities. The loss of the services of any member of our
management team or the loss of a number of other employees could have a material adverse effect on our business and results of operations.

If we
fail to meet our obligations under our license agreements, we may lose our rights to key technologies on which our business depends.

Our business depends on three licenses from third parties. These third party license agreements impose obligations on us, such as payment obligations and obligations to diligently pursue development of commercial products under the licensed
patents. If a licensor believes that we have failed to meet our obligations under a license agreement, the licensor could seek to limit or terminate our license rights, which could lead to costly and time-consuming litigation and, potentially, a
loss of the licensed rights. During the period of any such litigation, our ability to carry out the development and commercialization of potential products could be significantly and negatively affected. If our license rights were restricted or
ultimately lost, our ability to continue our business based on the affected technology platform could be adversely affected.

Our current research
and manufacturing facility is not large enough to manufacture future stem cell and T-cell therapies.

We conduct our research and
development in a 10,200 square foot facility in The Woodlands, Texas, which includes an approximately 800 square foot suite of three rooms for the manufacture of T-cell therapies. Our current facility is not large enough to fully support pivotal
Phase III trials for the development of Tovaxin for MS or conduct commercial-scale manufacturing operations. We will need to expand further our manufacturing staff and facility, obtain a new facility or contract with corporate collaborators or other
third parties to assist with future drug production.

In the event that we decide to establish a commercial-scale manufacturing facility,
we will require substantial additional funds and will be required to hire and train significant numbers of employees and comply with applicable regulations, which are extensive. We do not have funds available for building a manufacturing facility,
and we may not be able to build a manufacturing facility that both meets regulatory requirements and is sufficient for our commercial-scale manufacturing.

We may arrange with third parties for the manufacture of our future products. However, our third-party sourcing strategy may not result in a cost-effective means for manufacturing our future products. If we employ
third-party manufacturers, we will not control many aspects of the manufacturing process, including compliance by these third parties with the FDAs current Good Manufacturing Practices and other regulatory requirements. We further may not be
able to obtain adequate supplies from third-party manufacturers in a timely fashion for development or commercialization purposes, and commercial quantities of products may not be available from contract manufacturers at acceptable costs.

Patents obtained by other persons may result in infringement claims against us that are costly to defend and which may limit our ability to use the
disputed technologies and prevent us from pursuing research and development or commercialization of potential products.

A number of
pharmaceutical, biotechnology and other companies, universities and research institutions have filed patent applications or have been issued patents relating to cell therapy, stem cells, T-cells, and other technologies potentially relevant to or
required by our expected products. We cannot predict which, if any, of such applications will issue as patents or the claims that might be allowed. We are aware that a number of companies have filed applications relating to stem cells. We are also
aware of a number of patent applications and patents claiming use of stem cells and other modified cells to treat disease, disorder or injury.



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If third party patents or patent applications contain claims infringed by either our licensed technology
or other technology required to make and use our potential products and such claims are ultimately determined to be valid, there can be no assurance that we would be able to obtain licenses to these patents at a reasonable cost, if at all, or be
able to develop or obtain alternative technology. If we are unable to obtain such licenses at a reasonable cost, we may not be able to develop some products commercially. There can be no assurance that we will not be obliged to defend ourselves in
court against allegations of infringement of third party patents. Patent litigation is very expensive and could consume substantial resources and create significant uncertainties. An adverse outcome in such a suit could subject us to significant
liabilities to third parties, require disputed rights to be licensed from third parties, or require us to cease using such technology.

If we are
unable to obtain future patents and other proprietary rights our operations will be significantly harmed.

Our ability to compete
effectively is dependent in part upon obtaining patent protection relating to our technologies. The patent positions of pharmaceutical and biotechnology companies, including ours, are uncertain and involve complex and evolving legal and factual
questions. The coverage sought in a patent application can be denied or significantly reduced before or after the patent is issued. Consequently, we do not know whether the patent applications for our technology will result in the issuance of
patents, or if any future patents will provide significant protection or commercial advantage or will be circumvented by others. Since patent applications are secret until the applications are published (usually eighteen months after the earliest
effective filing date), and since publication of discoveries in the scientific or patent literature often lags behind actual discoveries, we cannot be certain that the inventors of our licensed patents were the first to make the inventions covered
by the patent applications or that the licensed patent applications were the first to be filed for such inventions. There can be no assurance that patents will issue from the patent applications or, if issued, that such patents will be of commercial
benefit to us, afford us adequate protection from competing products, or not be challenged or declared invalid.

Our competition includes fully
integrated biopharmaceutical and pharmaceutical companies that have significant advantages over us.

The markets for therapeutic
stem cell products, multiple sclerosis products, and rheumatoid arthritis products are highly competitive. Our most significant competitors are fully integrated pharmaceutical companies and more established biotechnology companies. These companies
have significantly greater capital resources and expertise in research and development, manufacturing, testing, obtaining regulatory approvals, and marketing than we currently do. Many of these potential competitors are further along in the process
of product development and also operate large, company-funded research and development programs. As a result, our competitors may develop more competitive or affordable products, or achieve earlier patent protection or product commercialization than
we are able to achieve. Competitive products may render any products or product candidates that we develop obsolete.

The market for our products
will be heavily dependent on third party reimbursement policies.

Our ability to successfully commercialize our product candidates
will depend on the extent to which government healthcare programs, such as Medicare and Medicaid, as well as private health insurers, health maintenance organizations and other third party payors will pay for our products and related treatments.
Reimbursement by third party payors depends on a number of factors, including the payors determination that use of the product is safe and effective, not experimental or investigational, medically necessary, appropriate for the specific
patient and cost-effective. Reimbursement may not be available or maintained for any of our product candidates. If we do not obtain approvals for adequate third party reimbursements, we may not be able to establish or maintain price levels
sufficient to realize an appropriate return on our investment in product development. Any limits on reimbursement from third party payors may reduce the demand for, or negatively affect the price of, our products.



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##### Index to Financial Statements

Restrictive and extensive government regulation could slow or hinder our production of a cellular product.

The research and development of stem cell therapies is subject to and restricted by extensive regulation by governmental authorities in the
United States and other countries. The process of obtaining FDA and other necessary regulatory approvals is lengthy, expensive and uncertain. We may fail to obtain the necessary approvals to continue our research and development, which would hinder
our ability to manufacture or market any future product. Even after granting regulatory approval the FDA and regulatory agencies in other countries continue to review and inspect marketed products, manufacturers and manufacturing facilities, which
may create additional regulatory burdens.

To be successful, our product candidates must be accepted by the health care community, which can be very
slow to adopt or unreceptive to new technologies and products.

Our product candidates, if approved for marketing, may not achieve
market acceptance since hospitals, physicians, patients or the medical community in general may decide to not accept and utilize these products. The product candidates that we are attempting to develop represent substantial departures from
established treatment methods and will compete with a number of more conventional drugs and therapies manufactured and marketed by major pharmaceutical companies. The degree of market acceptance of any of our developed products will depend on a
number of factors, including:



| |  |  | our establishment and demonstration to the medical community of the clinical efficacy and safety of our product candidates;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------



| |  |  | our ability to create products that are superior to alternatives currently on the market;
| | - |  | -----------------------------------------------------------------------------------------



| |  |  | our ability to establish in the medical community the potential advantage of our treatments over alternative treatment methods; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------



| |  |  | reimbursement policies of government and third-party payers.
| | - |  | ------------------------------------------------------------

If the health care community does not accept our products for any of the foregoing reasons, or for any other reason, our business would be materially harmed.

Risks Related to Our Securities

There is currently a limited
market for our securities, and any trading market that exists in our securities may be highly illiquid and may not reflect the underlying value of our net assets or business prospects.

Although our common stock and Series E warrants are traded on the NASDAQ Capital Market, there is currently a limited market for our securities and there
can be no assurance that an improved market will ever develop. Investors are cautioned not to rely on the possibility that an active trading market may develop.

Our stock may be delisted from Nasdaq, which could affect its market price and liquidity.

We are required to meet
certain qualitative and financial tests (including a minimum stockholders equity requirement and bid price for our common stock of $1.00 per share) to maintain the listing of our common stock on the Nasdaq Capital Market. As of
December 31, 2008, our stockholders equity was below the continued listing standard requirement of $2.5 million and the bid price for our common stock is below $1.00 per share. We may receive notice from Nasdaq that we have failed to meet
these requirements. If we were unable to cure these failures in a timely manner and our common stock were delisted, it could be more difficult to buy or sell our common stock and to obtain accurate quotations, and the price of our stock could suffer
a material decline. Delisting may also impair our ability to raise capital.



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##### Index to Financial Statements

As our share price is volatile, we may be or become the target of securities litigation, which is costly and
time-consuming to defend.

In the past, following periods of market volatility in the price of a companys securities or the
reporting of unfavorable news, security holders have often instituted class action litigation. If the market value of our securities experience adverse fluctuations and we become involved in this type of litigation, regardless of the outcome, we
could incur substantial legal costs and our managements attention could be diverted from the operation of our business, causing our business to suffer.

Our blank check preferred stock could be issued to prevent a business combination not desired by management or our current majority shareholders.

Our articles of incorporation authorize the issuance of blank check preferred stock with such designations, rights and preferences as may be
determined by our board of directors without shareholder approval. Our preferred stock could be utilized as a method of discouraging, delaying, or preventing a change in our control and as a method of preventing shareholders from receiving a premium
for their shares in connection with a change of control.

Future sales of our common stock in the public market could lower our stock price.

We may sell additional shares of common stock in subsequent public or private offerings. We may also issue additional shares of common
stock to finance future acquisitions. We cannot predict the size of future issuances of our common stock or the effect, if any, that future issuances and sales of shares of our common stock will have on the market price of our common stock. Sales of
substantial amounts of our common stock (including shares issued in connection with an acquisition), or the perception that such sales could occur, may adversely affect prevailing market prices for our common stock.

We presently do not intend to pay cash dividends on our common stock.

We currently anticipate that no cash dividends will be paid on the common stock in the foreseeable future. While our dividend policy will be based on the operating results and capital needs of the business, it is
anticipated that all earnings, if any, will be retained to finance the future expansion of the our business.



|ITEM 1B. | UNRESOLVED STAFF COMMENTS.
|-------- | --------------------------

None.



|ITEM 2. | PROPERTIES.
|------- | -----------

Our 10,200 sq. ft. facility is located
on 3 acres at 2635 North Crescent Ridge Drive in The Woodlands, Texas. This location provides space for research and development and manufacturing capacity for clinical trials; a specialized Flow Cytometry and Microscopy lab; support of clinical
trials with 800 sq. ft. of good manufacturing practice (GMP) manufacturing suites; Quality Systems management with a Quality Control Laboratory, Regulatory Affairs, Quality Assurance; as well as administrative support space. There is 2,500 sq. ft.
of space still available for future build-out. We lease the facility including the property for a term ending in 2015 with two options for an additional five years each at the then prevailing market rate.



|ITEM 3. | LEGAL PROCEEDINGS.
|------- | ------------------

We are not currently a party to
any material legal proceedings.



18



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##### Index to Financial Statements

|ITEM 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
|------- | ----------------------------------------------------

No matters were submitted to a vote of our security holders, through solicitation of proxies or otherwise, during the quarter ended December 31, 2008.

PART II



|ITEM 5. | MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
|------- | -------------------------------------------------------------------------------------------------------------

Market Information and Holders

Our common stock is
traded on the NASDAQ Capital Market under the symbol OPXA. As of March 23, 2009, there were 288 holders of record of the common stock. This number does not include stockholders for whom shares were held in nominee or
street name. Our common stock trades on a limited, sporadic and volatile basis.

The table below shows the high and low
per-share bid information for our common stock for the periods indicated, as reported by NASDAQ.



|                                    |  |              |      |     |   |     
|----------------------------------- |  | ------------ | ---- | --- | - | ----
|                                    |  | Price Ranges
|                                    |  | High         |      | Low
|Fiscal Year Ended December 31, 2007 |  |              |      |     |   |     
|First Quarter                       |  |              | 6.05 |     |   | 3.90
|Second Quarter                      |  |              | 5.89 |     |   | 4.05
|Third Quarter                       |  |              | 5.35 |     |   | 3.50
|Fourth Quarter                      |  |              | 4.30 |     |   | 1.85
|                                    |  |             
|Fiscal Year Ended December 31, 2008 |  |              |      |     |   |     
|First Quarter                       |  | $            | 3.25 |     | $ | 0.91
|Second Quarter                      |  |              | 1.43 |     |   | 0.59
|Third Quarter                       |  |              | 2.15 |     |   | 0.15
|Fourth Quarter                      |  |              | 0.34 |     |   | 0.09

Dividends

We have never declared or paid any cash dividends on our common stock and we do not intend to pay cash dividends in the foreseeable future. We currently expect to retain any future earnings to fund the operation and
expansion of our business.



19



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##### Table of Contents

##### Index to Financial Statements

Securities Authorized for Issuance Under Equity Compensation Plans

The following table sets forth information, as of December 31, 2008, with respect to our compensation plans under which common stock is authorized
for issuance. We issue options to officers, directors, employees and consultants under our stockholder approved 2004 Compensatory Stock Plan. We believe that the exercise price for all of the options set forth below reflects fair market value.



|                                                                |  |                                                                                            |  |                                                                            |      |                                                                                                                                    |        
|--------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------ |  | -------------------------------------------------------------------------- | ---- | ---------------------------------------------------------------------------------------------------------------------------------- | -------
|Plan Category                                                   |  | Number of Securitiesto be Issued UponExercise ofOutstanding Options,Warrants and
Rights(A) |  | Weighted AverageExercise Price ofOutstandingOptions, Warrantsand Rights(B) |      | Number ofSecuritiesRemainingAvailable forFuture IssuanceUnder
EquityCompensationPlans (ExcludingSecuritiesReflected inColumn A)(C)
|Equity Compensation Plans Approved by Security Shareholders     |  | 1,598,547                                                                                  |  | $                                                                          | 5.86 |                                                                                                                                    | 701,453
|Equity Compensation Plans Not Approved by Security Shareholders |  |                                                                                           |  |                                                                            |     |                                                                                                                                    |       
|                                                                |  |                                                                                            |  |                                                                            |      |                                                                                                                                    |        
|Total                                                           |  | 1,598,547                                                                                  |  | $                                                                          | 5.86 |                                                                                                                                    | 701,453
|                                                                |  |                                                                                            |  |                                                                            |      |                                                                                                                                    |        

Refer to Item 8, Note 10 Options and Warrants in the Notes to Our Consolidated
Financial Statements for the fiscal year ended December 31, 2008, included elsewhere in the annual report for a description of our equity compensation plan.

Recent Sales of Unregistered Securities and Equity Purchases by Company

None.



|ITEM 6. | SELECTED FINANCIAL DATA
|------- | -----------------------

Not applicable.



|ITEM 7. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
|------- | --------------------------------------------------------------------------------------

The following discussion of our financial condition and results of operations should be read in conjunction with the accompanying financial statements
and the related footnotes thereto.

Organizational Overview

We are a development-stage company and have a limited operating history. Our predecessor company for financial reporting purposes was formed on January 22, 2003 to acquire rights to our adult stem cell
technology. In November 2004 we acquired Opexa Pharmaceuticals, Inc. and its MS treatment technology. We are still developing all of our technology, and to date, we have not generated any revenues from our operations.

Critical Accounting Policies

Our discussion and
analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the U.S. The preparation of these consolidated
financial statements requires us to make estimates and judgments



20



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##### Index to Financial Statements

that affect the reported amounts of assets, liabilities and expenses. We base our estimates on historical experience and on various other assumptions that we
believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions. We believe the following critical accounting policies affect our most significant judgments and estimates used in preparation of our consolidated financial statements.

Stock-Based Compensation.On January 1, 2006, we adopted the provisions of Statement of Financial Accounting Standards No. 123R,
Share-Based Payment (SFAS 123R) which establishes accounting for equity instruments exchanged for employee service. We utilize the Black-Scholes option pricing model to estimate the fair value of employee stock based
compensation at the date of grant, which requires the input of highly subjective assumptions, including expected volatility and expected life. Further, as required under SFAS 123R, we now estimate forfeitures for options granted, which are not
expected to vest. Changes in these inputs and assumptions can materially affect the measure of estimated fair value of our share-based compensation. These assumptions are subjective and generally require significant analysis and judgment to develop.
When estimating fair value, some of the assumptions will be based on, or determined from, external data and other assumptions may be derived from our historical experience with stock-based payment arrangements. The appropriate weight to place on
historical experience is a matter of judgment, based on relevant facts and circumstances.

We estimated volatility by considering
historical stock volatility. As allowed by Staff Accounting Bulletin (SAB) No. 107, Share-Based Payment, we have opted to use the simplified method for estimating expected term equal to the midpoint between the vesting period and
the contractual term.

Research and Development.The costs of materials and equipment or facilities that are acquired or constructed
for research and development activities and that have alternative future uses are capitalized as tangible assets when acquired or constructed. The cost of such materials consumed in research and development activities and the depreciation of such
equipment or facilities used in those activities are research and development costs. However, the costs of materials, equipment, or facilities acquired or constructed for research and development activities that have no alternative future uses are
considered research and development costs and are expensed at the time the costs are incurred.

Accounting for Derivative Instruments.Statement of Financial Accounting Standard (SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended, requires all derivatives to be recorded on the balance sheet at fair value. These
derivatives are separately valued and accounted for on our balance sheet. Fair values for securities traded in the open market and derivatives are based on quoted market prices. Where market prices are not readily available, fair values are
determined using market based pricing models incorporating readily observable market data and requiring judgment and estimates.

The
pricing model we use for determining fair values of our derivatives is the Black Scholes option-pricing model. Valuations derived from this model are subject to ongoing internal and external verification and review. The model uses market-sourced
inputs such as interest rates, exchange rates and stock price volatilities. Selection of these inputs involves managements judgment and may impact net income.

In December 2006, the FASB issued FASB Staff Position No. EITF 00-19-2, Accounting for Registration Payment Arrangements (EITF 00-19-2). EITF 00-19-2 addresses an issuers accounting for registration
payment arrangements. It specifies that the contingent obligation to make future payments or otherwise transfer consideration under a registration payment arrangement, whether issued as a separate agreement or included as a provision of a financial
instrument or other agreement, should be separately recognized and measured in accordance with FASB Statement No. 5, Accounting for Contingencies. The guidance in EITF 00-19-2 amends FASB Statements No. 133, Accounting
for Derivative Instruments and Hedging Activities, and No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity, and FASB



21



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##### Index to Financial Statements

Interpretation No. 45, Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others, to include scope exceptions for registration payment arrangements. EITF 00-19-2 also requires additional disclosure regarding the nature of any registration payment arrangements, alternative settlement methods, the maximum
potential amount of consideration and the current carrying amount of the liability, if any. This EITF is effective immediately for registration payment arrangements and the financial instruments subject to those arrangements that are entered into or
modified subsequent to the date of issue of this EITF. For registration payment arrangements and financial instruments subject to those arrangements that were entered into prior to the issuance of this EITF, this is effective for financial
statements issued for fiscal years beginning after December 15, 2006, and interim periods within those fiscal years. The impact of implementing EITF 00-19-2 in the fiscal year 2007 resulted in a cumulative effect of a change in accounting
principle with a credit to beginning retained earnings of $6,656,677 and a reversal of the same amount to the derivative liability account.

In June 2008, the FASB finalized EITF 07-5, Determining Whether an Instrument (or Embedded Feature) is Indexed to an Entitys Own Stock (EITF 07-5). EITF 07-5 lays out a procedure to determine if an instrument is indexed to
a companys own common stock. EITF 07-5 is effective for fiscal years beginning after December 15, 2008. Opexa evaluated all of its financial instruments and determined that the warrants associated with the August 2008 financing qualified
for treatment under EITF 07-5. As of January 1, 2009, Opexa adjusted its financial statements to reflect the adoption of the EITF 07-5. Opexa reclassified the fair value on these warrants as of January 1, 2009 in the amount of $220,835
from additional paid in capital to derivative liabilities and the cumulative effect of the change in accounting principle in the amount of $1,755,622 is recognized as an adjustment to the opening balance of retained earnings.

Results of Operations

Comparison of Year Ended
December 31, 2008 with the Year Ended December 31, 2007

Net Sales.We recorded no sales for the years ended
December 31, 2008 and 2007.

Research and Development Expenses.Research and development expense was $8,388,734 for the year
ended December 31, 2008, compared to $13,071,856 for the year ended December 31, 2007.

The decrease in expenses was primarily
due to a decrease in activities related to the Phase IIb clinical trial for Tovaxin which was completed in 2008 as compared to 2007 and a reduction in stock compensation expense recorded in 2008. We have made and expect to continue to make
substantial investments in research and development in order to develop and market our technology. We expense research and development costs as incurred. Acquired research and development that has no alternative future use is expensed when acquired.
Property, plant and equipment for research and development that has an alternative future use is capitalized and the related depreciation is expensed.

General and Administrative Expenses.Our general and administrative expense was $3,341,415 for the year ended December 31, 2008, as compared to $3,418,306 for the year ended December 31, 2007. The
decrease in expenses is primarily due to a decrease in stock compensation expense and professional service fees offset in part by an increase in personnel costs.

Interest Expense. Interest expense was $19,983 for the year ended December 31, 2008, compared to $16,103 for the year ended December 31, 2007. Interest expense for 2008 and 2007 was related to a loan
payable consisting of an equipment line of up to $250,000 with Wells Fargo of which $165,201 was outstanding as of December 31, 2008.

Interest Income. Interest income was $100,235 for the year ended December 31, 2008 compared to $477,605 for the year ended December 31, 2007. The decrease was due to the reduction in cash balances that were available for
investment in cash equivalent instruments and a reduction in interest rates.



22



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##### Index to Financial Statements

Gain on Extinguishment of Debt. Opexa entered into a second amended and restated license agreement
with the University of Chicago that eliminated the obligations under the prior agreement for the payment of $1.5 million due July 31, 2007 and the obligation to issue 21,623 shares of Opexa common stock. These obligations were recorded as
research and development expense, with the liabilities recorded as notes payablecurrent portion of $1.5 million and a stock payable of $112,440. As a result of the amendment and restatement of the license agreement with the University of
Chicago $1,612,440 was reported as a gain on extinguishment of liability in 2007. Opexa applied the accounting guidance of Financial Accounting Standard No. 140, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities (FAS 140) and EITF 96-19 Debtors Accounting for a Modification or Exchange of Debt Instruments.

Net loss. We had a net loss for the year ended December 31, 2008, of $11,852,152, or $1.12 per share (basic and diluted), compared with a net loss of $14,667,367, or $2.19 per share (basic and diluted),
for the year ended December 31, 2007. The decrease in net loss is primarily due to the reduction of costs associated with the Phase IIb clinical trial of Tovaxin that was completed in 2008.

Comparison of Year Ended December 31, 2007 with the Year Ended December 31, 2006

Net Sales.We recorded no sales for the years ended December 31, 2007 and 2006.

Research and Development Expenses.Research and development expense was $13,071,856 for the year ended December 31, 2007, compared to
$7,850,373 for the year ended December 31, 2006.

The increase in expenses was primarily due to the costs of the Phase IIb clinical
trial for Tovaxin and an increase in stock compensation expense recorded in 2007. We have made and expect to continue to make substantial investments in research and development in order to develop and market our technology. We expense research and
development costs as incurred. Acquired research and development that has no alternative future use is expensed when acquired. Property, plant and equipment for research and development that has an alternative future use is capitalized and the
related depreciation is expensed.

General and Administrative Expenses.Our general and administrative expense was $3,418,306 for
the year ended December 31, 2007, as compared to $5,461,047 for the December 31, 2006. The decrease in expenses is primarily due to a decrease in stock compensation expense, professional service fees and overhead expenses.

Interest Expense. Interest expense was $16,103 for the year ended December 31, 2007, compared to $984 for the year ended December 31,
2006. The increase in interest expense was primarily due to a loan payable consisting of an equipment line of up to $250,000 with Wells Fargo of which $222,816 was outstanding as of December 31, 2007.

Interest Income. Interest income was $477,605 for the year ended December 31, 2007 compared to $688,299 for the year ended December 31,
2006. The decrease was due to the reduction in cash balances that were available for investment in cash equivalent instruments.

Gain
(Loss) on Derivative Instruments Liabilities, net.The implementation of EITF 00-19-2 in the fiscal year 2007, discussed in Accounting for Derivative Instruments, resulted in a cumulative effect of a change in accounting principle
with a credit to beginning retained earnings of $6,656,677 and a reversal of the same amount to the derivative liability account as compared to a gain on derivative instruments of $104,978 for the twelve months ended December 31, 2006.

Gain on Extinguishment of Debt. Opexa entered into a second amended and restated license agreement with the University of Chicago
that eliminated the obligations under the prior agreement for the payment of $1.5 million due July 31, 2007 and the obligation to issue 21,623 shares of Opexa common stock. These obligations were recorded as research and development expense,
with the liabilities recorded as notes payablecurrent



23



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##### Table of Contents

##### Index to Financial Statements

portion of $1.5 million and a stock payable of $112,440. As a result of the amendment and restatement of the license agreement with the University of Chicago
$1,612,440 was reported as a gain on extinguishment of liability. Opexa applied the accounting guidance of Financial Accounting Standard No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities (FAS 140) and EITF 96-19 Debtors Accounting for a Modification or Exchange of Debt Instruments.

Net loss.We had a net loss for the year ended December 31, 2007, of $14,667,367, or $2.19 per share (basic and diluted), compared with a net loss of $12,649,170, or $2.35 per share (basic and diluted), for the year ended
December 31, 2006. The increase in net loss is primarily due to the costs associated with the Phase IIb clinical trial for Tovaxin offset in part by a reduction in stock-based compensation expense, and a gain on extinguishment of liability.

Liquidity and Capital Resources

Historically, we have financed our operations primarily from the sale of debt and equity securities. As of December 31, 2008 we had cash and cash equivalents of approximately $1.2 million.

Our financing activities generated $9.2 million for the year ended December 31, 2008 as compared to approximately $0.1 million for the year ended
December 31, 2007. The cash generated in 2008 was the result of $7.6 million in gross proceeds from a public offering in February and $3.0 million in gross proceeds from a private financing in August.

Our current burn rate is approximately $300,000 per month. Effective, April 14, 2009, the Company closed on an initial tranche of a private
offering of secured convertible notes and warrants for gross proceeds of approximately $1.1 million which will support our operations at current levels through August 2009. We will need to raise additional capital in fiscal year 2009 to
fund our business plan and support our operations. As our prospects for funding, if any, develop during the fiscal year, we will assess our business plan and make adjustments accordingly. The report of our independent auditors with regard to our
financial statements for the fiscal year ended December 31, 2008, includes a going concern qualification. Although we have successfully funded our operations to date by attracting additional investors in our equity, there is no assurance that our
capital raising efforts will be able to attract additional necessary capital for our operations. If we are unable to obtain additional funding for operations at any time now or in the future, we may not be able to continue operations as proposed,
requiring us to modify our business plan, curtail various aspects of our operations or cease operations.

Off-Balance Sheet Arrangements

None.

Contractual Commitments

A tabular disclosure of contractual obligations at December 31, 2008, is as follows:



|                      |  |       |           |                        |   |            |  |            |         |                  |   |         |  |   |        
|--------------------- |  | ----- | --------- | ---------------------- | - | ---------- |  | ---------- | ------- | ---------------- | - | ------- |  | - | -------
|                      |  |       |           | Payments Due by Period
|                      |  | Total |           | Less than1 year        |   | 1 - 3years |  | 3 - 5years |         | More than5 years
|Operating Leases(1)   |  | $     | 1,052,927 |                        | $ | 150,474    |  | $          | 313,764 |                  | $ | 313,372 |  | $ | 276,318
|Consulting Agreements |  |       |          |                        |   |           |  |            |        |                  |   |        |  |   |       
|                      |  |       |           |                        |   |            |  |            |         |                  |   |         |  |   |        
|Total                 |  | $     | 1,052,927 |                        | $ | 150,474    |  | $          | 313,764 |                  | $ | 313,372 |  | $ | 276,318
|                      |  |       |           |                        |   |            |  |            |         |                  |   |         |  |   |        



|(1) | Includes lease for office equipment.
|--- | ------------------------------------



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##### Index to Financial Statements

Recently Issued Accounting Pronouncements.

In June 2007, the Emerging Issues Task Force (EITF) issued EITF Issue No. 07-3, Accounting for Nonrefundable Advance Payments for Goods or
Services to be Used in Future Research and Development Activities (EITF 07-3). EITF 07-3 provides guidance concerning the accounting for non-refundable advance payments for goods and services that will be used in future
research and development activities and requires that they be expensed when the research and development activity has been performed and not at the time of payment. The provisions of EITF 07-3 are effective for the Company as of January 1,
2008, with a cumulative-effect adjustment to retained earnings as of the beginning of the year of adoption. The Company does not believe EITF 07-3 will have a material impact on its results from operations or financial position.

In June 2008, the FASB finalized EITF 07-5, Determining Whether an Instrument (or Embedded Feature) is Indexed to an Entitys Own Stock
which lays out a procedure to determine if the instrument is indexed to a Companys own common stock. The EITF is effective for fiscal years beginning after December 15, 2008. Opexa evaluated all of its financial instruments and determined
that the warrants associated with the August 2008 financing qualified for treatment under EITF 07-5. As of January 1, 2009, Opexa adjusted its financial statements to reflect the adoption of the EITF 07-5. Opexa reclassified the fair value on
these warrants as of January 1, 2009 in the amount of $220,835 from additional paid in capital to derivative liabilities and the cumulative effect of the change in accounting principle in the amount of $1,755,622 is recognized as an adjustment
to the opening balance of retained earnings.

There were various other accounting standards and interpretations issued during 2008, 2007
and 2006, none of which are expected to have a material impact on the Companys consolidated financial position, operations or cash flows.



|ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
|-------- | ----------------------------------------------------------

Our financial instruments include cash and cash equivalents. Our main investment objectives are the preservation of investment capital and the maximization of returns on our investment portfolio. Our interest income is sensitive to changes
in the general level of U.S. interest rates. We believe that our investment policy is conservative, both in the duration of our investments and the credit quality of the investments we hold. As of March 26, 2009, the Company held no auction
rate securities.



|ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
|------- | --------------------------------------------

The
Financial Statements and supplementary data required by this item are included in Part IV, Item 15 of this Form 10-K and are presented beginning on page F-1.



|ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
|------- | -------------------------------------------------------------------------------------

None.



|ITEM 9A. | CONTROLS AND PROCEDURES.
|-------- | ------------------------

Evaluation of Disclosure Controls and
Procedures

In accordance with Exchange Act Rules 13a-15 and 15a-15, we carried out an evaluation, under the supervision and with
the participation of management, including our Chief Executive Officer and Acting Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation,
our Chief Executive Officer and Acting Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 31, 2008.



25



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##### Index to Financial Statements

Managements Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act
Rule 13a-15(f). Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over
financial reporting based on the framework in Internal ControlIntegrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

Based on our evaluation under the framework in Internal ControlIntegrated Framework issued by COSO, our management concluded that our
internal control over financial reporting was effective as of December 31, 2008 in providing reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles.

This annual report does not include an attestation report of the Companys registered
public accounting firm regarding internal control over financial reporting. Managements report was not subject to attestation by the Companys registered public accounting firm pursuant to temporary rules of the Securities Exchange
Commission that permit the company to provide only managements report in this annual report.



|ITEM 9B. | OTHER INFORMATION.
|-------- | ------------------

None.



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##### Index to Financial Statements

PART III



|ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
|-------- | -------------------------------------------------------

Executive Officers

Our executive officers are elected by the board of directors and serve at the discretion of the board.
Our executive officers are as follows:



|              |  |     |  |                                                                                
|------------- |  | --- |  | -------------------------------------------------------------------------------
|Name          |  | Age |  | Position                                                                       
|Neil K. Warma |  | 46  |  | President, Chief Executive Officer, Acting Chief Financial Officer and Director
|Donna R. Rill |  | 55  |  | Senior Vice President of Operations                                            

Biographical information for our executive officers is set forth below:

Neil K. Warma has served as President and Chief Executive Officer since June 2008 and as Acting Chief Financial Officer since March 2009. From
July 2004 to September 2007, Mr. Warma served as president and chief executive officer of Viron Therapeutics Inc., a privately-held clinical stage biopharmaceutical company. From 2000 to 2003 Mr. Warma was co-founder and president of
MedExact USA, Inc., an Internet company providing clinical information and services to physicians and pharmaceutical companies. From 1992 to 2000 Mr. Warma held senior positions of increasing responsibility at Novartis Pharmaceuticals
(previously Ciba-Geigy Ltd.) at its corporate headquarters in Basel, Switzerland. While at Novartis, Mr. Warma served as the Head of International Pharma Policy & Advocacy and in senior management within global marketing where he
worked on the international launch of a gastrointestinal product. Mr. Warma obtained an honors degree specializing in Neuroscience from the University of Toronto and an International M.B.A. from the Schulich School of Management at York
University in Toronto.

Donna R. Rill served as Senior Vice President of Operations since January 2009. From November 2004 until
January 2009 she served as Vice President of Operations. From April 2003 to November 2004, she was the director of quality systems and process development at Opexa Pharmaceuticals, Inc. From November 1997 to April 2003 she was the director of
translational research for the Center for Cell & Gene Therapy at Baylor College of Medicine. Ms. Rill has worked to design and qualify GMP Cell & Gene Therapy Laboratories, GMP Vector Production facilities, and Translational
Research Labs at St. Jude Childrens Research Hospital, Texas Childrens Hospital, and Baylor College of Medicine. Ms. Rill received her B.S. in Medical Technology from the University of Tennessee, Memphis.

Directors

All of the current directors will serve
until the next annual stockholders meeting or until their successors have been duly elected and qualified. Our current board of directors are as follows:



|                    |  |     |  |                                        
|------------------- |  | --- |  | ---------------------------------------
|Name                |  | Age |  | Position                               
|David Hung          |  | 51  |  | Director                               
|David E. Jorden     |  | 46  |  | Director                               
|David B. McWilliams |  | 65  |  | Director                               
|Michael S. Richman  |  | 48  |  | Director                               
|Scott B. Seaman     |  | 53  |  | Director                               
|Neil K. Warma       |  | 46  |  | Director, President, CEO and Acting CFO



27



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##### Index to Financial Statements

David Hung, M.D.has served as a Director since May 2006. Dr. Hung has served as the
president, chief executive officer and as a director of Medivation, Inc. since December 2004. Dr. Hung also has served as the president and chief executive officer, and member of the board of directors, of Medivation, Inc.s subsidiary,
Medivation Neurology, Inc. since its inception in September 2003. From 1998 until 2001, Dr. Hung was employed by ProDuct Health, Inc., a privately held medical device company, as Chief Scientific Officer (1998-1999), and as president and chief
executive officer (1999-2001). From December 2001 to January 2003, Dr. Hung served as a consultant to Cytyc Health Corporation. Dr. Hung received his M.D. from the University of California at San Francisco, and his A.B. in biology and
organic chemistry from Harvard College.

David E. Jordenhas served as a Director since August 2008. Mr. Jorden has served as
executive board member for Cytomedix, Inc. since October 2008. Mr. Jorden previously served as vice president with Morgan Stanley in its Wealth Management group where he is responsible for equity portfolio management for high net worth
individuals since 2003. Prior to Morgan Stanley, Mr. Jorden served as vice president and chief financial officer of Genometrix, Inc., a private genomics/life sciences company focused on high-throughput microarray applications from March 2000 to
September 2002. Mr. Jorden was a principal with Fayez Sarofim & Co. prior to joining Genometrix. Mr. Jorden earned a MBA from Kellogg School of Management at Northwestern University in 1989 and a BBA from the University of
Texas/Austin in 1984. He currently serves as a director of Cytomedix, Inc. and PLx Pharma, Inc. Mr. Jorden is a Chartered Financial Analyst and Certified Public Accountant.

David B. McWilliamshas served as Director since August 2004. From August 2004 to June 2008 Mr. McWilliams also served as president and chief
executive officer of Opexa. From December 2003 until August 2004, Mr. McWilliams was a private investor. From June 2003 to December 2003, Mr. McWilliams served as president and chief executive officer of Bacterial Barcodes, Inc., a
molecular diagnostics company. Mr. McWilliams currently serves as a director of Novelos Therapeutics, Inc., and on the boards of ApoCell Biosciences and the Houston Technology Center. Mr. McWilliams received an MBA in finance from the
University of Chicago and a B.A. in chemistry, Phi Beta Kappa, from Washington and Jefferson College.

Michael S. Richmanhas served
as a Director of the Company since June 2006. Mr. Richman has served as president and chief executive officer of Amplimmune, Inc. since July 2008. Mr. Richman served as president and chief operating officer of Amplimmune, Inc. from May
2007 to July 2008. From April 2002 to May 2007, Mr. Richman served as executive vice president and chief operating officer of MacroGenics, Inc. Mr. Richman joined MacroGenics, Inc in 2002 with approximately twenty years experience in
corporate business development within the biotechnology industry. Mr. Richman serves on the board of Cougar Biotechnology, a public drug development company. Mr. Richman obtained his B.S. in Genetics/Molecular Biology at the University of
California at Davis and his MSBA in International Business at San Francisco State University.

Scott B. Seamanhas served as a
Director of since April 2006. Mr. Seaman has served for over five years as the executive director and treasurer of the Albert and Margaret Alkek Foundation of Houston, Texas, a private foundation primarily supporting institutions in the Texas
Medical Center in Houston, Texas. Since January 1996 to present, Mr. Seaman has served as the chief financial officer of Chaswil Ltd., an investment management company. Since September 1986, Mr. Seaman has served as secretary and treasurer
of M & A Properties Inc., a ranching and real estate concern. Since January 2003, Mr. Seaman has served as chairman and, since July 2004, president of ICT Management Inc., the general partner of Impact Composite Technology Ltd., a composite
industry supplier. Mr. Seaman serves on the board of GeneExcel, Inc., a privately held biotechnology company. Since May 2004, Mr. Seaman has served as a Member of the Investment Committee of Global Hedged Equity Fund LP, a hedge fund.
Mr. Seaman received a bachelors degree in business administration from Bowling Green State University and is a certified public accountant.

Neil K. Warma For further background information regarding Mr. Warma see Executive Officers section.



28



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##### Table of Contents

##### Index to Financial Statements

Board Independence

The Company has determined that Dr. Hung, Mr. Jorden, Mr. Richman and Mr. Seaman meet the requirements under the NASDAQ Rule 4200 as independent directors.

Committees of the Board of Directors

We currently
have an audit committee, a compensation committee, and a nominating and corporate governance committee.

Audit Committee

The audit committee of the Board currently consists of Mr. Jorden, Mr. Richman, and Mr. Seaman, each of whom are independent, non-employee
directors. The audit committee selects, on behalf of our board of directors, an independent public accounting firm to audit our financial statements, discuss with the independent auditors their independence, review and discuss the audited financial
statements with the independent auditors and management, and recommend to our board of directors whether the audited financials should be included in our Annual Reports to be filed with the SEC. The audit committee operates pursuant to a written
charter, which was adopted in February 2005. During the last fiscal year, the audit committee held four meetings, and the members of the audit committee attended each meeting.

All of the members of the audit committee are non-employee directors who: (1) met the criteria for independence set forth in Rule 10A-3(b)(1) under
the Securities Exchange Act of 1934, as amended (the Exchange Act); (2) did not participate in the preparation of our financial statements or the financial statements of Opexa; and (3) are able to read and understand
fundamental financial statements, including a balance sheet, income statement, and cash flow statement. The Board has determined that Mr. Jorden and Mr. Seaman each, individually, qualify as an audit committee financial expert
as defined by Item 407(d)(5)(ii) of Regulation S-K of the Exchange Act.

Compensation Committee

The compensation committee of the board currently consists of Dr. Hung, Mr. Richman, and Mr. Seaman, each of whom are independent
directors, as defined in Rule 10A-3 of the Exchange Act. The compensation committee reviews and approves (1) the annual salaries and other compensation of our executive officers, and (2) individual stock and stock option grants. The
compensation committee also provides assistance and recommendations with respect to our compensation policies and practices, and assists with the administration of our compensation plans. During the last fiscal year the compensation committee held
one meeting, and the members of the compensation committee attended that meeting.

In addition, the Board has adopted a written charter for
the compensation committee, adopted in August 2004, which is available on our website at www.opexatherapeutics.com.

Nominating and Corporate
Governance Committee

The nominating and corporate governance committee of the board currently consists of Dr. Hung,
Mr. Jorden, and Mr. Seaman, each of whom were determined by the board of directors to be an independent director pursuant to the applicable rules and regulations promulgated by the SEC. The nominating and corporate governance
committee assists our board of directors in fulfilling its responsibilities by: identifying and approving individuals qualified to serve as members of our board of directors, selecting director nominees for our annual meetings of shareholders,
evaluating the performance of our board of directors, and developing and recommending to our board of directors corporate governance guidelines and oversight procedures with respect to corporate governance and ethical conduct. This committee
operates pursuant to a written charter adopted in



29



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##### Table of Contents

##### Index to Financial Statements

February 2005, which is available on our website at http://www.opexatherapeutics.com. The nominating committee will consider properly submitted shareholder
nominations for candidates for the board. Following verification of the shareholder status of persons proposing candidates, recommendations will be aggregated and considered by the nominating committee. If any materials are provided by a shareholder
in connection with the nomination of a director candidate, such materials will be forwarded to the nominating committee. During the last fiscal year, the nominating and corporate governance committee held one meeting, and the members of the
governance committee attended that meeting.

Compensation Committee Interlocks and Insider Participation

Our compensation committee is comprised of Dr. Hung, Mr. Richman, and Mr. Seaman. None of the committee members has ever been an employee
of Opexa Therapeutics, Inc. None of our executive officers serve as a member of the board of directors or compensation committee of any entity that has any executive officer serving as a member of our Board of Directors or compensation committee.

Code of Ethics for the CEO, CFO, and Senior Financial Officers

In 2005, in accordance with SEC rules, the then audit committee and the Board of Directors adopted the Policy on Whistleblower Protection and Code of Ethics. The Board of Directors believes that these individuals must
set an exemplary standard of conduct, particularly in the areas of accounting, internal accounting control, auditing and finance. This code sets forth ethical standards to which the designated officers must adhere and other aspects of accounting,
auditing and financial compliance. The Code of Ethics is available on our website at www.opexatherapeutics.com.

Section 16(a) Beneficial Ownership
Reporting Compliance

Section 16(a) of the Exchange Act requires our directors and officers, and persons who own more than 10% of a
registered class of our equity securities, to file with the SEC initial reports of ownership and reports of changes in ownership of equity securities of our common stock. Theses people are required by SEC regulations to furnish us with copies of all
such reports they file. To our knowledge, based solely on our review of the copies of such reports furnished to us and written representations from certain insiders that no other reports were required, we complied with all Section 16(a) filing
requirements applicable to our insiders.

Audit Committee Report

The Audit Committee of the Board currently consists of Mr. Jorden, Mr. Richman and Mr. Seaman, all of which are independent, non-employee directors.

The Audit Committee operates under a written charter adopted by the Board of Directors, which is evaluated annually. The charter of the Audit Committee
is available on the Companys website at http://www.opexatherapeutics.com under the heading Investor Info. The Audit Committee selects, evaluates and, where deemed appropriate, replaces the Companys independent
auditors. The Audit Committee also pre-approves all audit services, engagement fees and terms, and all permitted non-audit engagements, except for certain de minimus amounts.

Management is responsible for the Companys internal controls and the financial reporting process. The Companys independent auditors are
responsible for performing an independent audit of the Companys consolidated financial statements in accordance with auditing standards generally accepted in the United States of America and issuing a report on the Companys consolidated
financial statements. The Audit Committees responsibility is to monitor and oversee these processes.



30



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##### Index to Financial Statements

In this context, the Audit Committee has reviewed the Companys audited financial statements for
fiscal 2008 and has met and held discussions with management and Malone & Bailey, PC, the Companys independent auditors. Management represented to the Audit Committee that the Companys consolidated financial statements for
fiscal 2008 were prepared in accordance with accounting principles generally accepted in the United States of America, and the Audit Committee discussed the consolidated financial statements with the independent auditors. The Audit Committee also
discussed with Malone & Bailey, PC matters required to be discussed by Statement on Auditing Standards No. 61 (Communications with Audit Committees).

Malone & Bailey, PC also provided to the Audit Committee the written disclosure required by Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees), and the Audit
Committee discussed with Malone & Bailey, PC the accounting firms independence.

Based upon the Audit Committees
discussion with management and Malone & Bailey, PC, and the Audit Committees review of the representation of management and the report of Malone & Bailey, PC to the Audit Committee, the Audit Committee recommended to the
Board of Directors that the audited consolidated financial statements be included in the Companys Annual Report on Form 10-K for the fiscal year ended December 31, 2008, filed with the Securities and Exchange Commission.

Submitted by the Audit Committee of the Board of Directors of Opexa Therapeutics, Inc.

David E. Jorden, Michael S. Richman, Scott B. Seaman



|ITEM 11. | EXECUTIVE COMPENSATION.
|-------- | -----------------------

Compensation Discussion and Analysis

Objectives of Our Executive Compensation Program

The compensation committee of our Board (the Compensation Committee) administers our executive compensation program. The Compensation Committee is composed entirely of independent directors.

The general philosophy of our executive compensation program is to align executive compensation with the Companys business objectives and the
long-term interests of our stockholders. To that end, the Compensation Committee believes executive compensation packages provided by the Company to its executives, including the named executive officers, should include both cash and stock-based
compensation that reward performance as measured against established goals. In addition, the Company strives to provide compensation that is competitive with other biopharmaceutical and biotechnology companies and that will allow us to attract,
motivate, and retain qualified executives with superior talent and abilities.

Our executive compensation is designed to reward achievement
of the Companys corporate goals. In 2008, our corporate goals included, but were not limited to: (i) advancement of the Companys clinical development program; (ii) advancing the Companys research and development programs;
(iii) obtaining additional financing as needed; and (iv) realizing financial goals. This focus allows us to reward our executives for their roles in creating value for our stockholders.

The Role of the Compensation Committee

The
Compensation Committee has the primary authority to determine the Companys compensation philosophy and to establish compensation for the Companys executive officers. The Compensation Committee oversees the Companys compensation and
benefit plans and policies; administers the Companys stock option plans; reviews the compensation components provided to Opexas officers, employees, and consultants; grants options to purchase common stock Opexas officers,
employees, and consultants; and reviews and makes recommendations to the Board regarding all forms of compensation to be provided to the members of the Board.



31



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##### Index to Financial Statements

The Compensation Committee generally sets the initial compensation of each executive. The Compensation
Committee annually reviews and in some cases adjusts compensation for executives. Although, the Chief Executive Officer provides recommendations to the Compensation Committee regarding the compensation of the other executive officers, the
Compensation Committee has full authority over all compensation matters relating to executive officers.

Elements of Executive Compensation

Although the Compensation Committee has not adopted any formal guidelines for allocating total compensation between equity compensation and
cash compensation, it strives to maintain a strong link between executive incentives and the creation of stockholder value. Therefore, the Company emphasizes incentive compensation in the form of stock options rather than base salary.

Executive compensation consists of the following elements:

Base Salary.Base salaries for our executives are generally established based on the scope of their responsibilities, taking into account competitive market compensation paid by other companies for
similar positions and recognizing cost of living considerations. Prior to making its recommendations and determinations, the Compensation Committee reviews each executives:



| |  |  | historical pay levels;
| | - |  | ----------------------



| |  |  | past performance; and
| | - |  | ---------------------



| |  |  | expected future contributions.
| | - |  | ------------------------------

The
Compensation Committee does not use any particular indices or formulae to arrive at each executives recommended pay level.

Equity Awards.We also use long-term incentives in the form of stock options. Employees and executive officers generally receive stock option grants at the commencement of employment and periodically receive additional stock
option grants, typically on an annual basis. We believe that stock options are instrumental in aligning the long-term interests of the Companys employees and executive officers with those of the stockholders because such individuals realize
gains only if the stock price increases. Stock options also help to balance the overall executive compensation program, with base salary providing short-term compensation and stock options rewarding executives for long-term increases in stockholder
value.

Options are generally granted through our June 2004 Compensatory Stock Option Plan that authorizes us to grant options to purchase
shares of common stock to our employees, directors, and consultants. The Compensation Committee reviews and approves stock option awards to executive officers in amounts that are based upon a review and assessment of:



| |  |  | competitive compensation data;
| | - |  | ------------------------------



| |  |  | individual performance;
| | - |  | -----------------------



| |  |  | each executives existing long-term incentives; and
| | - |  | ---------------------------------------------------



| |  |  | retention considerations.
| | - |  | -------------------------

Periodic
stock option grants are made at the discretion of the Compensation Committee to eligible employees and, in appropriate circumstances, the Compensation Committee considers the recommendations of members of management, such as the Chief Executive
Officer. In 2008, each named executive officer was awarded stock options in the amounts indicated in the section entitled Grants of Plan-Based Awards. Stock options are granted with an exercise price equal to the fair market value of our common
stock on the day of grant and typically vest ratably over a three year period.



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##### Index to Financial Statements

Section 162(m) Policy

Section 162(m) of the Internal Revenue Code limits the tax deductibility by a corporation of compensation in excess of $1 million paid to its Chief Executive Officer and any other of its four most highly
compensated executive officers. However, compensation which qualifies as performance-based is excluded from the $1 million limit if, among other requirements, the compensation is payable only upon attainment of pre-established,
objective performance goals under a plan approved by the corporations stockholders.

It is our policy to qualify, to the extent
reasonable, our executive officers compensation for deductibility under applicable tax law. However, we intend to retain the flexibility necessary to provide total cash compensation in line with competitive practice, our compensation
philosophy, and our best interests. It therefore may from time to time pay compensation to our executive officers that may not be deductible.

Compensation Committee Report

The Compensation Committee of the Board is composed of three independent directors as defined
under the Marketplace Rules of The Nasdaq Capital Market (Nasdaq). The Compensation Committee operates under a written charter adopted by the Board. The members of the Compensation Committee are David Hung, Michael Richman, and Scott
Seaman. We believe that each member of the Compensation Committee meets the director independence requirements set forth in the applicable Securities and Exchange Commission (Commission) rules and Nasdaq Marketplace Rules.

The Compensation Committee administers Opexas June 2004 Compensatory Stock Option Plan; reviews compensation components to be provided to
Opexas officers, employees, and consultants; grants options to purchase common stock and restricted stock to Opexas officers, employees, and consultants; and reviews and makes recommendations to the Board regarding all forms of
compensation to be provided to the members of the Board. The Compensation Committee believes it has fulfilled its responsibilities under its charter for the fiscal year ended December 31, 2008.

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) for the fiscal year ended
December 31, 2008 with management. Based upon this review and discussion, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in Opexas Annual Report on Form 10-K for the fiscal
year ended December 31, 2008.

Submitted by the Compensation Committee of the Board of Directors of Opexa Therapeutics, Inc.

David Hung, Michael S. Richman, Scott B. Seaman



33



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##### Index to Financial Statements

Executive Officer Compensation

Summary Compensation Table

The following tables set forth certain information regarding our
CEO and each of our most highly-compensated executive officers whose total annual salary and bonus for the fiscal years ending December 31, 2008 and 2007 exceeded $100,000.



|                            |  |      |  |           |      |  |          |  |                         |  |                     |  |         
|--------------------------- |  | ---- |  | --------- | ---- |  | -------- |  | ----------------------- |  | ------------------- |  | --------
|Name and Principal Position |  | Year |  | Salary($) |      |  | Bonus($) |  | OtherCompensation($)(6) |  | OptionsAwards($)(7) |  | Total($)
|Neil K. Warma(1)            |  | 2008 |  | 195,100   |      |  |         |  | 62,487                  |  | 72,869              |  | 330,456 
|CEO, President, Director    |  | 2007 |  |          |      |  |         |  |                        |  |                    |  |        
|                            |  |      |  |           |      | 
|David B. McWilliams(2)      |  | 2008 |  | 148,959   |      |  |         |  |                        |  | 700,059             |  | 849,018 
|CEO, President, Director    |  | 2007 |  | 275,000   | (8)  |  |         |  |                        |  | 411,807             |  | 686,807 
|                            |  |      |  |           |      | 
|Jim C. Williams(3)          |  | 2008 |  | 225,750   | (9)  |  |         |  |                        |  | 161,466             |  | 387,216 
|Chief Operating Officer     |  | 2007 |  | 225,750   | (9)  |  |         |  |                        |  | 449,024             |  | 674,774 
|                            |  |      |  |           |      | 
|Lynne Hohlfeld(4)           |  | 2008 |  | 175,000   | (10) |  |         |  |                        |  | 135,135             |  | 310,135 
|CFO and Secretary           |  | 2007 |  | 175,000   | (10) |  |         |  |                        |  | 102,700             |  | 277,700 
|                            |  |      |  |           |      | 
|Donna R. Rill(5)            |  | 2008 |  | 141,886   | (11) |  |         |  |                        |  | 110,402             |  | 252,288 
|Senior V.P. of Operations   |  | 2007 |  | 137,940   |      |  | 10,000   |  |                        |  | 234,598             |  | 382,538 



|(1) | Served as president and chief executive officer since June 2008.
|--- | ----------------------------------------------------------------

|(2) | Served as president and chief executive officer from August 2004 to June 2008.
|--- | ------------------------------------------------------------------------------

|(3) | Served as an executive officer from June 2007 to February 2009.
|--- | ---------------------------------------------------------------

|(4) | Served as chief financial officer from June 2006 to March 2009.
|--- | ---------------------------------------------------------------

|(5) | Named as an executive officer in June 2007.
|--- | -------------------------------------------

|(6) | Other compensation includes costs of moving and temporary housing.
|--- | ------------------------------------------------------------------

|(7) | Reflects the dollar amount recognized for financial statement reporting purposes for the year ended December 31, 2008 in accordance with FAS 123(R) (but disregarding forfeiture
estimates related to service-based vesting conditions) and, accordingly, includes amounts from options granted prior to 2006.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(8) | Mr. McWilliams salary was increased to $288,750 effective April 1, 2007. However, the increase in salary was accrued but not paid. As of December 31, 2008, the
outstanding amount due Mr. McWilliams was $17,188.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(9) | Dr. Williams salary was increased to $237,038 effective April 1, 2007 and to $248,890 effective April 1, 2008. However, the increase in salary was accrued but
not paid. As of December 31, 2008, the outstanding amount due Dr. Williams was $28,643. On February 6, 2009, Dr. Williams exchanged the outstanding salary due for a fully vested stock option to purchase 28,643 shares of Opexa
common stock at an exercise price of $0.47 per share.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(10) | Ms. Hohlfelds salary was increased to $183,750 effective April 1, 2007 and to $192,938 effective April 1, 2008. However, the increase in salary was accrued but
not paid. As of December 31, 2008, the outstanding amount due Ms. Hohlfeld was $22,203.
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(11) | Ms. Rills salary was increased to $151,114 effective April 1, 2008. However, the increase in salary was accrued but not paid. As of December 31, 2008, the
outstanding amount due Ms. Rill was $8,396. On February 6, 2009, Ms. Rill exchanged the outstanding salary due for a fully vested stock option to purchase 8,396 shares of Opexa common stock at an exercise price of $.47 per share.
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



34



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##### Index to Financial Statements

Executive Employment Agreements

The Company entered into a three year employment agreement on June 16, 2008 with Neil K. Warma pursuant to which he will serve as president and chief
executive officer. Pursuant to the agreement, Mr. Warma is paid $285,000 for the first twelve month period, $335,000 for the second twelve month period and $385,000 for the third twelve month period. In addition, Mr. Warma is
entitled to the following: (i) an annual cash bonus of up to 50% of his base salary based upon milestones to be agreed upon; (ii) a one-time payment of $50,000 cash and 25,000 shares of the Companys common stock to be issued if and
when the closing bid price of the Companys common stock equals or exceeds $4.00 for twenty consecutive trading days; and (iii) a ten-year stock option to purchase 250,000 shares of common stock with an exercise price of $1.01 per share
that vests 50,000 shares immediately and the balance quarterly in equal amounts over three years. In addition, the Company provided Mr. Warma with relocation assistance and the Companys standard benefits and insurance coverage as
generally provided to its management. If employment is terminated by the Board without cause, Mr. Warma will receive 12 months base salary plus a payment equal to 30% of base salary and including any earned but unpaid bonus. In addition,
vesting of stock options will accelerate in full if the effective date of the termination is at least two years after commencement of employment or vesting will be accelerated for a twelve month period if termination is prior to two years of
employment. Upon the effectiveness of a change in control, Mr. Warma will receive 18 months of salary and a payment equal to 45% of base salary. All vesting of options will accelerate in full.

The Company entered into a one year employment agreement with Donna Rill on May 9, 2008, effective April 1, 2008 through March 31, 2009,
at an annual salary of $151,114 pursuant to which Ms. Rill served as vice-president of operations of the Company. On January 16, 2009 Ms. Rill was promoted to senior vice president of the Company at an annual salary of $200,000. The
employment agreement may be terminated at any time voluntarily by her or without cause by the Board. If employment is terminated by the Board without cause, Ms. Rill will receive six months base salary and any and all stock options granted to
Ms. Rill prior to termination will be accelerated for a twelve month period. Ms. Rill shall have one year to exercise any vested stock options. In the event of a change of control, any and all stock options granted to Ms. Rill prior
to such change of control will be accelerated to become vested and Ms. Rill shall have one year to exercise any vested stock options.

Grants of
Plan Based Awards in 2008

The following table presents each grant of stock options in 2008 to the individuals named in the summary
compensation table above.



|                    |  |            |  |                                      |     |  |                               |      |                                |   |        
|------------------- |  | ---------- |  | ------------------------------------ | --- |  | ----------------------------- | ---- | ------------------------------ | - | -------
|Name                |  | Grant Date |  | Number ofSecuritiesUnderlyingOptions |     |  | Exercise Priceof OptionAwards |      | Grant DateFair Value ofOptions
|Neil K. Warma       |  | 06/16/08   |  | 250,000                              | (1) |  | $                             | 1.01 |                                | $ | 216,866
|David B. McWilliams |  | 05/06/08   |  | 8,700                                | (2) |  | $                             | 1.09 |                                | $ | 7,950  
|                    |  | 06/26/08   |  | 39,000                               | (3) |  | $                             | 1.17 |                                | $ | 39,133 
|Jim C. Williams     |  | 05/06/08   |  | 10,300                               | (4) |  | $                             | 1.09 |                                | $ | 9,411  
|                    |  | 06/26/08   |  | 23,000                               | (5) |  | $                             | 1.17 |                                | $ | 23,079 
|Lynne Hohlfeld      |  | 05/06/08   |  | 8,000                                | (4) |  | $                             | 1.09 |                                | $ | 7,310  
|                    |  | 06/26/08   |  | 21,000                               | (6) |  | $                             | 1.17 |                                | $ | 21,072 
|Donna R. Rill       |  | 05/06/08   |  | 3,000                                | (4) |  | $                             | 1.09 |                                | $ | 2,741  
|                    |  | 06/26/08   |  | 33,000                               | (7) |  | $                             | 1.17 |                                | $ | 33,113 



|(1) | 50,000 options vest upon date of grant, balance of 200,000 options vest quarterly over three years.
|--- | ---------------------------------------------------------------------------------------------------

|(2) | Accelerated vesting on 6/16/2008 upon retirement from the Company.
|--- | ------------------------------------------------------------------

|(3) | Vest immediately on date of grant.
|--- | ----------------------------------

|(4) | Fully vested at 12/31/2008.
|--- | ---------------------------



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##### Index to Financial Statements

|(5) | Accelerated vesting on 2/13/2009 upon retirement from the Company.
|--- | ------------------------------------------------------------------

|(6) | 17,500 shares forfeited upon departure from the Company in March 2009.
|--- | ----------------------------------------------------------------------

|(7) | Vest quarterly over three years from date of grant.
|--- | ---------------------------------------------------

Each
of the options in the foregoing table was granted under the Companys June 2004 Compensatory Stock Option Plan.

Outstanding Equity Awards at
Fiscal Year-End



|                    |  |                                                                |  |                                                                  |  |                      |  |         
|------------------- |  | -------------------------------------------------------------- |  | ---------------------------------------------------------------- |  | -------------------- |  | --------
|                    |  | Option Awards                                                  |  | OptionExercisePrice($)                                           |  | OptionExpirationDate
|Name                |  | Number ofSecuritiesUnderlyingUnexercisedOptions (#)Exercisable |  | Number ofSecuritiesUnderlyingUnexercisedOptions (#)Unexercisable |  |                     
|Neil K. Warma       |  | 83,334                                                         |  | 166,666                                                          |  | 1.01                 |  | 06/16/18
|                    |  |                                                                |  |                                                                 
|David B. McWilliams |  | 37,000                                                         |  |                                                                 |  | 30.00                |  | 08/31/09
|                    |  | 5,000                                                          |  |                                                                 |  | 30.00                |  | 01/21/10
|                    |  | 120,000                                                        |  |                                                                 |  | 5.00                 |  | 05/02/16
|                    |  | 41,000                                                         |  |                                                                 |  | 5.47                 |  | 06/18/17
|                    |  | 8,700                                                          |  |                                                                 |  | 1.09                 |  | 05/06/18
|                    |  | 39,000                                                         |  |                                                                 |  | 1.17                 |  | 06/26/18
|                    |  | 5,000                                                          |  | 5,000                                                            |  | 1.17                 |  | 06/26/18
|                    |  |                                                                |  |                                                                 
|Jim C. Williams     |  | 12,500                                                         |  |                                                                 |  | 30.00                |  | 11/06/09
|                    |  | 9,375                                                          |  | 3,125                                                            |  | 7.00                 |  | 12/05/10
|                    |  | 28,583                                                         |  | 14,292                                                           |  | 5.00                 |  | 04/20/16
|                    |  | 10,000                                                         |  | 20,000                                                           |  | 5.47                 |  | 06/18/17
|                    |  | 10,300                                                         |  |                                                                 |  | 1.09                 |  | 05/06/18
|                    |  | 3,833                                                          |  | 19,167                                                           |  | 1.17                 |  | 06/26/18
|                    |  |                                                                |  |                                                                 
|Lynne Hohlfeld      |  | 15,000                                                         |  | 7,500                                                            |  | 5.00                 |  | 04/20/16
|                    |  | 8,333                                                          |  | 4,167                                                            |  | 8.25                 |  | 07/12/16
|                    |  | 10,667                                                         |  | 21,333                                                           |  | 5.47                 |  | 06/18/17
|                    |  | 8,000                                                          |  |                                                                 |  | 1.09                 |  | 05/06/18
|                    |  | 3,500                                                          |  | 17,500                                                           |  | 1.17                 |  | 06/26/18
|                    |  |                                                                |  |                                                                 
|Donna R. Rill       |  | 6,000                                                          |  |                                                                 |  | 30.00                |  | 11/06/09
|                    |  | 4,500                                                          |  | 1,500                                                            |  | 7.00                 |  | 12/05/10
|                    |  | 15,587                                                         |  | 7,793                                                            |  | 5.00                 |  | 04/20/16
|                    |  | 10,667                                                         |  | 21,333                                                           |  | 5.47                 |  | 06/18/17
|                    |  | 3,000                                                          |  |                                                                 |  | 1.09                 |  | 05/06/18
|                    |  | 5,500                                                          |  | 27,500                                                           |  | 1.17                 |  | 06/26/18



36



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##### Table of Contents

##### Index to Financial Statements

Director Compensation

The following table presents summary information for the year ended December 31, 2008 regarding the compensation of the non-employee members of our board of directors. Mr. Jorden was appointed to the board
on August 12, 2008. Mr. Bailey resigned from the board effective December 10, 2008 and Mr. Randall resigned from the board effective February 19, 2009.



|                       |  |                              |     |  |                                        |  |         
|---------------------- |  | ---------------------------- | --- |  | -------------------------------------- |  | --------
|Name                   |  | Fees Earnedor Paidin Cash($) |     |  | RestrictedStock andOptionsAwards($)(1) |  | Total($)
|Gregory H. Bailey(2)   |  |                             | (3) |  | 72,966                                 |  | 72,966  
|David Hung(4)          |  |                             | (5) |  | 93,077                                 |  | 93,077  
|David E. Jorden(6)     |  |                             | (7) |  | 10,877                                 |  | 10,877  
|David B. McWilliams(8) |  |                             |     |  | 7,367                                  |  | 7,367   
|Lorin J. Randall(9)    |  | 27,000                       |     |  | 22,699                                 |  | 49,699  
|Michael S.Richman(10)  |  |                             | (7) |  | 70,486                                 |  | 70,486  
|Scott B. Seaman(11)    |  |                             | (7) |  | 69,630                                 |  | 69,630  



|(1) | Reflects the dollar amount recognized for financial statement reporting purposes for the year ended December 31, 2008 in accordance with FAS 123R (but disregarding forfeiture
estimates related to service-based vesting conditions) and, accordingly, includes amounts from options granted prior to 2006. See the information appearing under the heading entitled Stock Options and Warrants in footnote number 11 to
our consolidated financial statements included as part of our Annual report on Form 10-KSB for the year ended December 31, 2006 for certain assumptions made in the valuation of options granted in the years ended December 31, 2006, 2005,
and 2004.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | 50,000 option awards outstanding at fiscal year end.
|--- | ----------------------------------------------------

|(3) | In exchange for board compensation fees due, 31,000 shares of restricted common stock were issued on May 5, 2008; of which 13,300 shares of common stock vested on the date of
grant and the balance of 17,700 restricted shares were to vest on December 31, 2008, however since Dr. Bailey resigned from the board on December 10, 2008, the 17,700 shares were forfeited.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | 55,000 option awards outstanding at fiscal year end.
|--- | ----------------------------------------------------

|(5) | In exchange for board compensation fees due, 31,900 shares of restricted common stock were issued on May 5, 2008; of which 12,400 shares of common stock vested on the date of
grant and the balance of 19,500 restricted shares vested on December 31, 2008.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(6) | 20,000 shares of common stock underlying options outstanding at fiscal year end.
|--- | --------------------------------------------------------------------------------

|(7) | Mr. Jorden, Mr. Richman and Mr. Seaman elected to exchange board compensation fees due as of December 31, 2008 for stock options on February 6, 2009. Stock
options equal to one share of common stock for each dollar due, fully vested and exercisable for a term of ten years were granted to Mr. Jorden, Mr. Richman and Mr. Seaman at an exercise price of $ $0.47 per share.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(8) | 10,000 shares of common stock underlying options outstanding at fiscal year end.
|--- | --------------------------------------------------------------------------------

|(9) | 30,000 shares of common stock underlying options outstanding at fiscal year end.
|--- | --------------------------------------------------------------------------------

|(10) | 66,400 shares of common stock underlying options outstanding at fiscal year end.
|---- | --------------------------------------------------------------------------------

|(11) | 66,900 shares of common stock underlying options outstanding at fiscal year end.
|---- | --------------------------------------------------------------------------------

No options were exercised during the fiscal year ended December 31, 2008.



37



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##### Index to Financial Statements

The following table presents the fair value of each grant of stock options in 2008 to non-employee
members of our board of directors, computed in accordance with FAS 123R:



|                    |  |            |  |                                      |  |                              |      |                                |   |       
|------------------- |  | ---------- |  | ------------------------------------ |  | ---------------------------- | ---- | ------------------------------ | - | ------
|Name                |  | Grant Date |  | Number ofSecuritiesUnderlyingOptions |  | ExercisePrice ofOptionAwards |      | Grant DateFair Valueof Options
|Gregory H. Bailey   |  | 06/26/08   |  | 10,000                               |  | $                            | 1.17 |                                | $ | 9,823 
|David Hung          |  | 06/26/08   |  | 10,000                               |  | $                            | 1.17 |                                | $ | 9,823 
|David E. Jorden     |  | 08/19/08   |  | 20,000                               |  | $                            | 1.55 |                                | $ | 26,105
|David B. McWilliams |  | 06/26/08   |  | 10,000                               |  | $                            | 1.17 |                                | $ | 9,823 
|Lorin J. Randall    |  | 06/26/08   |  | 10,000                               |  | $                            | 1.17 |                                | $ | 9,823 
|Michael S. Richman  |  | 05/06/08   |  | 11,400                               |  | $                            | 1.09 |                                | $ | 10,417
|                    |  | 06/26/08   |  | 10,000                               |  | $                            | 1.17 |                                | $ | 9,823 
|Scott B. Seaman     |  | 05/06/08   |  | 11,900                               |  | $                            | 1.09 |                                | $ | 10,873
|                    |  | 06/26/08   |  | 10,000                               |  | $                            | 1.17 |                                | $ | 9,823 

Compensation of Directors

Mr. Warma who is a director and an officer does not receive any compensation for his services as a member of our board of directors. We reimburse our
directors for travel and lodging expenses in connection with their attendance at board and committee meetings. In summary, Board members receive the following fees:



|                                                                        |  |   |       
|----------------------------------------------------------------------- |  | - | ------
|Annual retainer                                                         |  | $ | 12,000
|For each Board meeting attended in person                               |  | $ | 1,500 
|For each Board meeting attended that is held over the telephone         |  | $ | 750   
|For each non-chair committee member for each committee meeting attended |  | $ | 750   
|For each committee meeting attended by the chair of that committee      |  | $ | 1,000 

In addition, on June 26, 2008 Dr. Hung, Mr. McWilliams, Mr. Randall,
Mr. Richman and Mr. Seaman were each granted a ten year option to purchase 10,000 shares of our common stock an exercise price of $1.17 of which 5,000 shares vest immediately and 5,000 shares will vest on the first anniversary of the
date of grant. On August 19, 2008, Mr. Jorden was granted an initial ten year option to purchase 20,000 shares of our common stock at an exercise price of $1.55.

In January 2009, the board elected to suspend cash payments for board compensation for the first six months of 2009.



|ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
|-------- | -----------------------------------------------------------------------------------------------

The following table sets forth, as of March 13, 2009, the number and percentage of outstanding shares of our common stock owned by: (a) each
person who is known by us to be the beneficial owner of more than 5% of our outstanding shares of common stock; (b) each of our directors; (c) the named executive officers as defined in Item 402 of Regulation S-K; and (d) all
current directors and executive officers, as a group. As of March 23, 2009, there were 12,245,858 shares of common stock issued and outstanding.

Beneficial ownership has been determined in accordance with Rule 13d-3 under the Exchange Act. Under this rule, certain shares may be deemed to be beneficially owned by more than one person (if, for example, persons
share the power to vote or the power to dispose of the shares). In addition, shares are deemed to be beneficially owned by a person if the person has the right to acquire shares (for example, upon exercise of an option or warrant) within 60 days of
the date as of which the information is provided. In computing the percentage ownership of any person, the amount of shares is deemed to include the amount of shares beneficially



38



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##### Index to Financial Statements

owned by such person by reason of such acquisition rights. As a result, the percentage of outstanding shares of any person as shown in the following table
does not necessarily reflect the persons actual voting power at any particular date.

To our knowledge, except as indicated in the
footnotes to this table and pursuant to applicable community property laws, the persons named in the table have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them.



|                                                              |  |                       |      |  |                    |  
|------------------------------------------------------------- |  | --------------------- | ---- |  | ------------------ | -
|Name and Address of Beneficial Owner(1)                       |  | Number of SharesOwned |      |  | Percentage ofClass |  
|Beneficial Owners of more than 5%:                            |  |                       |      |  |                    |  
|Albert and Margaret Alkek Foundation(2)                       |  | 1,260,219             | (3)  |  | 9.999              | %
|LBI Group Inc.(4)                                             |  | 1,285,433             | (5)  |  | 9.999              | %
|Charles E. Sheedy(6)                                          |  | 1,058,108             | (7)  |  | 8.30               | %
|SF Capital Partners Ltd.(8)                                   |  | 851,514               | (9)  |  | 6.68               | %
|Alkek & Williams Ventures Ltd.(10)                            |  | 812,630               | (11) |  | 6.43               | %
|                                                              |  |                      
|Officers and Directors:                                       |  |                       |      |  |                    |  
|David E. Jorden                                               |  | 1,003,547             | (12) |  | 7.91               | %
|Scott B. Seaman(10)                                           |  | 984,374               | (13) |  | 7.71               | %
|David B. McWilliams                                           |  | 269,094               | (14) |  | 2.15               | %
|David Hung                                                    |  | 112,110               | (15) |  | *                  |  
|Neil K. Warma                                                 |  | 106,043               | (16) |  | *                  |  
|Michael S. Richman                                            |  | 90,650                | (17) |  | *                  |  
|Donna R. Rill                                                 |  | 76,009                | (18) |  | *                  |  
|                                                              |  |                       |      |  |                    |  
|All directors and executive officers as a group (7 persons)** |  | 2,641,827             | (19) |  | 19.61              | %
|                                                              |  |                       |      |  |                    |  



|* | Indicates less than 1%
|- | ----------------------

|(1) | Unless otherwise indicated, the mailing address of the beneficial owner is c/o Opexa Therapeutics, Inc., 2635 North Crescent Ridge Drive, The Woodlands, Texas 77381.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | This information is based on the Schedule 13D/A filed with the SEC on March 13, 2008, by Albert and Margaret Alkek Foundation (the Foundation), Alkek &
Williams Ventures, Ltd. (Ventures), Scott Seaman, DLD Family Investments, LLC, and the other reporting persons named therein the (Foundation 13D) and other information available to the company. The Foundation acts through an
investment committee of its board of directors, which includes Mr. Daniel Arnold, Mr. Joe Bailey, Mr. Scott Seaman and Ms. Randa Duncan Williams. Mr. Seaman is the executive director of the Foundation and chairman of the
investment committee. The investment committee has sole voting and investment power over all of the shares of common stock beneficially owned by the Foundation. However, pursuant to the Foundation 13D, neither the executive director nor
any member of the investment committee may act individually to vote or sell shares of common stock held by the Foundation; therefore, the Foundation has concluded that no individual committee member is deemed to beneficially
own, within the meaning of Rule 13d-3 of the Exchange Act, any shares of common stock held by the Foundation solely by virtue of the fact that he or she is a member of the investment committee. Additionally, pursuant to the Foundation 13D, the
Foundation has concluded that because Mr. Seaman, in his capacity as executive director or chairman of the investment committee, cannot act in such capacity to vote or sell shares of common stock held by the Foundation without the approval of
the investment committee, he is not deemed to beneficially own, within the meaning of Rule 13d-3 of the Exchange Act, any shares of common stock held by the Foundation by virtue of his position as executive director or chairman of the investment
committee. The mailing address of the beneficial owner is 1100 Louisiana, Suite 5250, Houston, Texas 77002.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Consisting of: (i) 22,222 shares of common stock underlying Series C Warrants exercisable at $30.00 per share, (ii) 85,379 shares of common stock
underlying an April 2006 Warrant, and (iii) 250,000 shares of common stock underlying Series E Warrants. Excludes 164,621 shares of common stock underlying an
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



39



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##### Index to Financial Statements

| | April 2006 Warrant and 135,951 shares of Company common stock underlying a Series F Warrant because the Foundation is contractually prohibited from
exercising either of these warrants to the extent that it would beneficially own in excess of 9.999% of the total number of issued and outstanding shares of common stock after such exercise. Pursuant to the Foundation 13D, the Foundation and
other reporting persons named therein may be deemed to constitute a group for purposes of Section 13(d) or Section 13(g) of the Exchange Act. However, the Foundation, Ventures, Chaswil, Ltd., and Mr. Seaman expressly disclaim
(i) that, for purposes of Section 13(d) or Section 13(g) of the Exchange Act, they are a member of a group with respect to securities of the Company held by DLD Family Investments, LLC, Mr. Arnold, Mr. Bailey or
Ms. Williams and (ii) that they have agreed to act together with DLD Family Investments, LLC, Mr. Arnold, Mr. Bailey or Ms. Williams as a group other than as described in the Foundation 13D. Therefore, this does not include
the following securities: (i) 333,333 shares of common stock held by DLD Family Investments, LLC; (ii) 17,778 shares of common stock underlying Series C warrants exercisable at $30.00 per share held by DLD Family Investments, LLC;
(iii) 110,000 shares of common stock underlying a Warrant held by DLD Family Investments, LLC; (iv) 100,000 shares of common stock underlying Series E warrants held by DLD Family Investments, LLC; (v) 59,121 shares of common stock
underlying Series F warrants; (vi) 26,667 shares of common stock held by Mr. Arnold; (vii) 8,889 shares of common stock underlying Series C warrants exercisable at $30.00 per share held by Mr. Arnold; (viii) 10,000 shares of
common stock underlying a Warrant held by Mr. Arnold; (ix) 10,000 shares of common stock held by Mr. Bailey; (x) 5,000 shares of common stock underlying a Warrant held by Mr. Bailey; (xi) 416,537 shares of common stock
held by Ventures; (xii) 18,223 shares of common stock underlying Series C warrants exercisable at $30.00 per share held by Ventures; (xiii) 125,000 shares of common stock underlying a Warrant held by Ventures; (xiv) 200,000 shares of
common stock underlying Series E warrants held by Ventures; (xv) 52,870 shares of common stock underlying Series F warrants held by Ventures; (xvi) 43,655 shares of common stock held by Mr. Seaman; (xvii) 5,334 shares of common
stock underlying Series C warrants exercisable at $30.00 per share held by Mr. Seaman; (xviii) 7,500 shares of common stock underlying a Warrant held by Mr. Seaman; (xix) 10,000 shares of common stock underlying Series E warrants
held by Mr. Seaman and (xx) 15,105 shares of common stock underlying Series F warrants held by Mr. Seaman. The information in this footnote is primarily based on the Foundation 13D and other information provided to us.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) | Lehman Brothers Holdings Inc. exercises sole voting and dispositive power over all of the shares of common stock beneficially owned by LBI Group Inc. The information in this
footnote is primarily based on information reported on the Schedule 13G filed with the SEC on August 19, 2008 by LBI Group Inc. The mailing address of the beneficial owner is 399 Park Avenue, New York, NY 10022.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) | Consisting of 609,758 shares of common stock underlying Series F Warrants. Excludes 65,917 shares of Company common stock underlying Series F warrants that LBI Group Inc. is
contractually prohibited from exercising to the extent that it would beneficially own in excess of 9.999% of the total number of issued and outstanding shares of common stock after such exercise.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(6) | Charles E. Sheedy exercises sole voting and dispositive power over all of the shares of common stock beneficially owned. The information in this footnote is primarily based on
information reported on the Schedule 13G filed with the SEC on August 22, 2008 by Charles E. Sheedy. The mailing address of the beneficial owner is 909 Fannin Street, Suite 2907, Houston, Texas 77010.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(7) | Consisting of: (i) 50,000 shares of common stock underlying a Warrant; (ii) 150,000 shares of common stock underlying Series E warrants; and (iii) 304,054 shares of
common stock underling Series F warrants.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(8) | Michael A. Roth and Brian J. Stark exercise joint voting and dispositive power over all of the shares of common stock beneficially owned by SF Capital Partners Ltd., but Messrs Roth
and Stark disclaim beneficial ownership of such shares. The information in this footnote is primarily based on a Schedule 13G reported with the SEC on February 17, 2009 and other information provided to us. The mailing address of SF
Capital Partners Ltd. is c/o Stark Offshore Management, LLC, 3600 South Lake Drive, St. Francis, WI 53235.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(9) | Consisting of 500,000 shares of common stock issuable upon the exercise of a Warrant dated April 11, 2006 held by SF Capital Partners Ltd.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------



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##### Index to Financial Statements

|(10) | Chaswil, Ltd. is the investment manager of Ventures and holds voting power and investment power with respect to Company securities held by Ventures pursuant to a written agreement.
Scott B. Seaman is a principal of Chaswil, Ltd. and has shared voting power and shared investment power over all of the shares of common stock beneficially owned by Ventures. The information in this footnote is primarily based on the Foundation 13D
and other information provided to us. The mailing address of the beneficial owner is 1100 Louisiana, Suite 5250, Houston, Texas 77002.
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(11) | Consisting of: (i) 18,223 shares of common stock underlying Series C warrants exercisable at $30.00 per share; (ii) 125,000 shares of common stock underlying a Warrant,
(iii) 200,000 shares of common stock underlying Series E warrants and (iv) 52,870 shares of common stock underlying Series F warrants.
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(12) | Consisting of: (i) 60,000 shares of shares of common stock underlying warrants; (ii) 102,500 shares of common stock underlying Series E warrants; (iii) 270,000 shares
of common stock underlying Series F warrants; and (iv) 13,547 shares of common stock underlying stock options.
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(13) | Consisting of: (i) 90,150 shares underlying stock options;; (ii) 18,223 shares of common stock underlying Series C warrants exercisable at $30.00 per share held by
Ventures; (iii) 125,000 shares of common stock underlying the Warrants held by Ventures; (iv) 200,000 shares of common stock underlying Series E warrants held by Ventures; (v) 52,870 shares of common stock underlying Series F Warrants
held by Ventures; (vi) 5,334 shares of common stock underlying Series C warrants exercisable at $30.00 per share; (vii) 7,500 shares of common stock underlying the Warrants; (viii) 10,000 shares of common stock underlying Series E
warrants; and (ix) 15,105 shares of common stock underlying Series F warrants. (See footnote 10 for additional discussion of the information set forth in clauses (i) through (v) of the preceding sentence.) Pursuant to the Foundation
13D, this does not include the following shares which Mr. Seaman has determined he does not have beneficial ownership or disclaimed beneficial ownership: (i) 902,618 shares of common stock held by the Foundation; (ii) 22,223 shares of
common stock underlying Series C warrants exercisable at $30.00 per share held by the Foundation; (iii) 250,000 shares of common stock underlying a Warrant held by the Foundation; (iv) 250,000 shares of common stock underlying Series E
warrants held by the Foundation and (v) 250,000 shares of common stock underlying Series F warrants held by the Foundation. (See footnote 3 for additional discussion of the information set forth in clauses (i) through (v) of the
preceding sentence.) The mailing address of the beneficial owner is 1100 Louisiana, Suite 5250, Houston, Texas 77002.
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(14) | Consisting of: (i) 255,700 shares of common stock underlying stock options and (ii) 6,968 shares of common stock underlying Series C warrants exercisable at $30.00 per
share.
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(15) | Consisting of: (i) 15,105 shares of common stock underlying Series F warrants and (ii) 50,000 shares of common stock underlying stock options.
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------

|(16) | Consisting of (i) 3,021 shares of common stock underlying Series F warrants; and (ii) 100,001 shares of common stock underlying stock options.
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------

|(17) | Consisting of 90,650 shares of common stock underlying stock options.
|---- | ---------------------------------------------------------------------

|(18) | Consisting of 73,399 shares of common stock underlying stock options.
|---- | ---------------------------------------------------------------------

|(19) | Consisting of: (a) the following held by Mr. Jorden (i) 60,000 shares of shares of common stock underlying warrants; (ii) 102,500 shares of common stock
underlying Series E warrants; (iii) 270,000 shares of common stock underlying Series F warrants; and (iv) 13,547 shares of common stock underlying stock options; (b) the following held by Mr. Seaman or which Mr. Seaman may be
deemed to have voting and investment power: (i) 90,150 shares underlying stock options; (ii) 18,223 shares of common stock underlying Series C warrants exercisable at $30.00 per share held by Ventures; (iii) 125,000 shares of common
stock underlying the Warrants held by Ventures; (iv) 200,000 shares of common stock underlying Series E warrants held by Ventures; (v) 52,870 shares of common stock underlying Series F Warrants held by Ventures; (vi) 5,334 shares of
common stock underlying Series C warrants exercisable at $30.00 per share; (vii) 7,500 shares of common stock underlying the Warrants; (viii) 10,000 shares of common stock underlying Series E warrants; and (ix) 67,975 shares of common
stock underlying Series F warrants; (c) the following held by Mr. McWilliams (i) 255,700 shares of common stock underlying stock options and (ii) 6,968 shares of our common stock underlying Series C warrants exercisable at $30.00
per share; (d) the following held by Dr. Hung (i) 15,105 shares of common stock underlying Series F warrants and (ii) 50,000
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | shares of common stock underlying stock options held by Dr. Hung; (e) the following held by Mr. Warma
| | -----------------------------------------------------------------------------------------------------



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##### Index to Financial Statements

| | (i) 3,021 shares of common stock underlying Series F warrants and (ii) 100,001 shares of common stock underlying stock options held by
Mr. Warma; (f) 90,650 shares underlying stock options held by Mr. Richman and (g) 76,009 shares of common stock underlying stock options held by Ms. Rill.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
|-------- | --------------------------------------------------------------------------

Certain Relationships and Related Transactions

None

Director Independence



|                    |  |                |  |                 |  |                                             
|------------------- |  | -------------- |  | --------------- |  | --------------------------------------------
|Director            |  | Independent(1) |  | Audit Committee |  | Nominating and CorporateGovernance Committee
|David Hung          |  | X              |  |                 |  | X                                           
|David E. Jorden     |  | X              |  | X               |  | X                                           
|David B. McWilliams |  |                |  |                 |  |                                             
|Michael S. Richman  |  | X              |  | X               |  |                                             
|Scott B. Seaman     |  | X              |  | X               |  | X                                           
|Neil K. Warma       |  |                |  |                 |  |                                             



|(1) | As defined by applicable SEC rule and the listing standards of the Nasdaq Capital Market.
|--- | -----------------------------------------------------------------------------------------



|ITEM 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES.
|-------- | ---------------------------------------

The
following table presents the estimated aggregate fees billed and to be billed by Malone & Bailey, PC for services performed during our last two fiscal years.



|               |  |                         |        |      |   |        
|-------------- |  | ----------------------- | ------ | ---- | - | -------
|               |  | Years EndedDecember 31,
|               |  | 2008                    |        | 2007
|Audit fees(1)  |  | $                       | 67,415 |      | $ | 175,466
|Tax fees       |  |                         | 5,600  |      |   | 3,505  
|All other fees |  |                         | 11,785 |      |   | 15,370 
|               |  |                         |        |      |   |        
|               |  | $                       | 84,800 |      | $ | 194,341
|               |  |                         |        |      |   |        

| | 
| | 

| | (1) | Audit fees include professional services rendered for (i) the audit of our annual financial statements for the fiscal years ended December 31, 2007 and 2008,
(ii) the reviews of the financial statements included in our quarterly reports on Form 10-Q for such years and (iii) the issuance of consents and other matters relating to registration statements filed by us.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Index to Financial Statements

PART IV



|ITEM 15. | EXHIBITS FINANCIAL STATEMENT SCHEDULES.
|-------- | ---------------------------------------



|(a) | 1.      Financial Statements of the Company
|--- | -------------------------------------------

INDEX TO FINANCIAL STATEMENTS



|                                                                                                                                                          |  |    
|--------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---
|Audited Financial Statements for years ended December 31, 2008, 2007 and 2006 and the period from January 22, 2003 (Inception)
through December 31, 2008  |  |    
|                                                                                                                                                          | 
|Report of Independent Registered Public Accounting Firm                                                                                                   |  | F-1
|Balance Sheets as of December 31, 2008 and 2007                                                                                                           |  | F-2
|State of Expenses for the Years Ended December 31, 2008, 2007 and 2006 andthe period from January 
22, 2003 (Inception) through December 31, 2008         |  | F-3
|Statement of Changes in Stockholders Equity from January 22, 2003 (Inception)through December 31, 2008                                                    |  | F-4
|Statements of Cash Flows for the years ended December 31, 2008, 2007 and 2006 and the period from January 
22, 2003 (Inception) through December 31, 2008 |  | F-5
|Notes to Financial Statements                                                                                                                             |  | F-6



| | 2. | Financial Statement Schedules
| | -- | -----------------------------

The required information
is included in the Consolidated Financial Statements or Notes thereto.



| | 3. | List of Exhibits
| | -- | ----------------



|            |  |                                                                                                                                                                                       
|----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|            | 
|Exhibit 2.1 |  | Stock Purchase Agreement effective as of May 5, 2004 (incorporated by reference to Exhibit 2.1 to the Companys Current Report on Form 8-K filed June 4,
2004).                       
|            | 
|Exhibit 2.2 |  | Agreement and Plan of Reorganization (incorporated by reference to Exhibit 2.1 to the Companys Current Report on 8-K filed October 8, 2004).                                         
|            | 
|Exhibit 3.1 |  | Articles of Amendment and Restatement of the Articles of Incorporation (incorporated by reference to Exhibit 3.1 to the Companys Current Report on Form 8-K filed on June 19, 2006). 
|            | 
|Exhibit 3.3 |  | Amended and Restated By-laws (incorporated by reference to Exhibit 2.2 to the Companys Registration Statement on Form 10-SB (File No. 000-25513), initially filed March 8,
1999).    
|            | 
|Exhibit 4.1 |  | Form of Common Stock Certificate (incorporated by reference to Exhibit 2.3 to the Companys Registration Statement on Form 10-SB (File No. 000-25513), initially filed March 8, 1999).
|            | 
|Exhibit 4.2 |  | Form of Series E Warrant (incorporated by reference to Exhibit 4.3 to the Companys Current Report on Form 8-K filed December 20, 2007).                                              
|            | 
|Exhibit 4.3 |  | Warrant Agent Agreement for Series E Warrant (incorporated by reference to Exhibit 4.3 to the Companys Current Report on Form 8-K filed February 14, 2008).                          
|            | 
|Exhibit 4.4 |  | Form of Underwriters Warrant Agreement (incorporated by reference to Exhibit 4.4 to the Companys Current Report on Form 8-K filed February 14, 2008).                               
|            | 
|Exhibit 4.5 |  | Form of Underwriters Warrant to Acquire Warrants Agreement (incorporated by reference to Exhibit 4.5 to the Companys Current Report on Form 8-K filed February 14,
2008).           



43



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##### Index to Financial Statements

|              |  |                                                                                                                                                                                                                            
|------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|              | 
|Exhibit 10.1  |  | June 2004 Compensatory Stock Option Plan (incorporated by reference to Exhibit B to the Companys Definitive Information Statement filed on June 29, 2004).                                                                
|              | 
|Exhibit 10.2  |  | Amended and Restated Employment Agreement dated June 15, 2006, between the Company and David McWilliams (incorporated by reference to Exhibit 10.1 to the Companys Quarterly Report on Form
10-QSB filed August 14, 2006).
|              | 
|Exhibit 10.3  |  | Amendment to Employment Agreement dated May 9, 2008, between the Company and David McWilliams (incorporated by reference to Exhibit 10.1 to the Companys Quarterly Report on Form 10-Q
filed May 13, 2008).               
|              | 
|Exhibit 10.4  |  | Employment Agreement dated May 9, 2008, between the Company and Lynne Hohlfeld (incorporated by reference to Exhibit 10.2 to the Companys Quarterly Report on Form 10-Q filed May 13, 2008).                              
|              | 
|Exhibit 10.5  |  | Employment Agreement dated May 9, 2008, between the Company and Jim C. Williams, Ph.D (incorporated by reference to Exhibit 10.3 to the Companys Quarterly Report on Form 10-Q filed May 13,
2008).                       
|              | 
|Exhibit 10.6  |  | Employment Agreement dated May 9, 2008, between the Company and Donna R. Rill (incorporated by reference to Exhibit 10.4 to the Companys Quarterly Report on Form 10-Q filed May 13, 2008).                               
|              | 
|Exhibit 10.7  |  | Employment Agreement dated June 16, 2008, between the Company and Neil K. Warma (incorporated by reference to Exhibit 10.1 to the Companys Current Report on Form 8-K filed on June 18,
2008).                            
|              | 
|Exhibit 10.12 |  | Form of Warrant Agreement (incorporated by reference to Exhibit 10.13 to the Companys Annual Report on Form 10-KSB filed April 15, 2005).                                                                                 
|              | 
|Exhibit 10.13 |  | License Agreement dated September 5, 2001 between the Company and Baylor College of Medicine (incorporated by reference to Exhibit 10.14 to the Companys Annual Report on Form 10-KSB filed
April 15, 2005).              
|              | 
|Exhibit 10.14 |  | Second Amended and Restated License Agreement with University of Chicago (incorporated by reference to Exhibit 10.1 to the Companys Current Report on Form 8-K filed August 3, 2007).                                     
|              | 
|Exhibit 10.17 |  | Form of Series C Common Stock Purchase Warrant (incorporated by reference to Exhibit 10.17 to Form SB-2 filed July 19, 2005).                                                                                              
|              | 
|Exhibit 10.18 |  | Securities Purchase Agreement dated June 17, 2005 by and among the Company and the Investors named therein (incorporated by reference to Exhibit 10.18 to Form SB-2 filed July 19, 2005).                                  
|              | 
|Exhibit 10.19 |  | Registration Rights Agreement dated June 17, 2005 by and among the purchasers of common stock named therein (incorporated by reference to Exhibit 10.19 to Form SB-2 filed July 19,
2005).                                 
|              | 
|Exhibit 10.20 |  | Securities Purchase Agreement dated June 30, 2005 by and among the Company and the purchasers of common stock named therein (incorporated by reference to Exhibit 10.20 to Form SB-2 filed July
19, 2005).                 
|              | 
|Exhibit 10.21 |  | Securities Purchase Agreement dated July 15, 2005 by and among the Company and the Investors named therein (incorporated by reference to Exhibit 10.21 to Form SB-2 filed July 19,
2005).                                  
|              | 
|Exhibit 10.22 |  | Registration Rights Agreement dated July 15, 2005 by and among the Company and the Investors named therein (incorporated by reference to Exhibit 10.22 to Form SB-2 filed July 19,
2005).                                  



44



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##### Table of Contents

##### Index to Financial Statements

|              |  |                                                                                                                                                                                                                           
|------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|              | 
|Exhibit 10.23 |  | License Agreement dated January 13, 2006 by the Company and Shanghai Institute for Biological Services (incorporated by reference to Exhibit 10.23 to Amendment No. 1 to Form SB-2 filed
February 9, 2006).               
|              | 
|Exhibit 10.24 |  | Lease dated August 19, 2005 by the Company and Dirk D. Laukien (incorporated by reference to Exhibit 10.13 to the Companys Annual Report on Form 10-KSB filed March 31,
2006).                                           
|              | 
|Exhibit 10.25 |  | Form of Warrant Agreement issued to brokers in connection with 2005 offerings (incorporated by reference to Exhibit 10.25 to Amendment No. 2 to Form SB-2 filed April 11, 2006).                                          
|              | 
|Exhibit 10.26 |  | Purchase Agreement dated April 11, 2006 by and among the Company and the Investors named herein (incorporated by reference to Exhibit 10.1 to the Companys Current Report on Form 8-K
filed April 18, 2006).             
|              | 
|Exhibit 10.28 |  | Form of Warrant issued in connection with April 2006 financing (incorporated by reference to Exhibit 10.3 to the Companys Current Report on Form 8-K filed April 18,
2006).                                              
|              | 
|Exhibit 10.29 |  | Form of Broker Stock Purchase Warrant issued to MDB Capital Group LLC (incorporated by reference to Exhibit 10.5 of the Companys Current Report on Form 8-K filed April 18,
2006).                                       
|              | 
|Exhibit 10.30 |  | Second Amended and Restated License Agreement dated July 31, 2007 between the Company and the University of Chicago (incorporated by reference to Exhibit 10.1 of the Companys Report on
Form 8-K filed August 3,, 2007).
|              | 
|Exhibit 10.31 |  | Unit Purchase Agreement dated August 8, 2008 (incorporated by reference to Exhibit 10.1 to the Companys Current Report on Form 8-K filed August 12, 2008).                                                               
|              | 
|Exhibit 10.32 |  | Registration Rights Agreement dated August 8, 2008 (incorporated by reference to Exhibit 10.2 to the Companys Current Report on Form 8-K filed August 12, 2008).                                                         
|              | 
|Exhibit 10.33 |  | Form of Warrant issued in connection with August 8, 2008 financing (incorporated by reference to Exhibit 10.3 to the Companys Current Report on Form 8-K filed August 12,
2008).                                         
|              | 
|Exhibit 31.1* |  | Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                           
|              | 
|Exhibit 32.1* |  | Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                           



|* | Filed herewith
|- | --------------



45



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##### Index to Financial Statements

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

SIGNATURES



OPEXA THERAPEUTICS, INC.By:

/s/ NEIL K. WARMANeil K. Warma President and Chief Executive Officer (Principal Executive Officer) Acting Chief Financial
Officer (Principal Financial and Accounting Officer)  Date: April 14, 2009


Pursuant to the requirements of the Securities Act of 1934, this report has been signed
below by the following persons on behalf of the Registrant and in the capacity and on the dates indicated.



|                                               |  |                                                                                                                                                 |  |               
|---------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------
|Signature                                      |  | Title                                                                                                                                           |  | Date          
|                                               |  |                                                                                                                                                
|/S/    NEIL K. WARMA Neil K. Warma             |  | President and Chief Executive Officer (Principal Executive Officer) Acting Chief Financial Officer (Principal Financial and Accounting Officer) |  | April 14, 2009
|                                               |  |                                                                                                                                                
|/S/    DAVID HUNG David Hung                   |  | Director                                                                                                                                        |  | April 14, 2009
|                                               |  |                                                                                                                                                
|/S/    DAVID E. JORDEN
David Jorden            |  | Director                                                                                                                                        |  | April 14, 2009
|                                               |  |                                                                                                                                                
|/S/    DAVID B.
MCWILLIAMS David B. McWilliams |  | Director                                                                                                                                        |  | April 14, 2009
|                                               |  |                                                                                                                                                
|/S/    MICHAEL S.
RICHMAN Michael Richman      |  | Director                                                                                                                                        |  | April 14, 2009
|                                               |  |                                                                                                                                                
|/S/    SCOTT B. SEAMAN
Scott B. Seaman         |  | Director                                                                                                                                        |  | April 14, 2009



46



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##### Index to Financial Statements

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors

Opexa Therapeutics, Inc.

(a development stage company)

The Woodlands, Texas

We have audited the accompanying balance sheets of Opexa Therapeutics, Inc. (a development stage company), as of December 31, 2008 and 2007 and the
related statements of expenses, changes in stockholders equity and cash flows for the years ended December 31, 2008, 2007 and 2006 and the period from January 22, 2003 (Inception) through December 31, 2008. These financial
statements are the responsibility of Opexas management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about
whether the consolidated financial statements are free of material misstatements. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over
financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Opexa as of
December 31, 2008 and 2007 and the results of its operations and its cash flows for the years ended December 31, 2008, 2007 and 2006 in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 2 to the financial statements, the accompanying financial statements have been prepared assuming that Opexa will continue as a
going concern. Opexa requires significant amount of cash in its operations and does not have sufficient cash to fund its operations for the next twelve months, which raises substantial doubt about its ability to continue as a going concern.
Managements plans regarding those matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ MALONE & BAILEY, PC

www.malone-bailey.com

Houston, Texas

April 14, 2009



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##### Table of Contents

##### Index to Financial Statements

OPEXA THERAPEUTICS, INC.

(a development stage company)

BALANCE SHEETS



|                                                                                                                     |  |                  |             |   |                  |   |             |  
|-------------------------------------------------------------------------------------------------------------------- |  | ---------------- | ----------- | - | ---------------- | - | ----------- | -
|                                                                                                                     |  | December 31,2008 |             |   | December 31,2007 |  
|Assets                                                                                                               |  |                  |             |   |                  |   |             |  
|Current assets:                                                                                                      |  |                  |             |   |                  |   |             |  
|Cash and cash equivalents                                                                                            |  | $                | 1,243,187   |   |                  | $ | 2,645,482   |  
|Other current assets                                                                                                 |  |                  | 86,705      |   |                  |   | 355,266     |  
|                                                                                                                     |  |                  |             |   |                  |   |             |  
|Total current assets                                                                                                 |  |                  | 1,329,892   |   |                  |   | 3,000,748   |  
|Property & equipment, net accumulated depreciation of $847,244 and $614,079, respectively                            |  |                  | 1,166,530   |   |                  |   | 1,370,647   |  
|                                                                                                                     |  |                  |             |   |                  |   |             |  
|Total assets                                                                                                         |  | $                | 2,496,422   |   |                  | $ | 4,371,395   |  
|                                                                                                                     |  |                  |             |   |                  |   |             |  
|Liabilities and Stockholders Equity                                                                                 |  |                  |             |   |                  |   |             |  
|Current liabilities:                                                                                                 |  |                  |             |   |                  |   |             |  
|Accounts payable                                                                                                     |  | $                | 482,838     |   |                  | $ | 938,442     |  
|Accounts payablerelated parties                                                                                     |  |                  | 161,714     |   |                  |   | 54,091      |  
|Accrued expenses                                                                                                     |  |                  | 199,272     |   |                  |   | 1,022,461   |  
|Current maturity of loan payable                                                                                     |  |                  | 62,423      |   |                  |   | 60,360      |  
|                                                                                                                     |  |                  |             |   |                  |   |             |  
|Total current liabilities                                                                                            |  |                  | 906,247     |   |                  |   | 2,075,354   |  
|Long term liabilities:                                                                                               |  |                  |             |   |                  |   |             |  
|Loan payable                                                                                                         |  |                  | 102,778     |   |                  |   | 162,456     |  
|                                                                                                                     |  |                  |             |   |                  |   |             |  
|Total liabilities                                                                                                    |  |                  | 1,009,025   |   |                  |   | 2,237,810   |  
|                                                                                                                     |  |                  |             |   |                  |   |             |  
|Commitments and contingencies                                                                                        |  |                  |            |   |                  |   |            |  
|Stockholders equity:                                                                                                |  |                  |             |   |                  |   |             |  
|Convertible preferred stock, no par value, 10,000,000 shares authorized, none issued and outstanding                 |  |                  |            |   |                  |   |            |  
|Common stock, $0.50 par value, 100,000,000 shares authorized, 12,245,858 and 6,696,784 shares issued and outstanding |  |                  | 6,122,888   |   |                  |   | 3,348,351   |  
|Additional paid in capital                                                                                           |  |                  | 84,929,481  |   |                  |   | 76,498,054  |  
|Deficit accumulated during the development stage                                                                     |  |                  | (89,564,972 | ) |                  |   | (77,712,820 | )
|                                                                                                                     |  |                  |             |   |                  |   |             |  
|Total stockholders equity                                                                                           |  |                  | 1,487,397   |   |                  |   | 2,133,585   |  
|                                                                                                                     |  |                  |             |   |                  |   |             |  
|Total liabilities and stockholders equity                                                                           |  | $                | 2,496,422   |   |                  | $ | 4,371,395   |  
|                                                                                                                     |  |                  |             |   |                  |   |             |  

See accompanying summary of accounting policies and notes to financial statements



F-2



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##### Table of Contents

##### Index to Financial Statements

OPEXA THERAPEUTICS, INC.

(a development stage company)

STATEMENTS OF EXPENSES

Years ended December 31, 2008, 2007 and 2006 and the

Period from January 22, 2003 (Inception) to December 31, 2008



|                                    |  |      |             |   |      |   |             |      |  |   |                      |   |  |   |             |  
|----------------------------------- |  | ---- | ----------- | - | ---- | - | ----------- | ---- |  | - | -------------------- | - |  | - | ----------- | -
|                                    |  | 2008 |             |   | 2007 |   |             | 2006 |  |   | Inceptionthrough2008 |  
|Research and development            |  | $    | 8,388,734   |   |      | $ | 13,071,856  |      |  | $ | 7,850,373            |   |  | $ | 62,146,271  |  
|General and administrative          |  |      | 3,341,415   |   |      |   | 3,418,306   |      |  |   | 5,461,047            |   |  |   | 20,966,190  |  
|Depreciation                        |  |      | 234,325     |   |      |   | 232,955     |      |  |   | 174,117              |   |  |   | 752,535     |  
|Loss on disposal of assets          |  |      | 2,831       |   |      |   | 13,192      |      |  |   | 2,376                |   |  |   | 498,332     |  
|                                    |  |      |             |   |      |   |             |      |  |   |                      |   |  |   |             |  
|Operating loss                      |  |      | (11,967,305 | ) |      |   | (16,736,309 | )    |  |   | (13,487,913          | ) |  |   | (84,363,328 | )
|Interest income                     |  |      | 100,235     |   |      |   | 477,605     |      |  |   | 688,299              |   |  |   | 1,354,061   |  
|Other income and expense, net       |  |      | 34,901      |   |      |   | (5,000      | )    |  |   | 46,450               |   |  |   | 106,904     |  
|Gain on derivative liability        |  |      |            |   |      |   |            |      |  |   | 104,978              |   |  |   |            |  
|Gain on extinguishment of debt      |  |      |            |   |      |   | 1,612,440   |      |  |   |                     |   |  |   | 1,612,440   |  
|Interest expense                    |  |      | (19,983     | ) |      |   | (16,103     | )    |  |   | (984                 | ) |  |   | (8,275,049  | )
|                                    |  |      |             |   |      |   |             |      |  |   |                      |   |  |   |             |  
|Net loss                            |  | $    | (11,852,152 | ) |      | $ | (14,667,367 | )    |  | $ | (12,649,170          | ) |  | $ | (89,564,972 | )
|                                    |  |      |             |   |      |   |             |      |  |   |                      |   |  |   |             |  
|Basic and diluted loss per share    |  | $    | (1.12       | ) |      | $ | (2.19       | )    |  | $ | (2.35                | ) |  |   | N/A         |  
|Weighted average shares outstanding |  |      | 10,551,321  |   |      |   | 6,696,784   |      |  |   | 5,390,910            |   |  |   | N/A         |  





See accompanying summary of accounting policies and notes to financial statements



F-3



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##### Table of Contents

##### Index to Financial Statements

OPEXA THERAPEUTICS, INC.

(a development stage company)

STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY

Period from January 22, 2003 (Inception) through December 31,
2008



|                                                                        |  |              |   |  |                          |           |   |                    |   |             |       |  |   |             |   |  |   |             |  
|----------------------------------------------------------------------- |  | ------------ | - |  | ------------------------ | --------- | - | ------------------ | - | ----------- | ----- |  | - | ----------- | - |  | - | ----------- | -
|                                                                        |  | Common Stock |   |  | AdditionalPaid inCapital |           |   | AccumulatedDeficit |   |             | Total | 
|                                                                        |  | Shares       |   |  | Par                      |           |   |                    |  
|Shares issued for cash                                                  |  | 525,000      |   |  | $                        | 262,500   |   |                    | $ | (261,500    | )     |  | $ |            |   |  | $ | 1,000       |  
|Shares repurchased and cancelled                                        |  | (170,625     | ) |  |                          | (85,313   | ) |                    |   | 84,988      |       |  |   |            |   |  |   | (325        | )
|Discount related to:                                                    |  |              |   |  |                          |           |   |                    |   |             |       |  |   |             |   |  |   |             |  
|beneficial conversion feature                                           |  |             |   |  |                          |          |   |                    |   | 28,180      |       |  |   |            |   |  |   | 28,180      |  
|warrants attached to debt                                               |  |             |   |  |                          |          |   |                    |   | 28,180      |       |  |   |            |   |  |   | 28,180      |  
|Net loss                                                                |  |             |   |  |                          |          |   |                    |   |            |       |  |   | (126,003    | ) |  |   | (126,003    | )
|                                                                        |  |              |   |  |                          |           |   |                    |   |             |       |  |   |             |   |  |   |             |  
|Balances at December 31, 2003                                           |  | 354,375      |   |  |                          | 177,187   |   |                    |   | (120,152    | )     |  |   | (126,003    | ) |  |   | (68,968     | )
|Shares issued for:                                                      |  |              |   |  |                          |           |   |                    |   |             |       |  |   |             |   |  |   |             |  
|cash                                                                    |  | 2,250        |   |  |                          | 1,125     |   |                    |   | 7,875       |       |  |   |            |   |  |   | 9,000       |  
|services                                                                |  | 206,500      |   |  |                          | 103,250   |   |                    |   | 745,750     |       |  |   |            |   |  |   | 849,000     |  
|license                                                                 |  | 24,269       |   |  |                          | 12,135    |   |                    |   | 414,940     |       |  |   |            |   |  |   | 427,075     |  
|reverse merger with Sportan                                             |  | 99,740       |   |  |                          | 49,870    |   |                    |   | (197,603    | )     |  |   |            |   |  |   | (147,733    | )
|acquisition of Opexa                                                    |  | 250,000      |   |  |                          | 125,000   |   |                    |   | 23,625,000  |       |  |   |            |   |  |   | 23,750,000  |  
|additional shares attached to convertible debt                          |  | 16,100       |   |  |                          | 8,050     |   |                    |   | 280,316     |       |  |   |            |   |  |   | 288,366     |  
|conversion of convertible notes                                         |  | 60,750       |   |  |                          | 30,375    |   |                    |   | 217,995     |       |  |   |            |   |  |   | 248,370     |  
|Shares cancelled                                                        |  | (8,000       | ) |  |                          | (4,000    | ) |                    |   | 4,000       |       |  |   |            |   |  |   |            |  
|Discount related to:                                                    |  |              |   |  |                          |           |   |                    |   |             |       |  |   |             |   |  |   |             |  
|beneficial conversion feature                                           |  |             |   |  |                          |          |   |                    |   | 855,849     |       |  |   |            |   |  |   | 855,849     |  
|warrants attached to debt                                               |  |             |   |  |                          |          |   |                    |   | 1,848,502   |       |  |   |            |   |  |   | 1,848,502   |  
|Option expense                                                          |  |             |   |  |                          |          |   |                    |   | 123,333     |       |  |   |            |   |  |   | 123,333     |  
|Net loss                                                                |  |             |   |  |                          |          |   |                    |   |            |       |  |   | (31,411,736 | ) |  |   | (31,411,736 | )
|                                                                        |  |              |   |  |                          |           |   |                    |   |             |       |  |   |             |   |  |   |             |  
|Balances at December 31, 2004                                           |  | 1,005,984    |   |  |                          | 502,992   |   |                    |   | 27,805,805  |       |  |   | (31,537,739 | ) |  |   | (3,228,942  | )
|Shares issued for:                                                      |  |              |   |  |                          |           |   |                    |   |             |       |  |   |             |   |  |   |             |  
|cash, net of offering costs                                             |  | 389,451      |   |  |                          | 194,725   |   |                    |   | 5,151,492   |       |  |   |            |   |  |   | 5,346,217   |  
|convertible debt                                                        |  | 611,026      |   |  |                          | 305,513   |   |                    |   | 7,343,933   |       |  |   |            |   |  |   | 7,649,446   |  
|debt                                                                    |  | 2,300        |   |  |                          | 1,150     |   |                    |   | 159,850     |       |  |   |            |   |  |   | 161,000     |  
|license                                                                 |  | 29,194       |   |  |                          | 14,597    |   |                    |   | 1,853,787   |       |  |   |            |   |  |   | 1,868,384   |  
|services                                                                |  | 24,000       |   |  |                          | 12,000    |   |                    |   | 1,000,400   |       |  |   |            |   |  |   | 1,012,400   |  
|Discount related to:                                                    |  |              |   |  |                          |           |   |                    |   |             |       |  |   |             |   |  |   |             |  
|beneficial conversion feature                                           |  |             |   |  |                          |          |   |                    |   | 831,944     |       |  |   |            |   |  |   | 831,944     |  
|warrants attached to debt                                               |  |             |   |  |                          |          |   |                    |   | 1,433,108   |       |  |   |            |   |  |   | 1,433,108   |  
|Option expense                                                          |  |             |   |  |                          |          |   |                    |   | 2,487,741   |       |  |   |            |   |  |   | 2,487,741   |  
|Warrant expense                                                         |  |             |   |  |                          |          |   |                    |   | 2,373,888   |       |  |   |            |   |  |   | 2,373,888   |  
|Transition of warrants from equity instruments to liability instruments |  |             |   |  |                          |          |   |                    |   | (10,658,496 | )     |  |   |            |   |  |   | (10,658,496 | )
|Net loss                                                                |  |             |   |  |                          |          |   |                    |   |            |       |  |   | (14,856,724 | ) |  |   | (14,856,724 | )
|                                                                        |  |              |   |  |                          |           |   |                    |   |             |       |  |   |             |   |  |   |             |  
|Balances at December 31, 2005                                           |  | 2,061,955    |   |  |                          | 1,030,977 |   |                    |   | 39,783,452  |       |  |   | (46,394,463 | ) |  |   | (5,580,034  | )
|Shares issued for:                                                      |  |              |   |  |                          |           |   |                    |   |             |       |  |   |             |   |  |   |             |  
|cash, net of offering costs                                             |  | 4,600,000    |   |  |                          | 2,300,000 |   |                    |   | 18,853,519  |       |  |   |            |   |  |   | 21,153,519  |  
|debt                                                                    |  | 34,829       |   |  |                          | 17,374    |   |                    |   | 162,626     |       |  |   |            |   |  |   | 180,000     |  
|Option expense                                                          |  |             |   |  |                          |          |   |                    |   | 2,749,617   |       |  |   |            |   |  |   | 2,749,617   |  
|Warrant expense                                                         |  |             |   |  |                          |          |   |                    |   | 1,568,966   |       |  |   |            |   |  |   | 1,568,966   |  
|Net loss                                                                |  |             |   |  |                          |          |   |                    |   |            |       |  |   | (12,649,170 | ) |  |   | (12,649,170 | )
|                                                                        |  |              |   |  |                          |           |   |                    |   |             |       |  |   |             |   |  |   |             |  
|Balances at December 31, 2006                                           |  | 6,696,784    |   |  |                          | 3,348,351 |   |                    |   | 63,118,180  |       |  |   | (59,043,633 | ) |  |   | 7,422,898   |  
|Cumulative change in derivative liability                               |  |             |   |  |                          |          |   |                    |   | 10,658,496  |       |  |   | (4,001,820  | ) |  |   | 6,656,676   |  
|Option expense                                                          |  |             |   |  |                          |          |   |                    |   | 1,876,103   |       |  |   |            |   |  |   | 1,876,103   |  
|Warrant expense                                                         |  |             |   |  |                          |          |   |                    |   | 845,275     |       |  |   |            |   |  |   | 845,275     |  
|Net loss                                                                |  |             |   |  |                          |          |   |                    |   |            |       |  |   | (14,667,367 | ) |  |   | (14,667,367 | )
|                                                                        |  |              |   |  |                          |           |   |                    |   |             |       |  |   |             |   |  |   |             |  
|Balances at December 31, 2007                                           |  | 6,696,784    |   |  |                          | 3,348,351 |   |                    |   | 76,498,054  |       |  |   | (77,712,820 | ) |  |   | 2,133,585   |  
|Shares issued for:                                                      |  |              |   |  |                          |           |   |                    |   |             |       |  |   |             |   |  |   |             |  
|cash, net of offering costs                                             |  | 5,503,874    |   |  |                          | 2,751,937 |   |                    |   | 5,899,642   |       |  |   |            |   |  |   | 8,651,579   |  
|services                                                                |  | 45,200       |   |  |                          | 22,600    |   |                    |   | 26,365      |       |  |   |            |   |  |   | 48,965      |  
|Issuance of warrants for cash                                           |  |             |   |  |                          |          |   |                    |   | 603,850     |       |  |   |            |   |  |   | 603,850     |  
|Option expense                                                          |  |             |   |  |                          |          |   |                    |   | 1,901,570   |       |  |   |            |   |  |   | 1,901,570   |  
|Net loss                                                                |  |             |   |  |                          |          |   |                    |   |            |       |  |   | (11,852,152 | ) |  |   | (11,852,152 | )
|                                                                        |  |              |   |  |                          |           |   |                    |   |             |       |  |   |             |   |  |   |             |  
|Balances at December 31, 2008                                           |  | 12,245,858   |   |  | $                        | 6,122,888 |   |                    | $ | 84,929,481  |       |  | $ | (89,564,972 | ) |  | $ | 1,487,397   |  
|                                                                        |  |              |   |  |                          |           |   |                    |   |             |       |  |   |             |   |  |   |             |  

See accompanying summary of accounting policies and notes to financial statements



F-4



---

##### Table of Contents

##### Index to Financial Statements

OPEXA THERAPEUTICS, INC.

(a development stage company)

STATEMENTS OF CASH FLOWS

Years ended December 31, 2008, 2007 and 2006 and the

Period from January 22, 2003 (Inception) to December 31, 2008



|                                                                                            |  |      |             |   |      |   |             |      |  |   |                      |   |  |   |             |  
|------------------------------------------------------------------------------------------- |  | ---- | ----------- | - | ---- | - | ----------- | ---- |  | - | -------------------- | - |  | - | ----------- | -
|                                                                                            |  | 2008 |             |   | 2007 |   |             | 2006 |  |   | Inceptionthrough2008 |  
|Cash flows from operating activities                                                        |  |      |             |   |      |   |             |      |  |   |                      |   |  |   |             |  
|Net loss                                                                                    |  | $    | (11,852,152 | ) |      | $ | (14,667,367 | )    |  | $ | (12,649,170          | ) |  | $ | (89,564,972 | )
|Adjustments to reconcile net loss to net cash used in operating activities                  |  |      |             |   |      |   |             |      |  |   |                      |   |  |   |             |  
|Stock payable for acquired research and development                                         |  |      |            |   |      |   |            |      |  |   | 112,440              |   |  |   | 112,440     |  
|Stock issued for acquired research and development                                          |  |      |            |   |      |   |            |      |  |   |                     |   |  |   | 26,286,589  |  
|Stock issued for services                                                                   |  |      | 48,965      |   |      |   |            |      |  |   |                     |   |  |   | 1,910,365   |  
|Stock issued for debt in excess of principal                                                |  |      |            |   |      |   |            |      |  |   |                     |   |  |   | 109,070     |  
|Amortization of discount on notes payable due to warrants and beneficial conversion feature |  |      |            |   |      |   |            |      |  |   |                     |   |  |   | 6,313,205   |  
|Unrealized gain on marketable securities                                                    |  |      |            |   |      |   | 25,912      |      |  |   | (25,912              | ) |  |   |            |  
|(Gain) on derivative liability                                                              |  |      |            |   |      |   |            |      |  |   | (104,978             | ) |  |   |            |  
|(Gain) on extinguishment of debt                                                            |  |      |            |   |      |   | (1,612,440  | )    |  |   |                     |   |  |   | (1,612,440  | )
|Depreciation                                                                                |  |      | 234,325     |   |      |   | 232,955     |      |  |   | 174,117              |   |  |   | 752,535     |  
|Debt financing costs                                                                        |  |      |            |   |      |   |            |      |  |   |                     |   |  |   | 365,910     |  
|Option and warrant expense                                                                  |  |      | 1,901,571   |   |      |   | 2,721,378   |      |  |   | 4, 318,583           |   |  |   | 13,926,494  |  
|Loss on disposition of fixed assets                                                         |  |      | 2,831       |   |      |   | 13,192      |      |  |   | 2,376                |   |  |   | 498,332     |  
|Changes in:                                                                                 |  |      |             |   |      |   |             |      |  |   |                      |   |  |   |             |  
|Accounts payable                                                                            |  |      | (347,980    | ) |      |   | 123,670     |      |  |   | 359,397              |   |  |   | 194,912     |  
|Marketable securities                                                                       |  |      |            |   |      |   | 2,926,184   |      |  |   | (2,926,184           | ) |  |   |            |  
|Prepaid expenses                                                                            |  |      | 268,561     |   |      |   | 117,615     |      |  |   | (340,876             | ) |  |   | (503,378    | )
|Accrued expenses                                                                            |  |      | (823,189    | ) |      |   | 887,392     |      |  |   | (105,240             | ) |  |   | 72,617      |  
|                                                                                            |  |      |             |   |      |   |             |      |  |   |                      |   |  |   |             |  
|Net cash used in operating activities                                                       |  |      | (10,567,069 | ) |      |   | (9,231,509  | )    |  |   | (11,185,447          | ) |  |   | (41,138,321 | )
|                                                                                            |  |      |             |   |      |   |             |      |  |   |                      |   |  |   |             |  
|Cash flows from investing activities                                                        |  |      |             |   |      |   |             |      |  |   |                      |   |  |   |             |  
|Purchase of property & equipment                                                            |  |      | (33,040     | ) |      |   | (255,417    | )    |  |   | (619,147             | ) |  |   | (1,339,511  | )
|                                                                                            |  |      |             |   |      |   |             |      |  |   |                      |   |  |   |             |  
|Net cash used in investing activities                                                       |  |      | (33,040     | ) |      |   | (255,417    | )    |  |   | (619,147             | ) |  |   | (1,339,511  | )
|                                                                                            |  |      |             |   |      |   |             |      |  |   |                      |   |  |   |             |  
|Cash flows from financing activities                                                        |  |      |             |   |      |   |             |      |  |   |                      |   |  |   |             |  
|Common stock and warrants sold for cash, net of offering costs                              |  |      | 9,255,429   |   |      |   |            |      |  |   | 21,153,520           |   |  |   | 35,765,166  |  
|Common stock repurchased and canceled                                                       |  |      |            |   |      |   |            |      |  |   |                     |   |  |   | (325        | )
|Proceeds from debt                                                                          |  |      |            |   |      |   | 137,286     |      |  |   | 110,322              |   |  |   | 8,102,199   |  
|Repayments on notes payable                                                                 |  |      | (57,615     | ) |      |   | (24,792     | )    |  |   |                     |   |  |   | (146,021    | )
|                                                                                            |  |      |             |   |      |   |             |      |  |   |                      |   |  |   |             |  
|Net cash provided by financing activities                                                   |  |      | 9,197,814   |   |      |   | 112,494     |      |  |   | 21,263,842           |   |  |   | 43,721,019  |  
|                                                                                            |  |      |             |   |      |   |             |      |  |   |                      |   |  |   |             |  
|Net change in cash and cash equivalents                                                     |  |      | (1,402,295  | ) |      |   | (9,374,432  | )    |  |   | 9,459,248            |   |  |   | 1,243,187   |  
|Cash and cash equivalents at beginning of period                                            |  |      | 2,645,482   |   |      |   | 12,019,914  |      |  |   | 2,560,666            |   |  |   |            |  
|                                                                                            |  |      |             |   |      |   |             |      |  |   |                      |   |  |   |             |  
|Cash and cash equivalents at end of period                                                  |  | $    | 1,243,187   |   |      | $ | 2,645,482   |      |  | $ | 12,019,914           |   |  | $ | 1,243,187   |  
|                                                                                            |  |      |             |   |      |   |             |      |  |   |                      |   |  |   |             |  
|Cash paid for:                                                                              |  |      |             |   |      |   |             |      |  |   |                      |   |  |   |             |  
|Income tax                                                                                  |  | $    |            |   |      | $ |            |      |  | $ |                     |   |  | $ |            |  
|Interest                                                                                    |  |      | 19,984      |   |      |   | 16,103      |      |  |   | 11,038               |   |  |   | 47,125      |  
|NON-CASH TRANSACTIONS                                                                       |  |      |             |   |      |   |             |      |  |   |                      |   |  |   |             |  
|Issuance of common stock to Sportan shareholders                                            |  |      |            |   |      |   |            |      |  |   |                     |   |  |   | 147,733     |  
|Issuance of common stock for accrued interest                                               |  |      |            |   |      |   |            |      |  |   |                     |   |  |   | 525,513     |  
|Conversion of notes payable to common stock                                                 |  |      |            |   |      |   |            |      |  |   |                     |   |  |   | 6,407,980   |  
|Conversion of accrued liabilities to common stock                                           |  |      |            |   |      |   |            |      |  |   | 180,000              |   |  |   | 197,176     |  
|Conversion of accounts payable to note payable                                              |  |      |            |   |      |   |            |      |  |   |                     |   |  |   | 93,364      |  
|Discount on convertible notes relating to:                                                  |  |      |             |   |      |   |             |      |  |   |                      |   |  |   |             |  
|warrants                                                                                   |  |      |            |   |      |   |            |      |  |   |                     |   |  |   | 3,309,790   |  
|beneficial conversion feature                                                              |  |      |            |   |      |   |            |      |  |   |                     |   |  |   | 1,715,973   |  
|stock attached to notes                                                                    |  |      |            |   |      |   |            |      |  |   |                     |   |  |   | 1,287,440   |  

See accompanying summary of accounting policies and notes to financial statements



F-5



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##### Table of Contents

##### Index to Financial Statements

OPEXA THERAPEUTICS, INC.

(a development stage company)

NOTES
TO FINANCIAL STATEMENTS

NOTE 1SUMMARY OF ACCOUNTING POLICIES

Opexa Therapeutics, Inc. (Opexa) was incorporated in Texas in March 1991 as a bio-pharmaceutical company engaged in developing autologous
personalized cell therapies. During the development stage, Opexa acquired the worldwide license to technology developed at Argonne National Laboratory, a U.S. Department of Energy Laboratory operated by the University of Chicago
(Argonne). This is an exclusive license to a stem cell technology in which adult multi-potent stem cells are derived from monocytes obtained from the patients own blood (the License). A patent application was filed in
November 2003 with the United States Patent and Trade Office regarding the technology involved in the License.

In June 2004,
PharmaFrontiers Corp. (Pharma) was acquired by Sportan United Industries, Inc. (Sportan) in a transaction accounted for as a reverse acquisition. Pharmas shareholders were issued 6,386,439 Sportan shares in exchange for
100 percent of the outstanding common shares of Pharma. Immediately following the transaction, Sportan changed its name to Pharma and 7,383,838 shares were outstanding.

On October 7, 2004, Opexa acquired all of the outstanding stock of Opexa Pharmaceuticals,
Inc., an entity that has the exclusive worldwide license from Baylor College of Medicine to an individualized T-cell therapeutic vaccine, Tovaxin®, for the treatment of multiple sclerosis
(MS). The acquisition was accounted for under the purchase method, where all of Opexa Pharmaceuticals, Inc.s assets were restated to their fair market value on the acquisition date. The 250,000 shares of Opexa were valued at their then fair
value of $23,750,000 or $95.00 per share. The results of operations for Opexa from November 6, 2004 through December 31, 2005 are included in the Statements of Operations and the Statements of Cash Flows.

The following table summarizes the estimated fair values of the assets acquired and the liabilities assumed at the date of acquisition:



|                                             |  |   |            |  
|-------------------------------------------- |  | - | ---------- | -
|Current assets                               |  | $ | 55,387     |  
|Property, plant and equipment, net           |  |   | 639,160    |  
|Acquired in process research and development |  |   | 23,991,128 |  
|Current liabilities assumed                  |  |   | (935,675   | )
|                                             |  |   |            |  
|Total allocation of purchase price           |  | $ | 23,750,000 |  
|                                             |  |   |            |  

Management considered a number of factors in determining the estimated fair value of $23,991,128
for the acquired in process research and development, including the results of an independent valuation performed by a third-party valuation specialist. The purchase price represents Opexa Pharmaceuticals incomplete research and development
programs that had not yet reached technological feasibility and had no alternative future uses as of the acquisition date and, therefore, was expensed upon acquisition within our Consolidated Statements of Expenses.

Development Stage Company.Opexa is considered to be in the Development stage as defined in Statement of Financial Accounting Standards
No. 7. Opexa has had no revenues to date.

Basis of Presentation. In June 2006, Opexa (i) changed its name to Opexa
Therapeutics, Inc. from Pharma and (ii) effected a one-for-ten reverse common stock split. All references to number of shares and per share amounts reflect such split as if it occurred on the first day of the first period presented. The
financial statements include the accounts of Opexa and its wholly-owned subsidiary, Opexa Pharmaceuticals, Inc. through December 31, 2006. All inter-company accounts and transactions have been eliminated.



F-6



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##### Table of Contents

##### Index to Financial Statements

OPEXA THERAPEUTICS, INC.

(a development stage company)

NOTES TO FINANCIAL STATEMENTS



Reclassifications. Certain prior year amounts have been reclassified to conform with the
current year presentation.

Use of Estimates in Financial Statement Preparation.The preparation of financial statements in
conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and
liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Cash, Cash Equivalents and Marketable Securities. For purposes of the statements of cash flows, cash equivalents include all highly liquid
investments with original maturities of three months or less. Marketable securities include investments with maturities greater than three months but less than one year. The primary objectives for the fixed income investment portfolio are liquidity
and safety of principal. Investments are made with the objective of achieving the highest rate of return consistent with these two objectives. Opexas investment policy limits investments to certain types of instruments issued by institutions
primarily with investment grade credit ratings and places restrictions on maturities and concentration by type and issuer.

Long-lived
Assets. Property and equipment are stated on the basis of historical cost less accumulated depreciation. Depreciation is provided using the straight-line method over the estimated useful lives of the assets. Major renewals and improvements are
capitalized, while minor replacements, maintenance and repairs are charged to current operations. Impairment losses are recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows
estimated to be generated by those assets are less than the assets carrying amount.

Income Taxes. Income tax expense is based
on reported earnings before income taxes. Deferred income taxes reflect the impact of temporary differences between assets and liabilities recognized for financial reporting purposes and such amounts recognized for tax purposes, and are measured by
applying enacted tax rates in effect in years in which the differences are expected to reverse.

Stock-Based Compensation.On
January 1, 2006, Opexa began recording compensation expense associated with stock options and other forms of equity compensation in accordance with Statement of Financial Accounting Standards No. 123R, Share-Based Payment, as
interpreted by SEC Staff Accounting Bulletin No. 107. Prior to January 1, 2006, Opexa had accounted for stock options according to the provisions of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations, and therefore no related compensation expense was recorded for awards granted with no intrinsic value. Opexa adopted the modified prospective transition method provided for under SFAS No. 123R, and,
consequently, has not retroactively adjusted results from prior periods. Under this transition method, compensation cost associated with stock options recognized in the first quarter of fiscal 2006 includes the quarterly amortization related to the
remaining unvested portion of all stock option awards granted prior to January 1, 2006, based on the grant date fair value estimated in accordance with the original provisions of SFAS No. 123.



F-7



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##### Table of Contents

##### Index to Financial Statements

OPEXA THERAPEUTICS, INC.

(a development stage company)

NOTES TO FINANCIAL STATEMENTS



The following table illustrates the effect on net loss and net loss per share if Opexa had applied the fair value
provisions of FASB Statement No. 123 to stock-based employee compensation prior to January 1, 2006:



|                                                                        |  |                      |             |  
|----------------------------------------------------------------------- |  | -------------------- | ----------- | -
|                                                                        |  | InceptionThrough2008 |            
|Net loss as reported                                                    |  | $                    | (89,564,972 | )
|Add: stock based compensation determined under intrinsic value method   |  |                      | 2,611,074   |  
|Less: stock based compensation determined under fair value based method |  |                      | (4,417,377  | )
|                                                                        |  |                      |             |  
|Pro forma net loss                                                      |  | $                    | (91,371,275 | )
|                                                                        |  |                      |             |  

Research and Development. Research and development expenses include salaries, related
employee expenses, clinical trial expenses, research expenses, consulting fees, and laboratory costs. All costs for research and development activities are expensed as incurred. Opexa expenses the costs of licenses of patents and the prosecution of
patents until the issuance of such patents and the commercialization of related products is reasonably assured. Research and development expense for the years ended December 31, 2008, 2007, and 2006 was $8,388,734, $13,071,856 and $7,850,373,
respectively.

Accounting for Derivative Instruments.Statement of Financial Accounting Standard (SFAS) No. 133,
Accounting for Derivative Instruments and Hedging Activities, as amended, requires all derivatives to be recorded on the balance sheet at fair value. Opexas derivatives are separately valued and accounted for on our balance sheet.
Fair values for securities traded in the open market and derivatives are based on quoted market prices. Where market prices are not readily available, fair values are determined using market based pricing models incorporating readily observable
market data and requiring judgment and estimates.

The pricing model Opexa used for determining fair values of its derivatives is the
Black-Scholes option-pricing model. Valuations derived from this model are subject to ongoing internal and external verification and review. The model uses market-sourced inputs such as interest rates, exchange rates and option volatilities.
Selection of these inputs involves managements judgment and may impact net income.

In December 2006, the FASB issued FASB Staff
Position No. EITF 00-19-2, Accounting for Registration Payment Arrangements (EITF 00-19-2). EITF 00-19-2 addresses an issuers accounting for registration payment arrangements. It specifies that the contingent obligation to make
future payments or otherwise transfer consideration under a registration payment arrangement, whether issued as a separate agreement or included as a provision of a financial instrument or other agreement, should be separately recognized and
measured in accordance with FASB Statement No. 5, Accounting for Contingencies. The guidance in EITF 00-19-2 amends FASB Statements No. 133, Accounting for Derivative Instruments and Hedging Activities, and No. 150,
Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity, and FASB Interpretation No. 45, Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others, to include scope exceptions for registration payment arrangements. EITF 00-19-2 also requires additional disclosure regarding the nature of any registration payment arrangements, alternative settlement
methods, the maximum potential amount of consideration and the current carrying amount of the liability, if any. EITF 00-19-2 is effective immediately for registration payment arrangements and the financial instruments subject to those arrangements
that are entered into or modified subsequent to the date of issue of this EITF. For registration payment arrangements and financial instruments subject to those arrangements that were entered into prior to the issuance of this EITF, this is
effective for financial statements issued for fiscal years beginning after December 15, 2006, and interim periods within those fiscal years.



F-8



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##### Table of Contents

##### Index to Financial Statements

OPEXA THERAPEUTICS, INC.

(a development stage company)

NOTES TO FINANCIAL STATEMENTS



Recently Issued Accounting Pronouncements.In June 2007, the Emerging Issues Task Force
(EITF) issued EITF Issue No. 07-3, Accounting for Nonrefundable Advance Payments for Goods or Services to be Used in Future Research and Development Activities (EITF 07-3). EITF 07-3 provides guidance concerning the
accounting for non-refundable advance payments for goods and services that will be used in future research and development activities and requires that they be expensed when the research and development activity has been performed and not at the
time of payment. The provisions of EITF 07-3 are effective for the Company as of January 1, 2008, with a cumulative-effect adjustment to retained earnings as of the beginning of the year of adoption. The adoption of EITF 07-3 did not have a
material impact on Opexas results from operations or financial position.

In June 2008, the FASB ratified EITF Issue 07-5,
Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entitys Own Stock (EITF 07-5). Paragraph 11(a) of Statement of Financial Accounting Standard No 133, Accounting for Derivatives and Hedging
Activities (SFAS 133) specifies that a contract that would otherwise meet the definition of a derivative, but is both (a) indexed to its own stock and (b) classified in stockholders equity in the statement of
financial position would not be considered a derivative financial instrument. EITF 07-5 provides a new two-step model to be applied in determining whether a financial instrument or an embedded feature is indexed to an issuers own stock,
including evaluating the instruments contingent exercise and settlement provisions, and thus able to qualify for the SFAS 133 paragraph 11(a) scope exception. It also clarifies the impact of foreign-currency-denominated strike prices and
market-based employee stock option valuation instruments on the evaluation. EITF 07-5 will be effective for the first annual reporting period beginning after December 15, 2008, and early adoption is prohibited. Opexa evaluated all of its
financial instruments and determined that the warrants associated with the August 2008 financing qualified for treatment under EITF 07-5. As of January 1, 2009, Opexa adjusted its financial statements to reflect the adoption of the EITF 07-5.
Opexa reclassified the fair value on these warrants as of January 1, 2009 in the amount of $220,835 from additional paid in capital to derivative liabilities and the cumulative effect of the change in accounting principle in the amount of
$1,755,622 is recognized as an adjustment to the opening balance of retained earnings.

There were various other accounting standards and
interpretations issued during 2009 and 2008, none of which are expected to have a material impact on the Opexas financial position, operations or cash flows.

NOTE 2GOING CONCERN

Opexa incurred a net loss of approximately $11.9 million for the year ended December 31,
2008 and has an accumulated deficit of approximately $89.6 million. The cash balance of $1.2 million as of December 31, 2008 is not sufficient to fund the Companys operations for the next twelve months. These conditions raise substantial
doubt as to Opexas ability to continue as a going concern. Management continues to seek means to raise additional capital through sales of equity and partnering arrangements. The financial statements do not include any adjustments that might
be necessary if Opexa is unable to continue as a going concern.

NOTE 3RESTRUCTURING

In November 2008, Opexa implemented a restructuring plan to terminate the one-year open label
extension of the TERMS Phase IIb Clinical Trial of Tovaxin® therapy for multiple sclerosis (OLTERMS). The trial was enrolled with patients that had previously completed one year in the
TERMS, Tovaxin Phase IIb multi-center, randomized, double blind, placebo-controlled trial. The Company terminated OLTERMS to conserve financial resources for clinical data analysis, future clinical trial planning and seeking a development partner
for Tovaxin. As a result of this restructuring, the Company reduced its staff of 29 to 12 people. Personnel-related severance and benefits payments of $77,075 were paid in 2008.



F-9



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##### Table of Contents

##### Index to Financial Statements

OPEXA THERAPEUTICS, INC.

(a development stage company)

NOTES TO FINANCIAL STATEMENTS



NOTE 4MARKETABLE SECURITIES

Opexa considers all highly liquid investments with an original maturity of three months or less, when purchased, to be cash equivalents. Investments with
maturities in excess of three months but less than one year are classified as short-term investments and are stated at fair market value.

At December 31, 2008, Opexa invested approximately $1.2 million in a money market account with an average market yield of 0.8%. Interest income of $100,235 was recognized for the year ended December 31, 2008 in the statements of
expenses.

At December 31, 2007, Opexa invested approximately $2.6 million in a money market account with an average market yield of
4.8%. Interest income of $477,605 was recognized for the twelve months ended December 31, 2007 in the statements of expense.

NOTE 5PROPERTY
AND EQUIPMENT

Property and equipment consisted of the following at December 31, 2008 and 2007:



|                               |  |            |  |      |           |   |      |   |           |  
|------------------------------ |  | ---------- |  | ---- | --------- | - | ---- | - | --------- | -
|Description                    |  | Life       |  | 2008 |           |   | 2007 |  
|Computer equipment             |  | 3 years    |  | $    | 155,018   |   |      | $ | 155,018   |  
|Office furniture and equipment |  | 3-10 years |  |      | 328,368   |   |      |   | 319,427   |  
|Software                       |  | 3-5 years  |  |      | 90,689    |   |      |   | 88,919    |  
|Laboratory equipment           |  | 3-10 years |  |      | 984,809   |   |      |   | 972,525   |  
|Leasehold improvements         |  | 10 years   |  |      | 454,890   |   |      |   | 448,837   |  
|                               |  |            |  |      |           |   |      |   |           |  
|Subtotal                       |  |            |  |      | 2,013,774 |   |      |   | 1,984,726 |  
|Less: accumulated depreciation |  |            |  |      | (847,244  | ) |      |   | (614,079  | )
|                               |  |            |  |      |           |   |      |   |           |  
|Property and equipment, net    |  |            |  | $    | 1,166,530 |   |      | $ | 1,370,647 |  
|                               |  |            |  |      |           |   |      |   |           |  

Property and equipment is carried at cost less accumulated depreciation. Depreciation is
calculated by the straight-line method over the estimated useful life of three to ten years, depending upon the type of equipment, except for leasehold improvements which are amortized using the straight-line method over the remaining lease term or
the life of the asset, whichever is shorter. The cost of repairs and maintenance is charged as an expense as incurred. Depreciation expense totaled $234,325, $232,955 and $174,117 in fiscal 2008, 2007 and 2006, respectively.

NOTE 6INCOME TAXES

Opexa uses the liability
method, where deferred tax assets and liabilities are determined based on the expected future tax consequences of temporary differences between the carrying amounts of assets and liabilities for financial and income tax reporting purposes.

At December 31, 2008, for federal income tax and alternative minimum tax reporting purposes, Opexa had approximately $78,002,822 of
unused net operating losses available for carryforward to future years. The benefit from carryforward of such net operating losses will expire in various years through 2026. Under the provisions of Section 382 of the Internal Revenue Code, the
benefit from utilization of approximately $5,650,429 of net operating losses incurred prior to October 7, 2004 was significantly limited as a result of the change of control that occurred in connection with Opexas acquisition of Opexa
Pharmaceuticals, Inc. The benefit could be subject to further limitations if significant future ownership changes occur in Opexa.



F-10



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##### Table of Contents

##### Index to Financial Statements

OPEXA THERAPEUTICS, INC.

(a development stage company)

NOTES TO FINANCIAL STATEMENTS



At December 31, 2008, deferred tax assets consisted of the following:



|                       |  |   |             |  
|---------------------- |  | - | ----------- | -
|NOL @ 12/31/08         |  | $ | (78,002,822 | )
|Estimated tax rate     |  |   | X 34        | %
|                       |  |   |             |  
|Deferred tax asset     |  |   | (26,520,959 | )
|Valuation allowance    |  |   | 26,520,959  |  
|                       |  |   |             |  
|Net deferred tax asset |  | $ |            |  
|                       |  |   |             |  

NOTE 7LOAN PAYABLE

Loan payable consists of an equipment line of up to $250,000 with Wells Fargo of which $165,201 and $222,816 were outstanding as of December 31, 2008 and 2007, respectively. This loan has an interest rate of
7.61% per annum, matures in May 2011 and is secured by Opexas furniture and equipment purchased with the loan proceeds. For the years ended December 31, 2008, 2007 and 2006, Opexa recognized interest expenses of $15,233, $14,631 and
$0, respectively.

NOTE 8COMMITMENTS AND CONTINGENCIES

Office Lease

In October 2005, Opexa entered into a ten-year lease for its office and research facilities. The
facility including the property is leased for a term of ten years with two options for an additional five years each at the then prevailing market rate. Future minimum lease payments under the non-cancellable operating lease are $139,782 for 2009,
$147,540 for 2010, $147,540 for 2011 and $584,343 for years 2012 to 2015. Rent expense was $136,153 for each of the years ended December 31, 2008, 2007 and 2006.

License Agreement

In July 2007, Opexa entered into a second amended and restated license
agreement with the University of Chicago that requires Opexa to make milestone payments of up to $1,350,000 if certain late stage clinical trial and FDA approval milestones are achieved. Opexa has determined that these payments are not probable at
this time and thus no liability has been recorded as of December 31, 2008.

NOTE 9EQUITY

During 2003, equity related transactions were as follows:



| |  |  | 525,000 shares of common stock were sold for $1,000.
| | - |  | ----------------------------------------------------



| |  |  | 170,625 shares were reacquired for $325 and canceled.
| | - |  | -----------------------------------------------------



| |  |  | Additional contributions to capital of $56,360 resulted from the discounted value to notes payable due to warrants and beneficial conversion features attached to
convertible notes was issued in 2003.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

During 2004, equity related transactions were as follows:



| |  |  | 2,250 shares of common stock were sold for $9,000.
| | - |  | --------------------------------------------------



| |  |  | 206,500 shares of common stock valued at their then fair value of $849,000 were issued to employees and consultants for their services.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------



F-11



---

##### Table of Contents

##### Index to Financial Statements

OPEXA THERAPEUTICS, INC.

(a development stage company)

NOTES TO FINANCIAL STATEMENTS



| |  |  | 24,269 shares of common stock valued at their then fair value of $427,075 were issued to the University of Chicago per the terms of a license agreement. See Note 12
for details.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 99,740 shares of common stock were issued for net liabilities of $147,733 pursuant to the 2004 reorganization.
| | - |  | --------------------------------------------------------------------------------------------------------------



| |  |  | 250,000 shares of common stock valued at their then fair value of $23,750,000 were issued to Opexa Pharmaceuticals, Inc., shareholders. See Note 13 for details.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 16,100 shares of common stock with a relative fair value of $288,366 were issued to note holders as their additional shares for their subscription investment.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 60,750 shares of common stock were issued to note holders for the conversion of $248,370 of principal and interest from convertible notes.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 8,000 shares of common stock were cancelled pursuant to the terms of an employment separation agreement.
| | - |  | --------------------------------------------------------------------------------------------------------



| |  |  | Additional contributions to capital of $2,704,351 resulted from the discounted value to notes payable from warrants and beneficial conversion features attached to
convertible notes.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Employee stock option compensation expense was $123,333 for 2004.
| | - |  | -----------------------------------------------------------------

During 2005, equity related transactions were as follows:



| |  |  | 389,451 shares of common stock with warrants to purchase 1,070,993 shares were sold for $5,841,769. The relative fair value of the common stock is $1,103,714 and
the relative fair value of the warrants is $4,738,055. Offering costs of $495,552 related to shares issued were charged to additional paid in capital.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 45,168 shares of common stock with a relative fair value of $999,074 were issued to note holders as their additional shares for their subscription investment.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 565,858 shares of common stock were issued to note holders for the conversion of $6,124,859 of principal and $525,513 interest from convertible notes.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 2,300 shares of common stock valued at their fair value of $161,000 were issued to note holders for the conversion of $51,930 of principal and interest from the
notes.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 29,194 shares of common stock were issued to the University of Chicago per the terms of a license agreement. These shares were recorded at $1,868,384.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 24,000 shares of common stock valued at their fair value of $1,012,400 were issued to consultants for their services.
| | - |  | ---------------------------------------------------------------------------------------------------------------------



| |  |  | Additional contributions to capital of $2,265,052 relating to the discounted value to notes payable from warrants, beneficial conversion features attached to
convertible notes.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Employee stock option compensation expense was $2,487,741 for 2005.
| | - |  | -------------------------------------------------------------------



| |  |  | Non-employee stock option compensation expense was $2,373,888 for 2005.
| | - |  | -----------------------------------------------------------------------



| |  |  | Transition of warrants from equity instruments to liability instruments in the amount of $10,658,496 was recorded. See Note 11 for details.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------



F-12



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##### Table of Contents

##### Index to Financial Statements

OPEXA THERAPEUTICS, INC.

(a development stage company)

NOTES TO FINANCIAL STATEMENTS



During 2006, equity related transactions were as follows:



| |  |  | In March 2006, 34,829 shares of common stock were issued to settle an outstanding accounts payable in the amount of $180,000.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------



| |  |  | In April 2006, Opexa sold 4,600,000 shares of its common stock and warrants to purchase 2,300,000 shares of Opexas common stock for $23,000,000. Opexa paid
$1,846,481 for the commissions and fees related to this offering and granted to its brokers warrants to purchase 213,720 shares of common stock at an exercise price of $5.00 per share. These warrants are not callable and have a cashless exercise
option.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Employee stock option compensation expense was $2,749,617 for 2006.
| | - |  | -------------------------------------------------------------------



| |  |  | Non-employee stock option compensation expense was $1,568,966 for 2006.
| | - |  | -----------------------------------------------------------------------

During 2007, equity related transactions were as follows:



| |  |  | Employee stock option compensation expense was $1,876,103 for 2007.
| | - |  | -------------------------------------------------------------------



| |  |  | Non-employee stock option compensation expense was $845,275 for 2007.
| | - |  | ---------------------------------------------------------------------

During 2008, equity related transactions were as follows:



| |  |  | In February 2008, Opexa sold 3,500,000 shares of common stock and 4,025,000 Series E warrants in a public offering for approximately $7.6 million. Opexa paid
approximately $1.2 million for the underwriter discounts, commissions and other expenses related to this offering and granted to the underwriter warrants to purchase 350,000 shares of common stock at a price of $2.40 per share and an option to
acquire 350,000 Series E warrants at a price of $0.18 per Series E warrant.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In August, Opexas common stock in a private offering to certain institutional and accredited investors for approximately $3.0 million. Opexa paid
approximately $100,000 in expenses related to this offering.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 45,200 shares of restricted common stock valued at $48,965 were issued to board members as compensation for their board services.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------



| |  |  | Employee stock option compensation expense was $1,467,364 for 2008.
| | - |  | -------------------------------------------------------------------



| |  |  | Non-employee stock option compensation expense was $434,207 for 2008.
| | - |  | ---------------------------------------------------------------------

NOTE 10OPTIONS AND WARRANTS

In 2004, Opexa adopted the 2004 Stock Option Plan (the
Plan) for the granting of stock options to employees and consultants of Opexa. Options granted under the Plan may be either incentive stock options or nonqualified stock options. The Board of Directors has discretion to determine the number,
term, exercise price and vesting of all grants.

Employee Options:

During 2004, options to purchase 96,500 shares were granted to employees at exercise prices ranging from $30.00 to $50.00. These options have terms of
five years and vest from one to three years. Fair value of $5,623,186 was recorded using the Black-Scholes method of option-pricing model. Variables used in the Black-Scholes option-pricing model for options issued during the year ended
December 31, 2004 include (1) discount rate of 2%, (2) option life of 5 years, (3) expected volatility of 75.1% and (4) zero expected dividends.



F-13



---

##### Table of Contents

##### Index to Financial Statements

OPEXA THERAPEUTICS, INC.

(a development stage company)

NOTES TO FINANCIAL STATEMENTS



During 2005, options to purchase 63,050 shares were granted to employees at an exercise price of
$7.00. These options have terms of ten years and vest in four years. Fair value of $261,879 was recorded using the Black-Scholes option-pricing model. Variables used in the Black-Scholes option-pricing model for options issued during the year ended
December 31, 2005 include (1) discount rate of 2%, (2) option life of 10 years, (3) expected volatility of 175.4% and (4) zero expected dividends.

During 2005, options to purchase 4,167 shares were forfeited and cancelled.

During 2006, options to purchase 389,160 shares of common stock were granted by Opexa to its employees at exercise prices ranging from $5.00 to $9.40.
These options have terms from five to ten years and vest from one to three years. Fair value of $3,126,168 was recorded using the Black-Scholes option-pricing model. Variables used in the Black-Scholes option-pricing model for options issued during
the year ended December 31, 2006 include (1) discount rate range of 4.72% to 5.22%, (2) option life of 5 to 10 years, (3)expected volatility range of 401.3% to 429.9% and (4) zero expected dividends.

During 2006, options to purchase 14,133 shares were forfeited.

Opexa recorded $2,749,617 stock-based compensation expense to the management and employees during 2006.

During 2007, options to purchase 224,400 shares of common stock were granted by Opexa to its employees at exercise prices ranging from $3.96 to $5.47. These options have terms of ten years and vest annually over a three year period. Fair
value of $958,011 was recorded using the Black-Scholes option-pricing model. Variables used in the Black-Scholes option-pricing model for options issued during the year ended December 31, 2007 include (1) discount rate range of 4.22% to
5.07%, (2) option life is a term with the expected term of 5 to 6 years, (3) expected volatility range of 95.4% to 103.9% and (4) zero expected dividends.

During 2007, options to purchase 17,345 shares were forfeited.

Opexa recorded $1,876,103 stock-based
compensation expense to the management and employees during 2007.

During 2008, options to purchase 469,100 shares of common stock were
granted by Opexa to its employees at exercise prices ranging from $1.09 to $1.17. These options have terms of ten years and have vesting ranges from 8 months to three years. Fair value of $433,164 was recorded using the Black-Scholes option-pricing
model. Variables used in the Black-Scholes option-pricing model for options issued during the year ended December 31, 2008 include (1) discount rate range of 3.15% to 3.73%, (2) option life is a term with the expected term of 5.5 to 6
years, (3) expected volatility of 115.3% and (4) zero expected dividends.

During 2008, options to purchase 104,578 shares were
forfeited.

Opexa recorded $1,467,364 stock-based compensation expense to the management and employees during 2008.

Non-Employee Options:

During 2004, options to
purchase 20,000 shares were granted to consultants at exercise prices ranging from $30.00 to $50.00. These options have terms of five years and vest from one to three years. Fair value of



F-14



---

##### Table of Contents

##### Index to Financial Statements

OPEXA THERAPEUTICS, INC.

(a development stage company)

NOTES TO FINANCIAL STATEMENTS



$1,011,770 was recorded using the Black-Scholes option-pricing model. Variables used in the Black-Scholes option-pricing model for options issued during the
year ended December 31, 2004 include (1) discount rate of 2% (2) option life of 5 years, (3) expected volatility of 75.1% and (4) zero expected dividends.

During 2005, options to purchase 71,060 shares were granted to consultants. Using the Black-Scholes fair value for 2005 was $1,552,936 option-pricing
model. Variables used in the Black-Scholes option-pricing model for options issued during the year ended December 31, 2005 include (1) discount rate of 2%, (2) option life of 5 years, (3) expected volatility of 175.4% and
(4) zero expected dividends.

During 2005, options to purchase 10,000 shares were forfeited and cancelled.

During 2006, options to purchase 156,500 shares of common stock were granted by Opexa to its consultants, directors and exiting directors at the exercise
prices ranging from $5.20 to $9.80. These warrants have a term of ten years and vest from one to three years. Fair value of $1,496,375 was recorded using the Black-Scholes option-pricing model. Variables used in the Black-Scholes option-pricing
model for options issued during the year ended December 31, 2006 include (1) discount rate range of 4.7%  5.2%, (2) option life of 10 years, (3) expected volatility range of 401.3% to 429.9% and (4) zero expected
dividends.

During 2006, options to purchase 5,000 shares expired.

Opexa recorded $1,568,966 stock-based compensation expense to the consultants, directors and exiting directors during 2006.

During 2007, options to purchase 69,500 shares of common stock were granted by Opexa to its consultants, directors and exiting directors at the exercise
prices ranging from $3.95 to $5.47. These options have a term of ten years, and have vesting dates that vary from either full or partial vesting at date of grant to full vesting at the first and second year anniversary of the date of grant. Fair
value of $268,675 was recorded using the Black-Scholes option-pricing model. Variables used in the Black-Scholes option-pricing model for options issued during the year ended December 31, 2007 include (1) discount rate range of 4.20% to
5.07%, (2) option life is a term with the expected term of 5.75 years, (3) expected volatility range of 95.4% to 95.9% and (4) zero expected dividends.

Opexa recorded $845,275 stock-based compensation expense to the consultants and directors during 2007.

During 2008, options to purchase 171,300 shares of common stock were granted by Opexa to its consultants, directors and exiting directors at the exercise prices ranging from $0.88 to $1.55. These options have a term of ten years, and have
vesting dates that vary from either full or partial vesting at date of grant to full vesting at the first year anniversary of the date of grant. Fair value of $179,340 was recorded using the Black-Scholes option-pricing model. Variables used in the
Black-Scholes option-pricing model for options issued during the year ended December 31, 2008 include (1) discount rate range of 3.07% to 3.44%, (2) option life is a term with the expected term of 5.5 years, (3) expected
volatility range of 115.3% to 116.5% and (4) zero expected dividends.

During 2008, options to purchase 22,000 shares were forfeited.

Opexa recorded $434,207 stock-based compensation expense to the consultants and directors during 2007.

Broker and Investor Warrants:

During 2003,
warrants to purchase 15,000 shares were granted to investors related to the convertible notes.

During 2004, warrants to purchase 142,800
shares were granted to investors related to the convertible notes.



F-15



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##### Table of Contents

##### Index to Financial Statements

OPEXA THERAPEUTICS, INC.

(a development stage company)

NOTES TO FINANCIAL STATEMENTS



During 2005, warrants to purchase 46,084 shares of common stock were issued to several brokerage
firms as the offering costs and commissions for Opexas financing activities at an exercise price of $1.50. These warrants have a fair value of $2,197,162 and vest immediately.

During 2005, warrants to purchase 2,386,984 shares were granted to investors related to the convertible notes.

During 2005 warrants to purchase 254,362 shares were forfeited.

In April 2006, warrants to purchase 213,720 shares of common stock were granted by Opexa to the brokers in connection with the $23,000,000 equity financing, at an exercise price of $5.00. These warrants have a term of
three years and vest immediately. Fair value of $1,077,778 was recorded using the Black-Scholes option-pricing model. Variables used in the Black-Scholes option-pricing model for warrants issued during the year ended December 31, 2006 include
(1) discount rate of 5.22%, (2) warrant life of 3 years, (3) expected volatility of 429.9% and (4) zero expected dividends.

During 2006, warrants to purchase 2,765,043 shares were granted to investors related to the April 2006 financing. These warrants have a term of five years and vest immediately. Fair value of $11,729,982 was recorded using the Black-Scholes
option-pricing model. Variables used in the Black-Scholes option-pricing model for warrants issued during the year ended December 31, 2006 include (1) discount rate of 4.86%, (2) warrant life of 5 years, (3) expected volatility
of 429.9% and (4) zero expected dividends.

During 2006 warrants to purchase 1,644,908 shares were forfeited.

During 2007, there were no warrants granted to investors.

During 2008, Series E warrants to purchase 4,025,000 shares of common stock were issued by Opexa to the investors and underwriters in connection with the February 2008 public offering, at an exercise price of $2.00.
These warrants vest immediately and have a fair value of $603,750. During 2008 Opexa issued warrants to the underwriter of the February 2008 public offering to purchase 350,000 shares of common stock at a price of $2.40 per share and an option to
acquire 350,000 Series E warrants at a price of $0.18 per Series E warrant. These warrants are classified as equity and are immediately exercisable. Fair value of $350,061 was recorded using the Black-Scholes option-pricing model. Variables used in
the Black-Scholes option-pricing model for options issued during the year ended December 31, 2008 include (1) discount rate of 2.93%, (2) warrant life is a term with the expected term of 5 years, (3) expected volatility of 97. 7%
and (4) zero expected dividends.

During August 2008, in connection with a private financing, Opexa issued warrants to purchase
2,003,874 shares of its common stock to certain institutional and accredited investors. The warrants expire four years from issuance, are first exercisable after six months of the closing of the financing and are exercisable at $1.78 per share.
These warrants are classified as equity. Fair value of $1,976,457 was recorded using the Black-Scholes option-pricing model. Variables used in the Black-Scholes option-pricing model for warrants issued during the year ended December 31, 2008
include (1) discount rate of 3.27%, (2) warrant life is a term with the expected term of 4 years, (3) expected volatility of 116.5% and (4) zero expected dividends.



F-16



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##### Table of Contents

##### Index to Financial Statements

OPEXA THERAPEUTICS, INC.

(a development stage company)

NOTES TO FINANCIAL STATEMENTS



At December 31, 2008, the aggregate intrinsic value of the outstanding options and the
exercisable options was $-0- and $-0-, respectively. Summary information regarding options and warrants is as follows:



|                                 |  |           |   |  |                              |       |          |            |   |                              |   |      
|-------------------------------- |  | --------- | - |  | ---------------------------- | ----- | -------- | ---------- | - | ---------------------------- | - | -----
|                                 |  | Options   |   |  | WeightedAverageExercisePrice |       | Warrants |            |   | WeightedAverageExercisePrice
|Outstanding at December 31, 2005 |  | 236,443   |   |  |                              | 24.82 |          | 2,336,506  |   |                              |   | 28.68
|                                 |  |           |   | 
|Year ended December 31, 2006:    |  |           |   |  |                              |       |          |            |   |                              |   |      
|Granted                          |  | 545,660   |   |  |                              | 6.65  |          | 2,978,763  |   |                              |   | 6.29 
|Forfeited and canceled           |  | (19,133   | ) |  |                              | 38.76 |          | (1,644,908 | ) |                              |   | 8.61 
|                                 |  |           |   |  |                              |       |          |            |   |                              |   |      
|Outstanding at December 31, 2006 |  | 762,970   |   |  |                              | 11.48 |          | 3,670,361  |   |                              |   | 19.51
|                                 |  |           |   | 
|Year ended December 31, 2007:    |  |           |   |  |                              |       |          |            |   |                              |   |      
|Granted                          |  | 293,900   |   |  |                              | 5.28  |          |           |   |                              |   |     
|Forfeited and canceled           |  | (17,345   | ) |  |                              | 7.74  |          |           |   |                              |   |     
|                                 |  |           |   |  |                              |       |          |            |   |                              |   |      
|Outstanding at December 31, 2007 |  | 1,039,525 |   |  |                              | 9.79  |          | 3,670,361  |   |                              |   | 19.51
|                                 |  |           |   | 
|Year ended December 31, 2008:    |  |           |   |  |                              |       |          |            |   |                              |   |      
|Granted                          |  | 640,400   |   |  |                              | 1.10  |          | 6,728,874  |   |                              |   | 1.96 
|Forfeited and canceled           |  | (126,578  | ) |  |                              | 6.53  |          |           |   |                              |   |     
|                                 |  |           |   |  |                              |       |          |            |   |                              |   |      
|Outstanding at December 31, 2008 |  | 1,553,347 |   |  | $                            | 6.47  |          | 10,399,235 |   |                              | $ | 8.15 
|                                 |  |           |   |  |                              |       |          |            |   |                              |   |      

Summary of options outstanding and exercisable as of December 31, 2008 is as follows:



|                         |  |                                                  |  |                             |  |                            
|------------------------ |  | ------------------------------------------------ |  | --------------------------- |  | ---------------------------
|Range of Exercise Prices |  | Weighted AverageRemainingContractual Life(years) |  | Number ofOptionsOutstanding |  | Number ofOptionsExercisable
|$  0.88    to    4.99    |  | 9.31                                             |  | 630,332                     |  | 283,524                    
|5.00    to    9.99       |  | 6.39                                             |  | 763,605                     |  | 627,035                    
|10.00    to    14.99     |  | 0.68                                             |  | 23,250                      |  | 23,250                     
|15.00    to    19.99     |  | 1.54                                             |  | 810                         |  | 810                        
|30.00    to    40.00     |  | 0.89                                             |  | 135,350                     |  | 133,475                    
|                         |  |                                                  |  |                             |  |                            
|$  0.88    to    40.00   |  | 7.01                                             |  | 1,553,347                   |  | 1,068,094                  
|                         |  |                                                  |  |                             |  |                            

Summary of warrants outstanding and exercisable as of December 31, 2008 is as follows:



|                         |  |                                                  |  |                              |  |                             
|------------------------ |  | ------------------------------------------------ |  | ---------------------------- |  | ----------------------------
|Range of Exercise Prices |  | Weighted AverageRemainingContractual Life(years) |  | Number ofWarrantsOutstanding |  | Number ofWarrantsExercisable
|$  1.78    to    4.99    |  | 3.98                                             |  | 6,728,874                    |  | 4,025,000                   
|5.00    to    9.99       |  | 2.11                                             |  | 2,513,720                    |  | 2,513,720                   
|15.00    to    30.00     |  | 1.46                                             |  | 1,156,641                    |  | 1,156,641                   
|                         |  |                                                  |  |                              |  |                             
|$  1.78    to    30.00   |  | 3.25                                             |  | 10,399,235                   |  | 7,695,361                   
|                         |  |                                                  |  |                              |  |                             



F-17



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##### Table of Contents

##### Index to Financial Statements

OPEXA THERAPEUTICS, INC.

(a development stage company)

NOTES TO FINANCIAL STATEMENTS



NOTE 11DERIVATIVE INSTRUMENTS

In June 2006, Opexa evaluated the application of SFAS 133 and EITF 00-19 for all of its financial instruments and it was determined that certain of
the warrants to purchase common stock issued by Opexa associated with the bridge note exchange and private placement offerings in June 2005 and July 2005 were derivatives that Opexa was required to account for as free-standing derivative instruments
under GAAP. These three series of warrants were considered at the time to be derivatives because the liquidated damage provision in the registration rights agreement covering each warrant resulted in the conclusion that it was more economic to
issue registered shares than to issue unregistered shares and pay the penalty. Because issuing registered shares is outside of Opexas control, Opexa concluded the warrants should be accounted for as derivative liabilities under SFAS 133
and EITF 00-19. As a result, Opexa reported the value of these derivatives as current liabilities on its balance sheet and reported changes in the value of these derivatives as non-operating gains or losses on its statements of operations in the
consolidated financial statements beginning with the year ended December 31, 2005 and re-measured and reported on a quarterly basis thereafter based on the Black-Scholes Pricing Model.

In December 2006, the FASB issued FASB Staff Position No. EITF 00-19-2, Accounting for Registration Payment Arrangements (EITF 00-19-2). EITF
00-19-2 addresses an issuers accounting for registration payment arrangements. It specifies that the contingent obligation to make future payments or otherwise transfer consideration under a registration payment arrangement, whether issued as
a separate agreement or included as a provision of a financial instrument or other agreement, should be separately recognized and measured in accordance with FASB Statement No. 5, Accounting for Contingencies. The guidance in EITF
00-19-2 amends FASB Statements No. 133, Accounting for Derivative Instruments and Hedging Activities, and No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity,
and FASB Interpretation No. 45, Guarantors Accounting and Disclosure Requirements for Guarantees, including Indirect Guarantees of Indebtedness of Others, to include scope exceptions for registration payment arrangements. EITF
00-19-2 also requires additional disclosure regarding the nature of any registration payment arrangements, alternative settlement methods, the maximum potential amount of consideration and the current carrying amount of the liability, if any. This
EITF is effective immediately for registration payment arrangements and the financial instruments subject to those arrangements that are entered into or modified subsequent to the date of issue of this EITF. For registration payment arrangements and
financial instruments subject to those arrangements that were entered into prior to the issuance of EITF 00-19-2, this is effective for financial statements issued for fiscal years beginning after December 15, 2006, and interim periods within
those fiscal years.

Opexa evaluated the application of EITF 00-19-2 for all its financial instruments and determined that certain warrants
to purchase common stock issued by Opexa associated with the bridge note exchange and private placement offerings in June 2005 and July 2005 no longer qualified to be classified as derivative liabilities. In addition, Opexa accounts for registration
rights agreement penalties as contingent liabilities, applying the accounting guidance of Financial Accounting Standard No. 5, Accounting for Contingencies (FAS 5). This accounting is consistent with views established by
the FASB Staff Positions FSP EITF 00-19-2 Accounting for Registration Payment Arrangements, which was issued December 21, 2006. Accordingly, Opexa recognizes the damages when it becomes probable that they will be incurred and
amounts are reasonably estimable.

4,600,000 shares of common stock and 2,513,720 warrants to purchase common stock are subject to a
registration payment arrangement that provides if a resale registration statement is not effective for any period after April 13, 2007, the warrant holders may exercise their warrants on a cashless basis during the period the resale
registration statement is not effective. If Opexa fails to register, achieve effectiveness of registration or maintain effectiveness of registration of shares underlying the warrants and shares, they are required to make certain liquidated damage
payments of 1.5% of the aggregate amount of proceeds of the offering per month for



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##### Table of Contents

##### Index to Financial Statements

OPEXA THERAPEUTICS, INC.

(a development stage company)

NOTES TO FINANCIAL STATEMENTS



every month in default with a maximum of 24%. Opexa does not believe these payments are probable and thus no contingent liability has been recorded.

1,272,356 shares of common stock and 1,714,410 shares of common stock issuable upon the exercise of common stock purchase warrants issued
in June 2005 and July 2005 are subject to a registration payment arrangement that provides if a resale registration statement is not effective for any period after the first anniversary of the warrant, the warrant holders may exercise their warrants
on a cashless basis during the period the resale registration statement is not effective. If Opexa fails to register, achieve effectiveness of registration or maintain effectiveness of registration of shares underlying the warrants and shares, they
are required to make certain liquidated damage payments of 1.0% of the aggregate amount of proceeds of the offering per month for the first calendar month of registration default and 2% for every month in default after the first month. Opexa does
not believe these payments are probable and thus no contingent liability has been recorded.

The impact of implementing EITF 00-19-2 for
the year ended December 31, 2007 resulted in a cumulative effect of a change in accounting principle with a decrease in the derivative liability of $6,656,677 and a decrease to beginning retained earnings of $4,001,819 reversing gains posted to
date and a reclassification of the original value of the warrants from liability to equity of $10,658,496.

For the years ended
December 31, 2006 and 2005 the impact of the application of SFAS 133 and EITF 00-19 on the balance sheets and the statements of operations and the period from inception through December 31, 2006 is as follows:



|                  |  |                 |           |                 |   |                                  |  |                                |           |  |                                       |          |   |  |   |          
|----------------- |  | --------------- | --------- | --------------- | - | -------------------------------- |  | ------------------------------ | --------- |  | ------------------------------------- | -------- | - |  | - | ---------
|                  |  | As of12/31/2005 |           | As of12/31/2006 |   | Gain (Loss) Year Ended12/31/2005 |  | Gain (Loss)YearEnded12/31/2006 |           |  | Gain (Loss)InceptionThrough12/31/2006
|Series A Warrants |  | $               |          |                 | $ |                                 |  | $                              | 332,440   |  | $                                     |         |   |  | $ | 332,440  
|Series B Warrants |  |                 | 264,957   |                 |   |                                 |  |                                | 640,882   |  |                                       | 264,957  |   |  |   | 905,839  
|Series C Warrants |  |                 | 6,496,698 |                 |   | 6,656,677                        |  |                                | 2,923,519 |  |                                       | (159,979 | ) |  |   | 2,763,540
|                  |  |                 |           |                 |   |                                  |  |                                |           |  |                                       |          |   |  |   |          
|Totals            |  | $               | 6,761,655 |                 | $ | 6,656,677                        |  | $                              | 3,896,841 |  | $                                     | 104,978  |   |  | $ | 4,001,819
|                  |  |                 |           |                 |   |                                  |  |                                |           |  |                                       |          |   |  |   |          

NOTE 12LICENSES AND GAIN ON EXTINGUISHMENT OF DEBT

University of Chicago License Agreement

In
2004, Opexa entered into an agreement with the University of Chicago (University) for the worldwide license to technology developed at Argonne National Laboratory, a U.S. Department of Energy Laboratory operated by the University. The
license was later amended granting Opexa an exclusive, non-transferable worldwide license to the Universitys stem cell technology. In consideration for the license and amendment, Opexa paid the University a total of $232,742 and issued the
University 53,462 shares of common stock valued at $2,295,461. Opexa also agreed to pay the University $1.5 million and to issue the University 21,623 shares of Opexa common stock. In April 2007, the $1.5 million cash payment obligation was extended
until July 31, 2007 and the obligation to issue shares of Opexas common stock was extended until July 31, 2007, with $112,440 accrued as of June 30, 2007.



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##### Table of Contents

##### Index to Financial Statements

OPEXA THERAPEUTICS, INC.

(a development stage company)

NOTES TO FINANCIAL STATEMENTS



On July 31, 2007, Opexa entered into a second amended and restated license agreement with the
University of Chicago that eliminated the obligations under the prior agreement for the payment of $1.5 million due July 31, 2007 and the obligation to issue 21,623 shares of Opexa common stock. These obligations were recorded as an intangible
asset, with the liabilities recorded as a notes payablecurrent portion of $1.5 million and a stock payable of $112,440. As a result of the amendment and restatement of the license agreement with the University of Chicago $1,612,440 was
reported as a gain on extinguishment of liability. Opexa applied the accounting guidance of Financial Accounting Standard No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities
(FAS 140) and EITF 96-19 Debtors Accounting for a Modification or Exchange of Debt Instruments.

Shanghai Institute for
Biological Science License Agreement

In January 2006, Opexa acquired an exclusive worldwide license for the intellectual property
rights and research results of an autologous T cell vaccine for rheumatoid arthritis from the Shanghai Institute for Biological Science, China Academy of Science of the Peoples Republic of China. In exchange for a payment of $125,000 and an
agreed running royalty from the sale of commercialized products, Opexa receives all information and data related to all clinical trials on all patient controls and patients with rheumatoid arthritis with the T cell vaccine. This includes all
clinical, cell procurement and manufacturing protocols, complete patient data sheets, all laboratory materials, methods and results and manufacturing records and documents and any other data related to the intellectual property. The first payment
under the license occurred in April 2006 upon the delivery of materials pursuant to the terms of the licensing agreement.

Costs associated
with the acquisition of these two licenses had no separate economic value and were expensed to research and development in the period acquired.

NOTE
13SUBSEQUENT EVENT

Effective April 14, 2009, the Company closed on an initial tranche of a private offering
of secured convertible notes and warrants (the Units) for gross proceeds of approximately $1.1 million. The notes mature 24 months from their initial funding and are secured by
all of the Companys tangible and intangible assets excluding those particular fixed assets securing the Companys equipment line with Wells Fargo, N.A. The notes accrue interest at a 10% rate, compounded
annually, and are payable at maturity in either cash or common stock (at the same conversion price as below) at the Companys option. Subject to the satisfaction of certain conditions, the notes are mandatorily
convertible, at the Companys option, during their term at $.50/share. The required conditions are: (1) the Company enters into an agreement that will fund a Phase IIb or Phase III clinical trial for the further
development of the Companys product known as Tovaxin, (2) the Companys common stock trades at a price greater than or equal to $1.00 per share for twenty consecutive trading days, and (3) the Company has an effective
registration statement on file with the Securities and Exchange Commission for the re-sale of the shares of common stock issuable upon conversion of the notes . The warrants have a four year term and are exercisable
for 50% of the number of shares that the note is convertible into at an exercise price of $ 0.75 per share. In connection with the offering, the Company has agreed to pay commissions equal to 10% of the Units sold and
will issue broker warrants to acquire the number of shares of common stock equal to 7% of the aggregate number of broker warrant shares and shares of common stock issuable upon conversion of the broker notes. The Company will reimburse the
broker for its costs associated with the placement of the Units.



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