X
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QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF
1934
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_____
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF
1934
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Delaware
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56-1953785
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(State
or Other Jurisdiction of Incorporation or Organization)
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(I.R.S. Employer Identification No.)
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23811
Inverness Place
Laguna
Niguel, California
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92677
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(Address
of Principal Executive Offices)
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(Zip Code)
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(Registrant’s
Telephone Number, Including Area Code)
949-481-9825
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Class
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Outstanding
as of
May
3, 2007
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|
Common
Stock, par value $.01 per share
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29,286,082
shares
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Page
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PART
I. FINANCIAL INFORMATION
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|||
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Item
1.
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Financial
Statements
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Statement
Regarding Financial Information
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3
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Condensed
Consolidated Balance Sheets as of March 31, 2007 (unaudited) and
September
30, 2006
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4
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Condensed
Consolidated Statements of Operations for the Three Months and Six
Months
ended March 31, 2007 and 2006 (unaudited)
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5
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Condensed
Consolidated Statements of Cash Flows for the Six Months ended March
31,
2007 and 2006 (unaudited)
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6
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Notes
to Condensed Consolidated Financial Statements
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7
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Item
2.
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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10
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Item
3.
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Quantitative
and Qualitative Disclosures About Market Risk
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13
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Item
4.
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Controls
and Procedures
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13
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PART
II. OTHER INFORMATION
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Item
1.
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Legal
Proceedings
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13
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Item
1A.
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Risk
Factors
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13
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Item
2.
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Unregistered
Sales of Equity Securities and Use of Proceeds
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13
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Item
3.
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Defaults
Upon Senior Securities
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13
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Item
4.
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Submission
of Matters to a Vote of Security Holders
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14
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Item
5.
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Other
Information
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14
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Item
6.
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Exhibits
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14
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SIGNATURES
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14
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AEOLUS
PHARMACEUTICALS, INC.
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|||||||
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|||||
CONDENSED
CONSOLIDATED BALANCE SHEETS
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|||||||
(In
thousands, except shares and per share data)
|
|||||||
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|
|||||
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March
31,
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September
30,
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|||||
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2007
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2006
|
|||||
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(Unaudited)
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|
|||||
ASSETS
|
|||||||
Current
assets:
|
|
|
|||||
Cash
and cash equivalents
|
$
|
913
|
$
|
3,324
|
|||
Prepaids
and other current assets
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347
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104
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|||||
Total
current assets
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1,260
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3,428
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|||||
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|||||||
Investment
in CPEC LLC
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126
|
126
|
|||||
Total
assets
|
$
|
1,386
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$
|
3,554
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|||
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|||||||
LIABILITIES
AND STOCKHOLDERS' DEFICIT
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|||||||
Current
liabilities:
|
|||||||
Accounts
payable
|
$
|
273
|
$
|
868
|
|||
Accrued
expenses
|
16
|
23
|
|||||
Current
maturity of long-term note payable
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-
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956
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|||||
Total
current liabilities
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289
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1,847
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|||||
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|||||||
Long-term
note payable
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459
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-
|
|||||
Total
liabilities
|
748
|
1,847
|
|||||
Commitments
and contingences
|
|||||||
|
|||||||
Stockholders'
deficit:
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|||||||
Preferred
stock, $.01 par value per share, 10,000,000 shares
authorized:
|
|||||||
Series
B nonredeemable convertible preferred stock, 600,000
shares
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|||||||
authorized;
475,087 shares issued and outstanding at March 31,
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|||||||
2007
and September 30, 2006
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5
|
5
|
|||||
Common
stock, $.01 par value per share, 150,000,000 shares
authorized;
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|||||||
29,286,082 and 29,265,249 shares issued and outstanding at
|
|||||||
March
31, 2007 and September 30, 2006, respectively
|
293
|
293
|
|||||
Additional
paid-in capital
|
154,735
|
154,311
|
|||||
Accumulated
deficit
|
(154,395
|
)
|
(152,902
|
)
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|||
Total
stockholders' deficit
|
638
|
1,707
|
|||||
Total
liabilities and stockholders' deficit
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$
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1,386
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$
|
3,554
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|||
|
|||||||
The
accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
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CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
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|||||||||||||
(Unaudited)
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|||||||||||||
(In
thousands, except per share data)
|
|||||||||||||
Three
Months Ended
|
Six
Months Ended
|
||||||||||||
March
31,
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March
31,
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||||||||||||
2007
|
2006
|
2007
|
2006
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||||||||||
Revenue
|
|||||||||||||
Grant
income
|
$
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-
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$
|
91
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$
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-
|
$
|
92
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|||||
Costs
and expenses:
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|||||||||||||
Research
and development
|
341
|
965
|
677
|
2,258
|
|||||||||
General
and administrative
|
447
|
556
|
1,076
|
1,047
|
|||||||||
Total
costs and expenses
|
788
|
1,521
|
1,753
|
3,305
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|||||||||
Loss
from operations
|
(788
|
)
|
(1,430
|
)
|
(1,753
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)
|
(3,213
|
)
|
|||||
Interest
income (expense), net
|
19
|
(8
|
)
|
35
|
(19
|
)
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|||||||
Equity
in income of CPEC LLC
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-
|
433
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-
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433
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|||||||||
Other
income
|
225
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19
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225
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36
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|||||||||
Decrease
in fair value of common stock warrants
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-
|
147
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-
|
401
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|||||||||
Net
loss
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(544
|
)
|
(839
|
)
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(1,493
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)
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(2,362
|
)
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|||||
Preferred
stock dividend accreted
|
-
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(55
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)
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-
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(55
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)
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|||||||
Net
loss attributable to common stockholders
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$
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(544
|
)
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$
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(894
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)
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$
|
(1,493
|
)
|
$
|
(2,417
|
)
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|
Net
loss per weighted share attributable to common
stockholders:
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|||||||||||||
(basic
and diluted)
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$
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(0.02
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)
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$
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(0.06
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)
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$
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(0.05
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)
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$
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(0.17
|
)
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Weighted
average common shares outstanding:
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|||||||||||||
Basic
and diluted
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29,286
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14,077
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29,277
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14,058
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|||||||||
The
accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
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AEOLUS
PHARMACEUTICALS, INC.
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|||||||
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|||||
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
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|||||||
(Unaudited)
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|||||||
(In
thousands)
|
|||||||
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|
|
|||||
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Six
Months Ended
|
||||||
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March
31,
|
||||||
|
2007
|
2006
|
|||||
Cash
flows from operating activities:
|
|
|
|||||
Net
loss
|
$
|
(1,493
|
)
|
$
|
(2,362
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)
|
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|||||||
Noncash
compensation
|
403
|
156
|
|||||
Noncash
interest and financing costs
|
28
|
41
|
|||||
Forgiveness
of Note Payable
|
(225
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)
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-
|
||||
Equity
income of CPEC LLC
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-
|
(433
|
)
|
||||
Decrease
in fair value of common stock warrants
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-
|
(401
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)
|
||||
Change
in assets and liabilities:
|
|||||||
Accounts
receivable
|
(199
|
)
|
9
|
||||
Prepaids
and other assets
|
(44
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)
|
(71
|
)
|
|||
Accounts
payable and accrued expenses
|
(602
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)
|
284
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||||
Net
cash used in operating activities
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(2,132
|
)
|
(2,777
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)
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|||
|
|||||||
Cash
flows from financing activities:
|
|||||||
Repayment
of Note Payable
|
(300
|
)
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-
|
||||
Proceeds
from issuance of Series A Preferred Stock
|
-
|
2,413
|
|||||
Proceeds
from exercise of stock options
|
21
|
42
|
|||||
Net
cash (used in) provided by financing activities
|
(279
|
)
|
2,455
|
||||
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|||||||
Net
decrease in cash and cash equivalents
|
(2,411
|
)
|
(322
|
)
|
|||
Cash
and cash equivalents at beginning of period
|
3,324
|
626
|
|||||
Cash
and cash equivalents at end of period
|
$
|
913
|
$
|
304
|
|||
|
|||||||
|
|||||||
The
accompanying notes are integral part of these unaudited condensed
consolidated financial statements.
|
|
Shares
|
Weighted
Average Exercise Price
|
Weighted
Average Remaining Contractual Term
|
Aggregate
Intrinsic Value
|
|||||||||
Outstanding
at September 30, 2006
|
3,071,806
|
$
|
3.25
|
7.7
years
|
$
|
22,000
|
|||||||
Granted
|
742,000
|
$
|
0.60
|
||||||||||
Exercised
|
(20,833
|
)
|
$
|
1.00
|
|||||||||
Forfeited
|
(452,356
|
)
|
$
|
0.64
|
|||||||||
Outstanding
at December 31, 2006 (unaudited)
|
3,340,617
|
$
|
3.02
|
7.2
years
|
$
|
27,000
|
|||||||
Exercisable
at December 31, 2006 (unaudited)
|
2,957,700
|
$
|
3.32
|
6.9
years
|
$
|
15,000
|
|
Options
Outstanding
|
Options
Exercisable
|
||||||||||||||
Range
of Exercise Prices
|
Number
Outstanding at March 31, 2007
|
Weighted
Average Exercise Price
|
Weighted
Average Remaining Contractual Life
|
Number
Exercisable at March 31, 2007
|
Weighted
Average Exercise Price
|
|||||||||||
|
|
|
|
|
|
|||||||||||
$0.38
- 0.73
|
337,211
|
$
|
0.61
|
8.0
years
|
183,044
|
$
|
0.61
|
|||||||||
$0.75
- $0.80
|
396,000
|
$
|
0.76
|
8.9
years
|
282,667
|
$
|
0.76
|
|||||||||
$0.81
- $0.85
|
350,994
|
$
|
0.85
|
8.6
years
|
235,994
|
$
|
0.85
|
|||||||||
$0.89
- $1.12
|
340,477
|
$
|
0.95
|
8.5
years
|
340,477
|
$
|
0.95
|
|||||||||
$1.13
- $1.45
|
50,450
|
$
|
1.16
|
7.7
years
|
50,450
|
$
|
1.16
|
|||||||||
$1.50
|
1,256,015
|
$
|
1.50
|
6.3
years
|
1,256,015
|
$
|
1.50
|
|||||||||
$1.52
- $5.00
|
374,556
|
$
|
2.74
|
7.3
years
|
374,139
|
$
|
2.74
|
|||||||||
$5.10
- $31.88
|
186,115
|
$
|
18.84
|
4.2
years
|
186,115
|
$
|
18.84
|
|||||||||
$50.9375
|
2,999
|
$
|
50.94
|
3.0
years
|
2,999
|
$
|
50.94
|
|||||||||
$51.25
|
45,800
|
$
|
51.25
|
3.0
years
|
45,800
|
$
|
51.25
|
|||||||||
$0.38
- $51.25
|
3,340,617
|
$
|
3.02
|
7.2
years
|
2,957,700
|
$
|
3.32
|
For
the six months
March
31,
|
|||||||
2007
|
2006
|
||||||
Research
and development expenses
|
$
|
130
|
$
|
23
|
|||
General
and administrative expenses
|
248
|
133
|
|||||
Total
stock-based compensation expense
|
$
|
378
|
$
|
156
|
For
the six months March 31,
|
||||
2007
|
2006
|
|||
Dividend
yield
|
0%
|
0%
|
||
Expected
volatility
|
191
- 195%
|
187
- 189%
|
||
Risk-free
interest rate
|
4.5%
- 5.1%
|
4.3%
- 4.9%
|
||
Expected
option life after shares are vested
|
10
years
|
10
years
|
(a)
|
The
stockholders elected the following persons as directors of Aeolus
Pharmaceuticals: David C. Cavalier, John M. Farah, Jr., Joseph J.
Krivulka, Amit Kumar, Michael E. Lewis, Chris A. Rallis and Peter
D.
Suzdak, The votes for and against (withheld) each nominee were as
follows:
|
Nominee
|
Votes
For
|
Votes
Withheld
|
Votes
Abstained
|
|||||||
David
C. Cavalier
|
18,386,139
|
57,637
|
0
|
|||||||
John
M. Farah, Jr.
|
18,406,960
|
36,816
|
0
|
|||||||
Joseph
J. Krivulka
|
18,407,960
|
35,816
|
0
|
|||||||
Amit
Kumar
|
18,414,360
|
29,416
|
0
|
|||||||
Michael
E. Lewis
|
18,413,360
|
30,416
|
0
|
|||||||
Chris
A. Rallis
|
18,388,442
|
55,334
|
0
|
|||||||
Peter
D. Suzdak
|
18,413,360
|
30,416
|
0
|
(b)
|
The
stockholders approved the appointment by the Audit Committee of the
Board
of Directors of Haskell & White LLP as the Company’s independent
public accountants to audit the Company’s financial statements for fiscal
2007, with 18,406,040 shares voting for approval, 20,968 shares voting
against and 16,769 shares
abstained.
|
(c) |
The
stockholders approved the amendment of the Company’s 2004 Stock Option
Plan to increase the authorized number of shares of Common Stock
of Aeolus
from 2,000,000 shares to 5,000,000 shares, with 15,425,154 shares
voting
for approval, 172,793 shares voting against, 32,063 shares abstained
and
2,813,767 shares were broker non-votes.
|
Exhibit
#
|
|
Description
|
31.1
|
Certification
of the Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a)
and 15d-14(a).
|
|
31.2
|
Certification
of the Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a)
and 15d-14(a).
|
|
32.1
|
Certification
by the Chief Executive Officer and Chief Financial Officer pursuant
to 18
U.S.C. §1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
|
Date: May
10, 2007
|
By:
|
/s/
John L. McManus
|
|
|
John
L. McManus
President
and Chief Executive Officer
(Principal
Executive Officer)
|
|
|
|
Date: May
10, 2007
|
By:
|
/s/
Michael P. McManus
|
|
|
Michael
P. McManus
Chief
Financial Officer, Treasurer and Secretary
(Principal
Financial and Accounting Officer)
|