**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549**

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**FORM10-Q**

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| **x** | ** ** | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)  OF THE SECURITIES AND EXCHANGE ACT OF 1934** |
|-------|------------|--------------------------------------------------------------------------------------------------|

 

**For the Quarterly Period Ended: March 31, 2007**
| **o** | ** ** | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|-------|------------|-----------------------------------------------------------------------------------------------|

 

**Commission File No: 000-51436**

**ADVANCEDLIFE SCIENCES HOLDINGS, INC.**(Exact name of registrant as specified in its charter)

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| **DELAWARE**                     |   | **30-0296543**       |
|----------------------------------|--------|----------------------|
| (State or other  jurisdiction of |   | (I.R.S. Employer     |
| incorporation or  organization)  |   | Identification  no.) |

 

**1440 Davey Road**

**Woodridge, IL 60517**

(Address, including zip code of registrantsprincipal executive offices)

Registrant’s telephone number:**(630) 739-6744**

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Indicate by check markwhether the registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 90 days.    Yes  x    No  o

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, or anon-accelerated filer.  See definitionof  “accelerated filer and largeaccelerated filer” in Rule 12b-2 of the Exchange Act.  (Check one):

| Large accelerated  filer o |   | Accelerated  filer o |   | Non-accelerated  filer x |
|---------------------------------|--------|----------------------|--------|--------------------------|

 

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theExchange Act).    Yes o     No x

As of May 7, 2007, theregistrant had 28,294,677 shares of common stock, $0.01 par value per share,outstanding.

 

 

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**ADVANCEDLIFE SCIENCES HOLDINGS, INC.(A DEVELOPMENT STAGE ENTITY)INDEXForm 10-Q**
| **PART I — FINANCIAL INFORMATION (UNAUDITED)** |
|---------------------------------------------------------------|
| Item 1.                                                  |   | Condensed Consolidated Financial Statements: |
|                                                          |   | Condensed Consolidated Balance Sheets as of March 31,  2007 and December 31, 2006 |
|                                                          |   | Condensed Consolidated Statements of Operations for  the three months ended March 31, 2007 and 2006 and for the period from  inception (January 1, 1999) through March 31, 2007 |
|                                                          |   | Condensed Consolidated Statements of Stockholders’  Equity for period from inception (January 1, 1999) through March 31, 2007 |
|                                                          |   | Condensed Consolidated Statements of Cash Flows for  the three months ended March 31, 2007 and 2006 and for the period from  inception (January 1, 1999) through March 31, 2007 |
|                                                          |   | Notes to Condensed Consolidated Financial Statements |
| Item 2.                                                  |   | Management’s Discussion and Analysis of Financial  Condition and Results of Operations |
| Item 3.                                                  |   | Quantitative and Qualitative Disclosures About Market  Risk |
| Item 4.                                                  |   | Controls and Procedures |
| **PART II —  OTHER INFORMATION**               |
| Item 6.                                                  |   | Exhibits |
| Signatures                                                    |
| Exhibit Index                                            |
|                                                               |  |  |  |

 

 

2

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**ADVANCED LIFE SCIENCES HOLDINGS,INC. AND SUBSIDIARY**

**(ADevelopment Stage Company)CONDENSED CONSOLIDATED BALANCE SHEETS(Unaudited)**

 

 
| ** **                                                                                                                                                                       | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                                       | ** ** | **2007**           | ** ** | **2006**              | ** ** |
|                                                                                                                                                                             |       |               |       |                  |       |
| **ASSETS**                                                                                                                                                                       |       |               |       |                  |       |
|                                                                                                                                                                             |       |               |       |                  |       |
| CURRENT ASSETS:                                                                                                                                                                  |       |               |       |                  |       |
|  Cash and cash  equivalents                                                                                                                                                 |       | $                  | 22,050,237 |                  | $          | 27,054,947 |   |
|  Prepaid  insurance                                                                                                                                                         |       | 222,957            |       | 380,083               |       |
|  Prepaid  clinical trial expenses                                                                                                                                           |       | 2,857,597          |       | 2,364,512             |       |
|  Other prepaid  expenses and deposits                                                                                                                                       |       | 272,116            |       | 273,572               |       |
|                                                                                                                                                                             |       |               |       |                  |       |
| Total current assets                                                                                                                                                             |       | 25,402,907         |       | 30,073,114            |       |
|                                                                                                                                                                             |       |               |       |                  |       |
| PROPERTY AND EQUIPMENT:                                                                                                                                                          |       |               |       |                  |       |
|  Furniture and  fixtures                                                                                                                                                    |       | 250,979            |       | 250,308               |       |
|  Laboratory  equipment                                                                                                                                                      |       | 159,662            |       | 142,928               |       |
|  Computer  software and equipment                                                                                                                                           |       | 255,241            |       | 231,022               |       |
|  Leasehold  improvements                                                                                                                                                    |       | 177,253            |       | 182,839               |       |
|                                                                                                                                                                             |       |               |       |                  |       |
| Total property and equipment—at cost                                                                                                                                        |       | 843,135            |       | 807,097               |       |
|  Less  accumulated depreciation                                                                                                                                             |       | (446,574           | )          | (398,486              | )          |
|                                                                                                                                                                             |       |               |       |                  |       |
| Property and equipment—net                                                                                                                                                  |       | 396,561            |       | 408,611               |       |
|                                                                                                                                                                             |       |               |       |                  |       |
| OTHER LONG-TERM  ASSETS:                                                                                                                                                         |       |               |       |                  |       |
| Deferred financing costs                                                                                                                                                         |       | 19,876             |       | 26,502                |       |
| Other assets                                                                                                                                                                     |       | 1,452              |       | 1,452                 |       |
|                                                                                                                                                                             |       |               |       |                  |       |
| Total other long-term assets                                                                                                                                                     |       | 21,328             |       | 27,954                |       |
|                                                                                                                                                                             |       |               |       |                  |       |
| TOTAL ASSETS                                                                                                                                                                     |       | $                  | 25,820,796 |                  | $          | 30,509,679 |   |
|                                                                                                                                                                             |       |               |       |                  |       |
| **LIABILITIES  AND STOCKHOLDERS’ EQUITY**                                                                                                                                   |       |               |       |                  |       |
|                                                                                                                                                                             |       |               |       |                  |       |
| CURRENT  LIABILITIES:                                                                                                                                                            |       |               |       |                  |       |
|  Accounts  payable                                                                                                                                                          |       | $                  | 5,253,876  |                  | $          | 1,011,396 |   |
|  Accrued  clinical trial expenses                                                                                                                                           |       | 2,564,432          |       | 1,410,894             |       |
|  Other accrued  expenses                                                                                                                                                    |       | 386,054            |       | 226,881               |       |
|  Accrued  interest payable                                                                                                                                                  |       | —             |       | 22,756                |       |
|  Short-term  lease payable                                                                                                                                                  |       | 15,778             |       | 19,437                |       |
|  Short-term  grant payable                                                                                                                                                  |       | 476,708            |       | 476,708               |       |
|  Short-term  notes payable - related party                                                                                                                                  |       | 2,000,000          |       | 2,000,000             |       |
|  Short-term notes  payable - net of $8,450 debt discount                                                                                                                    |       | 3,906,550          |       | —                |       |
|                                                                                                                                                                             |       |               |       |                  |       |
| Total current liabilities                                                                                                                                                        |       | 14,603,398         |       | 5,168,072             |       |
|                                                                                                                                                                             |       |               |       |                  |       |
| Long-term lease  payable                                                                                                                                                         |       | 18,362             |       | 20,076                |       |
| Long-term grant  payable                                                                                                                                                         |       | 23,292             |       | 23,292                |       |
| Notes payable -  net of $11,266 debt discount                                                                                                                                    |       | —             |       | 3,903,734             |       |
|                                                                                                                                                                             |       |               |       |                  |       |
| Total liabilities                                                                                                                                                                |       | 14,645,052         |       | 9,115,174             |       |
|                                                                                                                                                                             |       |               |       |                  |       |
| COMMITMENTS AND  CONTINGENCIES:                                                                                                                                                  |       |               |       |                  |       |
| Minority  Interest                                                                                                                                                               |       | —             |       | —                |       |
|                                                                                                                                                                             |       |               |       |                  |       |
| STOCKHOLDERS’  EQUITY:                                                                                                                                                      |       |               |       |                  |       |
| Common stock,  $0.01 par value—60,000,000 shares authorized; March 31, 2007 28,287,677 issued  and outstanding; December 31, 2006 28,282,677 shares issued and outstanding; |       | 282,877            |       | 282,827               |       |
| Additional paid-in capital                                                                                                                                                       |       | 88,560,982         |       | 88,370,853            |       |
| Deficit accumulated during the development stage                                                                                                                                 |       | (77,668,115        | )          | (67,259,175           | )          |
|                                                                                                                                                                             |       |               |       |                  |       |
| Total stockholders’ equity                                                                                                                                                  |       | 11,175,744         |       | 21,394,505            |       |
|                                                                                                                                                                             |       |               |       |                  |       |
| TOTAL  LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                                                                                 |       | $                  | 25,820,796 |                  | $          | 30,509,679 |   |

 

See notes to unauditedcondensed consolidated financial statements.

3

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**ADVANCED LIFESCIENCES HOLDINGS, INC. AND SUBSIDIARY(A Development Stage Company)CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS(Unaudited)**

 
| ** **                                                                    | ** ** | ** **                                           | ** **  | ** **                      | ** ** | **Period From**         | ** ** |
|-------------------------------------------------------------------------------|------------|------------------------------------------------------|-------------|---------------------------------|------------|------------------------------|------------|
| ** **                                                                    | ** ** | ** **                                           | ** **  | ** **                      | ** ** | **Inception**                | ** ** |
| ** **                                                                    | ** ** | ** **                                           | ** **  | **(January 1, 1999)** | ** ** |
| ** **                                                                    | ** ** | **Three months ended March 31,** | ** **  | **Through**                     | ** ** |
| ** **                                                                    | ** ** | **2007**                                             | ** **  | **2006**                        | ** ** | **March 31, 2007** | ** ** |
| ** **                                                                    | ** ** | ** **                                           | ** **  | ** **                      | ** ** | ** **                   | ** ** |
| Revenue:                                                                      |       |                                                 |        |                            |       |                         |       |
| Management fees                                                               |       | $                                                    | —      |                            | $          | —                       |       | $ | 1,161,180 |   |
| Grants                                                                        |       | —                                               |        | 35,127                          |       | 1,035,571                    |       |
| Royalty—related  party                                                   |       | —                                               |        | —                          |       | 45,238                       |       |
|                                                                          |       |                                                 |        |                            |       |                         |       |
| Total revenue                                                                 |       | —                                               |        | 35,127                          |       | 2,241,989                    |       |
|                                                                          |       |                                                 |        |                            |       |                         |       |
| Expenses:                                                                     |       |                                                 |        |                            |       |                         |       |
| Research and  development                                                     |       | 9,050,912                                            |        | 2,260,378                       |       | 58,186,261                   |       |
| Contracted  research and development—related party                       |       | —                                               |        | —                          |       | 7,980,299                    |       |
| Selling, general  and administrative                                          |       | 1,548,163                                            |        | 1,149,170                       |       | 14,640,676                   |       |
|                                                                          |       |                                                 |        |                            |       |                         |       |
| Total  expenses                                                               |       | 10,599,075                                           |        | 3,409,548                       |       | 80,807,236                   |       |
|                                                                          |       |                                                 |        |                            |       |                         |       |
| Loss from operations                                                          |       | (10,599,075                                          | )           | (3,374,421                      | )          | (78,565,247                  | )          |
|                                                                          |       |                                                 |        |                            |       |                         |       |
| Other (income) expense:                                                       |       |                                                 |        |                            |       |                         |       |
| Interest Income                                                               |       | (306,569                                             | )           | (280,858                        | )          | (2,230,701                   | )          |
| Interest expense                                                              |       | 116,434                                              |        | 144,870                         |       | 2,272,621                    |       |
| Gain on sale of  interest in Sarawak Medichem   Pharmaceuticals joint venture |       | —                                               |        | —                          |       | (939,052                     | )          |
|                                                                          |       |                                                 |        |                            |       |                         |       |
| Net other income                                                              |       | (190,135                                             | )           | (135,988                        | )          | (897,132                     | )          |
|                                                                          |       |                                                 |        |                            |       |                         |       |
| Net loss                                                                      |       | (10,408,940                                          | )           | (3,238,433                      | )          | (77,668,115                  | )          |
|                                                                          |       |                                                 |        |                            |       |                         |       |
| Less accumulated  preferred dividends for the period                          |       | 43,750                                               |        | 43,750                          |       | 1,363,542                    |       |
|                                                                          |       |                                                 |        |                            |       |                         |       |
| Net loss available to  common shareholders                                    |       | $                                                    | (10,452,690 | )                               | $          | (3,282,183                   | )          | $ | (79,031,657 | ) |
|                                                                          |       |                                                 |        |                            |       |                         |       |
| Basic and diluted net  loss per share available to common shareholders        |       | $                                                    | (0.37       | )                               | $          | (0.15                        | )          |   |   |
|                                                                          |       |                                                 |        |                            |       |                         |       |
| Weighted average number common shares outstanding—   basic and diluted   |       | 28,287,310                                           |        | 21,290,153                      |       |                         |       |

 

See notes to unauditedcondensed consolidated financial statements.

4

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**ADVANCEDLIFE SCIENCES HOLDINGS, INC. AND SUBSIDIARY**

**(ADevelopment Stage Company)**

**CONDENSED CONSOLIDATED STATEMENTSOF STOCKHOLDERS’ EQUITYFor the period from Inception (January 1, 1999) through March 31, 2007(Unaudited)**

** **
| ** **                                                       | ** ** | ** **            | ** ** | ** **  | ** ** | ** **      | ** ** | **Deficit**         | ** ** | ** **  | ** **  |
|------------------------------------------------------------------|------------|-----------------------|------------|-------------|------------|-----------------|------------|---------------------|------------|-------------|-------------|
| ** **                                                       | ** ** | ** **            | ** ** | ** **  | ** ** | ** **      | ** ** | **Accumulated**     | ** ** | ** **  | ** **  |
| ** **                                                       | ** ** | ** **            | ** ** | ** **  | ** ** | **Additional**  | ** ** | **During the** | ** ** | ** **  | ** **  |
| ** **                                                       | ** ** | **Common Stock** | ** ** | **Paid-in** | ** ** | **Development** | ** ** | ** **          | ** ** |
| ** **                                                       | ** ** | **Shares**            | ** ** | **Amount**  | ** ** | **Capital**     | ** ** | **Stage**           | ** ** | **Total**   | ** **  |
|                                                             |       |                  |       |        |       |            |       |                |       |        |        |
| BALANCE—January 1, 1999  (inception)                        |       | —                |       | $           | —     |            | $          | —              |       | $           | —      |   | $ | — |   |
|                                                             |       |                  |       |        |       |            |       |                |       |        |        |
| Issuance of  stock (since inception)                             |       | 1,588,000             |       | 250,000     |       |            |       |                |       | 250,000     |        |
| Compensation  expense related to stock options (since inception) |       |                  |       |        |       | 15,097          |       |                |       | 15,097      |        |
| Capital  contributions (since inception)                         |       | —                |       | —      |       | 10,415,599      |       | —              |       | 10,415,599  |        |
| Net loss (since  inception)                                      |       | —                |       | —      |       | —          |       | (13,087,375         | )          | (13,087,375 | )           |
|                                                             |       |                  |       |        |       |            |       |                |       |        |        |
| BALANCE—December 31,  2003                                  |       | 1,588,000             |       | 250,000     |       | 10,430,696      |       | (13,087,375         | )          | (2,406,679  | )           |
|                                                             |       |                  |       |        |       |            |       |                |       |        |        |
| Issuance of  common stock at $0.157 per share                    |       | 41,685                |       | 6,563       |       | —          |       | —              |       | 6,563       |        |
| Compensation  expense related to stock options                   |       | —                |       | —      |       | 5,604           |       | —              |       | 5,604       |        |
| Exchange of  shares under recapitalization                       |       | (1,629,685            | )          | (256,563    | )          | —          |       | —              |       | (256,563    | )           |
| Issuance of  shares under recapitalization                       |       | 9,482,015             |       | 94,820      |       | 161,743         |       | —              |       | 256,563     |        |
| Capital  contributions                                           |       | —                |       | —      |       | 2,295,731       |       | —              |       | 2,295,731   |        |
| Issuance of  14,887 warrants                                     |       | —                |       | —      |       | 11,898          |       | —              |       | 11,898      |        |
| Issuance of  common stock in exchange for licenses               |       | 1,122,569             |       | 11,226      |       | 8,988,774       |       | —              |       | 9,000,000   |        |
| Net loss                                                         |       | —                |       | —      |       | —          |       | (27,186,918         | )          | (27,186,918 | )           |
|                                                             |       |                  |       |        |       |            |       |                |       |        |        |
| BALANCE—December 31,  2004                                  |       | 10,604,584            |       | 106,046     |       | 21,894,446      |       | (40,274,293         | )          | (18,273,801 | )           |
|                                                             |       |                  |       |        |       |            |       |                |       |        |        |
| Issuance of  common stock, net of offering costs                 |       | 6,721,814             |       | 67,218      |       | 29,210,558      |       | —              |       | 29,277,776  |        |
| Issuance of  stock related to option exercises                   |       | 63,924                |       | 639         |       | 14,240          |       | —              |       | 14,879      |        |
| Compensation  expense related to stock options                   |       | —                |       | —      |       | 696,204         |       | —              |       | 696,204     |        |
| Issuance of  common stock in exchange for                        |       |                  |       |        |       |            |       |                |       |        |        |
| reduction of  milestones payable                                 |       | 600,000               |       | 6,000       |       | 3,000,000       |       | —              |       | 3,006,000   |        |
| Modification of  14,887 warrants                                 |       | —                |       | —      |       | 18,925          |       | —              |       | 18,925      |        |
|                                                             |       |                  |       |        |       |            |       |                |       |        |        |
| Net loss                                                         |       | —                |       | —      |       | —          |       | (6,444,246          | )          | (6,444,246  | )           |
|                                                             |       |                  |       |        |       |            |       |                |       |        |        |
| BALANCE—December  31, 2005                                  |       | 17,990,322            |       | 179,903     |       | 54,834,373      |       | (46,718,539         | )          | 8,295,737   |        |
|                                                             |       |                  |       |        |       |            |       |                |       |        |        |
| Issuance of  common stock, net of offering costs                 |       | 10,233,464            |       | 102,335     |       | 33,266,653      |       | —              |       | 33,368,988  |        |
| Issuance of  stock related to option exercises                   |       | 58,891                |       | 589         |       | 8,656           |       | —              |       | 9,245       |        |
| Compensation  expense related to stock options                   |       | —                |       | —      |       | 261,171         |       | —              |       | 261,171     |        |
|                                                             |       |                  |       |        |       |            |       |                |       |        |        |
| Net loss                                                         |       | —                |       | —      |       | —          |       | (20,540,636         | )          | (20,540,636 | )           |
|                                                             |       |                  |       |        |       |            |       |                |       |        |        |
| BALANCE—December 31,  2006                                  |       | 28,282,677            |       | $           | 282,827    |            | $          | 88,370,853          |       | $           | (67,259,175 | ) | $ | 21,394,505 |   |
|                                                             |       |                  |       |        |       |            |       |                |       |        |        |
| Issuance of  stock related to option exercises                   |       | 5,000                 |       | 50          |       | 735             |       | —              |       | 785         |        |
| Compensation  expense related to stock options                   |       | —                |       | —      |       | 189,394         |       | —              |       | 189,394     |        |
|                                                             |       |                  |       |        |       |            |       |                |       |        |        |
| Net loss                                                         |       | —                |       | —      |       | —          |       | (10,408,940         | )          | (10,408,940 | )           |
|                                                             |       |                  |       |        |       |            |       |                |       |        |        |
| BALANCE—March 31, 2007                                      |       | 28,287,677            |       | $           | 282,877    |            | $          | 88,560,982          |       | $           | (77,668,115 | ) | $ | 11,175,744 |   |

 

See notes to unauditedcondensed consolidated financial statements.

5

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**ADVANCED LIFE SCIENCES HOLDINGS, INC. AND SUBSIDIARY(A Development Stage Company)**

**CONDENSEDCONSOLIDATED STATEMENTS OF CASH FLOWS(Unaudited)**

 
| ** **                                                                         | ** ** | ** **                       | ** **  | ** **                      | ** ** | **Inception**                | ** ** |
|------------------------------------------------------------------------------------|------------|----------------------------------|-------------|---------------------------------|------------|------------------------------|------------|
| ** **                                                                         | ** ** | **Three months ended** | ** **  | **(January 1, 1999)** | ** ** |
| ** **                                                                         | ** ** | **March 31,**               | ** **  | **Through**                     | ** ** |
| ** **                                                                         | ** ** | **2007**                         | ** **  | **2006**                        | ** ** | **March 31, 2007** | ** ** |
| CASH FLOWS FROM  OPERATING ACTIVITIES:                                             |       |                             |        |                            |       |                         |       |
| Net loss                                                                           |       | $                                | (10,408,940 | )                               | $          | (3,238,433                   | )          | $ | (77,668,115 | ) |
| Adjustments to  reconcile net loss to net cash flows used in operating activities: |       |                             |        |                            |       |                         |       |
| Depreciation and  amortization                                                     |       | 52,091                           |        | 22,951                          |       | 468,110                      |       |
| Non-cash  interest expense                                                         |       | 9,442                            |        | 9,442                           |       | 72,497                       |       |
| Stock  compensation expense                                                        |       | 189,394                          |        | 45,823                          |       | 1,167,470                    |       |
| Non-cash  research and development                                                 |       | —                           |        | —                          |       | 24,466,667                   |       |
| Non-cash  settlement of milestone payment                                          |       | —                           |        | —                          |       | 6,000                        |       |
| Gain on sale of  interest in Sarawak Medichem Pharmaceuticals (SMP)                |       | —                           |        | —                          |       | (939,052                     | )          |
| Loss on disposal                                                                   |       | 1,583                            |        | —                          |       | 13,116                       |       |
| Changes in  operating assets and liabilities:                                      |       |                             |        |                            |       |                         |       |
| Clinical  supplies                                                                 |       | —                           |        | —                          |       | 533,333                      |       |
| Accounts  receivable, related party                                                |       | —                           |        | 1,106                           |       | —                       |       |
| Prepaid expenses                                                                   |       | (334,503                         | )           | (1,831,779                      | )          | (3,352,670                   | )          |
| Other assets                                                                       |       | —                           |        | (472                            | )          | (1,452                       | )          |
| Accounts payable                                                                   |       | 4,224,747                        |        | 51,505                          |       | 5,236,143                    |       |
| Accrued expenses                                                                   |       | 1,312,711                        |        | 983,783                         |       | 2,950,486                    |       |
| Licenses payable                                                                   |       | —                           |        | —                          |       | (11,000,000                  | )          |
| Accrued interest  on debt                                                          |       | (22,756                          | )           | 53,741                          |       | 578,063                      |       |
|                                                                               |       |                             |        |                            |       |                         |       |
| Net cash flows  from operating activities                                          |       | (4,976,231                       | )           | (3,902,333                      | )          | (57,469,404                  | )          |
|                                                                               |       |                             |        |                            |       |                         |       |
| CASH FLOWS FROM  INVESTING ACTIVITIES:                                             |       |                             |        |                            |       |                         |       |
|  Purchase of property and equipment                                           |       | (23,891                          | )           | (16,614                         | )          | (695,803                     | )          |
|  Proceeds from the sale of SMP                                                |       | —                           |        | —                          |       | 939,052                      |       |
|  Proceeds from the sales of investments                                       |       | —                           |        | 8,132,158                       |       | 31,557,158                   |       |
|  Purchase of investments                                                      |       | —                           |        | (4,332,158                      | )          | (31,557,158                  | )          |
|                                                                               |       |                             |        |                            |       |                         |       |
| Net cash flows  from investing activities                                          |       | (23,891                          | )           | 3,783,386                       |       | 243,249                      |       |
|                                                                               |       |                             |        |                            |       |                         |       |
| CASH FLOWS FROM  FINANCING ACTIVITIES:                                             |       |                             |        |                            |       |                         |       |
|  Proceeds from issuance of common stock and  capital contributions            |       | —                           |        | 33,590,005                      |       | 69,856,339                   |       |
|  Proceeds from issuance of notes payable                                      |       | —                           |        | —                          |       | 12,933,691                   |       |
|  Payments on notes payable                                                    |       | —                           |        | —                          |       | (3,915,000                   | )          |
|  Proceeds from grants                                                         |       | —                           |        | —                          |       | 500,000                      |       |
|  Proceeds from stock options exercised                                        |       | 785                              |        | 467                             |       | 31,472                       |       |
|  Payments on capital leases                                                   |       | (5,373                           | )           | (3,326                          | )          | (130,110                     | )          |
|                                                                               |       |                             |        |                            |       |                         |       |
| Net cash flows  from financing activities                                          |       | (4,588                           | )           | 33,587,146                      |       | 79,276,392                   |       |
|                                                                               |       |                             |        |                            |       |                         |       |
| NET (DECREASE) INCREASE  IN CASH                                                   |       | (5,004,710                       | )           | 33,468,199                      |       | 22,050,237                   |       |
|                                                                               |       |                             |        |                            |       |                         |       |
| CASH—Beginning of  period                                                     |       | 27,054,947                       |        | 4,749,932                       |       | —                       |       |
|                                                                               |       |                             |        |                            |       |                         |       |
| CASH—End of period                                                            |       | $                                | 22,050,237  |                            | $          | 38,218,131                   |       | $ | 22,050,237 |   |
|                                                                               |       |                             |        |                            |       |                         |       |
| SUPPLEMENTAL DISCLOSURE  OF                                                        |       |                             |        |                            |       |                         |       |
|  CASH FLOW INFORMATION:                                                       |       |                             |        |                            |       |                         |       |
|  Cash paid during the period for interest                                     |       | $                                | 117,044     |                            | $          | 81,802                       |       | $ | 1,613,267 |   |
|                                                                               |       |                             |        |                            |       |                         |       |
| SUPPLEMENTAL DISCLOSURE  OF NONCASH TRANSACTIONS                                   |       |                             |        |                            |       |                         |       |
|  Noncash investment activity:                                                 |       |                             |        |                            |       |                         |       |
|  Purchase of property and equipment under  capital leases                     |       | $                                | —      |                            | $          | —                       |       | $ | 164,249 |   |
|  Capital expenses included in accounts  payable                               |       | 17,733                           |        | 20,704                          |       | 17,733                       |       |
|  Noncash financing activity:                                                  |       |                             |        |                            |       |                         |       |
|  Issuance of common shares for licenses                                       |       | —                           |        | —                          |       | 9,000,000                    |       |
|  Issuance of common shares for reduction of  milestone payment                |       | —                           |        | —                          |       | 3,000,000                    |       |
|  Cost of proceeds                                                             |       | —                           |        | 146,843                         |       | —                       |       |
|  Debt discount                                                                |       | —                           |        | —                          |       | 30,823                       |       |
|  Deferred financing costs                                                     |       | $                                | —      |                            | $          | —                       |       | $ | 30,000 |   |

 

See notes to unaudited condensed consolidatedfinancial statements.

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**ADVANCEDLIFE SCIENCES HOLDINGS, INC(A DEVELOPMENT STAGE COMPANY)**

**NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

**MARCH 31, 2007**

**(UNAUDITED)**

**1.      Summary of Significant Accounting Policies**

***Nature of Business-******Advanced***LifeSciences Holdings, Inc. and its subsidiary Advanced Life Sciences, Inc.(together, the “Company”) conducts new drug research and development in thefields of infectious disease, oncology and inflammation.  Since inception, the Company has devotedsubstantially all of its efforts to activities such as financial planning,capital raising and product development, and has not derived significantrevenues from its primary business activity. Accordingly, the Company is in the development stage, as defined byStatement of Financial Accounting Standards (“SFAS”) No. 7, *Accounting and Reporting by Development Stage Enterprises*.

***Basis of Presentation-***Theaccompanying unaudited condensed consolidated financial statements of theCompany have been prepared in accordance with accounting principles generallyaccepted in the United States of America and with the instructions toForm 10-Q and Article 10 of Regulation S-X. Accordingly, they donot include all of the information and footnotes required by accountingprinciples generally accepted in the United States of America for completefinancial statements.  However, in theopinion of management, all adjustments, consisting only of normal recurringadjustments, unless otherwise noted herein, necessary to present fairly theresults of operations, financial position and cash flows have been made.  Therefore, these condensed consolidatedfinancial statements should be read in conjunction with the Company’s mostrecent audited financial statements for the year ended December 31, 2006 andnotes thereto. The condensed consolidated financial statements include theaccounts of the Advanced Life Sciences Holdings, Inc. and its wholly-ownedsubsidiary Advanced Life Sciences, Inc. (“ALS Inc.”)  All significant intercompany balances andtransactions have been eliminated.  Theresults of operations for any interim period are not necessarily indicative ofthe results of operations expected for the full year.

The condensed consolidated financial statements have been prepared on agoing concern basis, which contemplates continuity of operations and therealization of assets and liquidation of liabilities in the ordinary course ofbusiness.  However, as a result of theCompany’s continued losses and current cash and financing position, suchrealization of assets or liquidation of liabilities, without substantialadjustments is uncertain.  Given thisuncertainty, there is significant doubt as to the Company’s ability to continueas a going concern.

***Business and Credit Risks*****-**The Company is subject to risks anduncertainties common to drug discovery companies, including technologicalchange, potential infringement on intellectual property of third parties, newproduct development, regulatory approval and market acceptance of its products,activities of competitors and its limited operating history.

The Company has incurred losses since its incorporation inJanuary 1999, and, prior to its incorporation, its business activities asa segment of MediChem incurred losses. The Company has funded its operations to date primarily from debtfinancings and capital contributions from its founder and Chief ExecutiveOfficer, proceeds from the initial public offering of its common stock and thesubsequent sale of its common stock in a private placement.  The Company will not be generating revenuesor realizing cash flows from operations in the near term, and will requireadditional equity or debt financing to meet working capital needs, to fundoperating losses associated with research and development and to fund clinicaltrials.  In order to address its workingcapital shortfall the Company intends to raise additional capital during 2007through the issuance of equity securities or the receipt of milestone paymentswhich would be paid as a result of consummating a commercial partnership forcethromycin, or a combination of both. Although management believes the Company could obtain such financing,there can be no assurances that such financing will be available in the futureat terms acceptable to the Company, if at all. To the extent the Company raises additional capital by issuing equitysecurities; its stockholders could experience substantial dilution.  The accompanying financial statements do notinclude any adjustments that might result from the outcome of theseuncertainties.

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**2.      Private Placement**

In March 2006, the Company completed the private placement of10,233,464 shares of its common stock to a group of institutional investors at$3.53 per share, resulting in gross proceeds of $36.1 million.  In addition to the shares sold, the Companyissued warrants to purchase 5,116,732 shares of its common stock at a price of$3.81 per share.  The warrants becameexercisable upon issuance and will expire five years from the date of grant.  The warrants contain the right, at thediscretion of the purchaser, to convert into common stock through a netexercise provision.  The Company hasrecorded the issuance of the warrants as a permanent component of equity.  In connection with the offering, the Companypaid approximately $2.5 million in underwriting discounts and incurred otheroffering expenses of approximately $226,000. The net cash proceeds from theoffering were approximately $33.4 million.

**3.      Related Party Transactions**

The Company’s Chief Executive Officer, Michael T. Flavin Ph.D., loaned$2.0 million to the Company in 2001 (see Note 4).  Interest expense of $38,750 and $53,582 wasrecorded for the three months ended March 31, 2007 and 2006, respectively,related to the note.

The Company’s line of credit is secured by substantially all of theCompany’s assets, except that the collateral specifically excludes any rightsthat the Company has as a result of its license agreement with AbbottLaboratories for cethromycin, and is further secured by 2.5 million shares ofthe Company’s stock held by ALS Ventures, LLC (see Note 4), which isbeneficially owned by the Company’s Chief Executive Officer.

The Company leases facilities from the BioStart Property Group, LLC. (“BioStart”),a wholly-owned subsidiary of Flavin Ventures, which is owned by our ChiefExecutive Officer.  Lease paymentstotaled approximately $74,000 and $64,000 for the three months ended March 31,2007 and 2006, respectively.

**4.      Debt Obligations**

In September 2001, the Company incurred indebtedness under a $2.0million promissory note with the Chief Executive Officer of the Company, whichbears interest at 7.75%.  Accrued butunpaid interest is added to the outstanding principal annually.  Principal plus accrued interest is due in alump sum on December 31, 2007.  InMay 2006, the Company’s Board of Directors authorized the payment ofaccumulated interest on the loan with the Chief Executive Officer, totaling$837,000. The authorization also provides for monthly payments of accumulatedinterest until the loan matures on December 31, 2007.  As of March 31, 2007 and December 31, 2006,the Company had $2.0 million outstanding under the note.

The Company has a $4.0 million line of credit with a financialinstitution.  Interest under the line ispayable monthly at a fixed interest rate of 6.75% per annum, and outstandingprincipal and interest are payable on January 1, 2008.  The line of credit is secured bysubstantially all of the Company’s assets, except that the collateralspecifically excludes any rights that the Company has a result of its licenseagreement with Abbott Laboratories for cethromycin.  The line of credit is further secured by 2.5million shares of the Company’s common stock held by ALS Ventures, LLC.  As of March 31, 2007 and December 31, 2006,the Company had $3.9 million outstanding under the note.  In connection with the line of credit, thefinancial institution received a warrant entitling it to purchase 14,887 sharesof the Company’s common stock at an exercise price of $5.00 per share, subjectto certain adjustments.  The warrant isimmediately exercisable and will terminate, if not exercised, onDecember 21, 2009. The warrant was valued, using the Black-Scholes optionpricing model, at $27,000. The amount was recorded as a discount to the relateddebt and is being amortized to interest expense over the term of the debt.

**5.      Commitments**

***Vendor Contracts-***The Company administers its cethromycin developmentprogram, which includes anthrax related studies, largely under contracts withthird parties.  To date, contracts totaling$38.2 million have been executed related to the cethromycin program.  The remaining balance of $18.4 million isexpected to be paid in 2007.  Inaddition, the Company executed $400,000 in contracts related to the ALS-357program during 2006, of which the remaining balance of $277,000 is expected tobe paid in 2007.

***Grant Payable-*** In April 2005, the Company wasawarded a $500,000 grant from the State of Illinois to fund expansion of itscorporate headquarters in Woodridge, IL. Under the terms of the grant, the Company is to utilize the funds forconstruction costs associated with expanding its corporate headquarters andcreate 100 full-time jobs at the same location between January 31, 2005 andJune 30, 2007 (“grant period”).  Fundsthat are not expended in a manner consistent with the grant award are to berepaid 

8

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at the end of the grantperiod.  In addition, if the Company doesnot create the specified number of full-time jobs, it is required to repay thegrant proceeds on a pro-rata basis of actual jobs created compared to the totaldefined in the grant.  As of March 31,2007 the Company classified approximately $477,000 of the grant proceeds as ashort term liability based upon the actual costs of the facility expansionincurred and the number of jobs created during the grant period.  The remaining $23,000 has been classified asa long-term liability as the Company must maintain the positions created duringthe grant period through January 31, 2010. If the Company does not maintain the positions created until January 31,2010, it will owe the State of Illinois grant proceeds equal to a pro-ratashare of the positions that were retained as compared to the total createdduring the grant period.

**6.      Minority Interest**

The Series Apreferred stock (“Series A Preferred Stock”) of the Company’s  subsidiary, ALS, Inc., is held by deCODEGenetics (“deCODE”) as a result of ALS Inc.’s spin-off from MediChem LifeSciences in January 1999, and MediChem’s subsequent acquisition by deCODEGenetics in March 2002. deCODE provides analytical services to the Companyon an as needed basis.

As of March 31,2007, ALS Inc. had 250,000 shares of Series A Cumulative Preferred Stockauthorized, issued and outstanding to deCODE. The Series A Preferred Stockis nonvoting except as to certain matters including the issuance of any classof stock ranking prior to the shares of Series A Preferred Stock, or themerger or consolidation of ALS Inc. if such merger would adversely affect thepowers, preferences or rights of the Series A Preferred Stock. TheSeries A Preferred stockholder is entitled to receive dividends payable incash at the rate of 7.0% per annum per share on the amount of liquidationpreference of the shares.  Dividends areonly payable when, as and if declared by our board of directors.

**7.      Stock Option Grants**

In January 2007 and March 2006, the Company grantedstock options to purchase up to 667,600 and 233,500 shares of common stock,respectively, to certain employees and scientific advisory board members. Theexercise price of the options was the fair market price of the Company’s commonstock on the date of grant.  The Companyrecognized compensation expense totaling approximately $189,000 and $46,000 forthe three months ended March 31, 2007 and 2006, respectively, in accordancewith SFAS No. 123 (R), *Share basedPayment*.

**8.      Net Loss Per Share**

Basic loss pershare is computed by dividing net loss by the number of weighted average commonshares outstanding during the reporting period. Diluted loss per share is calculated to give effect to all potentiallydilutive common shares that were outstanding during the reporting period.  The computation of diluted shares outstandingfor the periods ended March 31, 2007 and 2006 excludes incremental shares of6,936,901 and 6,297,976, related to employee stock options and warrants.  These shares are excluded due to theiranti-dilutive effect as a result of the Company’s losses for the periods endedMarch 31, 2007 and 2006.

**9.      Recent Accounting Pronouncements**

In 2006, theFinancial Accounting Standards Board issued Interpretation No. 48 *Accounting for Uncertainty in Income Taxes*(“FIN 48”)*.*  FIN 48 requiresreporting of taxes based on tax positions which meet a more likely than notstandard and which are measured at their more likely than not settlement.  Differences between financial and taxreporting which do not meet this threshold are required to be recorded asunrecognized tax benefits.  FIN 48 alsoprovides guidance on the presentation of tax matters and the recognition ofpotential IRS interest and penalties.

The provisions ofFIN 48 became effective on January 1, 2007, and had no effect on the Company’sfinancial position, cash flows or operations upon adoption as the Company doesnot have any unrecognized tax benefits. The Company also evaluated its tax positions as of March 31, 2007 andreached the same conclusion.

The Companyclassifies penalty and interest expense related to income tax liabilities as anincome tax expense. There are no interest and penalties recognized in thestatement of operations or accrued on the balance sheet.

The Company filestax returns in the US, and in the state of Illinois.  The tax years 2003 through 2006 remain opento examination by the major taxing jurisdictions to which the Company issubject.

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**Item 2.Management’s Discussion and Analysis of Financial Condition and Results ofOperations**

*Youshould read the following discussion of our financial condition and results ofoperations in conjunction with our condensed consolidated financial statements andthe related notes included elsewhere in this quarterly report. This discussioncontains forward-looking statements that involve risks and uncertainties. Ouractual results may differ materially from those anticipated in theseforward-looking statements.*

**Overview**

We are abiopharmaceutical company focused on the discovery, development andcommercialization of novel drugs in the areas of infectious disease, oncologyand inflammation.  Using our internaldiscovery capabilities and our network of pharmaceutical and academic partners,we have assembled a promising pipeline of clinical and preclinical productcandidates.  Our most advanced productcandidate, cethromycin, is a second generation ketolide antibiotic in Phase IIIclinical development for the treatment of respiratory tract infections.  We also have product candidates in earlierstages of development for the treatment of indications includinginflammation-related tissue damage and malignant melanoma.

None of our product candidates have been approved bythe United States Food and Drug Administration (“FDA”) or any comparableforeign agencies, and we have not generated any significant revenues todate.  Our ability to generate revenuesin the future will depend on our ability to meet development or regulatorymilestones under any license agreements that trigger payments to us, to enterinto new license agreements for other products or territories and to receiveregulatory approvals for, and successfully commercialize, our productcandidates either directly or through commercial partners.

Sinceour inception we have incurred net losses each year.  Our net loss for the three months ended March31, 2007 was $10.4 million.  As of March31, 2007, we had an accumulated deficit of $77.7 million.  Our operations to date have been fundedprincipally through proceeds from our initial public offering in August 2005,our private placement in March 2006, debt and capital contributions made by ourChief Executive Officer and borrowings under our bank line of credit.  We currently do not have sufficient cash orother funding available to complete our anticipated business activities during2007.  As a result, there is significantdoubt about our ability to continue as a going concern.

In March 2006, weraised approximately $33.4 million, net of underwriting discounts and offeringexpenses, in connection with the issuance of 10,233,464 shares of our commonstock at $3.53 per share.  In addition tothe shares sold, we issued warrants to purchase 5,116,732 shares of our commonstock at a price of $3.81 per share.

We expect to significantly increase the rate of ourresearch and development expenditures as we accelerate our development ofcethromycin.  Accordingly, our totalexpenses and net losses will similarly increase.  If the clinical testing for our productcandidates is delayed, we could incur increased development costs and a delayin our ability to generate revenues. Such delay, depending on its duration, may also require the Company toraise additional capital to fund the completion of clinical trials and otheroperating activities.

In December 2005, we initiated Phase III clinicaltrials for cethromycin which compare cethromycin with standard of caretherapies for community acquired pneumonia (CAP).  As of the end of the first quarter of 2007 wehave initiated clinical trial sites in the United States, Canada, Europe, SouthAmerica and South Africa.  This approachhas positioned us to recruit patients for our CAP studies in both hemispheresduring each respective peak CAP season. Each trial seeks to demonstrate statistical non-inferiority to acomparator using a 95% confidence interval. Clinical cure rate serves as the primary endpoint in each trial withbacteriological eradication serving as the secondary endpoint.  We expect to have initial data available bythe end of the second quarter of 2007. This timeline depends on the severity of the CAP season and thesuccessful treatment of patients in the clinical trials sites we have established.  We will continue to enroll in all geographiesuntil we have enrolled the requisite number of patients to complete ourstudies.

Cethromycin has also been demonstrated to havesignificant in vitro activity against over 30 anthrax (*Bacillusanthracis*) strains.  Duringthe second quarter we concluded a study testing cethromycin’s efficacy intreating inhalation anthrax post-exposure for prophylaxis in non-humanprimates.  Preliminary results from this study demonstrated that a thirty(30) day course of oral cethromycin at  a 16 mg/kg of once-daily dosing(equivalent 300 mg) was 100% protective against a lethal dose of inhaled *B. anthracis* Ames strain spores.

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Even if our pivotal Phase III clinical trials ofcethromycin are successfully completed, we do not expect to receive FDAapproval for commercialization until 2008 at the earliest.  As of March 31, 2007, we estimate that ourcethromycin development program will require an additional $56.1 million inresearch and development expenses which includes $40.0 million in additionalmilestones to Abbott, $12.7 million to complete the cethromycin clinicaltrials, $3.4 million for the preparation of the cethromycin NDA and othercommercialization-related costs.  Weexpect to incur expenses of $1.2 million to complete our non-human primatestudies to determine cethromycin’s efficacy for the prophylactic treatment ofinhalation anthrax.  Our $10.0 millionand $30.0 million Abbott milestone payments are triggered upon submitting anNDA and receiving FDA approval, respectively. Development timelines and related costs are difficult to estimate andmay vary significantly from our current estimates.

If cethromycin is approved for marketing by the FDA,we plan to sell cethromycin using a commercial partner to access the primarycare physician market and to build and utilize a focused internal sales forcethat will market directly to early adopters such as, but not limited to,pulmonary medicine and infectious disease physicians.

**Resultsof Operations**

*Three months endedMarch 31, 2007 compared to three months ended March 31, 2006*

*Revenue.**  *The Company had no revenue for the three months endedMarch 31, 2007 compared to $35,000 for the three months ended March 31,2006.  Revenue in 2006 resulted from aphase I grant that was awarded in the third quarter of 2005.

*Research and development expense.*   Researchand development expense increased $6.8 million to $9.1 million for the threemonths ended March 31, 2007 as compared to the three months ended March 31,2006 and primarily consists of the costs to administer our phase III clinicaltrials of our lead compound cethromycin, which we administer under contractswith third-parties.  In addition, thesecosts include the salaries and related benefits of our scientific and clinicaltrial management staff as well as costs related to the operation of ourlaboratory facilities.

Cethromycin-related development costs totaled $8.9million during the first quarter of 2007, which represents an increase of $6.8million over the first quarter of 2006. Approximately $3.6 million of this change is attributable to costsincurred for each of the cethromycin clinical trials in operation during thefirst quarter of 2007 compared to the single trial in operation during thefirst quarter of 2006.  Other cethromycindevelopment related costs incurred during the first quarter of 2007 include$1.3 million for the manufacturing of registration batches of cethromycin and$810,000 for the compilation of the cethromycin NDA and other NDA directedstudies.  Each of these costs wereincremental to the first quarter of 2007 as compared to the first quarter of2006 and were incurred as we began to transition between the operation of ourclinical trials and the compilation of our NDA. We estimate that the expense to complete the trials, which includes theexpense to compile and submit the NDA to the FDA, is $56.1 million.  Of the $56.1 million, $26.1 million will berecognized over the remainder of this year, and $30.0 million will berecognized in 2008.

In addition to our cethromycin clinical trials, weincurred expenses of $800,000 related to an ongoing study to determine theefficacy of cethromycin for the prophylactic treatment of inhalationanthrax.  We expect to incur anadditional $1.2 million throughout the remainder of this year to complete thestudy.

*Generaland administrative expense.**  *Generaland administrative expense increased $397,000 to $1.5 million for the threemonths ended March 31, 2007 as compared to the three months ended March 31,2006.  The increase was primarilyattributable to higher compensation costs of existing personnel as well ascompensation for new employees in the legal and accounting functions that willmanage the Company’s Sarbanes-Oxley compliance program as well as compensationexpense associated with stock options that have been granted since the firstquarter of 2006.

* Interest income.*   Interestincome increased $26,000 to $307,000 for the three months ended March 31,2007.  Interest income is derived throughthe investment of our IPO and private placement proceeds in money market funds,until they are used in operations.

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*Interestexpense.*   Interest expense decreased $29,000 to$116,000 for the three months ended March 31, 2007.  In May of 2006 we restructured our line orcredit from a variable rate based on Prime to fixed rate of 6.75%.  As a result, the effective rate of intereston our line decreased 1.8% which decreased our interest expense for the firstquarter of 2007, as compared to the first quarter of 2006, by $29,000.

**Liquidityand Capital Resources**

We have devoted substantially all of our cashresources to research and development and general and administrativeexpenses.  To date, we have not generatedany revenues from the sale of products, and we do not expect to generate anysuch revenues for a number of years, if at all. As a result, we have incurred an accumulated deficit of$77.7 million as of March 31, 2007 and we expect to incur significant andincreasing operating losses for the foreseeable future.  Our working capital as of March 31, 2007amounted to $10.8 million.  Cash andcash equivalents was $22.1 million as of March 31, 2007.  Since our inception in 1999 to August 2005,we financed our operations primarily through debt and capital contributionsfrom our founder and controlling stockholder and borrowings under our bank lineof credit.  In August 2005 we completed ourinitial public offering in which we raised $28.7 million, net of underwritersdiscount and offering costs.  In March2006 we completed a private placement in which we raised $33.4 million, net ofunderwriters discount and offering costs.

In September 2001, our Chief Executive Officer made a$2.0 million loan to us.  The loanaccrues interest at the rate of 7.75%, compounded annually, and is due andpayable on December 31, 2007.  Thebalance of the loan and accrued interest was $2.0 million as of March 31, 2007.

We have a $4.0 million line of credit with a localfinancial institution.  As of March 31,2007, the line of credit had an outstanding balance of $3.9 million bearinginterest of 6.75% per annum.  Interest ispayable monthly, and the line of credit matures on January 1, 2008.  The line of credit is secured bysubstantially all the assets of the Company, excluding any rights that we haveunder of our license agreement with Abbott Laboratories for cethromycin.  The line of credit is also secured by 2.5million shares of our common stock held by Flavin Ventures, LLC. (see Note 4 tothe condensed consolidated financial statements).

During the three months ended March 31, 2007,cash used in operating activities totaled $5.0 million.  Approximately $3.9 million was used for thedevelopment of cethromycin, $116,000 for research activities related to ourproprietary portfolio of compounds and $1.3 million for general operations netof $351,000 in interest income.

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*ContractualObligations*

As of March 31, 2007, the annual amounts of futureminimum payments under debt obligations, interest, lease obligations and otherlong term liabilities consisting of research, development and licenseagreements including the potential product based milestones which could be dueto Abbott, are as follows:
| ** **                     | ** ** | **Payments Due by December 31,** | ** ** | ** ** | ** ** |
|--------------------------------|------------|------------------------------------------------------|------------|------------|------------|
| ** **                     | ** ** | **2007**                                             | ** ** | **2008**   | ** ** | **2009** | ** ** | **2010** | ** ** | **2011** | ** ** | **Total** | ** ** |
| Notes payable                  |       | $                                                    | 2,000,000  |       | $          | 3,915,000 |   | $ | — |   | $ | — |   | $ | — |   | $ | 5,915,000 |   |
| Interest                       |       | 317,714                                              |       | 2,842      |       | 1,633 |   | 304 |   | — |   | 322,493 |   |
| Abbott license payments        |       | 10,000,000                                           |       | 30,000,000 |       | — |   | — |   | — |   | 40,000,000 |   |
| Cethromycin development  costs |       | 16,336,000                                           |       | 8,000      |       | — |   | — |   | — |   | 16,344,000 |   |
| Anthrax clinical  studies      |       | 1,921,000                                            |       | —     |       | — |   | — |   | — |   | 1,921,000 |   |
| ALS-357 clinical  supplies     |       | 265,000                                              |       | 12,000     |       | — |   | — |   | — |   | 277,000 |   |
| Operating leases               |       | 170,182                                              |       | 154,708    |       | — |   | — |   | — |   | 324,890 |   |
| Capital leases                 |       | 14,064                                               |       | 7,258      |       | 8,468 |   | 4,350 |   | — |   | 34,140 |   |
|                           |       |                                                 |       |       |       |   |   |   |   |   |   |   |   |
| Total                          |       | $                                                    | 31,023,960 |       | $          | 34,099,808 |   | $ | 10,101 |   | $ | 4,654 |   | $ | — |   | $ | 65,138,523 |   |

 

We will owe Abbott $10.0 million if we submit an NDAfor cethromycin and $30.0 million if and when the FDA approves the NDA, whichwe estimate will occur in 2007 and 2008, respectively.  Thereafter, we would owe Abbott an additional$2.5 million upon reaching $200 million in aggregate net sales of cethromycinand $5.0 million upon reaching $400 million in aggregate net sales.  The periods in which milestone obligationsbecome payable, if at all, are only estimates due to uncertainties in the regulatoryapproval process and as such are not included in the table above.

Our long-term commitments under operating leases shownabove consist of payments made to a related party relating to our facilitylease in Woodridge, Illinois, which expires in September of 2008.

In the first four months of 2007 we executed contractstotaling $1.1 million, $1.0 million of which were executed prior to March 31,2007, related to the compilation of our cethromycin NDA and NDA directedstudies.  We anticipate executing additionalcontracts totaling $3.8 million related to our clinical development ofcethromycin.  Of this amount, $1.5million represents the costs we will incur to complete the Phase III pivotalclinical trials; $1.1 million relates to cardiac safety studies, clinicallaboratory support for the trials and the manufacture and analysis of clinicalsupplies for the trials; $1.2 million relates to the manufacture of testbatches of cethromycin required for the NDA.

Remaining payments due under all existing andanticipated cethromycin development contracts, including anthrax studies, total$22.1 million and are expected to be made over the next nine months.  The majority of these payments are milestonebased.  The periods in which milestoneobligations become payable are only estimates due to uncertainties in patientenrollment.

To fund these contracts and our existing developmentcommitments, indebtedness and general operating expenses we anticipate raisingadditional operating capital during 2007 after data from our trials isavailable.  Such a capital raise could beachieved by the sale of additional common stock, the receipt of milestonepayments which would be paid to us as a result of entering into a commercialpartnership for cethromycin, or a combination of both.  Based upon current market conditions anddiscussions with potential commercial partners, we believe sufficient funds canbe raised in 2007 to continue our development of cethromycin and fund our otherresearch and corporate expenditures through the expected approval of ourcethromycin NDA.  Although we believe wecan obtain sufficient financing, there can be no assurances that such financingwill be available in the future at terms acceptable to us.  We currently do not have sufficient cash orother funding available to complete our anticipated business activities during2007.  As a result, there is significantdoubt about our ability to continue as a going concern.

Our future capital uses and requirements depend onnumerous forward-looking factors.  Thesefactors include, but are not limited to, the following:

·                   progressin our clinical development programs, as well as the magnitude of theseprograms;

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·                   the timing, receipt and amount of milestoneand other payments, if any, from present and future collaborators;

·                   our ability to raise additional capitalthrough the sale of common stock or the receipt of milestone payments thatwould be paid to us as a result of our entering into a commercial partnershipfor cethromycin, or a combination of both;

·                   our ability to establish and maintainadditional collaborative arrangements;

·                   the resources, time and costs required tosuccessfully initiate and complete our preclinical and clinical trials, obtainregulatory approvals, protect our intellectual property and obtain and maintainlicenses to third-party intellectual property;

·                   thecost of preparing, filing,prosecuting, maintaining and enforcing patent claims; and

·                   thetiming, receipt and amount ofsales and royalties, if any, from our potential products.

If, at any time, ourprospects for financing our clinical development programs are limited, we maydecide to reduce research and development expenses by delaying or discontinuingcertain programs.

**CriticalAccounting Policies and Estimates**

Our discussion and analysis of our financial conditionand results of operations are based on our financial statements, which havebeen prepared in accordance with accounting principles generally accepted inthe United States of America.  Thepreparation of these financial statements requires us to make estimates andjudgments that affect the reported amounts of assets, liabilities and expensesand related disclosure of contingent assets and liabilities.  We review our estimates on an ongoing basis.  We base our estimates on historicalexperience and on various other assumptions that we believe to be reasonableunder the circumstances.  Actual resultsmay differ from these estimates under different assumptions or conditions.  While our significant accounting policies aredescribed in more detail in the notes to our financial statements included inthis annual report, we believe the following accounting policies to be criticalto the judgments and estimates used in the preparation of our financialstatements.

*In-ProcessResearch and Development*

Werecognize in-process research and development in accordance with FASBInterpretation No. 4, *Applicabilityof FASB Statement No. 2 to Business Combinations Accounted for by the PurchaseMethod*and the AICPATechnical Practice Aid, *Assets Acquired in aBusiness Combination to be used in Research and Development Activities:  A Focus on Software, Electronic Devices, andPharmaceutical  Industries. *Assets to be used in research and development activities, specifically,compounds that have yet to receive new drug approval from the FDA and wouldhave no alternative use should approval not be given, are immediately chargedto income when acquired.

In December 2004, we incurred $24.5 million of in-process research anddevelopment expense as a result of entering into our exclusive license withAbbott Laboratories for cethromycin.  Wedetermined to immediately expense the purchased in-process research anddevelopment costs because the ultimate outcome of clinical trials forcethromycin is unknown and, therefore, FDA approval is uncertain.  As part of the consideration for thecethromycin license, we issued to Abbott shares of our common stock. In orderto determine the value of the common stock issued to Abbott, we relied on thearms-length nature of the transaction, precedent market data and severalinternal valuation models and studies. An independent appraisal was also obtained to provide additional supportfor the valuation methodologies utilized. By their nature, valuations involve judgments of management that rely onestimates regarding the timing and amount of cash flows and discount ratesthat, if changed, could significantly affect the conclusions as to value.

*Research and Development*

Research anddevelopment expenses consist of internal research costs and fees paid for contractresearch in conjunction with the research and development of our proprietaryproduct portfolio.  All such costs areexpensed as incurred.  

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Clinical trial costsincurred by third parties are expensed as the contracted work isperformed.  We estimate both the totalcost and time period of the trials and the percent completed as of thataccounting date.  We believe that theestimates made as of March 31, 2007 are reflective of the actual expensesincurred as of that date.

*Stock-basedCompensation*

We account for stock-based awardsto employees and non-employees using the accounting provisions of Statement ofFinancial Accounting Standards No. 123(R) *Share-based Payments*which provides for the use of the fair value based method to determine compensation for all arrangements where sharesof stock or equity instruments are issued for compensation.  We use the Black-Scholes options-pricingmodel to determine the fair value of each option grant as of the date of grantfor expense incurred.  The Black-Scholesmodel requires inputs for risk-free interest rate, dividend yield, volatilityand expected lives of the options.  Sincethe Company has a limited history of stock activity, expected volatility isbased on historical data from several peer public companies with similarproduct portfolios to us.  The risk-freerate for periods within the contractual life of the option is based on theU.S. Treasury yield curve in effect at the time of the grant.  The expected lives for options grantedrepresents the period of time that options granted are expected to beoutstanding and is derived from the contractual terms of the options granted.

**Forward-LookingStatements and Risk Factors**

This Quarterly Report on Form 10-Q, includingManagement’s Discussion and Analysis of Financial Condition and Results ofOperations, contains forward-looking statements within the meaning of thePrivate Securities Litigation Reform Act of 1995.   Forward-looking statements often areproceeded by words such as “believes,” “expects,” “may,” “anticipates,” “plans,”“intends,” “assumes,” “will” or similar expressions.  Forward-lookingstatements reflect management’s current expectations, as of the date of thisreport, and involve certain risks and uncertainties.   Our actual results could differ materiallyfrom those anticipated in these forward-looking statements as a result ofvarious factors.   Some of thefactors that could cause future results to materially differ from the recentresults or those projected in forward-looking statements include the “RiskFactors” described in our Annual Report on Form 10-K.

**Item 3.*Quantitative and Qualitative Disclosures AboutMarket Risk***

Our exposure to market risk is currently confined toour cash and cash equivalents.  Wecurrently do not hedge interest rate exposure. We have not used derivativefinancial instruments for speculation or trading purposes.  Because of the short-term maturities of ourcash and cash equivalents, we do not believe that an increase in market rateswould have a significant impact on their realized value.

Our most liquid assets are cash and cashequivalents.  Because of their liquidity,these assets are not directly affected by inflation.  We also believe that we have intangible assetsin the value of our intellectual property. In accordance with generally accepted accounting principles, we have notcapitalized the value of this intellectual property on our balance sheet.  Due to the nature of this intellectualproperty, we believe that these intangible assets are not affected by inflation.  Because we intend to retain and continue touse our equipment, furniture and fixtures and leasehold improvements, webelieve that the incremental inflation related to replacement costs of suchitems will not materially affect our operations.  However, the rate of inflation affects ourexpenses, such as those for employee compensation and contract services, whichcould increase our level of expenses and the rate at which we use ourresources.

**Item 4.*Controls and Procedures***

Our management, under the supervision and with theparticipation of our Chief Executive Officer (“CEO”) and Chief FinancialOfficer (“CFO”), has evaluated the effectiveness of our disclosure controls andprocedures as defined in SEC Rules 13a-15(e) and 15d-15(e) as of the end of theperiod covered by this report.  Basedupon that evaluation, management has concluded that our disclosure controls andprocedures are effectively designed to ensure that information we are requiredto disclose in reports that we file or submit under the Securities Exchange Actof 1934 is accumulated and communicated to management, including the CEO andCFO, as appropriate to allow timely decisions regarding required disclosure andis recorded, processed, summarized and reported within the time periods specifiedin the SEC’s rules and forms.

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**Changes in Internal Control**

During the period covered by this report, there havebeen no significant changes in our internal control over financial reportingthat have materially affected, or are reasonably likely to materially affect,our internal control over financial reporting.

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**PART II —OTHER INFORMATION**

**Item 6. *Exhibits***

The following is alist of exhibits filed as part of this Form 10-Q:
| Number | ** ** | **Description**                                                                                                                                      |
|--------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |       |                                                                                                                                                 |
| 10.1   |       | Employment Agreement dated May 7, 2007 between  Advanced Life Sciences, Inc. and Michael J. Cogan.                                                   |
|   |       |                                                                                                                                                 |
| 31.1   |       | Certification of Chief Executive Officer pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002.                                                 |
|   |       |                                                                                                                                                 |
| 31.2   |       | Certification of Chief Financial Officer pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002.                                                 |
|   |       |                                                                                                                                                 |
| 32.1   |       | Certification of Chief Executive Officer pursuant to  18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002. |
|   |       |                                                                                                                                                 |
| 32.2   |       | Certification of Chief Financial Officer pursuant to  18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002. |

 

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**SIGNATURES**

Pursuant to the requirements of the SecuritiesExchange Act of 1934, The Registrant has duly caused this report to be signedon its behalf by the undersigned thereunto duly authorized.
|        |                                  |                                |
|--------|---------------------------------------|-------------------------------------|
|   | Advanced Life Sciences Holdings, Inc. |
|   |                                  |                                |
|   | By:                                   | /s/ Michael T.  Flavin, Ph.D.  |
|   |                                  |                                |
|   |                                  | Michael T.  Flavin, Ph.D.      |
|   | * *                              | *Chairman  of the Board, President* |
|   | * *                              | *and  Chief Executive Officer*      |
|   |                                  |                                |
|   | By:                                   | /s/ R. Richard  Wieland II          |
|   |                                  |                                |
|   |                                  | R. Richard  Wieland II              |
|   | * *                              | *Executive  Vice President and*     |
|   | * *                              | *Chief  Financial Officer*          |

 

 Dated: May 9, 2007

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**EXHIBIT INDEX**
| Number | ** ** | **Description**                                                                                                                                      |
|--------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |       |                                                                                                                                                 |
| 10.1   |       | Employment Agreement dated May 7, 2007 between  Advanced Life Sciences, Inc. and Michael J. Cogan.                                                   |
|   |       |                                                                                                                                                 |
|   |       |                                                                                                                                                 |
| 31.1   |       | Certification of Chief Executive Officer pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002.                                                 |
|   |       |                                                                                                                                                 |
| 31.2   |       | Certification of Chief Financial Officer pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002.                                                 |
|   |       |                                                                                                                                                 |
| 32.1   |       | Certification of Chief Executive Officer pursuant to  18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002. |
|   |       |                                                                                                                                                 |
| 32.2   |       | Certification of Chief Financial Officer pursuant to  18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002. |

 

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