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
February
7, 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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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 December 31, 2006 (unaudited)
and September 30, 2006
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4
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Condensed
Consolidated Statements of Operations for the Three Months ended
December
31, 2006 and 2005 (unaudited)
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5
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Condensed
Consolidated Statements of Cash Flows for the Three
Months ended December 31, 2006 and 2005 (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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9
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Item
3.
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Quantitative
and Qualitative Disclosures About Market Risk
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12
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Item
4.
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Controls
and Procedures
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12
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PART
II. OTHER
INFORMATION
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Item
1.
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Legal
Proceedings
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12
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Item
1A.
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Risk
Factors
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12
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Item
2.
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Unregistered
Sales of Equity Securities and Use of Proceeds
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12
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Item
3.
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Defaults
Upon Senior Securities
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12
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Item
4.
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Submission
of Matters to a Vote of Security Holders
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12
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Item
5.
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Other
Information
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12
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Item
6.
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Exhibits
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13
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SIGNATURES
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13
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AEOLUS
PHARMACEUTICALS, INC.
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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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|||||
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December
31,
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September
30,
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2006
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2006
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(Unaudited)
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ASSETS
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Current
assets:
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Cash
and cash equivalents
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$
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2,418
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$
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3,324
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|||
Prepaids
and other current assets
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54
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104
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|||
Total
current assets
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2,472
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3,428
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Investment
in CPEC LLC
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126
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126
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Total
assets
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$
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2,598
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$
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3,554
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LIABILITIES
AND STOCKHOLDERS' DEFICIT
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Current
liabilities:
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Accounts
payable
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$
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583
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$
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868
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Accrued
expenses
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5
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23
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Current
maturity of long-term note payable
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977
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956
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Total
current liabilities
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1,565
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1,847
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Total
liabilities
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1,565
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1,847
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Commitments
and contingences
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Stockholders'
deficit:
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Preferred
stock, $.01 par value per share, 10,000,000 shares
authorized:
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Series
B nonredeemable convertible preferred stock, 600,000
shares
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authorized;
475,087 shares issued and outstanding at December 31,
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2006
and September 30, 2006
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5
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5
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Common
stock, $.01 par value per share, 150,000,000 shares
authorized;
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29,286,082 and 29,265,249 shares issued and outstanding at
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December
31, 2006 and September 30, 2006, respectively
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293
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293
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Additional
paid-in capital
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154,586
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154,311
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Accumulated
deficit
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(153,851
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)
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(152,902
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)
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Total
stockholders' deficit
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1,033
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1,707
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Total
liabilities and stockholders' deficit
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$
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2,598
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$
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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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AEOLUS
PHARMACEUTICALS, INC.
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In
thousands, except per share data)
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Three
Months Ended
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December
31,
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2006
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2005
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Revenue:
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Grant
income
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$
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-
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$
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1
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Costs
and expenses:
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Research
and development
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336
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1,293
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General
and administrative
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629
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491
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Total
costs and expenses
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965
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1,784
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Loss
from operations
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(965
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)
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(1,783
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)
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Interest
expense, net
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16
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(12
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)
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Other
income
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-
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18
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Decrease
in fair value of common stock warrants
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-
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254
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Net
loss attributable to common stockholders
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$
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(949
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)
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$
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(1,523
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)
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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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(0.03
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)
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$
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(0.11
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)
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Weighted
average common shares outstanding:
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(basic
and diluted)
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29,269
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14,038
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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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CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
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|||||||
(Unaudited)
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|||||||
(In
thousands)
|
|||||||
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Three
Months Ended
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||||
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December
31,
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||||
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2006
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2005
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Cash
flows from operating activities:
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Net
loss
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$
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(949
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)
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$
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(1,523
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)
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Adjustments
to reconcile net loss to net cash used in operating
activities:
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Noncash
compensation
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238
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76
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Noncash
interest and financing costs
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38
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22
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Decrease
in fair value of common stock warrants
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-
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(254
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)
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Change
in assets and liabilities:
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Accounts
receivable
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1
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|
-
|
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Prepaids
and other assets
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48
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27
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||
Accounts
payable and accrued expenses
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(303
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)
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727
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Net
cash used in operating activities
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(927
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)
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(925
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)
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Cash
flows from financing activities:
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Proceeds
from issuance of Series A Preferred Stock
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-
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2,413
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Proceeds
from exercise of stock options
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21
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21
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Net
cash provided by financing activities
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21
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2,434
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Net
(decrease) increase in cash and cash equivalents
|
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(906
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)
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1,509
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Cash
and cash equivalents at beginning of period
|
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3,324
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|
626
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Cash
and cash equivalents at end of period
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$
|
2,418
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$
|
2,135
|
|
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The
accompanying notes are integral part of these unaudited condensed
consolidated financial statements.
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Shares
|
|
Weighted
Average Exercise Price
|
|
Weighted
Average Remaining Contractual Term
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Aggregate
Intrinsic Value
|
||||
Outstanding
at September 30, 2006
|
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3,071,806
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$
|
3.25
|
|
||||
Granted
|
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|
721,000
|
|
$
|
0.61
|
|
||||
Exercised
|
|
|
(20,833
|
)
|
$
|
1.00
|
|
||||
Forfeited
|
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|
(1,703
|
)
|
$
|
0.40
|
|
||||
Outstanding
at December 31, 2006 (unaudited)
|
|
|
3,770,270
|
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$
|
2.75
|
7.9
|
$
|
-
|
|
|
Exercisable
at December 31, 2006 (unaudited)
|
|
|
2,706,935
|
|
$
|
3.57
|
7.1
|
$
|
-
|
|
|
|
Options
Outstanding
|
|
Options
Exercisable
|
||||||||
Range
of Exercise Prices
|
|
Number
Outstanding at December 31, 2006
|
|
Weighted
Average Exercise Price
|
|
Weighted
Average Remaining Contractual Life
|
|
Number
Exercisable at December 31, 2006
|
|
Weighted
Average Exercise Price
|
||
|
|
|
|
|
|
|
|
|
|
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|
$0.55
|
8,800
|
|
$
|
0.55
|
|
8.7
years
|
|
8,800
|
|
$
|
0.55
|
|
$0.60
|
665,250
|
|
$
|
0.60
|
|
9.9
years
|
|
15,250
|
|
$
|
0.60
|
|
$0.66
- $0.80
|
|
488,161
|
|
$
|
0.75
|
|
8.9
years
|
|
248,161
|
|
$
|
0.75
|
$0.81
- $0.89
|
|
384,035
|
|
$
|
0.85
|
|
8.9
years
|
|
211,535
|
|
$
|
0.85
|
$0.90
- $1.45
|
|
357,886
|
|
$
|
0.98
|
|
8.6
years
|
|
357,886
|
|
$
|
0.98
|
$1.50
|
|
1,256,015
|
|
$
|
1.50
|
|
6.6
years
|
|
1,256,015
|
|
$
|
1.50
|
$1.52
- $5.10
|
|
394,391
|
|
$
|
2.86
|
|
7.4
years
|
|
393,556
|
|
$
|
2.86
|
$6.25
- $31.90
|
|
166,933
|
|
$
|
20.52
|
|
4.3
years
|
|
166,933
|
|
$
|
20.53
|
$50.9375
|
|
2,999
|
|
$
|
50.94
|
|
3.3
years
|
|
2,999
|
|
$
|
50.94
|
$51.25
|
45,800
|
|
$
|
51.25
|
|
3.3
years
|
|
45,800
|
|
$
|
51.25
|
|
$0.55
- $51.25
|
3,770,270
|
|
$
|
2.75
|
|
7.9
years
|
|
2,706,935
|
|
$
|
3.57
|
Research
and development expenses
|
|
$
|
73
|
|
General
and administrative expenses
|
|
|
165
|
|
Total
stock-based compensation expense
|
|
$
|
238
|
|
For
the three months December 31,
|
||||
2006
|
2005
|
|||
Dividend
yield
|
0%
|
0%
|
||
Expected
volatility
|
191%
|
189%
|
||
Risk-free
interest rate
|
4.5%
- 5.0%
|
4.3%
- 4.6%
|
||
Expected
option life after shares are vested
|
10
years
|
10
years
|
Exhibit
#
|
|
Description
|
3.1
|
Certificate
of Amendment of Amended and Restated Certificate of Incorporation
(incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed
dated October 27, 2006).
|
|
10.1
|
|
Separation
Agreement between Aeolus Pharmaceuticals, Inc. and Richard P. Burgoon,
Jr.
dated December 6, 2006 (incorporated by reference to Exhibit 10.1
of the
Company’s Form 8-K filed dated November 30, 2006).
|
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: February
9, 2007
|
By:
|
/s/
John L. McManus
|
|
|
John
L. McManus
President
and Chief Operating Officer
(Principal
Executive Officer)
|
|
|
|
Date: February
9, 2007
|
By:
|
/s/
Michael P. McManus
|
|
|
Michael
P. McManus
Chief
Financial Officer, Treasurer and Secretary
(Principal
Financial and Accounting Officer)
|