Acer Therapeutics 10QSB/A 2006 Q1 Quarterly report (small business) (amended)

Acer Therapeutics (ACER) 10QSB/A2006 Q1 Quarterly report (small business) (amended)

UNITED STATES SECURITIES AND

EXCHANGE COMISSION

WASHINGTON, D.C. 20549

FORM 10-QSB/A

(Amendment No.1)

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

OF 1934

For the quarterly period ended March 31, 2006

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES

EXCHANGE ACT OF 1934

Commission File Number: 000-25513

Opexa Therapeutics, Inc.

(Formerly known as PharmaFrontiers Corp)

(Exact name of Issuer as specified in is charter)

TEXAS	76-0333165
(State of Incorporation)	(IRS Employer Identification Number)

2635 Crescent Ridge Drive

The Woodlands, Texas 77381

(281) 272-9331

(Address and telephone number of principal executive offices)

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

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

Yes o No x

The number of shares of common stock of the registrant outstanding at May 9, 2006 was 66,967,035.

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

PHARMAFRONTIERS CORP.

INDEX TO FORM 10-QSB

March 31, 2006

	Page No.

PART I FINANCIAL INFORMATION

Item 1. Financial Statements

Consolidated Balance Sheets dated March 31, 2006 (unaudited)
and December 31, 2005 (audited)	4

Consolidated Statements of Expenses (unaudited) Three Months
Ended March 31, 2006 and 2005 and the Period from January 22,
2003 (Inception) to March 31, 2006 (unaudited)	5

Consolidated Statements of Cash Flows (unaudited) for the Three
Months Ended March 31, 2006 and 2005 and the Period from
January 22, 2003 (Inception) to March 31, 2006 (unaudited)	6

Notes to Consolidated Financial Statements (unaudited)	8

Item 2. Management's Discussion and Analysis	11

Item 3. Controls and Procedures	21

PART II OTHER INFORMATION

Item 1. Legal Proceedings	21

Item 2. Recent Sales of Unregistered Securities	21

Item 3. Defaults Upon Senior Securities	22

Item 4. Submission of Matters to a Vote of Security Holders	22

Item 5. Other Information	22

Signatures	22

Statement Regarding This Amendment

This Form 10-QSB is being amended to restate the accompanying consolidated financial statements. In June 2006, management determined that the warrants associated with the bridge note exchange and private placement offerings in June 2005 and July 2005 should have been recorded as derivative liabilities as of October 26, 2005. We have added footnote 6 to disclose the derivative instrument liabilities.

We are required to record the fair value of the warrants on our balance sheet at fair value with changes in the values of these derivatives reflected in the consolidated statement of operations as “Gain (loss) on derivative liability.” The effect of the (non-cash) changes related to accounting for these derivative instrument liabilities on our consolidated statement of operations for the three months ended March 31, 2006, was a decrease in our net loss of $254,140. Basic and diluted net loss attributable to common shareholders per share for the three months ended March 31, 2006 decreased by $0.01 The effect on our consolidated balance sheet as of March 31, 2006 was a increase in current liabilities of $6,507,515 and a corresponding decrease in stockholders’ equity.

In all other material respects, this Amended Quarterly Report on Form 10-QSB/A is unchanged from the Quarterly Report on Form 10-QSB previously filed by the Company on May 12, 2006. This amendment should also be read in conjunction with our amended Annual Report on Form 10-KSB for the year ended December 31, 2005, together with any subsequent amendments thereof.

PART I

FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

PHARMAFRONTIERS CORP.
(a development stage company)
CONSOLIDATED BALANCE SHEETS

	(Restated)
	March 31,	December 31,
	2006	2005
	(unaudited)	(audited)
Assets

Current assets:
Cash	$	1,059,856		$	2,560,666
Other current assets		208,488			182,524
Total current assets		1,268,344			2,743,190

Intangible assets, net of $2,298,174 and $1,888,891 of accumulated amortization		25,846,159			26,130,441
Property & equipment, net of $278,300 and $256,082 of accumulated depreciation		549,574			479,996
Other assets		450,943			388,210
Total assets	$	28,115,020		$	29,741,837

Liabilities and Stockholder's Equity

Current liabilities:
Accounts payable	$	773,317		$	689,467
Accrued expenses		89,702			240,309
Note payable		1,500,000			1,500,000
Derivative Liability		6,507,515			6,761,655
Total current liabilities		8,870,534			9,191,431

Commitments and contingencies		-			-

Stockholder' equity:
Convertible preferred stock, no par value, 10,000,000 shares		-			-
authorized, none issued and outstanding
Common stock, $.05 par value, 100,000,000 shares authorized,		1,048,351			1,030,977
20,967,035 and 20,619,545 shares issued and outstanding
Additional paid in capital		40,430,468			39,783,452
Deficit accumulated during the development stage		(22,234,333	)		(20,264,023	)
Total stockholders' equity		19,244,486			20,550,406
Total liabilities and stockholders' equity	$	28,115,020		$	29,741,837

		(Restated)						(Restated)
		Three Months Ended			Three Months Ended			Inception through
		March 31,			March 31,			March 31,
		2006			2005			2006
General and administrative	$	1,075,882		$	1,206,715		$	2,279,394
Depreciation and amortization		432,333			418,315			2,432,362
Research and development		738,450			644,264			13,096,337
Loss on disposal of assets		362			-			480,294
Operating loss		(2,247,027	)		(2,269,294	)		(18,288,387	)

Interest income		19,621			6,930			107,543
Other income		3,385			2,444			33,938
Gain on derivative liability		254,140			-			4,150,981
Interest expense		(429	)		(1,487,384	)		(8,238,408	)
Net loss	$	(1,970,310	)	$	(3,747,304	)	$	(22,234,333	)

Basic and diluted loss per share	$	(0.10	)	$	(0.37	)		N/A

Weighted average shares outstanding		20,654,294			10,224,456			N/A

PHARMAFRONTIERS CORP.

(a development stage company)

CONSOLIDATED STATEMENTS OF CASH FLOWS

Three Months ended March 31, 2006 and 2005 and the

Period from January 22, 2003 (Inception) to March 31, 2006

(unaudited)

(Restated)

Three Months

Inception

Ended

through

March 31,

2006

2005

2006

Cash flows from operating activities

Net loss	$	(1,970,310	)	$	(3,747,304	)	$	(22,234,333	)
Adjustments to reconcile net loss to net cash
used in operating activities
Stock issued for services		-			-			1,861,400
Stock issued for debt in excess of principal		-			109,070			109,070
Amortization of discount on notes payable due
to warrants and beneficial conversion feature		-			1,294,100			6,313,205
Amortization of intangible assets		409,282			396,869			2,298,172
Gain on derivative liability		(254,140	)					(4,150,981	)
Depreciation		23,051			21,444			134,187
Debt financing costs		-			-			365,910
Option and warrant expense		484,392			355,400			5,469,354
Loss on disposition of fixed assets		-			-			479,932
Changes in:
Accounts payable		83,850			(554,772	)		169,019
Prepaid expenses		(25,965	)		(34,973	)		(153,100	)
Accrued expenses		29,393			249,575			84,373
Other assets		(62,734	)		-			(450,944	)
Net cash used in operating activities		(1,283,181	)		(1,910,591	)		(9,704,736	)

Cash flows from investing activities
Purchase of licenses		(125,000	)		-			(357,742	)
Purchase of property & equipment		(92,629	)		(28,352	)		(524,536	)
Net cash used in investing activities		(217,629	)		(28,352	)		(882,278	)

Cash flows from financing activities
Common stock sold for cash, net of offering costs		-			-			5,356,217
Common stock repurchased and canceled		-			-			(325	)
Proceeds from debt		-			2,856,660			6,354,592
Repayments on notes payable		-			(58,614	)		(63,614	)
Net cash provided by financing activities		-			2,798,046			11,646,870

Net change in cash		(1,500,810	)		859,103			1,059,856
Cash at beginning of period		2,560,666			851,992			-
Cash at end of period	$	1,059,856		$	1,711,095		$	1,059,856

Cash paid for:
Income tax	$	-		$	-		$	-
Interest		429			-			429

NON-CASH TRANSACTIONS
Issuance of common stock for purchase of Opexa	$	-	$	-	$	23,750,000
Issuance of common stock to Sportan shareholders		-		-		147,733
Issuance of common stock for University of Chicago license		-		-		2,295,459
Issuance of common stock for accrued interest		-		-		525,513
Issuance of common stock for accounts payable		180,000				180,000
Conversion of notes payable to common stock		-		34,751		6,407,980
Conversion of accrued liabilities to common stock		-		17,176		17,176
Conversion of accounts payable to note payable		-		-		93,364
Discount on convertible notes relating to:
- warrants		-		1,433,108		3,309,790
- beneficial conversion feature		-		831,945		1,715,973
- stock attached to notes		-		999,074		1,287,440
Fair value of derivative instrument		-		-		10,658,496

PHARMAFRONTIERS CORP.

(a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 1 - BASIS OF PRESENTATION

The accompanying unaudited interim financial statements of PharmaFrontiers Corp., (“Pharma”), (a development stage company), have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission (“SEC”), and should be read in conjunction with the audited financial statements and notes thereto contained in Pharma’s latest Annual Report filed with the SEC on Form 10-KSB. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the financial statements that would substantially duplicate the disclosure contained in the audited financial statements for the most recent fiscal year, 2005, as reported in Form 10-KSB, have been omitted.

Restatements for the three months ended March 31, 2006 were made. See Note 6 for details.

NOTE 2 - STOCK BASED COMPENSATION

Effective January 1, 2006, Pharma began recording compensation expense associated with stock options and other forms of equity compensation in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 123R, Share-Based Payment, as interpreted by SEC Staff Accounting Bulletin No. 107. Prior to January 1, 2006, Pharma had accounted for stock options according to the provisions of Accounting Principles Board (“APB”) 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. Pharma 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 Pharma had applied the fair value provisions of FASB Statement No. 123, to stock-based employee compensation:

	(Restated)						(Restated)
	Three Months Ended			Three Months Ended			Inception
	March 31,			March 31,			through
	2006			2005			2006

Net loss as reported	$	(1,970,310	)	$	(3,747,304	)	$	(22,234,333	)

Add: stock based compensation determined
Under intrinsic value based method		-			355,400			2,611,074

Less: stock based compensation
determined under fair value based method		-			(453,024	)		(4,417,377	)

Pro forma net loss	$	(1,970,310	)	$	(3,844,928	)	$	(24,040,636	)

Basic and diluted
Net loss per common share:
As reported	$	(0.10	)	$	(0.37	)		N/A
Pro forma	$	(0.10	)	$	(0.38	)		N/A

NOTE 3 - INTANGIBLES

Rheumatoid Arthritis License

On January 4, 2006, Pharma entered in an agreement with 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. In exchange for a payment and an agreed running royalty from the sale of commercialized products, Pharma 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.

NOTE 4 - EQUITY

In March 2006, 347,490 shares of common stock were issued in settlement of an outstanding accounts payable in the amount of $180,000.

NOTE 5 - OPTIONS AND WARRANTS

There were no options or warrants issued during the first quarter.

In connection with the bridge note exchange and a private placement offerings in June and July of 2005, three separate types of warrants, known as Series A, Series B, and Series C, to purchase the common stock of Pharma were issued to investors. On February 17, 2006 the Series A warrants to exercise 10,411,400 shares of common stock expired.

NOTE 6 - DERIVATIVE INSTRUMENTS AND RESTATEMENT

In 2006, we evaluated the application of SFAS 133 and EITF 00-19 for all of our 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

(3) Series C Warrants issued in conjunction with the bridge note exchange and private placement offerings in June and July 2005

As a result, we report the value of these derivatives as current liabilities on our balance sheet and report changes in the value of these derivatives as non-operating gains or losses on our 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) 4.08% to 4.35% risk-free interest rate, (2) expected warrant life is the actual remaining life of the warrants as of each period end, (3) expected volatility is from 30% to 475% and (4) zero expected dividends.

The impact of the application of SFAS 133 and EITF 00-19 on the balance sheet and statements of operations as of and for the three months ended March 31, 2006 was as follows:

		As of		As of		Three months ended
		12/31/2005		3/31/2006		3/31/2006
Series A Warrants	$	-	$	-	$	-
Series B Warrants		264,957		284,312		(19,355	)
Series C Warrants		6,496,697		6,223,202		273,495
Totals	$	6,761,654	$	6,507,515	$	254,140

In June 2006, we determined that certain warrants to purchase our common stock should be separately accounted for as liabilities. We had not classified these derivative liabilities as such in our previously issued financial statements. In order to reflect these changes, we restated our financial statements for the three months ended March 31, 2006 to record the fair value of these warrants on our balance sheet as a liability and record changes in the values of these derivatives in our consolidated statement of operations as unrealized “Gain (loss) on derivative liabilities.”

The aggregate balance sheet amount shown for these derivative liabilities decreased from $6,761,654 on December 31, 2005 to $6,507,515 on March 31, 2006, resulting in a gain of $254,140 in the statements of operations for the three months ended March 31, 2006. This resulted in total liabilities being uderstated by $6,507,515 and net loss being overstated by $254,140.

NOTE 7 - SUBSEQUENT EVENTS

Private Placement Offering

On April 13, 2006, Pharma closed a financing transaction in which Pharma issued 46,000,000 shares of its common stock and warrants to purchase 23,000,000 shares of Pharma’s common stock for $23,000,000 to certain institutional and accredited investors (the “Transaction”). In connection with the Transaction, Pharma agreed to hold a shareholder’s meeting by June 30, 2006 to vote on a proposal to effect a 1 for 10 reverse split of Pharma common stock that will not reduce the number of shares of common stock Pharma is authorized to issue.

The warrants expire in five years, and are exercisable at $0.65 per share only after Pharma effects a 1 for 10 reverse split. The warrants contain standard adjustment provisions for stock splits, distributions, reorganizations, mergers and consolidations. Pharma has the right to call the warrants one year from the effective date of a resale registration statement if the closing bid price per share of Pharma’s common stock equals or exceeds $1.30 for twenty consecutive trading days in which the daily average trading volume of the common stock is at least 200,000 shares. Additionally, if the resale registration statement is not effective for any period after April 13, 2007, the warrant holders may exercise their warrants on a cashless basis during the period the resale registration statement is not effective.

Pharma has agreed to file a registration statement with the Securities and Exchange Commission by May 13, 2006 in order to register the resale of the shares of common stock issued pursuant to the Transaction and the shares issuable upon exercise of the warrants. If Pharma fails to meet this deadline, if the registration statement is not declared effective prior July 12, 2006 or August 11, 2006 (if the Securities and Exchange Commission comments on the registration statement), or if the registration statement ceases to remain effective, Pharma has agreed to pay the investors liquidated damages of 1.5% of the amount invested per 30 day period during such failure, up to 24% of the aggregate amount invested.

In connection with the Transaction, Pharma paid commissions and fees to their placement agent, MDB Capital Group LLC (“MDB”), and another broker dealer for services in connection with the Transaction an aggregate of $1,754,100

and issued MDB and another broker dealer three year warrants to purchase an aggregate of 2,137,200 shares of common stock at an exercise price of $0.50 per share, exercisable after Pharma effects a 1 for 10 reverse split. These warrants are not callable, have a cashless exercise option, and have standard adjustment provisions. Pharma agreed to register the resale of the shares underlying the warrants issued to MDB and the other broker dealer.

Pharma intends to conduct an appropriate accounting analysis consistent with general accepted accounting principles, including SFAS 133 and EITF 00-19, with respect to the securities issued in the Transaction, which may result in a portion of the proceeds being classified as a derivative liability. Any such derivative liability would be measured at each reporting date at fair value with the any change in fair value resulting in a gain or loss in Pharma’s statement of expenses.. Any such derivative liability initially will be reflected in Pharma’s financial statements for the fiscal quarter ending on June 30, 2006.

Additionally, the Transaction triggered certain adjustment provisions contained in Pharma’s series B warrants and series C warrants issued in June and July 2005. Pursuant to the adjustment provisions, the number of shares issuable upon exercise of the Series B warrants increased to 6,037,365 shares from 4,163,701 shares and the exercise price was reduced to $2.00 from $2.90 per share. The number of shares issuable upon exercise of the Series C warrants increased to 11,105,477 shares from 8,329,108 shares and the exercise price was reduced to $3.00 from $4.00 per share.

Pursuant to the Transaction, the new investors in the aggregate will own approximately 69% of the total outstanding shares of Pharma’s common stock, without giving effect to the warrants.

University of Chicago License

On April 13, 2006, Pharma amended that certain Amended and Restated License Agreement, dated December 30, 2004, with the University of Chicago with respect to certain payment obligations of Pharma, as follows: (i) an April 30, 2006 $1,500,000 cash payment obligation was extended until October 31, 2006; and (ii) the obligation to issue 216,228 shares of Pharma’s common stock issuable upon the close of the Transaction was extended until October 31, 2006.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS

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.

Forward-Looking Statements

Some of the statements contained in this report discuss future expectations, contain projections of results of operations or financial condition, or state other "forward-looking" information. The words "believe," "intend," "plan," "expect," "anticipate," "estimate," "project," "goal" and similar expressions identify such statement was made. These statements are subject to known and unknown risks, uncertainties, and other factors that could cause the actual results to differ materially from those contemplated by the statements. The forward-looking information is based on various factors and is derived using numerous assumptions. Factors that might cause or contribute to such a discrepancy include, but are not limited to the risks discussed in this and our other SEC filings. The Company does not promise to update forward-looking information to reflect actual results or changes in assumptions or other factors that could affect those statements. Future events and actual results could differ materially from those expressed in, contemplated by, or underlying such forward-looking statements.

The following discussion and analysis of the Company's financial condition is as of March 31, 2006. The Company's results of operations and cash flows should be read in conjunction with the Company's unaudited financial statements and notes thereto included elsewhere in this report and the audited financial statements and the notes thereto included in the Company's Form 10-KSB for the year ended December 31, 2005.

Business Overview

The Company is a biopharmaceutical company developing autologous cellular therapies to treat several major illnesses, including multiple sclerosis (MS), rheumatoid arthritis, diabetes, and cardiovascular disease. These therapies are based on the Company’s proprietary T-cell and stem cell technologies.

PharmaFrontiers’ lead product, Tovaxin™, is a T-cell-based therapeutic vaccine for MS, which offers a unique and personalized approach to treating the disease by inducing an immune response against the autoimmune myelin-reactive T-cells, which are believed to be responsible for the initiation of the disease process. Tovaxin is currently in Phase I/II clinical trials and is cleared by the U.S. Food and Drug Administration’s (FDA) Center for Biologics Evaluation and Research (CBER) to enter a Phase IIb trial. Initial Phase I/II human trials show that T-cell vaccination (TCV) appear to safely induce immune responses that deplete and regulate myelin-peptide reactive T-cells. In the first half of 2006, we plan to enroll the first patient in a Phase IIb placebo controlled trial. PharmaFrontiers believes that Tovaxin could be ready for commercialization as early as 2010. Moreover, the Company is evaluating a T-cell assay technology that can be used to monitor T-cell therapy and possibly develop a product for early diagnosis of MS.

We have an exclusive worldwide license for the intellectual property rights and research results of an autologous T cell vaccine for rheumatoid arthritis from the Shanghai Institutes for Biological Sciences (SIBS), Chinese Academy of Sciences of the People's Republic of China. The license agreement permits the SIBS' scientists to publish their research results to date after PharmaFrontiers has filed a patent application covering the rheumatoid arthritis T cell vaccine with the U.S. Patent and Trademark Office.

PharmaFrontiers also holds the exclusive worldwide license to adult pluripotent stem cells derived from peripheral blood monocytes that allow for the isolation, propagation, and differentiation into cells and tissues for patient-specific cell-based therapies. PharmaFrontiers is currently pursuing indications for congestive heart failure (CHF) and Type 1 diabetes with its stem cell technology. The Company also expects to conduct basic research to determine the potential use of its stem cells in other indications, such as macular degeneration, stroke, and Parkinson’s disease.

Organizational History

PharmaFrontiers was incorporated in Texas in 1986 and originally engaged in businesses other than the biopharmaceutical business. These other business operations were terminated in February 2002. In May 2004, we entered the biopharmaceutical business by acquiring an entity that held rights to treatments using adult pluripotent stem cells derived from adult human peripheral blood, and in connection therewith we changed our name to our current corporate name. From an accounting standpoint, the subsidiary is deemed the acquirer in a reverse merger whereby the parent is deemed the survivor of the reorganization/reverse merger. As such, our financial statements are those of the subsidiary. In November 2004, we acquired Opexa which holds rights to technology to diagnose and treat multiple sclerosis through modified autoreactive T cells.

Critical Accounting Policies

General

The consolidated financial statements and notes to the 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 subsidiaries. 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 have been impaired at March 31, 2006.

Intellectual Property

As of March 31, 2006, we had $25,846,159 of intellectual property, net of amortization, $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 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 March 31, 2006 is approximately 16 years. The weighted average useful life of the University of Chicago license as of March 31, 2006 is 17.5 years. Accumulated amortization for the Intellectual Property as of March 31, 2006 is $2,298,174.

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 three months ended March 31, 2006 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.

The EITF recently deliberated the impact of liquidated damages clauses in registration rights agreements and the effect on accounting and classification of instruments subject to the scope of EITF 00-19 in EITF 05-04 The Effect of a Liquidated Damages Clause on a Freestanding Financial Instrument Subject to Issue No. 00-19. The EITF has not reached a consensus on this issue and has deferred deliberation until the FASB addresses certain questions which could impact a conclusion on this issue. Specifically, EITF 05-04 presents alternative views on whether the liquidated

damages provisions in registration rights agreements should be combined with or treated separately from the associated financial instrument. As discussed above, we view the registration rights agreement and the financial instrument as one combined freestanding instrument. If the EITF were to adopt the view that the registration rights agreement should be viewed as a separate instrument from the financial instrument, we may have to account for additional derivatives.

Restatement of Financial Statements to Reflect Derivative Accounting

The consolidated financial statements for the three months ended March 31, 2006 included in this Interim Report have been restated to reflect additional non-operating gains and losses related to the classification of and accounting for warrants issued by Pharma associated with the bridge note exchange and private placement offerings in June 2005 and July 2005.

We determined certain of the warrants to purchase our common stock are derivatives that we are required to account for as liabilities in our financial statements. As a result, we report the value of these derivatives as current liabilities on our balance sheet and we report changes in the value of these derivatives as non-operating gains or losses on our statement of operations. The value of the derivatives is required to be remeasured on a quarterly basis, and is based on the market value of our common stock. Due to the nature of the required calculations and the large number of shares of our common stock involved in such calculations, changes in our common stock price may result in significant changes in the value of the derivatives and resulting gains and losses on our statement of operations. The aggregate balance sheet amount shown for these derivative liabilities decreased from $6,761,654 on December 31, 2005 to $6,507,515 on March 31, 2006, resulting in a gain of $254,140 in the statements of operations for the three months ended March 31, 2006. This resulted in total liabilities being uderstated by $6,507,515 and net loss being overstated by $254,140.

Results of Operations and Financial Condition

Three Months Ended March 31, 2006 Compared with Three Months Ended March 31, 2005

Net Sales. We recorded no sales for the three months ended March 31, 2006 and 2005.

General and Administrative Expenses. Our general and administrative expenses decreased during the three months ended March 31, 2006, to $1,075,882 as compared to $1,206,715 from the same period in 2005. The decrease in general and administrative expenses is due primarily to a reduction in legal fees associated with patent filings, a lower allocation of facilities costs and overhead now allocated to research and development offset in part by an increase in stock-based compensation expense. In January 1, 2006, we adopted Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment,” (“SFAS 123R”) which requires the measurement and recognition of compensation expense for all share-based payment awards made to our employees and directors including stock options and restricted stock based on estimated fair values. We elected to adopt the modified prospective transition method as provided by SFAS 123R and, accordingly, prior year results have not be restated. Stock-based compensation expense recognized under SFAS 123R for the three months ended March 31, 2006 was $484,392.

Research and Development Expenses. Research and development expense increased to $738,450 for the three months ended March 31, 2006, compared to $644,264 for the same period in 2005. The increase is primarily related an increase in consulting fees related to our Rheumatoid Arthritis program and a higher allocation of facilities and overhead costs to research and development due to increased development activities.

Interest Expense. Interest expense was $429 for the three months ended March 31, 2006 compared to $1,487,384 for the same period in 2005. The interest expense during 2005 was due to notes that were outstanding during the first quarter of 2005 which were subsequently converted into equity in June 2005.

Gain (loss) on derivative instruments liabilities, net. The Company recognized a gain on derivative instruments of $254,140 for the three months ended March 31, 2006. This gain is a result of the net unrealized (non-cash) change in the fair value of our derivative instrument liabilities related to certain warrants.

Net loss. The Company had net loss for the three months ended March 31, 2006, of ($1,970,310), or ($0.10) per share (basic and diluted), compared with a net loss of ($3,747,304), or ($0.37) per share (basic and diluted), for the same period in 2005. The decrease in net loss is primarily due to the reduction in interest expense discussed above.

Recent Financing

In Apri1 2006, the Company closed upon a transaction in which the Company issued 46,000,000 shares of the Company’s common stock and warrants to purchase 23,000,000 shares of the Company’s common stock for $23,000,000 to certain institutional and accredited investors (the “Financing”). In connection with the Financing, the Company agreed to hold a shareholder’s meeting by June 30, 2006 to vote on a proposal to effect a 1 for 10 reverse split of the Company common stock that will not reduce the number of shares of common stock the Company is authorized to issue.

The warrants will expire in five years, and are exercisable at $0.65 per share only after the Company effects a 1 for 10 reverse split. The warrants contain standard adjustment provisions for stock splits, distributions, reorganizations, mergers and consolidations. The Company has the right to call the warrants commencing one year from the effective date of a resale registration statement if the closing bid price per share of the Company’s common stock equals or exceeds $1.30 for twenty consecutive trading days in which the daily average trading volume of the common stock is at least 200,000 shares. Additionally, if the resale registration statement is not effective for any period after April 13, 2007, then the warrant holders may exercise their warrants on a cashless basis during the period the resale registration statement is not effective.

Liquidity and Capital Resources

Changes in cash flow. Cash used in operations for the three month period ended March 31, 2006 decreased from $1,910,591 for the same period in 2005 to $1,283,181 due to an increase in working capital in 2005. Cash used in investing activities for the three month period ended March 31, 2006 increased from $28,352 in the same period of 2005 to $217,629. The increase was due to the license payment made to Shanghai Institute related to the license obtained during the period for its Rheumatoid Arthritis T-cell technology and the purchase of laboratory equipment. Cash provided from financing activities was $0 as compared to $2,798,046 for the same period of 2005. In 2005 the cash flows were a result of proceeds from debt.

Historically, the Company has financed its operations primarily from the sale of its debt and equity securities. As of March 31, 2006, the Company had cash of approximately $1,059,856. Our current burn rate is approximately $800,000 per month excluding capital expenditures. As a result of the April 2006 Financing, we believe have sufficient working capital to fund operations through the third quarter of 2007. Thereafter, we will need to raise additional capital to fund our working capital needs. We do not have any material commitments from investors or any credit facilities available with financial institutions or any other third parties. Therefore, we expect that we will need to engage in best efforts sales of our securities to raise needed working capital. There is no assurance that we will be successful in any funding effort. The failure to raise such funds will necessitate the curtailment of operations and delay of the start of the clinical trials.

Off-Balance Sheet Arrangements

As of March 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” (“SFAS 123R”) which establishes accounting for equity instruments exchanged for employee service. We utilize the Black-Scholes option pricing model to estimate the fair value of employee stock based compensation at the date of grant, which requires the input of highly subjective assumptions, including expected volatility and expected life. Further, as required under SFAS 123R, we now estimate forfeitures for options granted, which are not expected to vest. Changes in these inputs and assumptions can materially affect the measure of estimated fair value of our share-based compensation. These assumptions are subjective and generally require

significant analysis

and judgment to develop. When estimating fair value, some of the assumptions will be based on, or determined from, external data and other assumptions may be derived from our historical experience with stock-based payment arrangements. The appropriate weight to place on historical experience is a matter of judgment, based on relevant facts and circumstances.

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

For the period ended March 31, 2006, there were no other changes to our critical accounting policies as identified in our annual report of Form 10-KSB for the year ended December 31, 2005.

Risks Related to Our Business and Our Common Stock

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

Our business is at an early stage of development.

Our business is at an early stage of development. We do not have any products in late-stage clinical trials or on the market. We are still in the early stages of identifying and conducting research on potential products. Only one of our products has progressed to the stage of being studied in human clinical trials. Our potential products will require significant research and development and preclinical and clinical testing prior to regulatory approval in the United States and other countries. We may not be able to develop any products, to obtain regulatory approvals, to enter clinical trials for any of our product candidates, or to commercialize any products. Our product candidates may prove to have undesirable and unintended side effects or other characteristics adversely affecting their safety, efficacy or cost-effectiveness that could prevent or limit their use. Any product using any of our technology may fail to provide the intended therapeutic benefits, or achieve therapeutic benefits equal to or better than the standard of treatment at the time of testing or production.

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

We have not generated any profits since our entry into the biotechnology business and have incurred significant operating losses. We expect to incur additional operating losses for the foreseeable future and, as we increase our research and development activities, we expect our operating losses to increase significantly. We do not have any sources of revenues and may not have any in the foreseeable future.

We will need additional capital to conduct our operations and develop our products and our ability to obtain the necessary funding is uncertain.

We need to obtain significant additional capital resources from sources including equity and/or debt financings, license arrangements, grants and/or collaborative research arrangements in order to develop products and continue the Company’s business. We believe that we have sufficient working capital to finance operations through the third quarter of 2007. Thereafter, we will need to raise additional working capital. Our current burn rate is approximately $800,000 per month excluding capital expenditures. The timing and degree of any future capital requirements will depend on many factors, including:

·	the accuracy of the assumptions underlying our estimates for capital needs in 2006 and beyond;

·	scientific progress in our research and development programs;

·	the magnitude and scope of our research and development programs; our ability to establish, enforce and maintain strategic arrangements for research, development, clinical testing, manufacturing and marketing;

·	our progress with preclinical development and clinical trials;

·	the time and costs involved in obtaining regulatory approvals;

·	the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims; and

·	the number and type of product candidates that we pursue.

Additional financing through strategic collaborations, public or private equity financings, capital lease transactions or other financing sources may not be available on acceptable terms, or at all. Additional equity financing could result in significant dilution to our stockholders. Further, if additional funds are obtained through arrangements with collaborative partners, these arrangements may require us to relinquish rights to some of our technologies, product candidates or products that we would otherwise seek to develop and commercialize by itself. If sufficient capital is not available, we may be required to delay, reduce the scope of or eliminate one or more of our programs, any of which could have a material adverse affect on our financial condition or business prospects.

Our financial statements include substantial non-operating gains or losses resulting from required quarterly revaluation under GAAP of our outstanding derivative instruments.

Generally accepted accounting principles in the United States require that we report the value of certain derivative instruments we have issued as current liabilities on our balance sheet and report changes in the value of these derivatives as non-operating gains or losses on our statement of operations. The value of the derivatives is required to be recalculated (and resulting non-operating gains or losses reflected in our statement of operations and resulting adjustments to the associated liability amounts reflected on our balance sheet) on a quarterly basis, and is based on the market value of our common stock. Due to the nature of the required calculations and the large number of shares of our common stock involved in such calculations, changes in our common stock price may result in significant changes in the value of the derivatives and resulting gains and losses on our statement of operations.

Clinical trials are subject to extensive regulatory requirements, very expensive, time-consuming and difficult to design and implement. Our products may fail to achieve necessary safety and efficacy endpoints during clinical trials.

Human clinical trials are very expensive and difficult to design and implement, in part because they are subject to rigorous regulatory requirements. The clinical trial process is also time consuming. We estimate that clinical trials of our product candidates will take at least several years to complete. Furthermore, failure can occur at any stage of the trials, and we could encounter problems that cause us to abandon or repeat clinical trials. The commencement and completion of clinical trials may be delayed by several factors, including:

·	unforeseen safety issues;

·	determination of dosing issues;

·	lack of effectiveness during clinical trials;

·	slower than expected rates of patient recruitment;

·	inability to monitor patients adequately during or after treatment; and

·	inability or unwillingness of medical investigators to follow our clinical protocols.

In addition, we or the FDA may suspend our clinical trials at any time if it appears that we are exposing participants to unacceptable health risks or if the FDA finds deficiencies in our IND submissions or the conduct of these trials.

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

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

We are dependent on contract research organizations and other contractors for clinical testing and for certain research and development activities, thus the timing and adequacy of our clinical trials and such research activities are, to a certain extent, beyond our control.

The nature of clinical trials and our business strategy requires us to rely on contract research organizations, independent clinical investigators and other third party service providers to assist us with clinical testing and certain research and development activities. As a result, our success is dependent upon the success of these outside parties in performing their responsibilities. Although we believe our contractors are economically motivated to perform on their contractual obligations, we cannot directly control the adequacy and timeliness of the resources and expertise applied to these activities by our contractors. If our contractors do not perform their activities in an adequate or timely manner, the development and commercialization of our drug candidates could be delayed.

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

We conduct our research and development in a 10,000 square foot facility in The Woodlands, Texas, which includes a 1,200 square foot suite of three rooms for the future manufacture of stem cell and T-cell therapies through Phase III trials. Our current facility is not large enough to conduct future commercial-scale manufacturing operations. We will need to expand further our manufacturing staff and facility, obtain a new facility or contract with corporate collaborators or other third parties to assist with future drug production.

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

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

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

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

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

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

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

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

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

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

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

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

The research and development of stem cell therapies is subject to and restricted by extensive regulation by governmental authorities in the United States and other countries. The process of obtaining U.S. Food and Drug Administration, or FDA, and other necessary regulatory approvals is lengthy, expensive and uncertain. We may fail to obtain the necessary approvals to continue our research and development, which would hinder our ability to manufacture or market any future product.

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

Our product candidates, if approved for marketing, may not achieve market acceptance since hospitals, physicians, patients or the medical community in general may decide to not accept and utilize these products. The product candidates that we are attempting to develop represent substantial departures from established treatment

methods and will compete with a number of more conventional drugs and therapies manufactured and marketed by major pharmaceutical companies. The degree of market acceptance of any of our developed products will depend on a number of factors, including:

·	our establishment and demonstration to the medical community of the clinical efficacy and safety of our product candidates;

·	our ability to create products that are superior to alternatives currently on the market;

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

·	reimbursement policies of government and third-party payers.

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

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

Although our common stock is currently traded on the OTC Bulletin Board, there is currently a limited market for our common stock and there can be no assurance that an improved market will ever develop. Investors are cautioned not to rely on the possibility that an active trading market may develop.

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

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

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

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

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

We currently anticipate that no cash dividends will be paid on the common stock in the foreseeable future. While our dividend policy will be based on the operating results and capital needs of the business, it is anticipated that all earnings, if any, will be retained to finance the future expansion of the our business. Therefore, prospective investors who anticipate the need for immediate income by way of cash dividends from their investment should not purchase the shares offered in this offering.

ITEM 3. CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures.

Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Our principal executive officer and principal financial officer, after evaluating the effectiveness of the Company's disclosure controls and procedures (as defined in the Securities Exchange Act of 1934 (Exchange Act) Rules 13a-15(e) and 15d-15(e) as of March 31, 2006, have concluded that our disclosure controls and procedures are not effective in providing reasonable assurance that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Commission's rules and forms. Specifically, we identified deficiencies in our internal controls and disclosure controls related to the accounting for equity with detachable warrants, primarily with respect to accounting for derivative liabilities in accordance with EITF 00-19 and SFAS 133. We restated our consolidated financial statements for the year ended December 31, 2005 and for the interim period ending March 31, 2006, in order to correct the accounting in such financial statements with respect to derivative liabilities in accordance with EITF 00-19 and SFAS 133. Since June 2006, we have undertaken improvements to our internal controls in an effort to remediate these deficiencies by improving supervision and training of our accounting staff to understand and implement the requirements of EITF 00-19 and SFAS 133.

(b) Changes in Internal Control Over Financial Reporting.

The management of the Company, with the participation of the principal executive officer and principal financial officer, has concluded there were no significant changes in the Company's internal controls over financial reporting that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II

OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

None.

ITEM 2. RECENT SALES OF UNREGISTERED SECURITIES.

In March 2006, the Company issued 347,490 shares of its common stock to two accredited persons in settlement of an outstanding account payable of $180,000. This transaction was completed pursuant to Section 4(2) of the Securities Act of 1933 and did not involve any public offering and was sold to a limited group of persons. Each recipient either received adequate information about the Company or had access, through employment or other relationships, to such information, and the Company determined that each recipient had such knowledge and experience in financial and business matters that they were able to evaluate the merits and risks of an investment in the Company.

All sales of the Company's securities were made by officers of the Company who received no commission or other remuneration for the solicitation of any person in connection with the respective sales of securities described above. The recipients of securities represented their intention to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof and appropriate legends were affixed to the share certificates and other instruments issued in such transactions.

On April 13, 2006, Pharma closed a financing transaction in which Pharma issued 46,000,000 shares of its common stock and warrants to purchase 23,000,000 shares of Pharma’s common stock for $23,000,000 to certain institutional and accredited investors (the “Transaction”). Please refer to the aforementioned Note 6 to the “Notes to Consolidated Financial Statements” for further details.

ITEM 3 DEFAULTS UPON SENIOR SECURITIES.

None.

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

None.

ITEM 5. OTHER INFORMATION.

None.

ITEM 6. EXHIBITS.

Exhibit 31.1	Chief Executive Officer Certification Pursuant to Section 13a-14 of the Securities Exchange Act (1)

Exhibit 31.2	Chief Financial Officer Certification Pursuant to Section 13a-14 of the Securities Exchange Act (1)

Exhibit 32.1	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes- Oxley Act of 2002 (1)

Exhibit 32.2	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes- Oxley Act of 2002 (1)

(1) Filed herewith.

SIGNATURES

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


	Opexa Therapeutics, Inc.

	By:	/s/ David B. McWilliams

		David B. McWilliams, CEO

	By:	/s/ C. William Rouse

		C. William Rouse, CFO

Date: June 20, 2006

PHARMAFRONTIERS CORP.

(a development stage company)

CONSOLIDATED STATEMENTS OF EXPENSES

Three Months ended March 31, 2006 and 2005 and the

Period from January 22, 2003 (Inception) to March 31, 2006

(unaudited)