Aeolus Pharmaceuticals (AOLS) 10-Q 15 May 17 2017 Q2 Quarterly report Financial data

Document and Entity Information

Document and Entity Information - shares	6 Months Ended
	Mar. 31, 2017	May 15, 2017
Document And Entity Information
Entity Registrant Name	AEOLUS PHARMACEUTICALS, INC.
Entity Central Index Key	1,261,734
Document Type	10-Q
Document Period End Date	Mar. 31, 2017
Amendment Flag	false
Current Fiscal Year End Date	--09-30
Is Entity a Well-known Seasoned Issuer?	No
Is Entity a Voluntary Filer?	No
Is Entity's Reporting Status Current?	Yes
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		152,085,825
Document Fiscal Period Focus	Q2
Document Fiscal Year Focus	2,017

CONDENSED CONSOLIDATED BALANCE

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) - USD ($) $ in Thousands	Mar. 31, 2017	Sep. 30, 2016
Current assets:
Cash and cash equivalents	$ 981	$ 3,155
Accounts receivable	603	750
Prepaid expenses and other current assets	149	230
Total current assets	1,733	4,135
Investment in CPEC LLC	32	32
Total assets	1,765	4,167
Current liabilities:
Accounts payable and accrued expenses	638	972
Total current liabilities	638	972
Total liabilities	638	972
Commitments and Contingencies (Note H)
Stockholders' equity:
Common stock, $.01 par value per share, 200,000,000 shares authorized; 152,085,825 shares issued and outstanding as of March 31, 2017 and September 30, 2016	1,520	1,520
Additional paid-in capital	191,917	191,863
Accumulated deficit	(192,310)	(190,188)
Total stockholders' equity (deficit)	1,127	3,195
Total liabilities and stockholders' equity (deficit)	1,765	4,167
Series A nonredeemable convertible preferred stock
Stockholders' equity:
Preferred stock, $.01 par value per share, 10,000,000 shares authorized:	0	0
Series B nonredeemable convertible preferred stock
Stockholders' equity:
Preferred stock, $.01 par value per share, 10,000,000 shares authorized:	0	0
Series C nonredeemable convertible preferred stock
Stockholders' equity:
Preferred stock, $.01 par value per share, 10,000,000 shares authorized:	$ 0	$ 0

CONDENSED CONSOLIDATED BALANCE3

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (Parenthetical) - $ / shares	Mar. 31, 2017	Sep. 30, 2016
Stockholder's deficit:
Preferred stock par value	$ .01	$ .01
Preferred stock, authorized shares	10,000,000	10,000,000
Common stock, par value	$ .01	$ .01
Common stock, Authorized	200,000,000	200,000,000
Common stock, Issued	152,085,825	152,085,825
Common stock, outstanding	152,085,825	152,085,825
Series A nonredeemable convertible preferred stock
Stockholder's deficit:
Preferred stock, authorized shares	1,250,000	1,250,000
Preferred stock shares issued	0	0
Preferred stock shares outstanding	0	0
Series B nonredeemable convertible preferred stock
Stockholder's deficit:
Preferred stock, authorized shares	1,600,000	1,600,000
Preferred stock shares issued	0	0
Preferred stock shares outstanding	0	0
Series C nonredeemable convertible preferred stock
Stockholder's deficit:
Preferred stock, authorized shares	5,000	0
Preferred stock shares issued	4,500	0
Preferred stock shares outstanding	4,500	0

CONDENSED CONSOLIDATED STATEMEN

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Mar. 31, 2017	Mar. 31, 2016	Mar. 31, 2017	Mar. 31, 2016
Revenue:
Contract revenue	$ 129	$ 565	$ 212	$ 870
Costs and expenses:
Research and development	594	501	1,082	993
General and administrative	570	693	1,252	1,254
Total costs and expenses	1,164	1,194	2,334	2,247
Loss from operations	(1,035)	(629)	(2,122)	(1,377)
Interest expense	0	0	0	(285)
Net loss	(1,035)	(629)	(2,122)	(1,662)
Deemed dividend on Series C preferred stock	0	1,906	0	2,486
Net loss attributable to common stockholders	$ (1,035)	$ (2,535)	$ (2,122)	$ (4,148)
Net loss per weighted share attributable to common stockholders:
Basic (Note E)	$ (0.01)	$ (0.02)	$ (0.01)	$ (0.03)
Diluted (Note E)	$ (0.01)	$ (0.02)	$ (0.01)	$ (0.03)
Weighted average common shares outstanding:
Basic	152,085	151,560	152,085	145,466
Diluted	152,085	151,560	152,085	145,466

CONDENSED CONSOLIDATED STATEME5

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - USD ($) $ in Thousands	6 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Cash flows from operating activities:
Net loss	$ (2,122)	$ (1,662)
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization of discount on note payable to shareholders	0	273
Accrued interest	0	12
Non-cash compensation	54	74
Change in assets and liabilities:
Accounts receivable	147	219
Deferred subcontractor cost	0	(176)
Prepaid expenses and other current assets	81	(111)
Accounts payable and accrued expenses	(334)	(567)
Deferred revenue	0	183
Net cash used in operating activities	(2,174)	(1,755)
Cash flows from financing activities:
Proceeds from issuance of common stock and common stock warrants, net	0	2,005
Proceeds from issuance of preferred stock and common stock warrants, net	0	4,165
Net cash provided by financing activities	0	6,170
Net (decrease) increase in cash and cash equivalents	(2,174)	4,415
Cash and cash equivalents at beginning of period	3,155	94
Cash and cash equivalents at end of period	981	4,509
Supplemental disclosure of non-cash financing activities:
Conversion of note payable to shareholders for common stock and warrants	0	1,000
Conversion of accrued interest on note payable to shareholders for common stock and warrants	0	12
Issuance of warrants for financing costs	0	266
Deemed dividend on Series C preferred stock	$ 0	$ 2,486

A. Organization, Business and S

A. Organization, Business and Summary of Significant Accounting Policies	6 Months Ended
	Mar. 31, 2017
Notes to Financial Statements
Organization, Business and Summary of Significant Accounting Policies	Organization The accompanying unaudited condensed consolidated financial statements include the accounts of Aeolus Pharmaceuticals, Inc. and its wholly-owned subsidiary, Aeolus Sciences, Inc. (collectively, “we,” “us,” “Company” or “Aeolus”). All significant intercompany accounts and transactions have been eliminated in consolidation. Aeolus is a Delaware corporation. The Company’s primary operations are located in Mission Viejo, California. Business Aeolus is developing a platform of novel compounds, known as metalloporphyrins, for use in biodefense, fibrosis, oncology, infectious disease and diseases of the central nervous system. Its lead compound, AEOL 10150, is being developed as a medical countermeasure against the pulmonary effects of radiation exposure under a contract (“BARDA Contract”) valued at up to $118.4 million with the Biomedical Advanced Research and Development Authority (“BARDA”), a division of the U.S. Department of Health and Human Services (“HHS”). Aeolus is in its sixth year under the BARDA Contract. On March 23, 2017, we announced that we had received notification from the Assistant Secretary for Preparedness and Response (“ASPR”) that BARDA had elected not to exercise additional options under the contract at this time based upon an “In-Process Review” (“IPR”) meeting held with BARDA on February 2, 2017. The notification did not terminate the BARDA Contract, which currently has a term that runs through May 2019. We plan to continue discussions with BARDA to determine the possibility of additional option exercises to continue the development work under the contract. The goal of the BARDA contract is to achieve FDA approval for 10150 and the development of commercial manufacturing capability. In order to achieve these goals, we believe it will be necessary for BARDA to exercise additional options under the contract, or for us to obtain funding from other governmental agencies, such as the National Institutes of Health (NIH). As of the date of this report, we cannot provide guidance on whether BARDA is likely to exercise further options or whether NIH will provide additional funding. If all of the options were exercised by BARDA, the total value of the contract would be approximately $118.4 million. Aeolus also receives development support from the National Institutes of Health (“NIH”) for development of the compound as a medical countermeasure against radiation and exposure to chemical and nerve agents. Aeolus' strategy is to leverage the substantial investment in toxicology, manufacturing, and preclinical and clinical studies made by U.S. Government agencies in AEOL 10150 to develop the compound for the treatment of lung fibrosis, including idiopathic pulmonary fibrosis (“IPF”) and as a treatment to reduce side effects caused by radiation toxicity and improve local tumor control in cancer therapy. The Company is also developing AEOL 11114 as a treatment for Parkinson’s disease and AEOL 20415 as a treatment for infection related to cystic fibrosis and diseases that have developed a resistance to existing antibiotic and anti-viral therapies. Basis of Presentation All significant intercompany activity has been eliminated in the preparation of the unaudited condensed consolidated financial statements. The unaudited condensed consolidated financial statements have been prepared in accordance with the requirements of Form 10-Q and Rule 10-01 of Regulation S-X. Some information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations. In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the consolidated financial position, results of operations and cash flows of the Company. The condensed consolidated balance sheet at September 30, 2016 was derived from the Company’s audited financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2016, filed with the Securities and Exchange Commission (the “SEC”) on December 20, 2016. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents The Company invests available cash in short-term bank deposits. Cash and cash equivalents include investments with original maturities of three months or less at the date of purchase. The carrying value of cash and cash equivalents approximate their fair market value at March 31, 2017 and September 30, 2016 due to their short-term nature. Significant customers and accounts receivable For the six months ended March 31, 2017, the Company’s primary customer was BARDA, which comprised 100% of total revenues. As of March 31, 2017, the Company’s receivable balances were comprised 100% from this customer. Unbilled accounts receivable, included in accounts receivable, totaling $496,000 and $490,000 as of March 31, 2017 and September 30, 2016, respectively, relate to work that has been performed, though invoicing has not yet occurred. All of the unbilled receivables are expected to be billed and collected within the next 12 months. Accounts receivable are stated at invoice amounts and consist primarily of amounts due from HHS. If necessary, the Company records a provision for doubtful receivables to allow for any amounts that may be unrecoverable. This provision is based upon an analysis of the Company’s prior collection experience, customer creditworthiness and current economic trends. As of March 31, 2017 and September 30, 2016, an allowance for doubtful accounts was not recorded as the collection history from the Company’s customer indicated that collection was probable. Concentrations of credit risk Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable. The Company places its cash and cash equivalents with high quality financial institutions. Management believes that the financial risks associated with its cash and cash equivalents and investments are minimal. Because accounts receivable consist primarily of amounts due from the U.S. federal government agencies, management deems there to be minimal credit risk. Revenue Recognition Aeolus recognizes revenue in accordance with the authoritative guidance for revenue recognition. Revenue is recognized when all of the following criteria are met: (i) persuasive evidence of an arrangement exists, (ii) delivery (or passage of title) has occurred or services have been rendered, (iii) the seller’s price to the buyer is fixed or determinable, and (iv) collectability is reasonably assured. The BARDA Contract is classified as a “cost-plus-fixed-fee” contract. Aeolus recognizes government contract revenue in accordance with the authoritative guidance for revenue recognition including the authoritative guidance specific to federal government contracts. Reimbursable costs under the contract primarily include direct labor, subcontract costs, materials, equipment, travel, and indirect costs. In addition, we receive a fixed fee under the BARDA Contract, which is unconditionally earned as allowable costs are incurred and is not contingent on success factors. Reimbursable costs under the BARDA Contract, including the fixed fee, are recognized as revenue in the period the reimbursable costs are incurred and become billable. Fair Value of Financial Instruments The carrying amounts of Aeolus’ short-term financial instruments, which include cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities, approximate their fair values due to their short maturities. Fair Value Measurements The Company applies Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurements and Disclosures, for financial and non-financial assets and liabilities. ASC Topic 820 discusses valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flow) and the cost approach (cost to replace the service capacity of an asset or replacement cost). The statement utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels: · Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities. · Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active. · Level 3: Unobservable inputs that reflect the reporting entity’s own assumptions. Research and Development Research and development costs are expensed in the period incurred. Leases The Company leases office space and office equipment under month to month operating lease agreements. For the six months ended March 31, 2017 and 2016, total rent expense was approximately $21,000 and $21,000, respectively. Income Taxes The Company recognizes liabilities or assets for the deferred tax consequences of temporary differences between the tax bases of assets or liabilities and their reported amounts in the financial statements. These temporary differences will result in taxable or deductible amounts in future years when the reported amounts of the assets or liabilities are recovered or settled. A valuation allowance is established when management determines that is more likely than not that all or a portion of a deferred tax asset will not be realized. Management evaluates the Company’s ability to realize its net deferred tax assets on a quarterly basis and valuation allowances are provided, as necessary. During this evaluation, management reviews its forecasts of income in conjunction with other positive and negative evidence surrounding the Company’s ability to realize its deferred tax assets to determine if a valuation allowance is required. Adjustments to the valuation allowance will increase or decrease the Company’s income tax provision or benefit. Management also applies the relevant guidance to determine the amount of income tax expense or benefit to be allocated among continuing operations, discontinued operations, and items charged or credited directly to stockholders’ equity (deficit). A tax position must meet a minimum probability threshold before a financial statement benefit is recognized. The minimum threshold is a tax position that is more likely than not to be sustained upon examination by the applicable taxing authority, including resolution of any related appeals or litigation process, based on the technical merits of the position. The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. Net Income (Loss) Per Common Share The Company computes net income attributable to common stockholders using the two-class method required for participating securities. Under the two-class method, securities that participate in dividends, such as the Company’s outstanding preferred shares, preferred warrants, and most common stock warrants, are considered “participating securities.” Our preferred shares, preferred warrants and common stock warrants are considered “participating securities” because they include non-forfeitable rights to dividends. In applying the two-class method, (i) basic net income (loss) per share is computed by dividing net income (less any dividends paid on participating securities) by the weighted average number of shares of common stock and participating securities outstanding for the period and (ii) diluted earnings per share may include the additional effect of other securities, if dilutive, in which case the dilutive effect of such securities is calculated using the treasury stock method. The Company does have other securities with a dilutive effect outstanding, so the Company’s basic net income (loss) per share uses the two-class method and diluted net income (loss) per share uses the treasury stock method. Accounting for Stock-Based Compensation The Company recognizes stock based compensation expense in the statement of operations based upon the fair value of the equity award amortized over the vesting period. Segment Reporting The Company currently operates in one segment.

B. Liquidity

B. Liquidity	6 Months Ended
	Mar. 31, 2017
B. Liquidity
Liquidity	Due to unexpected recent developments in the BARDA Contract, the Company has expressed substantial doubt about its ability to continue as a going concern given the Company’s recurring net losses, negative cash flows from operations and working capital deficiency. The Company had cash and cash equivalents of $981,000 on March 31, 2017, and $3,155,000 on September 30, 2016. The decrease in cash was primarily due to cash used in operating activities. The Company has incurred significant losses since its inception. At March 31, 2017, the Company’s accumulated deficit was $192,310,000. This raises substantial doubt about Aeolus’ ability to continue as a going concern, which will be dependent on the Company’s ability to generate sufficient cash flows to meet the Company’s obligations on a timely basis, obtain additional financing and, ultimately, achieve operating profits through product sales or BARDA procurements. The Company intends to explore strategic and financial alternatives, which may include a merger or acquisition with or by another company, the sale of shares of stock and/or convertible debentures, the establishment of new collaborations for current research programs that include initial cash payments and on-going research support and the out-licensing of the Company’s compounds for development by a third party. The Company believes that without additional investment capital it will not have sufficient cash to fund its activities in the near future, and will not be able to continue operating. As such, the Company’s continuation as a going concern is dependent upon its ability to raise additional financing. If the Company is unable to obtain additional financing to fund operations, it will need to eliminate some or all of its activities, merge with another company, sell some or all of its assets to another company, or cease operations entirely. There can be no assurance that the Company will be able to obtain additional financing on acceptable terms or at all, or that the Company will be able to merge with another Company or sell any or all of its assets.

C. Stockholders' Equity

C. Stockholders' Equity	6 Months Ended
	Mar. 31, 2017
Notes to Financial Statements
Stockholders' Equity	Preferred Stock The Certificate of Incorporation of the Company authorizes the issuance of up to 10,000,000 shares of Preferred Stock, at a par value of $0.01 per share, of which 1,250,000 shares are designated Series A Convertible Preferred Stock, 1,600,000 shares are designated Series B Convertible Preferred Stock (the “Series B Stock”) and 5,000 shares are designated Series C Convertible Preferred Stock (the “Series C Stock”). The Board of Directors has the authority to issue Preferred Stock in one or more series, to fix the designation and number of shares of each such series, and to determine or change the designation, relative rights, preferences, and limitations of any series of Preferred Stock, without any further vote or action by the stockholders of the Company. As of March 31, 2017, 4,500 shares of Series C Convertible Preferred Stock were outstanding. There are no shares of Series A and Series B Convertible Preferred Stock issued or outstanding. The Series C Stock is non-voting stock. Each share of Series C Stock is convertible into 4,545 shares of our common stock except to the extent such conversion would result in such holder of Series C Stock, and its affiliates, owning in the aggregate more than 9.99% of the outstanding common stock. Dividends on the Series C Stock are due whenever dividends are due on the Company’s common stock on an as-if-converted basis, but shall be subordinate to any dividends due to holders of the Company's Series B Stock as a result of such common stock dividends. The Series C Stock shall also be junior to the Series B Stock in the event of liquidation of the Company. On December 10, 2015, the Company entered into securities purchase agreements with certain accredited investors to sell and issue 4,500 preferred stock units issued to existing investors, Biotechnology Value Fund, L.P. and other affiliates of BVF Partners, L.P., for an aggregate purchase price of $4,500,000. The preferred units collectively consist of (i) 4,500 shares of Series C Stock of the Company that are collectively convertible into an aggregate of 20,454,546 shares of common stock and (ii) warrants to purchase an aggregate of 20,454,546 shares of common stock, in each case subject to adjustment. The warrants have an initial exercise price of $0.22 per share. The warrants may not be exercised until after 90 days following the date of issuance. The Series C Stock and warrants contain provisions restricting the conversion or exercise of such securities in circumstances where such event would result in the holder and its affiliates to beneficially own in excess of 9.99% of the Company’s outstanding common stock. The fair value of the December 10, 2015 financing warrants issued was estimated to be $4,476,000 using the Black-Scholes option pricing model with the following assumptions: dividend yield of 0%, expected volatility of 109.74%, risk free interest rate of 1.67%, and an expected life equal to the five year contractual term. The proceeds from the December 10, 2015 financing were allocated based upon the relative fair values of the warrants and preferred shares issued in the transaction. The allocation of the proceeds based on relative fair values of the instruments resulted in recognition of a discount on the Series C Preferred Stock of $2,486,000 from a beneficial conversion feature, which was amortized from the date of issuance to the earliest redemption date of 90 days post issuance. For the six months ended March 31, 2016 the Company recognized $2,486,000 of amortization of the discount on Series C Preferred Stock as deemed dividends charged to additional paid in capital. There was no amortization in the six months ended March 31, 2017 as the full value of the beneficial conversion feature was fully amortized in the fiscal year ended September 30, 2016.The value of the beneficial conversion feature is calculated as the difference between the effective conversion price of the Series C Preferred Stock and the fair market value of the common stock into which the Series C Preferred Stock are convertible at the commitment date. Common Stock On December 10, 2015, the Company entered into securities purchase agreements with certain accredited investors to sell and issue an aggregate of 10,215,275 common units issued at a purchase price of $0.22 per unit. Each common unit consists of one share of the Company’s common stock and a five year warrant to purchase one share of the Company’s common stock, subject to adjustment. The warrants may not be exercised until after 90 days following the date of issuance. The warrants contain provisions restricting the conversion or exercise of such securities in circumstances where such event would result in the holder and its affiliates to beneficially own in excess of 9.99% of the Company’s outstanding common stock. On September 29, 2015, the Company received funding in the form of convertible promissory notes (the “BVF Notes”) from Biotechnology Value Fund, L.P. and certain other affiliates of BVF Partners, L.P. The BVF Notes had an aggregate principal balance of $1,000,000, accrue interest at a rate of 6% per annum and had a scheduled maturity date of September 28, 2016. The outstanding principal and accrued interest on the BVF Notes were automatically convertible into Company equity securities, provided a qualified financing of not less than $4,000,000 occurred. On December 11, 2015, following the completion of a qualified financing (consisting of the common units and preferred units involving aggregate proceeds of $6,747,000 described above and under “Preferred Stock,”) the principal and accrued interest amounts under the BVF Notes were converted into 5,414,402 shares of the Company’s common stock and warrants to purchase an additional 5,414,402 shares of the Company’s common stock at an exercise price per share of $0.22 subject to adjustment. As a result, the BVF Notes were no longer outstanding as of that date. Net cash proceeds from the December 10, 2015 financing, after deducting for $577,000 of expenses, were approximately $6,170,000. The Company also incurred non-cash expenses in the form of 1,214,027 warrants issued to the placement agents with an estimated fair value of $266,000, at similar terms as the financing warrants, for services provided. These warrants were recorded to additional paid in capital as a direct cost of the financing. The Company issued a total of 37,298,250 warrants in connection with the December 10, 2015 financing. The fair value of the December 10, 2015 financing warrants and December 11, 2015 warrants issued for conversion of the BVF notes was estimated to be $3,420,000 using the Black-Scholes option pricing model with the following assumptions: dividend yield of 0%, expected volatility of 109.74%, risk free interest rate of 1.67%, and an expected life equal to the five year contractual term. The proceeds from the December 10, 2015 financing and December 11, 2015 conversion of the BVF Notes were allocated based upon the relative fair values of the warrants and common shares issued in the transactions. Dividends The Company has never paid a cash dividend on its common stock and does not anticipate paying cash dividends on its common stock in the foreseeable future. If the Company pays a cash dividend on its common stock, it also must pay the same dividend on an as converted basis on its outstanding Series C Stock. Warrants As of March 31, 2017, warrants to purchase an aggregate of 51,610,250 shares of common stock were outstanding with a weighted average exercise price of $0.24 per share. Details of the warrants for common stock outstanding at March 31, 2017 are as follows: Number of Shares Exercise Price Expiration Date 325,000 $ 0.40 April 2017 300,000 $ 0.258 June 2017 50,000 $ 0.26 June 2017 140,000 $ 0.35 October 2017 12,205,000 $ 0.25 February 2018 1,242,000 $ 0.25 March 2018 50,000 $ 0.49 January 2020 37,298,250 $ 0.22 December 2020 51,610,250 Below is a summary of warrant activity for the six months ended March 31, 2017: Weighted Average Number of Shares Exercise Price Remaining Contractual Term (in years) Aggregate Intrinsic Value Outstanding at 9/30/2016 52,947,877 $ 0.23 3.3 $ - Granted - $ - - $ - Exercised - $ - - $ - Expired or Canceled (1,337,627 ) $ 0.40 - $ - Forfeited - $ - - $ - Vested - $ - - $ - Outstanding at 3/31/2017 51,610,250 $ 0.23 2.9 $ - Below is a summary of warrant activity for the six months ended March 31, 2017: Weighted Average Number of Shares Exercise Price Remaining Contractual Term (in years) Aggregate Intrinsic Value Outstanding at 9/30/2015 16,845,664 $ 0.27 2.2 $ 206,626 Granted 37,298,250 $ 0.22 4.7 $ 1,864,913 Exercised - $ - - $ - Expired or Canceled (896,037 ) $ 0.01 - $ 156,000 Forfeited - $ - - $ - Vested - $ - - $ - Outstanding at 3/31/2016 53,247,877 $ 0.24 3.8 $ -

D. Stock-Based Compensation

D. Stock-Based Compensation	6 Months Ended
	Mar. 31, 2017
Notes to Financial Statements
Stock-Based Compensation	Below is a summary of stock option activity for the six months ended March 31, 2017: Weighted Average Number of Shares Exercise Price Remaining Contractual Term (in years) Aggregate Intrinsic Value Outstanding at 9/30/2016 12,204,000 $ 0.38 5.0 $ 1,125 Granted 700,000 $ 0.20 - $ - Exercised - $ - - $ - Expired or Canceled (237,000 ) $ 0.62 - $ - Forfeited - $ - - $ - Outstanding at 3/31/2017 12,667,000 $ 0.37 4.8 $ - For the six months ended March 31, 2017, all stock options were granted with an exercise price at or above the fair market value of the Company’s common stock on the date of grant. Below is a summary of stock option activity for the six months ended March 31, 2016: Weighted Average Number of Shares Exercise Price Remaining Contractual Term (in years) Aggregate Intrinsic Value Outstanding at 9/30/2015 12,164,591 $ 0.42 5.4 $ 5,963 Granted 700,000 $ 0.23 - $ - Exercised - $ - - $ - Expired or Canceled (101,591 ) $ 0.94 - $ - Forfeited - $ - - $ - Outstanding at 3/31/2016 12,763,000 $ 0.40 5.2 $ 3,625 For the six months ended March 31, 2016, all stock options were granted with an exercise price at or above the fair market value of the Company’s common stock on the date of grant. The details of stock options for the six months ended March 31, 2017 were as follows: Options Outstanding Options Exercisable Weighted Weighted Number Weighted Average Number Weighted Average Range of Outstanding Average Remaining Exercisable Average Remaining Exercise at March Exercise Contractual At March Exercise Contractual Prices 31, 2017 Price Life (in years) 31, 2017 Price Life (in years) $ 0.19-$0.20 950,000 $ 0.20 9.46 437,498 $ 0.19 9.17 $ 0.21-$0.30 3,537,500 $ 0.27 5.33 3,537,500 $ 0.27 5.33 $ 0.31-$0.40 6,551,500 $ 0.39 4.33 6,551,500 $ 0.39 4.33 $ 0.41-$0.50 500,000 $ 0.45 4.77 500,000 $ 0.45 4.77 $ 0.51-$0.60 791,250 $ 0.58 2.82 791,250 $ 0.58 2.82 $ 0.61-$1.19 336,750 $ 0.87 1.11 336,750 $ 0.87 1.11 Stock-based compensation expense recognized in the statement of operations is as follows (in thousands): For the three months ended March 31, For the six months ended March 31, 2017 2016 2017 2016 Research and Development Expenses $ — $ — $ — $ — General and Administrative Expenses 27 36 54 74 $ 27 $ 36 $ 54 $ 74 The total deferred compensation expense for outstanding and unvested stock options as of March 31, 2017 was $68,000. The weighted average remaining recognition period for the total deferred compensation expense is approximately eight months. The fair value of the options associated with the above compensation expense was determined at the date of the grant using the Black-Scholes option pricing model with the following weighted average assumptions: For the three months ended March 31, For the six months ended March 31, 2017 2016 2017 2016 Dividend yield 0 % 0 % 0 % 0 % Pre-vest forfeiture rate 18.40 % 18.95 % 7.59 % 7.87 % Expected volatility 105.84 % 111.31 % 107.10 % 117.14 % Risk-free interest rate 2.05 % 1.42 % 1.49 % 1.42 % Expected term 5.27 years 5.27 years 5.27 years 5.27 years

E. Net Income (Loss) Per Common

E. Net Income (Loss) Per Common Share	6 Months Ended
	Mar. 31, 2017
Net loss per weighted share attributable to common stockholders:
Net Income (Loss) Per Common Share	The Company computes basic net income (loss) per weighted average share attributable to common stockholders using the weighted average number of shares of common stock outstanding during the period. The Company computes diluted net income (loss) per weighted average share attributable to common stockholders using the weighted average number of shares of common and dilutive potential common shares outstanding during the period. Potential common shares outstanding consist of stock options, warrants and convertible preferred stock using the treasury stock method and are excluded if their effect is anti-dilutive. Diluted weighted average common shares did not include any incremental shares for the six months ended March 31, 2017 and 2016. Diluted weighted average common shares excluded incremental shares of approximately 84,732,000 and 86,992,000 for the six months ended March 31, 2017 and 2016, respectively, due to their anti-dilutive effect. For the six months ended March 31, For the six months ended March 31, 2017 2016 2017 2016 (in thousands, except per share data) Numerator: Net loss $ (1,035) $ (629) $ (2,122) $ (1,662) Less deemed dividend on Series C preferred stock — (1,906) — (2,486) Net loss attributable to common stockholders – basic $ (1,035) $ (2,535) $ (2,122) $ (4,148) Net loss attributable to common stockholders – diluted $ (1,035) $ (2,535) $ (2,122) $ (4,148) Denominator: Weighted-average shares used in computing net loss per share attributable to common stockholders – basic 152,085 151,560 152,085 145,466 Effect of potentially dilutive securities: Common stock warrants — — — — Convertible preferred stock — — — — Common stock options — — — — Weighted-average shares used in computing net loss per share attributable to common stockholders – diluted 152,085 151,560 152,085 145,466 Basic net loss per common share $ (0.01) $ (0.02) $ (0.01) $ (0.03) Diluted net loss per common share $ (0.01) $ (0.02) $ (0.01) $ (0.03)

F. Debt

F. Debt	6 Months Ended
	Mar. 31, 2017
F. Debt
Debt	Convertible Promissory Notes On September 29, 2015, the Company received funding from existing investors, Biotechnology Value Fund, L.P. and other affiliates of BVF Partners, L.P., in exchange for convertible promissory notes (the "Notes"). The Notes have an aggregate principal balance of $1,000,000, accrue interest at a rate of 6% per annum and have a scheduled maturity date of September 28, 2016 (the “Maturity Date”). The outstanding principal and accrued interest on the Notes shall automatically convert into Company equity securities issued in a Qualified Financing (as defined below) at a conversion rate carrying a 15% discount to the lowest price per share (or share equivalent) issued in a Qualified Financing (an “Automatic Conversion”). If, prior to the Maturity Date, the Company enters into an agreement pertaining to a Corporate Transaction (as defined below) and the Notes have not been previously converted pursuant to an Automatic Conversion, then, the outstanding principal balance and unpaid accrued interest of the Notes shall automatically convert in whole into the right of the holder to receive, in lieu of any other payment and in cancellation of the Notes, an amount in cash upon closing of the Corporate Transaction equal to two times the outstanding principal amount of the Notes. For purposes of the foregoing: "Qualified Financing" means a bona fide new money equity securities financing on or before the Maturity Date with total proceeds to the Company of not less than four million dollars; and “Corporate Transaction” means a sale, lease or other disposition of all or substantially all of the Company’s assets or a consolidation or merger of the Company with or into any other corporation or other entity or person, or any other corporate reorganization, in which the stockholders of the Company immediately prior to such consolidation, merger or reorganization own less than fifty percent (50%) of the voting power of the surviving entity immediately after such consolidation, merger or reorganization. As of September 30, 2015, the $1,000,000 principal balance of the Notes was recorded in the financial statements at face value, net of a discount of $273,000, as a result of separating the fair value of the Qualified Financing redemption discount (“Redemption Feature”) of 15% on the price per share in the Notes. The Redemption Feature qualifies as a derivative and is subject to fair value treatment. The Redemption Feature is amortized over the expected life of the derivative, and the amortization expense is presented with the interest expense from the Notes, yielding an effective interest rate of 40% that is different than the 6% stated in the Notes. On December 11, 2015, following the completion of a Qualified Financing described above, the principal and accrued interest amounts under the Notes were converted into 5,414,402 shares of the Company’s common stock and warrants to purchase an additional 5,414,402 shares of the Company’s common stock at an exercise price per share of $0.22 subject to adjustment. As a result, the Notes were no longer outstanding as of that date.

G. Recently Issued Accounting P

G. Recently Issued Accounting Pronouncements	6 Months Ended
	Mar. 31, 2017
G. Recently Issued Accounting Pronouncements
Recently Issued Accounting Pronouncements	From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board ("FASB") that are adopted by us as of the specified effective date. Unless otherwise discussed, we believe that the impact of recently issued standards that are not yet effective will not have a material impact on our financial position or results of operations upon adoption. In May 2014, the FASB issued Accounting Standards Update ("ASU") 2015-14, which deferred the effective date of ASU 2014-09 Revenue from Contracts with Customers (ASC 606), which updates the principles for recognizing revenue. ASU 2014-09 also amends the required disclosures of the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. ASU 2014-09 is now effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. The Company is evaluating the potential impacts of the new standard on its existing revenue recognition policies and procedures. In August 2014, the FASB issued ASU 2014-15, Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern. ASU 2014-15 requires that an entity's management evaluate whether there are conditions or events that raise substantial doubt about the entity's ability to continue as a going concern within one year after the date that the financial statements are issued. ASU 2014-15 is effective for annual periods ending after December 15, 2016 and for interim periods thereafter. The Company is evaluating the potential impacts of this new standard on its financial reporting process.

H. Commitments

H. Commitments	6 Months Ended
	Mar. 31, 2017
Notes to Financial Statements
Commitments	The Company acquires assets still in development and enters into research and development arrangements with third parties that often require milestone and royalty payments to the third party contingent upon the occurrence of certain future events linked to the success of the asset in development. Milestone payments may be required, contingent upon the successful achievement of an important point in the development life-cycle of the pharmaceutical product (e.g., approval of the product for marketing by a regulatory agency). If required by the arrangement, the Company may have to make royalty payments based upon a percentage of the sales of the pharmaceutical product in the event that regulatory approval for marketing is obtained. Because of the contingent nature of these payments, they are not included in the table of contractual obligations. No milestones have been met, nor have any payments been paid, as of March 31, 2017. We are also obligated to pay patent filing, prosecution, maintenance and defense costs, if any, for the intellectual property we have licensed from National Jewish Health, National Jewish Medical and Research Center, the University of Colorado and Duke University. These arrangements may be material individually, and in the unlikely event that milestones for multiple products covered by these arrangements were reached in the same period, the aggregate charge to expense could be material to the results of operations in any one period. In addition, these arrangements often give Aeolus the discretion to unilaterally terminate development of the product, which would allow Aeolus to avoid making the contingent payments; however, Aeolus is unlikely to cease development if the compound successfully achieves clinical testing objectives.

A. Organization, Business and14

A. Organization, Business and Summary of Significant Accounting Policies (Policies)	6 Months Ended
	Mar. 31, 2017
A. Organization Business And Summary Of Significant Accounting Policies Policies
Organization	The accompanying unaudited condensed consolidated financial statements include the accounts of Aeolus Pharmaceuticals, Inc. and its wholly-owned subsidiary, Aeolus Sciences, Inc. (collectively, “we,” “us,” “Company” or “Aeolus”). All significant intercompany accounts and transactions have been eliminated in consolidation. Aeolus is a Delaware corporation. The Company’s primary operations are located in Mission Viejo, California.
Business	Aeolus is developing a platform of novel compounds, known as metalloporphyrins, for use in biodefense, fibrosis, oncology, infectious disease and diseases of the central nervous system. Its lead compound, AEOL 10150, is being developed as a medical countermeasure against the pulmonary effects of radiation exposure under a contract (“BARDA Contract”) valued at up to $118.4 million with the Biomedical Advanced Research and Development Authority (“BARDA”), a division of the U.S. Department of Health and Human Services (“HHS”). Aeolus is in its sixth year under the BARDA Contract. On March 23, 2017, we announced that we had received notification from the Assistant Secretary for Preparedness and Response (“ASPR”) that BARDA had elected not to exercise additional options under the contract at this time based upon an “In-Process Review” (“IPR”) meeting held with BARDA on February 2, 2017. The notification did not terminate the BARDA Contract, which currently has a term that runs through May 2019. We plan to continue discussions with BARDA to determine the possibility of additional option exercises to continue the development work under the contract. The goal of the BARDA contract is to achieve FDA approval for 10150 and the development of commercial manufacturing capability. In order to achieve these goals, we believe it will be necessary for BARDA to exercise additional options under the contract, or for us to obtain funding from other governmental agencies, such as the National Institutes of Health (NIH). As of the date of this report, we cannot provide guidance on whether BARDA is likely to exercise further options or whether NIH will provide additional funding. If all of the options were exercised by BARDA, the total value of the contract would be approximately $118.4 million. Aeolus also receives development support from the National Institutes of Health (“NIH”) for development of the compound as a medical countermeasure against radiation and exposure to chemical and nerve agents. Aeolus' strategy is to leverage the substantial investment in toxicology, manufacturing, and preclinical and clinical studies made by U.S. Government agencies in AEOL 10150 to develop the compound for the treatment of lung fibrosis, including idiopathic pulmonary fibrosis (“IPF”) and as a treatment to reduce side effects caused by radiation toxicity and improve local tumor control in cancer therapy. The Company is also developing AEOL 11114 as a treatment for Parkinson’s disease and AEOL 20415 as a treatment for infection related to cystic fibrosis and diseases that have developed a resistance to existing antibiotic and anti-viral therapies.
Basis of Presentation	All significant intercompany activity has been eliminated in the preparation of the unaudited condensed consolidated financial statements. The unaudited condensed consolidated financial statements have been prepared in accordance with the requirements of Form 10-Q and Rule 10-01 of Regulation S-X. Some information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations. In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the consolidated financial position, results of operations and cash flows of the Company. The condensed consolidated balance sheet at September 30, 2016 was derived from the Company’s audited financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2016, filed with the Securities and Exchange Commission (the “SEC”) on December 20, 2016.
Use of Estimates	The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents	The Company invests available cash in short-term bank deposits. Cash and cash equivalents include investments with original maturities of three months or less at the date of purchase. The carrying value of cash and cash equivalents approximate their fair market value at March 31, 2017 and September 30, 2016 due to their short-term nature.
Significant customer and accounts receivable	For the six months ended March 31, 2017, the Company’s primary customer was BARDA, which comprised 100% of total revenues. As of March 31, 2017, the Company’s receivable balances were comprised 100% from this customer. Unbilled accounts receivable, included in accounts receivable, totaling $496,000 and $490,000 as of March 31, 2017 and September 30, 2016, respectively, relate to work that has been performed, though invoicing has not yet occurred. All of the unbilled receivables are expected to be billed and collected within the next 12 months. Accounts receivable are stated at invoice amounts and consist primarily of amounts due from HHS. If necessary, the Company records a provision for doubtful receivables to allow for any amounts that may be unrecoverable. This provision is based upon an analysis of the Company’s prior collection experience, customer creditworthiness and current economic trends. As of March 31, 2017 and September 30, 2016, an allowance for doubtful accounts was not recorded as the collection history from the Company’s customer indicated that collection was probable.
Concentrations of credit risk	Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable. The Company places its cash and cash equivalents with high quality financial institutions. Management believes that the financial risks associated with its cash and cash equivalents and investments are minimal. Because accounts receivable consist primarily of amounts due from the U.S. federal government agencies, management deems there to be minimal credit risk.
Revenue Recognition	Aeolus recognizes revenue in accordance with the authoritative guidance for revenue recognition. Revenue is recognized when all of the following criteria are met: (i) persuasive evidence of an arrangement exists, (ii) delivery (or passage of title) has occurred or services have been rendered, (iii) the seller’s price to the buyer is fixed or determinable, and (iv) collectability is reasonably assured. The BARDA Contract is classified as a “cost-plus-fixed-fee” contract. Aeolus recognizes government contract revenue in accordance with the authoritative guidance for revenue recognition including the authoritative guidance specific to federal government contracts. Reimbursable costs under the contract primarily include direct labor, subcontract costs, materials, equipment, travel, and indirect costs. In addition, we receive a fixed fee under the BARDA Contract, which is unconditionally earned as allowable costs are incurred and is not contingent on success factors. Reimbursable costs under the BARDA Contract, including the fixed fee, are recognized as revenue in the period the reimbursable costs are incurred and become billable.
Fair Value of Financial Instruments	The carrying amounts of Aeolus’ short-term financial instruments, which include cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities, approximate their fair values due to their short maturities.
Fair Value Measurements	The Company applies Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurements and Disclosures, for financial and non-financial assets and liabilities. ASC Topic 820 discusses valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flow) and the cost approach (cost to replace the service capacity of an asset or replacement cost). The statement utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels: ● Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities. ● Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active. ● Level 3: Unobservable inputs that reflect the reporting entity’s own assumptions.
Research and Development	Research and development costs are expensed in the period incurred.
Leases	The Company leases office space and office equipment under month to month operating lease agreements. For the six months ended March 31, 2017 and 2016, total rent expense was approximately $21,000 and $21,000, respectively.
Income Taxes	The Company recognizes liabilities or assets for the deferred tax consequences of temporary differences between the tax bases of assets or liabilities and their reported amounts in the financial statements. These temporary differences will result in taxable or deductible amounts in future years when the reported amounts of the assets or liabilities are recovered or settled. A valuation allowance is established when management determines that is more likely than not that all or a portion of a deferred tax asset will not be realized. Management evaluates the Company’s ability to realize its net deferred tax assets on a quarterly basis and valuation allowances are provided, as necessary. During this evaluation, management reviews its forecasts of income in conjunction with other positive and negative evidence surrounding the Company’s ability to realize its deferred tax assets to determine if a valuation allowance is required. Adjustments to the valuation allowance will increase or decrease the Company’s income tax provision or benefit. Management also applies the relevant guidance to determine the amount of income tax expense or benefit to be allocated among continuing operations, discontinued operations, and items charged or credited directly to stockholders’ equity (deficit). A tax position must meet a minimum probability threshold before a financial statement benefit is recognized. The minimum threshold is a tax position that is more likely than not to be sustained upon examination by the applicable taxing authority, including resolution of any related appeals or litigation process, based on the technical merits of the position. The Company recognizes interest and penalties related to uncertain tax positions in income tax expense.
Net Income (Loss) Per Common Share	The Company computes net income attributable to common stockholders using the two-class method required for participating securities. Under the two-class method, securities that participate in dividends, such as the Company’s outstanding preferred shares, preferred warrants, and most common stock warrants, are considered “participating securities.” Our preferred shares, preferred warrants and common stock warrants are considered “participating securities” because they include non-forfeitable rights to dividends. In applying the two-class method, (i) basic net income (loss) per share is computed by dividing net income (less any dividends paid on participating securities) by the weighted average number of shares of common stock and participating securities outstanding for the period and (ii) diluted earnings per share may include the additional effect of other securities, if dilutive, in which case the dilutive effect of such securities is calculated using the treasury stock method. The Company does have other securities with a dilutive effect outstanding, so the Company’s basic net income (loss) per share uses the two-class method and diluted net income (loss) per share uses the treasury stock method.
Accounting for Stock-Based Compensation	The Company recognizes stock based compensation expense in the statement of operations based upon the fair value of the equity award amortized over the vesting period.
Segment Reporting	The Company currently operates in one segment.

C. Stockholders' Equity (Tables

C. Stockholders' Equity (Tables)	6 Months Ended
	Mar. 31, 2017
C. Stockholders Equity Tables
Warrants for Common Stock Outstanding	Number of Shares Exercise Price Expiration Date 325,000 $ 0.40 April 2017 300,000 $ 0.258 June 2017 50,000 $ 0.26 June 2017 140,000 $ 0.35 October 2017 12,205,000 $ 0.25 February 2018 1,242,000 $ 0.25 March 2018 50,000 $ 0.49 January 2020 37,298,250 $ 0.22 December 2020 51,610,250
Summary Of Warrant Activity	Weighted Average Number of Shares Exercise Price Remaining Contractual Term (in years) Aggregate Intrinsic Value Outstanding at 9/30/2016 52,947,877 $ 0.23 3.3 $ - Granted - $ - - $ - Exercised - $ - - $ - Expired or Canceled (1,337,627 ) $ 0.40 - $ - Forfeited - $ - - $ - Vested - $ - - $ - Outstanding at 3/31/2017 51,610,250 $ 0.23 2.9 $ - Weighted Average Number of Shares Exercise Price Remaining Contractual Term (in years) Aggregate Intrinsic Value Outstanding at 9/30/2015 16,845,664 $ 0.27 2.2 $ 206,626 Granted 37,298,250 $ 0.22 4.7 $ 1,864,913 Exercised - $ - - $ - Expired or Canceled (896,037 ) $ 0.01 - $ 156,000 Forfeited - $ - - $ - Vested - $ - - $ - Outstanding at 3/31/2016 53,247,877 $ 0.24 3.8 $ -

D. Stock-Based Compensation (Ta

D. Stock-Based Compensation (Tables)	6 Months Ended
	Mar. 31, 2017
D. Stock-based Compensation Tables
Summary Of Stock Option Activity	Below is a summary of stock option activity for the six months ended March 31, 2017: Weighted Average Number of Shares Exercise Price Remaining Contractual Term (in years) Aggregate Intrinsic Value Outstanding at 9/30/2016 12,204,000 $ 0.38 5.0 $ 1,125 Granted 700,000 $ 0.20 - $ - Exercised - $ - - $ - Expired or Canceled (237,000 ) $ 0.62 - $ - Forfeited - $ - - $ - Outstanding at 3/31/2017 12,667,000 $ 0.37 4.8 $ - Below is a summary of stock option activity for the six months ended March 31, 2016: Weighted Average Number of Shares Exercise Price Remaining Contractual Term (in years) Aggregate Intrinsic Value Outstanding at 9/30/2015 12,164,591 $ 0.42 5.4 $ 5,963 Granted 700,000 $ 0.23 - $ - Exercised - $ - - $ - Expired or Canceled (101,591 ) $ 0.94 - $ - Forfeited - $ - - $ - Outstanding at 3/31/2016 12,763,000 $ 0.40 5.2 $ 3,625
Details Of Stock Options	Options Outstanding Options Exercisable Weighted Weighted Number Weighted Average Number Weighted Average Range of Outstanding Average Remaining Exercisable Average Remaining Exercise at March Exercise Contractual At March Exercise Contractual Prices 31, 2017 Price Life (in years) 31, 2017 Price Life (in years) $ 0.19-$0.20 950,000 $ 0.20 9.46 437,498 $ 0.19 9.17 $ 0.21-$0.30 3,537,500 $ 0.27 5.33 3,537,500 $ 0.27 5.33 $ 0.31-$0.40 6,551,500 $ 0.39 4.33 6,551,500 $ 0.39 4.33 $ 0.41-$0.50 500,000 $ 0.45 4.77 500,000 $ 0.45 4.77 $ 0.51-$0.60 791,250 $ 0.58 2.82 791,250 $ 0.58 2.82 $ 0.61-$1.19 336,750 $ 0.87 1.11 336,750 $ 0.87 1.11
Stock-based compensation expense	For the three months ended March 31, For the six months ended March 31, 2017 2016 2017 2016 Research and Development Expenses $ — $ — $ — $ — General and Administrative Expenses 27 36 54 74 $ 27 $ 36 $ 54 $ 74
Assumptions Of Stock Based Compensation	For the three months ended March 31, For the six months ended March 31, 2017 2016 2017 2016 Dividend yield 0 % 0 % 0 % 0 % Pre-vest forfeiture rate 18.40 % 18.95 % 7.59 % 7.87 % Expected volatility 105.84 % 111.31 % 107.10 % 117.14 % Risk-free interest rate 2.05 % 1.42 % 1.49 % 1.42 % Expected term 5.27 years 5.27 years 5.27 years 5.27 years

E. Net Income (Loss) Per Comm17

E. Net Income (Loss) Per Common Share (Tables)	6 Months Ended
	Mar. 31, 2017
E. Net Income Loss Per Common Share Tables
Schedule of Earnings Per Share, Basic and Diluted	For the six months ended March 31, For the six months ended March 31, 2017 2016 2017 2016 (in thousands, except per share data) Numerator: Net loss $ (1,035) $ (629) $ (2,122) $ (1,662) Less deemed dividend on Series C preferred stock — (1,906) — (2,486) Net loss attributable to common stockholders – basic $ (1,035) $ (2,535) $ (2,122) $ (4,148) Net loss attributable to common stockholders – diluted $ (1,035) $ (2,535) $ (2,122) $ (4,148) Denominator: Weighted-average shares used in computing net loss per share attributable to common stockholders – basic 152,085 151,560 152,085 145,466 Effect of potentially dilutive securities: Common stock warrants — — — — Convertible preferred stock — — — — Common stock options — — — — Weighted-average shares used in computing net loss per share attributable to common stockholders – diluted 152,085 151,560 152,085 145,466 Basic net loss per common share $ (0.01) $ (0.02) $ (0.01) $ (0.03) Diluted net loss per common share $ (0.01) $ (0.02) $ (0.01) $ (0.03)

A. Organization, Business and18

A. Organization, Business and Summary of Significant Accounting Policies (Details Narrative) - USD ($) $ in Thousands	6 Months Ended
	Mar. 31, 2017	Mar. 31, 2016	Sep. 30, 2016
Fair Value Measurements
Unbilled accounts receivable	$ 496		$ 490
Rent expense	$ 21	$ 21
BARDA [Member]
Fair Value Measurements
Pecentage representation in revenues	100.00%
Pecentage representation in receivables	100.00%

B. Liquidity (Details Narrative

B. Liquidity (Details Narrative) - USD ($) $ in Thousands	Mar. 31, 2017	Sep. 30, 2016	Mar. 31, 2016	Sep. 30, 2015
B. Liquidity Details Narrative
Cash and cash equivalents	$ 981	$ 3,155	$ 4,509	$ 94
Accumulated deficit	$ (192,310)	$ (190,188)

C. Stockholders' Equity (Detail

C. Stockholders' Equity (Details)	6 Months Ended
	Mar. 31, 2017shares
Number of Shares	51,610,250
Exercise Price $ 0.40 [Member]
Number of Shares	325,000
Exercise Price $ 0.258 [Member]
Number of Shares	300,000
Expiration Date	June 2,017
Exercise Price $ 0.26 [Member]
Number of Shares	50,000
Expiration Date	June 2,017
Exercise Price $ 0.35 [Member]
Number of Shares	140,000
Expiration Date	October 2,017
Exercise Price $ 0.25 [Member]
Number of Shares	12,205,000
Expiration Date	February 2,018
Exercise Price $ 0.25 [Member]
Number of Shares	1,242,000
Expiration Date	March 2,018
Exercise Price $ 0.49 [Member]
Number of Shares	50,000
Expiration Date	January 2,020
Exercise Price $ 0.22 [Member]
Number of Shares	37,298,250
Expiration Date	December 2,020
Exercise Price $ 0.40 [Member]
Expiration Date	April 2,017

C. Stockholders' Equity (Deta21

C. Stockholders' Equity (Details 1) - Warrant [Member] - USD ($)	6 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Number of Shares
Outstanding beginning balance	52,947,877	16,845,664
Granted	0	37,298,250
Exercised	0	0
Expired or Canceled	(1,337,627)	(896,037)
Forfeited	0	0
Vested	0	0
Outstanding ending balance	51,610,250	53,247,877
Exercise Price
Outstanding beginning balance	$ 0.23	$ 0.27
Granted	0	0.22
Exercised	0	0
Expired or Canceled	0.40	0.01
Forfeited	0	0
Vested	0	0
Outstanding ending balance	$ 0.23	$ 0.24
Remaining Contractual Term (in years)
Outstanding beginning balance	3 years 3 months 18 days	2 years 2 months 12 days
Granted		4 years 9 months 7 days
Outstanding ending balance	2 years 10 months 24 days	3 years 9 months 18 days
Aggregate Intrinsic Value
Outstanding beginning balance	$ 0	$ 206,626
Granted	0	1,864,913
Exercised	0	0
Expired or Canceled	0	156,000
Outstanding ending balance	$ 0	$ 0

C. Stockholders' Equity (Defici

C. Stockholders' Equity (Deficit) (Details Narrative) - USD ($) $ / shares in Units, $ in Thousands	6 Months Ended
	Mar. 31, 2017	Mar. 31, 2016	Sep. 30, 2016
Common stock shares outstanding	152,085,825		152,085,825
Warrant to purchase stock outstanding	51,610,250
Amortization discount	$ 0	$ 273
Warrant One [Member]
Warrant to purchase stock outstanding	51,610,250
Warrant exercise price	$ 0.24
Series C [Member]
Common stock shares outstanding	4,500
Amortization discount		$ 2,486

D. Stock-Based Compensation (De

D. Stock-Based Compensation (Details) - Stock Option [Member] - USD ($) $ / shares in Units, $ in Thousands	6 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Number of Shares
Outstanding beginning balance	12,204,000	12,164,591
Granted	700,000	700,000
Exercised	0	0
Expired or Canceled	(237,000)	(101,591)
Forfeited	0	0
Outstanding ending balance	12,667,000	12,763,000
Exercise Price
Outstanding beginning balance	$ 0.38	$ 0.42
Granted	.20	0.23
Exercised	0	0
Expired or Canceled	0.62	0.94
Forfeited	0	0
Outstanding ending balance	$ 0.37	$ .40
Remaining Contractual Term (in years)
Outstanding beginning balance	5 years	5 years 4 months 24 days
Outstanding ending balance	4 years 9 months 18 days	5 years 2 months 12 days
Aggregate Intrinsic Value
Outstanding beginning balance	$ 1,125	$ 5,963
Granted	0	0
Forfeited	0	0
Outstanding ending balance	$ 0	$ 3,625

D. Stock-Based Compensation (24

D. Stock-Based Compensation (Details 1)	6 Months Ended
	Mar. 31, 2017$ / sharesshares
0.19-$0.20 [Member]
Options Outstanding
Number Outstanding at June 30 | shares	950,000
Weighted Average Exercise Price | $ / shares	$ 0.20
Weighted Average Remaining Contractual Life (in years)	9 years 5 months 16 days
Options Exercisable
Number Exercisable at June 30 | shares	437,498
Weighted Average Exercise Price | $ / shares	$ 0.19
Weighted Average Remaining Contractual Life )in years)	9 years 2 months 1 day
0.21-$0.30 [Member]
Options Outstanding
Number Outstanding at June 30 | shares	3,537,500
Weighted Average Exercise Price | $ / shares	$ 0.27
Weighted Average Remaining Contractual Life (in years)	5 years 3 months 29 days
Options Exercisable
Number Exercisable at June 30 | shares	3,537,500
Weighted Average Exercise Price | $ / shares	$ 0.27
Weighted Average Remaining Contractual Life )in years)	5 years 3 months 29 days
0.31-$0.40 [Member]
Options Outstanding
Number Outstanding at June 30 | shares	6,551,500
Weighted Average Exercise Price | $ / shares	$ 0.39
Weighted Average Remaining Contractual Life (in years)	4 years 3 months 29 days
Options Exercisable
Number Exercisable at June 30 | shares	6,551,500
Weighted Average Exercise Price | $ / shares	$ 0.39
Weighted Average Remaining Contractual Life )in years)	4 years 3 months 29 days
0.41-$0.50 [Member]
Options Outstanding
Number Outstanding at June 30 | shares	500,000
Weighted Average Exercise Price | $ / shares	$ 0.45
Weighted Average Remaining Contractual Life (in years)	4 years 9 months 7 days
Options Exercisable
Number Exercisable at June 30 | shares	500,000
Weighted Average Exercise Price | $ / shares	$ 0.45
Weighted Average Remaining Contractual Life )in years)	4 years 9 months 7 days
0.51-$0.60 [Member]
Options Outstanding
Number Outstanding at June 30 | shares	791,250
Weighted Average Exercise Price | $ / shares	$ 0.58
Weighted Average Remaining Contractual Life (in years)	2 years 9 months 26 days
Options Exercisable
Number Exercisable at June 30 | shares	791,250
Weighted Average Exercise Price | $ / shares	$ 0.58
Weighted Average Remaining Contractual Life )in years)	2 years 9 months 26 days
0.61-$0.1.19 [Member]
Options Outstanding
Number Outstanding at June 30 | shares	336,750
Weighted Average Exercise Price | $ / shares	$ 0.87
Weighted Average Remaining Contractual Life (in years)	1 year 1 month 10 days
Options Exercisable
Number Exercisable at June 30 | shares	336,750
Weighted Average Exercise Price | $ / shares	$ 0.87
Weighted Average Remaining Contractual Life )in years)	1 year 1 month 10 days

D. Stock-Based Compensation (25

D. Stock-Based Compensation (Details 2) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Mar. 31, 2017	Mar. 31, 2016	Mar. 31, 2017	Mar. 31, 2016
Stock-based compensation expense recognized in the statement of operations
Research and Development Expenses	$ 0	$ 0	$ 0	$ 0
General and Administrative Expenses	27	36	54	74
Stock-based compensation expense	$ 27	$ 36	$ 54	$ 74

D. Stock-Based Compensation (26

D. Stock-Based Compensation (Details 3)	3 Months Ended		6 Months Ended
	Mar. 31, 2017	Mar. 31, 2016	Mar. 31, 2017	Mar. 31, 2016
Notes to Financial Statements
Dividend yield	0.00%	0.00%	0.00%	0.00%
Pre-vest forfeiture rate	18.40%	18.95%	7.59%	7.87%
Expected volatility	105.84%	111.31%	107.10%	117.14%
Risk-free interest rate	2.05%	1.42%	1.49%	1.42%
Expected term	5 years 3 months 7 days	5 years 3 months 7 days	5 years 3 months 7 days	5 years 3 months 7 days

D. Stock-Based Compensation (27

D. Stock-Based Compensation (Details Narrative) $ in Thousands	Mar. 31, 2017USD ($)
D. Stock-based Compensation Details Narrative
Unrecognized compensation expense	$ 68

E. Net Income (Loss) Per Comm28

E. Net Income (Loss) Per Common Share (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		6 Months Ended
	Mar. 31, 2017	Mar. 31, 2016	Mar. 31, 2017	Mar. 31, 2016
Numerator:
Net loss	$ (1,035)	$ (629)	$ (2,122)	$ (1,662)
Less deemed dividend on Series C preferred stock	0	(1,906)	0	(2,486)
Net loss attributable to common stockholders - basic	(1,035)	(2,535)	(2,122)	(4,148)
Net loss attributable to common stockholders - diluted	$ (1,035)	$ (2,535)	$ (2,122)	$ (4,148)
Denominator:
Weighted-average shares used in computing net loss per share attributable to common stockholders - basic	152,085	151,560	152,085	145,466
Weighted-average shares used in computing net loss per share attributable to common stockholders - diluted	152,085	151,560	152,085	145,466
Basic net loss per common share	$ (0.01)	$ (0.02)	$ (0.01)	$ (0.03)
Diluted net loss per common share	$ (0.01)	$ (0.02)	$ (0.01)	$ (0.03)

E. Net Income (Loss) Per Comm29

E. Net Income (Loss) Per Common Share (Details Narrative) - shares	6 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
E. Net Income Loss Per Common Share Details Narrative
Diluted weighted average common shares excluded incremental shares due to their anti-dilutive effect	84,732,000	86,992,000

F. Debt (Details Narrative)

F. Debt (Details Narrative) - USD ($) $ in Thousands	6 Months Ended
	Mar. 31, 2017	Sep. 30, 2015
F. Debt Details Narrative
Principal balance	$ 1,000	$ 1,000
Interest rate	6.00%
Maturity date	Sep. 28, 2016
Discount		$ 273