UNITED
          STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON,
        D.C. 20549




**FORM
        10KSB/A**


**(Amendment
        No. 1)**






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




For
      the
      fiscal year ended December 31, 2006





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





Commission
      File Number: 001-33004









**Opexa
        Therapeutics, Inc.**


(Exact
          name of small business issuer as specified in its charter)
   Texas
                76-0333165(State
                    or other jurisdiction of incorporation or organization)
                (IRS
                    Employer 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: None


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


Check
        whether the Issuer is not required to file reports pursuant to Section 13
        or
        15(d) of the Exchange Act.   ̈
 
 Check
        whether the Issuer (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 x  No o
 
 Check
        if
        there is no disclosure of delinquent filers in response to Item 405 of
        Regulation S-B is not contained in this form, and no disclosure will 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-KSB
        or any amendment to this Form 10-KSB. x
 
 Indicate
        by check mark whether the registrant is a shell company (as defined in Rule
        12b-2 of the Exchange Act).  Yes  ̈   No
x
 
 Issuer’s
        revenues for the fiscal year ended December 31, 2006: $0.
 
 The
        aggregate market value of the voting and non-voting common equity held by
        non-affiliates of the Issuer as of November 5, 2007 based upon the average
        bid
        and asked price as of such date, was $13,389,953.
 The
        Registrant’s common stock outstanding as of November 5, 2007, was 6,696,784
        shares.
  Transitional
        Small Business Disclosure Format (Check One): Yes o No x




TABLE
        OF
        CONTENTS
 PART
                  IIITEM
                  6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
                  OPERATION
              2ITEM
                  7. FINANCIAL STATEMENTS
              F-1PART
                  IIIITEM
                  13.  EXHIBITS
              6SIGNATURES
              6


*Explanatory
        Note*


Opexa
        Therapeutics, Inc. is filing this Amendment No. 1 on Form 10-KSB/A (the
“Form 10-KSB/A”) to amend our Annual Report on Form 10-K for the fiscal
        year ended December 31, 2006 (the “Report”) that was filed with the
        Securities and Exchange Commission (the “SEC”) on March 16, 2007. This Form
        10-KSB/A is being filed to replace Part I, Items 6 and 7.
 
 On
        November 2, 2007, Opexa filed its quarterly report for the period ended
        September 30, 2007. As shown in its financial statements, Opexa has negative
        cash flows provided by its operating activities and has a cash balance of
        $5.8
        million as of September 30, 2007 which is not sufficient to fund its operations
        for the next twelve months. These conditions raise substantial doubt as to
        Opexa’s ability to continue as a going concern. Our independent accountants have
        added a going concern paragraph to their report on the audited financial
        statements for the year ended December 31, 2006 and we have added a going
        concern footnote (See footnote 15) to the financial statements for the year
        ended December 31, 2006.
 
 Pursuant
        to Rule 12b-15 under the Securities Exchange Act of 1934, as amended (the
        “Exchange Act”), this Amendment No. 1 amends Item 6 and 7 in its entirety and
        contains new certifications pursuant to Rules 13a-14 and 15d-14 under the
        Exchange Act and Section 302 of the Sarbanes-Oxley Act of 2002. Other than
        as
        set forth above and the inclusion of new certifications pursuant to Rules
        13a-14
        and 15d-14 under the Exchange Act and Section 302 of the Sarbanes-Oxley Act
        of
        2002, no other changes or amendments to the Original Filing are being
        made.
  This
        Amendment No. 1 contains only the sections and exhibits to the Original Filing
        that are being amended, and those unaffected parts or exhibits are not included
        herein. This Amendment No. 1 continues to speak as of the date of the Original
        Filing and the Company has not updated the disclosure contained herein to
        reflect events that have occurred since the date of the Original Filing.
        Accordingly, this Amendment No. 1 should be read in conjunction with the
        Company’s other filings made with the Securities and Exchange Commission, and is
        subject to updating and supplementing as provided in the periodic reports
        that
        the Company has filed and will file after the date of the Original Filing
        with
        the Securities and Exchange Commission.
  1


**ITEM
      6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
      OPERATION**


*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
        History**
  We
        were
        incorporated in Texas in 1991 and in May 2004, we entered the biopharmaceutical
        business by acquiring an entity that held rights to treatments using adult
        multipotent stem cells derived from adult human peripheral
        blood.  From an accounting standpoint, the subsidiary is deemed the
        acquirer in a reverse merger whereby the parent is deemed the survivor of
        the
        reorganization.  As such, our financial statements are those of the
        subsidiary.  In November 2004, we acquired Opexa Pharmaceuticals, Inc.
        which holds rights to technology to an individualized T-cell therapeutic
        technology for treating MS.
  **Critical
        Accounting Policies**
  ***General***
  The
        Consolidated Financial Statements and Notes to Consolidated Financial Statements
        contain information that is pertinent to this management’s discussion and
        analysis.  The preparation of financial statements in conformity with
        accounting principles generally accepted in the United States requires
        management to make estimates and assumptions that affect the reported amounts
        of
        assets and liabilities and disclosure of any contingent assets and
        liabilities.  Management believes these accounting policies involve
        judgment due to the sensitivity of the methods, assumptions and estimates
        necessary in determining the related asset and liability
        amounts.  Management believes it has exercised proper judgment in
        determining these estimates based on the facts and circumstances available
        to it
        at the time the estimates were made.  The significant accounting
        policies are described in the Company's financial statements.
  ***Principles
        of Consolidation***
 
 The
        accompanying consolidated financial statements of the Company include the
        accounts of its wholly owned subsidiary.  All significant intercompany
        accounts and transactions have been eliminated.
 
 ***Long-Lived
        Assets***
 
 Long-lived
        assets (i.e., intangible assets) are reviewed for impairment whenever events
        or
        changes in circumstances indicate that the net book value of the asset may
        not
        be recoverable.  An impairment loss is recognized if the sum of the
        expected future cash flows (undiscounted and before interest) from the use
        of
        the asset is less than the net book value of the asset.  Generally,
        the amount of the impairment loss is measured as the difference between the
        net
        book value of the asset and the estimated fair value of the related
        asset.  Management does not believe any assets were impaired at
        December 31, 2006.
 
 ***Revenue***
  We
        did not
        receive any revenue in 2005 and 2006 and do not expect any revenue in
        2007.
  ***Intellectual
        Property***
  As
        of
        December 31, 2006, we had $28,256,772 of intellectual property, $23,991,128
        of
        which resulted from the acquisition of Opexa, $4,028,204 which pertained
        to the
        consideration paid to date to the University of Chicago for the worldwide
        license to technology developed at Argonne National Laboratory, $112,440
        stock
        payable to the University of Chicago accrued at September 30, 2006 for 21,623
        shares of common stock, and $125,000 paid to the Shanghai Institute for
        Biological Science, China Academy of Science of the People’s Republic of China
        whereby it acquired an exclusive worldwide license for the intellectual property
        rights and research results of an autologous T cell vaccine for rheumatoid
        arthritis. Of the $23,991,128 of acquired intangible assets, the full amount
        is
        assigned to an inseparable group of patents and licenses that cannot function
        independently by themselves.  The weighted average useful life of the
        intangible group as of December 31, 2006 is approximately 17
        years.  The weighted average useful life of the University of Chicago
        license is approximately 17 years.   Accumulated amortization for
        the Intellectual Property as of December 31, 2006 is $3,533,569.  In
        April 2005 the Company obtained a fairness opinion from an independent
        investment banking firm with respect to the Opexa acquisition and there was
        no
        impairment at that time.  In accordance with FAS 144, the Board
        authorized an update to this impairment analysis as of December 31, 2006
        and it
        was determined that no impairment existed.
  2


***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 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
        September 2000, the Emerging Issues Task Force ("EITF") issued EITF 00-19,
        "Accounting for Derivative Financial Instruments Indexed to and Potentially
        Settled in, a Company's Own Stock," ("EITF 00-19") which requires freestanding
        contracts that are settled in a company's own stock, including common stock
        warrants, to be designated as an equity instrument, asset or a liability.
        Under
        the provisions of EITF 00-19, a contract designated as an asset or a liability
        must be carried at fair value on a company's balance sheet, with any changes
        in
        fair value recorded in the company's results of operations. A contract
        designated as an equity instrument must be included within equity, and no
        fair
        value adjustments are required. In accordance with EITF 00-19, in June 2006,
        we
        determined that certain outstanding warrants to purchase our common stock
        should
        be separately accounted for as liabilities. We had not classified these
        derivative liabilities as such in our historical financial statements. In
        order
        to reflect these changes, we restated our financial statements for the year
        ended December 31, 2005 to record the fair value of these warrants on our
        balance sheet and record unrealized changes in the values of these derivatives
        in our consolidated statement of operations as “Gain (loss) on derivative
        liabilities.”
  We
        have
        evaluated the provisions of the registration rights agreement that require
        us to
        pay registration delay payments in combination with the financial instrument
        and
        concluded that the combined instrument meets the definition of a derivative
        under SFAS 133.
  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 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 will result 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.
  3


**Results
      of Operations and Financial Condition**


***Net
        Sales.***
  We
        recorded no sales for the twelve months ended December 31, 2006 and
        2005.
  ***General
        and Administrative Expenses***
  Our
        general and administrative expenses during the twelve months ended December
        31,
        2006, was $5,461,047 as compared to $6,259,075 for the twelve months ended
        December 31, 2005. The decrease in expenses is due to a combination of factors
        including a decrease in stock compensation expenses, professional service
        fees
        and overhead expenses in 2006. General and administrative expenses consist
        primarily of salaries and benefits, stock compensation expense, office expense,
        professional services fees, and other corporate overhead costs.  We
        anticipate increases in general and administrative expenses as we continue
        to
        develop and prepare for commercialization of our technology.
  ***Research
        and Development Expense***
  Research
        and development expense was $7,612,932 for the twelve months ended December
        31,
        2006, as compared to $4,183,356 the twelve months ended December 31,
        2005.  The increase in expenses was primarily due to the costs of the
        Phase I/II and Phase IIb clinical trials for TovaxinTM and research and
        development in support of pre-clinical diabetes stem cell
        therapies.  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.  Property, plant and equipment for research and development
        that has an alternative future use is capitalized and the related depreciation
        is expensed as research and development costs.  We expect our research
        and development expense to increase as we continue to invest in the development
        of our technology.
  ***Interest
        Expense***
  Interest
        expense was $984 for the twelve months ended December 31, 2006 compared to
        $7,323,851 for the twelve months ended December 31, 2005.  Interest
        expense during 2005 was due to notes payable that were outstanding during
        the
        second quarter of 2005 which were subsequently converted into equity in June
        2005, resulting in acceleration of the amortization of the discount related
        to
        the notes.
  ***Interest
        Income***
  Interest
        income was $688,299 for the twelve months ended December 31, 2006 compared
        to
        $81,930 for the twelve months ended December 31, 2005.  The increase
        was due to the investment of the cash proceeds from a 2006 equity financing
        in
        short term and cash equivalent investments.
  ***Gain
        (Loss) on Derivative Instruments Liabilities, net.***
 
 The
        Company recognized a gain on derivative instruments of $104,978 for the twelve
        months ended December 31, 2006 compared to $3,896,841 for the twelve months
        ended December 31, 2005. The decrease is a result of the net unrealized
        (non-cash) change in the fair value of our derivative instrument
        liabilities.
 
 ***Net
        Loss***
  We
        had net
        loss for the year ended December 31, 2006, of $14,056,407 or ($2.61) per
        share
        (basic and diluted), compared with a net loss of $15,517,356 or ($9.90) per
        share (basic and diluted), for the twelve months ended December 31,
        2005.
  4


**Liquidity
      and Capital Resources**





Historically,
      the Company has financed its operations primarily from the sale of its debt
      and
      equity securities.  As of December 31, 2006, the Company had cash, cash
      equivalents and marketable securities of approximately $15 million.




We
      used
      approximately $11.0.million of cash for operating activities for the year ended
      December 31, 2006 compared to approximately $6.2 million for the same period
      of
      2005.  The increase in use of cash is primarily due to an increase in
      research and development expenditures related to the clinical trials for our
      Tovaxin therapy for MS and the purchase of marketable securities.




Capital
      expenditures were approximately $0.6 million in 2006 and consisted primarily
      of
      laboratory equipment and leasehold improvements related to the construction
      of
      manufacturing facilities.




Our
      financing activities generated approximately $21.3 million for the year ended
      December 31, 2006 as compared to approximately $8.2 million for the same period
      of 2005.  In both periods, the cash generated from financing
      activities resulted from the sale of Common Stock in equity
      financings.




Our
      current burn rate is approximately $1 million per month excluding capital
      expenditures.  Without the proceeds of this offering, we would need to
      raise additional capital to fund our working capital needs beyond the first
      quarter of 2008.  Currently, we have determined that if we do not
      raise additional funds, there is a concern about our ability to continue our
      operations and our independent accountants have added a going concern paragraph
      to their report on the audit financial statements for the year ended December
      31, 2006.




**Contractual
      Commitments**




A
      tabular
      disclosure of contractual obligations at December 31, 2006, is as
      follows:




**Payments
                  Due by Period****Total**
              
              
              **Less
                  than 1 year**
              
              
              **1
                  - 3 years**
              
              
              **3
                  - 5 years**
              
              
              **More
                  than 5 years**Operating
                  Leases
              
              $
              1,274,175
              
              
              $
              117,774
              
              
              $
              276,978
              
              
              $
              295,080
              
              
              $
              584,343Consulting
                  and Research Agreements
              
              $
              142,646.5
              
              
              $
              142,147
              
              
              $
              500
              
              
              $
              -
              
              
              $
              -Total
              
              $
              1,416,822
              
              
              $
              259,921
              
              
              $
              277,478
              
              
              $
              295,080
              
              
              $
              584,343




**Off-Balance
        Sheet
        Arrangements**
  As
        of December 31, 2006, the Company
        had no off-balance sheet arrangements.
 
 **Recent
        Accounting Pronouncements**
 
 Effective
        January 1, 2006, we adopted the provisions of Statement of Financial Accounting
        Standards No. 123R, “Share-Based Payment” 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.
  5


**ITEM
        7. FINANCIAL STATEMENTS**
  **INDEX
        TO FINANCIAL STATEMENTS**


**Audited
                  Financial Statements for years ended December 31, 2006 and 2005
                  and the
                  period from January 22, 2003 (Inception) through December 31,
                  2006**Report
                  of Independent Registered Public Accounting
                  Firm
              
              F-2Consolidated
                  Balance Sheet as of December 31,
                  2006
              
              F-3Consolidated
                  Statements of Expenses for the years ended
                  December 31, 2006 and 2005 and the period from January 22, 2003
                  (Inception) through December 31, 2006
              
              F-4Consolidated
                  Statement of Changes in Stockholders
                  Equity from January 22, 2003 (Inception) through December 31,
                  2006
              
              F-5Consolidated
                  Statements of Cash Flows for the years
                  ended December 31, 2006 and 2005 and the period from January 22,
                  2003
                  (Inception) through December 31, 2006
              
              F-6Notes
                  to Consolidated Financial
                  Statements
              
              F-7






F-1




REPORT
        OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
        FIRM
 
 
 To
        the
        Board of Directors
 Opexa
        Therapeutics, Inc.
 (formerly
        PharmaFrontiers Corp.)
 (a
        development stage company)
 The
        Woodlands, Texas
 
 We
        have
        audited the accompanying consolidated balance sheet of Opexa Therapeutics,
        Inc.
        (a development stage company), as of December 31, 2006 and the related
        consolidated statements of expenses, changes in stockholders’ equity and cash
        flows for the years ended December 31, 2006 and 2005 and the period from
        January
        22, 2003 (Inception) through December 31, 2006. These consolidated financial
        statements are the responsibility of Opexa’s management. Our responsibility is
        to express an opinion on these consolidated 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. 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 consolidated financial statements referred to above present
        fairly,
        in all material respects, the consolidated financial position of Opexa as
        of
        December 31, 2006 and the consolidated results of its operations and its
        cash
        flows for the periods described in conformity with accounting principles
        generally accepted in the United States of America.
 
 As
        discussed in Note 15 to the consolidated financial statements, the accompanying
        consolidated 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 15. The consolidated financial statements do not include any adjustments
        that might result from the outcome of this uncertainty.
 
 
 MALONE
        & BAILEY, PC
 www.malone-bailey.com
 Houston,
        Texas
 
 March
        14,
        2007
 Except
        for
        Note 15 which is dated November 2, 2007
   F-2




**OPEXA
                  THERAPEUTICS, INC.****(a
                  development stage company)****(formerly
                  PharmaFrontiers Corp.)****CONSOLIDATED
                  BALANCE SHEET****December
                  31,****2006****Assets**Current
                  assets:Cash
                  and cash equivalents
              
              $
              12,019,914Investment
                  in marketable securities
              
              
              2,952,096Other
                  current assets
              
              
              472,881Total
                  current assets
              
              
              15,444,891Intangible
                  assets, net accumulated amortization of $3,533,569
              
              
              24,723,203Property
                  & equipment, net accumulated amortization of $395,284
              
              
              1,361,377Total
                  assets
              
              $
              41,529,471**Liabilities
                  and Stockholders' Equity**Current
                  liabilities:Accounts
                  payable
              
              $
              868,862Stock
                  payable
              
              
              112,440Accrued
                  expenses
              
              
              135,069Note
                  payable
              
              
              1,500,000Current
                  maturity of long term debt
              
              
              14,080Derivative
                  liability
              
              
              6,656,677Total
                  current liabilities
              
              
              9,287,128Long
                  term liabilities:Loan
                  payable
              
              
              96,242Total
                  liabilities
              
              
              9,383,370Commitments
                  and contingencies
              
              
              -Stockholders'
                  equity:Convertible
                  preferred stock, no par value, 10,000,000 shares
              
              
              -authorized,
                  none issued and outstandingCommon
                  stock, $0.50 par value, 100,000,000 shares authorized,
              
              
              3,348,3516,696,784
                  shares issued and outstandingAdditional
                  paid in capital
              
              
              63,118,180Deficit
                  accumulated during the development stage
              
              
              (34,320,430
              )Total
                  stockholders' equity
              
              
              32,146,101Total
                  liabilities and stockholders' equity
              
              $
              41,529,471




See
        accompanying summary of accounting policies and
 notes
        to
        consolidated financial statements
 F-3




**OPEXA
                  THERAPEUTICS, INC.****(a
                  development stage company)****(formerly
                  PharmaFrontiers Corp.)****CONSOLIDATED
                  STATEMENTS OF
                  EXPENSES****Years
                  ended December 31, 2006 and 2005 and the****Period
                  from January 22, 2003 (Inception) to December 31,
                  2006****Inception****through****2006**
              
              
              **2005**
              
              
              **2006**Research
                  and development
              
              $
              7,612,932
              
              
              $
              4,183,356
              
              
              $
              12,428,909General
                  and administrative
              
              
              5,461,047
              
              
              
              6,259,075
              
              
              
              14,206,469Depreciation
                  and amortization
              
              
              1,818,795
              
              
              
              1,735,209
              
              
              
              3,818,823Loss
                  on disposal of assets
              
              
              2,376
              
              
              
              22,810
              
              
              
              482,309Operating
                  loss
              
              
              (14,895,150
              )
              
              
              (12,200,450
              )
              
              
              (30,936,510
              )Interest
                  income
              
              
              688,299
              
              
              
              81,930
              
              
              
              776,221Other
                  income
              
              
              46,450
              
              
              
              28,174
              
              
              
              77,003Gain
                  on derivative liability
              
              
              104,978
              
              
              
              3,896,841
              
              
              
              4,001,819Interest
                  expense
              
              
              (984
              )
              
              
              (7,323,851
              )
              
              
              (8,238,963
              )Net
                  loss
              
              $
              (14,056,407
              )
              
              $
              (15,517,356
              )
              
              $
              (34,320,430
              )Basic
                  and diluted loss per share
              
              $
              (2.61
              )
              
              $
              (9.90
              )
              
              N/AWeighted
                  average shares outstanding
              
              
              5,390,910
              
              
              
              1,564,837
              
              
              N/A






See
        accompanying summary of accounting policies and
 notes
        to
        consolidated financial statements
 F-4




**OPEXA
                  THERAPEUTICS, INC.****(a
                  development stage company)****(formerly
                  PharmaFrontiers Corp.)****CONSOLIDATED
                  STATEMENT OF CHANGES IN STOCKHOLDERS'
                  EQUITY****Period
                  from January 22, 2003 (Inception) through December 31,
                  2006****Additional****Common
                  Stock**
              
              
              **Paid
                  in**
              
              
              **Accumulated****Shares**
              
              
              **Par**
              
              
              **Capital**
              
              
              **Deficit**
              
              
              **Total**Shares
                  issued for cash
              
              
              525,000
              
              
              $
              262,500
              
              
              $
              (261,500
              )
              
              $
              -
              
              
              $
              1,000Shares
                  repurchased and cancelled
              
              
              (170,625
              )
              
              
              (85,313
              )
              
              
              84,988
              
              
              
              -
              
              
              
              (325
              )Discount
                  related to:beneficial
                  conversion feature
              
              
              -
              
              
              
              -
              
              
              
              28,180
              
              
              
              -
              
              
              
              28,180warrants
                  attached to debt
              
              
              -
              
              
              
              -
              
              
              
              28,180
              
              
              
              -
              
              
              
              28,180Net
                  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
              
              
              
              -
              
              
              
              9,000services
              
              
              206,500
              
              
              
              103,250
              
              
              
              745,750
              
              
              
              -
              
              
              
              849,000license
              
              
              24,269
              
              
              
              12,135
              
              
              
              414,940
              
              
              
              -
              
              
              
              427,075reverse
                  merger with Sportan
              
              
              99,740
              
              
              
              49,870
              
              
              
              (197,603
              )
              
              
              -
              
              
              
              (147,733
              )acquisition
                  of Opexa
              
              
              250,000
              
              
              
              125,000
              
              
              
              23,625,000
              
              
              
              -
              
              
              
              23,750,000additional
                  shares attached toconvertible
                  debt
              
              
              16,100
              
              
              
              8,050
              
              
              
              280,316
              
              
              
              -
              
              
              
              288,366conversion
                  of convertible notes
              
              
              60,750
              
              
              
              30,375
              
              
              
              217,995
              
              
              
              -
              
              
              
              248,370Shares
                  cancelled
              
              
              (8,000
              )
              
              
              (4,000
              )
              
              
              4,000
              
              
              
              -
              
              
              
              -Discount
                  related to:beneficial
                  conversion feature
              
              
              -
              
              
              
              -
              
              
              
              855,849
              
              
              
              -
              
              
              
              855,849warrants
                  attached to debt
              
              
              -
              
              
              
              -
              
              
              
              1,848,502
              
              
              
              -
              
              
              
              1,848,502Option
                  expense
              
              
              -
              
              
              
              -
              
              
              
              123,333
              
              
              
              -
              
              
              
              123,333Net
                  loss
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (4,620,664
              )
              
              
              (4,620,664
              )Balances
                  at December 31, 2004
              
              
              1,005,984
              
              
              
              502,992
              
              
              
              27,805,805
              
              
              
              (4,746,667
              )
              
              
              23,562,130Shares
                  issued for:cash,
                  net of offering costs
              
              
              389,451
              
              
              
              194,725
              
              
              
              5,151,492
              
              
              
              -
              
              
              
              5,346,217convertible
                  debt
              
              
              611,026
              
              
              
              305,513
              
              
              
              7,343,933
              
              
              
              -
              
              
              
              7,649,446debt
              
              
              2,300
              
              
              
              1,150
              
              
              
              159,850
              
              
              
              -
              
              
              
              161,000license
              
              
              29,194
              
              
              
              14,597
              
              
              
              1,853,787
              
              
              
              -
              
              
              
              1,868,384services
              
              
              24,000
              
              
              
              12,000
              
              
              
              1,000,400
              
              
              
              -
              
              
              
              1,012,400Discount
                  related to:beneficial
                  conversion feature
              
              
              -
              
              
              
              -
              
              
              
              831,944
              
              
              
              -
              
              
              
              831,944warrants
                  attached to debt
              
              
              -
              
              
              
              -
              
              
              
              1,433,108
              
              
              
              -
              
              
              
              1,433,108Option
                  expense
              
              
              -
              
              
              
              -
              
              
              
              2,487,741
              
              
              
              -
              
              
              
              2,487,741Warrant
                  expense
              
              
              -
              
              
              
              -
              
              
              
              2,373,888
              
              
              
              -
              
              
              
              2,373,888Transition
                  of warrants from equity instruments to liability
                  instruments
              
              
              -
              
              
              
              -
              
              
              
              (10,658,496
              )
              
              
              -
              
              
              
              (10,658,496
              )Net
                  loss
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (15,517,356
              )
              
              
              (15,517,356
              )Balances
                  at December 31, 2005
              
              
              2,061,955
              
              
              
              1,030,977
              
              
              
              39,783,452
              
              
              
              (20,264,023
              )
              
              
              20,550,406Shares
                  issued for:cash,
                  net of offering costs
              
              
              4,600,000
              
              
              
              2,300,000
              
              
              
              18,853,519
              
              
              
              -
              
              
              
              21,153,519debt
              
              
              34,829
              
              
              
              17,374
              
              
              
              162,626
              
              
              
              -
              
              
              
              180,000Option
                  expense
              
              
              -
              
              
              
              -
              
              
              
              2,749,617
              
              
              
              -
              
              
              
              2,749,617Warrant
                  expense
              
              
              -
              
              
              
              -
              
              
              
              1,568,966
              
              
              
              -
              
              
              
              1,568,966Net
                  loss
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (14,056,407
              )
              
              
              (14,056,407
              )Balances
                  at December 31, 2006
              
              
              6,696,864
              
              
              $
              3,348,351
              
              
              $
              63,118,180
              
              
              $
              (34,320,430
              )
              
              $
              32,146,101






See
        accompanying summary of accounting policies and
 notes
        to
        consolidated financial statements
 F-5




**OPEXA
                  THERAPEUTICS, INC.****(a
                  development stage company)****(formerly
                  PharmaFrontiers Corp.)****CONSOLIDATED
                  STATEMENTS OF CASH
                  FLOWS****Years
                  ended December 31, 2006 and 2005 and the****Period
                  from January 22, 2003 (Inception) to December 31,
                  2006****Inception****through****2006**
              
              
              **2005**
              
              
              **2006**Cash
                  flows from operating activitiesNet
                  loss
              
              $
              (14,056,407
              )
              
              $
              (15,517,356
              )
              
              $
              (34,320,430
              )Adjustments
                  to reconcile net loss to net cashused
                  in operating activitiesStock
                  issued for services
              
              
              -
              
              
              
              1,012,400
              
              
              
              1,861,400Stock
                  issued for debt in excess of principal
              
              
              -
              
              
              
              109,070
              
              
              
              109,070Amortization
                  of discount on notes payable dueto
                  warrants and beneficial conversion feature
              
              
              -
              
              
              
              5,516,638
              
              
              
              6,313,205Unrealized
                  gain on marketable securities
              
              
              (25,912
              )
              
              
              -
              
              
              
              (25,912
              )Amortization
                  of intangible assets
              
              
              1,644,678
              
              
              
              1,637,129
              
              
              
              3,533,569(Gain)
                  on derivative liability
              
              
              (104,978
              )
              
              
              (3,896,841
              )
              
              
              (4,001,819
              )Depreciation
              
              
              174,117
              
              
              
              98,080
              
              
              
              285,254Debt
                  financing costs
              
              
              -
              
              
              
              365,910
              
              
              
              365,910Option
                  and warrant expense
              
              
              4,318,583
              
              
              
              4,861,629
              
              
              
              9,303,545Loss
                  on disposition of fixed assets
              
              
              2,376
              
              
              
              22,810
              
              
              
              482,309Changes
                  in:Accounts
                  payable
              
              
              359,396
              
              
              
              26,360
              
              
              
              444,562Marketable
                  securities
              
              
              (2,926,184
              )
              
              
              -
              
              
              
              (2,926,184
              )Prepaid
                  expenses
              
              
              (340,876
              )
              
              
              (88,185
              )
              
              
              (468,011
              )Accrued
                  expenses
              
              
              (105,240
              )
              
              
              23,655
              
              
              
              (50,259
              )Other
                  assets
              
              
              -
              
              
              
              (388,210
              )
              
              
              (388,210
              )Net
                  cash used in operating activities
              
              
              (11,060,447
              )
              
              
              (6,216,911
              )
              
              
              (19,482,001
              )Cash
                  flows from investing activitiesPurchase
                  of licenses
              
              
              (125,000
              )
              
              
              -
              
              
              
              (357,742
              )Purchase
                  of property & equipment
              
              
              (619,147
              )
              
              
              (258,903
              )
              
              
              (1,051,054
              )Net
                  cash used in investing activities
              
              
              (744,147
              )
              
              
              (258,903
              )
              
              
              (1,408,796
              )Cash
                  flows from financing activitiesCommon
                  stock sold for cash, net of offering costs
              
              
              21,153,520
              
              
              
              5,346,217
              
              
              
              26,509,737Common
                  stock repurchased and canceled
              
              
              -
              
              
              
              -
              
              
              
              (325
              )Proceeds
                  from debt
              
              
              110,322
              
              
              
              2,896,885
              
              
              
              6,464,913Repayments
                  on notes payable
              
              
              -
              
              
              
              (58,614
              )
              
              
              (63,614
              )Net
                  cash provided by financing activities
              
              
              21,263,842
              
              
              
              8,184,488
              
              
              
              32,910,711Net
                  change in cash and cash equivalents
              
              
              9,459,248
              
              
              
              1,708,674
              
              
              
              12,019,914Cash
                  and cash equivalents at beginning of period
              
              
              2,560,666
              
              
              
              851,992
              
              
              
              -Cash
                  and cash equivalents at end of period
              
              $
              12,019,914
              
              
              $
              2,560,666
              
              
              $
              12,019,914Cash
                  paid for:Income
                  tax
              
              $
              -
              
              
              $
              -
              
              
              $
              -Interest
              
              
              -
              
              
              
              -
              
              
              
              429NON-CASH
                  TRANSACTIONSIssuance
                  of common stock for purchase of Opexa
              
              $
              -
              
              
              $
              -
              
              
              $
              23,750,000Issuance
                  of common stock to Sportan shareholders
              
              
              -
              
              
              
              -
              
              
              
              147,733Issuance
                  of common stock for University of Chicago license
              
              
              -
              
              
              
              1,868,384
              
              
              
              2,295,459Issuance
                  of common stock for accrued interest
              
              
              -
              
              
              
              525,513
              
              
              
              525,513Conversion
                  of notes payable to common stock
              
              
              -
              
              
              
              6,159,610
              
              
              
              6,407,980Conversion
                  of accrued liabilities to common stock
              
              
              180,000
              
              
              
              17,176
              
              
              
              197,176Conversion
                  of accounts payable to note payable
              
              
              -
              
              
              
              -
              
              
              
              93,364Discount
                  on convertible notes relating to:-
                  warrants
              
              
              -
              
              
              
              1,433,108
              
              
              
              3,309,790-
                  beneficial conversion feature
              
              
              -
              
              
              
              831,944
              
              
              
              1,715,973- stock
                  attached to notes
              
              
              -
              
              
              
              999,074
              
              
              
              1,287,440Fair
                  value of derivative instrument
              
              
              -
              
              
              
              6,761,655
              
              
              
              6,761,655Stock
                  payable
              
              
              112,440
              
              
              
              -
              
              
              
              112,440




See
        accompanying summary of accounting policies and
 notes
        to
        consolidated financial statements


F-6


**OPEXA
      THERAPEUTICS, INC.**


**(a
        development stage company)**
 **(formerly
        PharmaFrontiers Corp.)**
 **NOTES
        TO CONSOLIDATED 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.
 
 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, TovaxinTM, which is in
        U.S. FDA Phase IIb human clinical trials to evaluate its safety and
        effectiveness in treating multiple sclerosis.
 
 **Development
        Stage Company.**  The Company is considered to be in the
        Development stage as defined in Statement of Financial Accounting Standards
        No.
        7. The Company has no revenues to date.
 
 **Basis
        of Presentation.**  In June 2006, the Company (i) changed its
        name to Opexa Therapeutics, Inc. from PharmaFrontiers Corp. 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 consolidated financial statements
        include
        the accounts of Opexa Therapeutics, Inc. and its wholly-owned subsidiary,
        Opexa
        Pharmaceuticals, Inc. Significant inter-company accounts and transactions
        have
        been eliminated.
 
 **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
        consolidated 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 consolidated 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 consolidated 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.
  F-7


**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, have 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.





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:




**2005**
              
              
              **Inception
                  through 2006**Net
                  loss as reported
              
              $
              (15,517,356
              )
              
              $
              (34,320,430
              )Add:
              stock
                  based compensation determined underintrinsic
                  value based method
              
              
              2,487,741
              
              
              
              2,611,074Less:
              stock
                  based compensation determined underfair
                  value based method
              
              
              (4,264,013
              )
              
              
              (4,417,377
              )Pro
                  forma net loss
              
              $
              (17,293,628
              )
              
              $
              (36,126,733
              )Basic
                  and dilutedNet
                  loss per common share
              
              $
              (9.90
              )
              
              N/AAs
                  reported
              
              $
              (11.10
              )
              
              N/A




**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 year ended December 31, 2006 was $7,612,932,
        as
        compared to $4,183,356 for the year ended December 31, 2005.
 
 **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 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
        September 2000, the Emerging Issues Task Force ("EITF") issued EITF 00-19,
        "Accounting for Derivative Financial Instruments Indexed to and Potentially
        Settled in, a Company's Own Stock," ("EITF 00-19") which requires freestanding
        contracts that are settled in a company's own stock, including common stock
        warrants, to be designated as an equity instrument, asset or a liability.
        Under
        the provisions of EITF 00-19, a contract designated as an asset or a liability
        must be carried at fair value on a company's balance sheet, with any changes
        in
        fair value recorded in the company's results of operations. A contract
        designated as an equity instrument must be included within equity, and no
        fair
        value adjustments are required.
  F-8


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 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 will result 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.


**Recently
        Issued Accounting Pronouncements.**
  In
        February 2006, the FASB issued SFAS 155, "Accounting for Certain Hybrid
        Financial Instruments," which amends SFAS 133, "Accounting for Derivative
        Instruments and Hedging Activities" and SFAS 140, "Accounting for Transfers
        and
        Servicing of Financial Assets and Extinguishments of Liabilities." SFAS 155
        simplifies the accounting for certain derivatives embedded in other financial
        instruments by allowing them to be accounted for as a whole if the holder
        elects
        to account for the whole instrument on a fair value basis. SFA 155 also
        clarifies and amends certain other provisions of SFAS 133 and SFAS 140. SFAS
        155
        is effective for all financial instruments acquired, issued or subject to
        a
        remeasurement event occurring in fiscal years beginning after September 15,
        2006
        and is therefore required to be adopted by the Company as of October 1, 2006.
        Management is still evaluating what effect this will have on the Company’s
        financial statements.
  In
        July
        2006, the FASB issued Interpretation No. 48 (FIN No. 48), "Accounting for
        Uncertainty in Income Taxes." This interpretation requires recognition and
        measurement of uncertain income tax positions using a "more-likely-than-not"
        approach. FIN No. 48 is effective for fiscal years beginning after December
        15,
        2006. Management is still evaluating what effect this will have on the Company’s
        financial statements.
  In
        September 2006, the FASB issued SFAS 157, “Fair Value Measurements." This
        standard defines fair value, establishes a framework for measuring fair value
        in
        generally accepted accounting principles, and expands disclosure about fair
        value measurements. This statement is effective for financial statements
        issued
        for fiscal years beginning after November 15, 2007. Early adoption is
        encouraged. The adoption of SFAS 157 is not expected to have a material impact
        on the financial statements.
 
 There
        were
        various other accounting standards and interpretations issued during 2006
        and
        2005, none of which are expected to have a material impact on the Company’s
        consolidated financial position, operations or cash flows.
 
 **NOTE
        2 – MARKETABLE SECURITIES**
 
 At
        December 31, 2006, Opexa invested $10.9 million in in A-1/P-1 commercial
        paper,
        of which $2.9 million is invested in marketable securities, and $3.9 million
        is
        invested in a money market account with an average market yield of 5.33%
        and
        average time to maturity of 1.32 months.  Interest income of $688,299
        was recognized for the twelve months ended December 31, 2006 in the consolidated
        statements of expenses.
 
 F-9


**NOTE
      3 – LICENSE AGREEMENTS**





***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.
      In consideration for the license, Opexa paid the University $57,742 and issued
      237,188 shares valued at $1,199,706. In December 2004, the License Agreement
      was
      amended granting Opexa an exclusive, non-transferable worldwide license to
      the
      University’s stem cell technology. In consideration for the amendment, Opexa
      paid the University an additional $175,000, issued the University 5,500 shares
      of common stock valued at $352,000, agreed to pay the University $1,500,000
      on
      October 30, 2005 and agreed to issue the University shares of Opexa common
      stock, including the shares already issued, equal to 2.6% of the total
      outstanding number of shares after conversion of the 15% exchangeable
      convertible subordinated promissory notes. In June 2005, 27,484 shares of common
      stock were issued to the University of Chicago per the terms of a license
      agreement. These shares were recorded at $867,064. In August 2005, 1,710 shares
      of common stock were issued to the University of Chicago per the terms of a
      license agreement. These shares were recorded at $109,434. In October 2006,
      the
      $1,500,000 cash payment obligation was extended until April 30, 2007 and (ii)
      the obligation to issue 21,623 shares of Opexa’s common stock issuable was
      extended until April 30, 2007, with $112,440 accrued at December 31,
      2006.





***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. Opexa amortizes this intangible asset over
      its
      life of 19 years and as of December 31, 2006 the intangible asset had an
      unamortized balance of $120,311.





**NOTE
      4 – INTANGIBLE ASSETS**





Intangible
      assets consisted of the following at December 31, 2006:




**Description**
              **Life**
              
              **Amount**University
                  of Chicago license (see Note 2)
              17
                  years
              
              $
              4,140,644Opexa
                  intangible group (see Note 11)
              15
                  years
              
              
              23,991,128Rheumatoid
                  arthritis license (see Note 2)
              19
                  years
              
              
              125,000Subtotal
              
              
              
              28,256,772Less:
                  accumulated amortization
              
              
              
              (3,533,569
              )Intangible
                  assets, net
              
              
              $
              24,723,203




The
        Company believes that patent rights form one of its most valuable assets.
        Patents and patent applications are a key currency of intellectual property,
        especially in the early stage of product development, as their purchase and
        maintenance gives the Company access to key product development rights from
        Opexa’s academic partners. The company amortizes its patent and license costs
        over a period of 15 to 19 years. These intangible assets
        are
        reviewed for impairment whenever events or changes in circumstances indicate
        that the carrying amount may not be recoverable. If the sum of the expected
        undiscounted cash flows is less than the carrying value of the related asset
        or
        group of assets, a loss is recognized for the difference between the fair
        value
        and the carrying value of the related asset or group of assets. The Company
        expenses payments made to legal firms that are engaged in filing and protecting
        rights to intellectual property and rights for our current products in both
        the
        domestic and international markets.  Amortization expense totaled
        $1,644,678 and $1,637,129 in fiscal 2006 and 2005, respectively.
  F-10


**NOTE
        5 – PROPERTY AND EQUIPMENT**
 
 Property
        and equipment consisted of the following at December 31, 2006:
  **Description**
                **Life**
                
                **Amount**Computer
                    equipment
                3
                    years
                
                $
                134,023Office
                    furniture and equipment
                3-10
                    years
                
                
                220,113Software
                3-5
                    years
                
                
                46,089Laboratory
                    equipment
                3-10
                    years
                
                
                912,709Leasehold
                    improvements
                10
                    years
                
                
                443,727Subtotal
                
                
                
                1,756,661Less:
                    accumulated depreciation
                
                
                
                (395,284
                )Property
                    and equipment, net
                
                
                $
                1,361,377
  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 $174,117 and $98,080 in fiscal 2006 and 2005,
          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, 2006, for federal income tax and alternative minimum tax reporting
          purposes, the Company had approximately $31,383,048 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 the Company’s
          acquisition of Opexa. The benefit could be subject to further limitations
          if
          significant future ownership changes occur in the Company.
 
 At
          December 31, 2006, deferred tax assets consisted of the following:
  NOL
                      @ 12/31/05
                  
                  $
                  (21,540,246
                  )Net
                      loss - 2006
                  
                  $
                  (14,056,407
                  )Subtotal
                  
                  
                  (35,596,653
                  )Derivative
                      (gain) loss
                  
                  
                  (104,978
                  )Option
                      expense
                  
                  
                  2,749,617Warrant
                      expense
                  
                  
                  1,568,966NOL
                      @ 12/31/06
                  
                  
                  (31,383,048
                  )Estimated
                      tax rate
                  
                  X
                      34%Deferred
                      tax asset
                  
                  
                  (10,670,236
                  )Valuation
                      allowance
                  
                  
                  10,670,236Net
                      deferred tax asset
                  
                  $
                  -






F-11


**NOTE
      7 – THIRD PARTY CONVERTIBLE NOTES**


Between
        September 2004 and February 2005, Opexa issued convertible notes to investors
        totaling $6,124,859. In March 2005, 45,169 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 in Opexa. In June 2005, a total
        of
        $6,650,372 comprised of the principal of the notes of $6,124,859 and accumulated
        interest of $525,513, which accrued at a rate of 15% per annum, was exchanged
        for 443,360 shares of common stock, Class A and Class B warrants that expired
        in
        2006, and Class C warrants to purchase 1,110,548 shares at an exercise price
        of
        $30 per share.
 
 Opexa
        analyzed the convertible notes and the warrants for derivative accounting
        consideration under SFAS 133 and EITF 00-19. Opexa determined the embedded
        conversion option in the convertible notes met the criteria for classification
        in stockholders equity under SFAS 133 and EITF 00-19. Therefore, derivative
        accounting was not applicable for these convertible notes
        payable.  See Note 13 for a discussion of the accounting for the
        warrants.
 
 **NOTE
        8 – NOTE PAYABLE**
 
 Note
        payable consists of a note in the amount of $1,500,000 payable to the University
        of Chicago, secured by license, no interest and due April 30,
        2007.  See Note 3 for details.
 
 Loan
        payable consists of an equipment line of up to $250,000 with Wells Fargo
        of
        which $110,322 was outstanding as of December 31, 2006. 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.
 
 **NOTE
        9 – COMMITMENTS AND CONTINGENCIES**
 
 ***Office
        Lease***
 
 In
        October
        2005, Opexa entered into a ten-year lease for its office and research
        facilities.  There is 2,500 sq. ft. of space still available for
        future build-out.  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 $117,774 for 2007, $137,196 for 2008,
        $139,782 for 2009, $147,540 for 2010, $147,540 for 2011 and $584,343 for
        years
        2012 to 2015. Rent expense for 2006 was $136,153 and $178,963 for
        2005.
 
 ***Contract
        Research Organization Agreement***
 
 In
        September 2006, Opexa engaged PharmaNet, LLC, a contract research organization
        focused on managing central nervous system trials to provide it with services
        in
        connection with its Phase IIb clinical trial.  An initial pre-payment of
        $400,000 was made to PharmaNet, LLC in April 2006, of which $133,334 remains
        as
        a prepaid balance as of December 31, 2006.  An additional $235,000
        payment was made in October representing an advance for investigator grant
        expenses, of which $191,329 remains a prepaid balance as of December 31,
        2006.
 
 **NOTE
        10 – 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.
 -
              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 2 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 12
                  for
                  details.




F-12




-
              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, beneficial conversion features
                  attached to
                  convertible notes.
 -
              Employee
                  stock option 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
                  $4,748,055. 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 expense was $2,487,741 for
                  2005.
 -
              Warrant
                  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 13 for
                  details.
 
 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 expense was $2,749,617 for
                  2006.
 -
              Warrant
                  expense was $1,568,966 for 2006.
 
 **NOTE
        11 – STOCK 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
        Stock 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 calculation with a volatility  of
        75.05% and a discount rate of 2%.




F-13


During
      2005, options to purchase 63,050 shares were granted to employees. at exercise
      prices 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
      method of calculation with a volatility range of 175.4% and a discount rate
      of
      2%.


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, vest from one to three years and have
        a fair
        value of $3,126,168. Using the Black-Scholes method, stock compensation for
        2006
        was $1,066,451 with a volatility range of 401.34% to 429.86% and a discount
        rate
        range of 4.72% - 5.22%.
 
 Opexa
        recorded $2,749,617 stock-based compensation expense to the management and
        employees during 2006.
 
 During
        2006, options to purchase 14,133 shares were forfeited.
 
 ***Consultant
        Warrants:***
 
 During
        2004, warrants 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 $1,011,770 was
        recorded using the Black-Scholes method with a volatility range of 75.05%
        and a
        discount rate of 2%.
 
 During
        2005, warrants to purchase 71,060 shares were granted to
        consultants.  Using the Black-Scholes method, fair value for 2005 was
        $1,552,936 with a volatility range of 175.4% and a discount rate of
        2%.
 
 During
        2005, warrants to purchase 46,085 shares of Common Stock ere issued to several
        brokerage firms as the offering costs and commissions for Opexa’s financing
        activities at an exercise price of $1.50 per share.  These warrants
        have a fair value of $2,197,162 and vest immediately.
 
 During
        2005, warrants to purchase 9,914 shares were forfeited and
        cancelled.
 
 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 $5.20. These warrants have a term of three years, vest
        immediately and have a fair value of $1,077,778.
 
 During
        2006, warrants 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, vest
        from
        one to three years and have a fair value of $1,496,375. Using the Black-Scholes
        method, stock compensation for 2006 was $931,597 with a volatility range
        of
        401.34% to 429.86% and a discount rate range of 4.72% - 5.22%.
 
 Opexa
        recorded $1,568,966 stock-based compensation expense to the consultants,
        directors and exiting directors during 2006.
 
 During
        2006, warrants to purchase 5,000 shares were expired.
 
 ***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.
 
 During
        2005, warrants to purchase 2,386,984 shares were granted to investors related
        to
        the convertible notes and warrants to purchase 254,363 shares were forfeited
        and
        cancelled.
 
 During
        2006, warrants to purchase 2,765,043 shares were granted to investors related
        to
        the Aril 2006 financing and warrants to purchase 1,645,002 shares were forfeited
        and cancelled.
  F-14


Summary
        information regarding options and warrants is as follows:
  **Weighted**
                
                
                
                
                
                **Weighted****Average**
                
                
                
                
                
                **Average****Exercise**
                
                
                
                
                
                **Exercise****Options**
                
                
                **Price**
                
                
                **Warrants**
                
                
                **Price**Year
                    ended December 31, 2003:Granted
                
                
                -
                
                
                $
                -
                
                
                
                15,000
                
                
                $
                1.00Outstanding
                    at December 31, 2003
                
                
                -
                
                
                
                -
                
                
                
                15,000
                
                
                
                1.00Year
                    ended December 31, 2004:Granted
                
                
                96,500
                
                
                
                31.70
                
                
                
                162,800
                
                
                
                22.30Outstanding
                    at December 31, 2004
                
                
                96,500
                
                
                
                31.70
                
                
                
                177,800
                
                
                
                22.40Year
                    ended December 31, 2005:Granted
                
                
                63,050
                
                
                
                15.70
                
                
                
                2,504,129
                
                
                
                28.60Forfeited
                    and canceled
                
                
                (4,167
                )
                
                
                42.80
                
                
                
                (264,277
                )
                
                
                24.50Outstanding
                    at December 31, 2005
                
                
                155,383
                
                
                
                24.90
                
                
                
                2,417,652
                
                
                
                23.51Year
                    ended December 31, 2006:Granted
                
                
                389,160
                
                
                
                5.48
                
                
                
                3,135,264
                
                
                
                9.28Forfeited
                    and canceled
                
                
                (14,133
                )
                
                
                34.79
                
                
                
                (1,649,995
                )
                
                
                12.77Outstanding
                    at December 31, 2006
                
                
                530,410
                
                
                $
                10.38
                
                
                
                3,902,921
                
                
                $
                13.52




Summary
        of
        options and warrants outstanding and exercisable as of December 31, 2006
        is as
        follows:
  **Exercise
                    Price**
                
                **Remaining
                    Life**
                
                **Options
                    Outstanding**
                
                
                **Options
                    Exercisable**
                
                
                **Warrants
                    Outstanding**
                
                
                **Warrants
                    Exercisable**$
                40.00
                
                3
                    -
                    4 years
                
                
                -
                
                
                
                -
                
                
                
                17,500
                
                
                
                8,375$
                30.00
                
                2
                    -
                    3 years
                
                
                84,500
                
                
                
                58,667
                
                
                
                5,000
                
                
                
                3,333$
                30.00
                
                3
                    -
                    4 years
                
                
                18,850
                
                
                
                8,950
                
                
                
                1,125,056
                
                
                
                1,116,389$
                15.00
                
                3
                    -
                    4 years
                
                
                -
                
                
                
                -
                
                
                
                46,895
                
                
                
                46,895$
                11.90
                
                3
                    -
                    4 years
                
                
                -
                
                
                
                -
                
                
                
                21,500
                
                
                
                3,000$
                11.50
                
                2
                    -
                    3 years
                
                
                -
                
                
                
                -
                
                
                
                16,750
                
                
                
                -$
                11.40
                
                2
                    -
                    3 years
                
                
                2,000
                
                
                
                -
                
                
                
                -
                
                
                
                -$
                9.80
                
                9
                    -
                    10 years
                
                
                -
                
                
                
                -
                
                
                
                37,000
                
                
                
                17,500$
                9.40
                
                9
                    -
                    10 years
                
                
                30,900
                
                
                
                -
                
                
                
                4,500
                
                
                
                500$
                8.25
                
                9
                    -
                    10 years
                
                
                12,500
                
                
                
                -
                
                
                
                1,500
                
                
                
                -$
                7.09
                
                9
                    -
                    10 years
                
                
                3,300
                
                
                
                -
                
                
                
                -
                
                
                
                -$
                7.00
                
                9
                    -
                    10 years
                
                
                37,000
                
                
                
                9,250
                
                
                
                -
                
                
                
                -$
                6.50
                
                4
                    -
                    5 years
                
                
                -
                
                
                
                -
                
                
                
                2,300,000
                
                
                
                2,300,000$
                5.20
                
                2
                    -
                    3 years
                
                
                -
                
                
                
                -
                
                
                
                8,500
                
                
                
                -$
                5.20
                
                9
                    -
                    10 years
                
                
                -
                
                
                
                -
                
                
                
                105,000
                
                
                
                52,500$
                5.00
                
                3
                    -
                    4 years
                
                
                -
                
                
                
                -
                
                
                
                213,720
                
                
                
                213,720$
                5.00
                
                4
                    -
                    5 years
                
                
                75,000
                
                
                
                32,100
                
                
                
                -
                
                
                
                -$
                5.00
                
                9
                    -
                    10 years
                
                
                266,360
                
                
                
                -
                
                
                
                -
                
                
                
                -530,410
                
                
                
                108,967
                
                
                
                3,902,921
                
                
                
                3,762,213




F-15


**NOTE
      12 – PURCHASE OF OPEXA PHARMACEUTICALS**


In
        October2004, Opexa
        acquired all of the outstanding stock of Opexa Pharmaceuticals, Inc. The
        acquisition was accounted for under the purchase method, where all of Opexa
        Pharmaceuticals, Inc.’s assets are 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
                
                $
                55,387Property,
                    plant and equipment, net
                
                
                639,160Intangible
                    assets
                
                
                23,991,128Total
                    assets, net
                
                
                24,685,675Current
                    liabilities
                
                
                935,675Total
                    liabilities assumed
                
                
                935,675Net
                    assets acquired
                
                $
                23,750,000




Of
        the
        $23,991,128 of acquired intangible assets, the full amount is assigned to
        an
        inseparable group of patents and licenses that cannot function independently
        by
        themselves. The weighted average useful life of the intangible group as of
        December 31, 2006 is approximately 15 years.
 
 **NOTE
        13 – DERIVATIVE INSTRUMENTS**
 
 For
        the
        years ended December 31, 2006 and 2005, Opexa evaluated the application of
        SFAS
        133 and EITF 00-19 for all of its financial instruments and identified the
        following financial instruments as derivatives:
 
 (1)
                  Series A Warrants issued in conjunction with the bridge note exchange
                  and
                  private placement offerings in June and July 2005, which expired
                  on
                  February 17, 2006;
 
 (2)
                  Series B Warrants issued in conjunction with the bridge note exchange
                  and
                  private placement offerings in June and July 2005, which expired
                  on
                  October 17, 2006; and
 
 (3)
                  Series C Warrants issued in conjunction with the bridge note exchange
                  and
                  private placement offerings in June and July
                  2005.
 
 These
        three series of warrants are 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 reports the value of these derivatives as current liabilities
        in
        its balance sheet and report changes in the value of these derivatives as
        non-operating gains or losses in its statements of operations. The value
        of the
        derivatives is required to be remeasured on a quarterly basis, and is based
        on
        the Black Scholes Pricing Model.
 
 Variables
        used in the Black-Scholes option-pricing model include (1) risk free interest
        rate, (2) expected warrant life is the actual remaining life of the warrants
        as
        of each period end, (3) expected volatility and (4) zero expected dividends
        as
        further detailed in the table as follows:
  F-16




**As
                  of 12/31/2005**
              
              
              **As
                  of 12/31/2006**Risk-free
                  rate for termA
                  Warrant
              
              
              4.08%
              
              
              
              -B
                  Warrant
              
              
              4.37%
              
              
              
              -C
                  Warrant
              
              
              4.35%
              
              
              
              501%Expected
                  volatilityA
                  Warrant
              
              
              30%
              
              
              
              -B
                  Warrant
              
              
              112%
              
              
              
              -C
                  Warrant
              
              
              475%
              
              
              
              487%




The
        impact
        of the application of SFAS 133 and EITF 00-19 on the balance sheets as of
        December 31, 2006 and 2005 and the statements of operations and for the years
        ended December 31, 2006 and 2005 and the period from inception through December
        31, 2006 is as follows:
  **As
                    of 12/31/2005**
                
                
                **As
                    of 12/31/2006**
                
                
                **Gain(Loss) Year
                    Ended 12/31/2005**
                
                
                **Gain(Loss) Year
                    Ended 12/31/2006**
                
                
                **Gain(Loss)
                    Inception Through 12/31/2006**Series
                    A Warrants
                
                $
                -
                
                
                $
                -
                
                
                $
                332,440
                
                
                $
                -
                
                
                $
                332,440Series
                    B Warrants
                
                
                264,957
                
                
                
                -
                
                
                
                640,882
                
                
                
                264,957
                
                
                $
                905,839Series
                    C Warrants
                
                
                6,496,698
                
                
                
                6,656,677
                
                
                
                2,923,519
                
                
                
                (159,979
                )
                
                $
                2,763,540Totals
                
                $
                6,761,655
                
                
                $
                6,656,677
                
                
                $
                3,896,841
                
                
                $
                104,978
                
                
                $
                4,001,819
  The
          warrants granted during the April 2006 financing were determined to qualify
          as
          for equity treatment under SFAS 133 and EITF 00-19.  Nothing in the
          warrant agreements required cash settlement or allowed for the possibility
          of
          cash settlement including the impact of the liquidated damages penalty
          under the
          registration rights agreement. It was determined on the date of grant and
          at
          December 31, 2006 that it was more economic to issue unregistered shares
          and pay
          the penalty than to issue registered shares.
 
 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 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 will result 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.
  F-17


**NOTE
      14 – STOCK PURCHASE AGREEMENT**


In
        June
        2004, Pharma was acquired by Sportan United Industries, Inc. 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 this transaction, Sportan changed
        its
        name to Pharma and 7,383,838 shares were outstanding.
 
 **NOTE
        15 - GOING CONCERN**
 
 On
        November 2, 2007, Opexa filed it quarterly report for the period ended September
        30, 2007. As shown in its financial statements, Opexa has negative cash flows
        provided by its operating activities and has a cash balance of $5.8 million
        as
        of September 30, 2007 which is not sufficient to fund its operations for
        the
        next twelve months. These conditions raise substantial doubt as to Opexa’s
        ability to continue as a going concern. Management will seek to raise additional
        capital through sales of convertible debt and/or equity. The financial
        statements do not include any adjustments that might be necessary if Opexa
        is
        unable to continue as a going concern.
   F-18


**ITEM
      13.  EXHIBITS**


(a)
              Exhibits.  The
                  following exhibits of the Company are included
                  herein.




Exhibit
        No.                                      Description
  Exhibit
                    31.1
                Certification
                    of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley
                    Act of 2002Exhibit
                    31.2
                Certification
                    of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley
                    Act of 2002Exhibit
                    32.1
                Certification
                    of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350,
                    as Adopted
                    Pursuant to Section 906 of the Sarbanes-Oxley Act of
                    2002Exhibit
                    32.2
                Certification
                    of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350,
                    as Adopted
                    Pursuant to Section 906 of the Sarbanes-Oxley Act of
                    2002




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/
                  DAVID B. MCWILLIAMSDavid
                  B. McWilliams,President
                and Chief Executive
                OfficerDate:
                  November 9, 2007
  Pursuant
        to the requirements of the Securities Exchange Act of 1934, this report has
        been
        signed below by the following person on behalf of the registrant and in the
        capacities and on the dates indicated.
  By:
              /s/
                  LYNNE HOHLFELDLynne
                  Hohlfeld,Chief
                  Financial Officer and Principal
                  Accounting OfficerDate:
                  November 9, 2007
   6