**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      DC 20549**





**FORM
      10-Q**




x
            
            QUARTERLY
                REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
                ACT OF
                1934





**For
      the quarterly period ended March 31, 2006**.




o
            
            TRANSITION
                REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
                ACT OF
                1934




for
      the
      transition period from _____ to _____.





Commission
      File Number


0-50481





**AEOLUS
      PHARMACEUTICALS, INC.**


(Exact
      Name of Registrant as Specified in Its Charter)








Delaware
            
            56-1953785(State
                or Other Jurisdiction of Incorporation or Organization)
            
            (I.R.S.
                Employer Identification No.)





23811
                Inverness PlaceLaguna
                Niguel, California
            
            92677(Address
                of Principal Executive Offices)
            
            (Zip
                Code)





(Registrant’s
      Telephone Number, Including Area Code) 949-481-9825





Indicate
      by check mark whether the registrant: (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the registrant was required
      to file such reports), and (2) has been subject to such filing requirements
      for
      the past 90 days. YES x NO o





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer. See definition of accelerated
      filer and large accelerated filer in Rule 12b-2 of the Exchange Act:





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




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


YES o NO x





Indicate
      the number of shares outstanding of each of the issuer’s classes of common
      stock, as of the latest practicable date.




Class
            
            Outstanding
                as of May 10, 2006Common
                Stock, par value $.01 per share
            
            14,144,333
                shares













AEOLUS
      PHARMACEUTICALS, INC.


FORM
      10-Q


For
      the
      Quarter Ended March 31, 2006


Table
      of
      Contents





PAGEPART
                I.FINANCIAL
                INFORMATIONItem
                  1.Financial
                  StatementsStatement
                  Regarding Financial Information.
              3Condensed
                  Consolidated Balance Sheets as of March 31, 2006(unaudited)
                  and September 30, 2005 ..
              4Condensed
                  Consolidated Statements of Operations for the ThreeMonths
                  and Six Months ended March 31, 2006 and 2005 (unaudited)
              5Condensed
                  Consolidated Statements of Cash Flows for theSix
                  Months ended March 31, 2006 and 2005 (unaudited)
              6Notes
                  to Condensed Consolidated Financial Statements
              7Item
                  2Management’s
                  Discussion and Analysis of FinancialCondition and Results of Operations
              4Item
                  3.Quantitative
                  and Qualitative DisclosuresAbout
                  Market Risk
              20Item
                  4.Controls
                  and Procedures.
              21PART
                  II.OTHER
                  INFORMATIONItem
                  1.Legal
                  Proceedings
              21Item
                  1A.Risk
                  Factors
              21Item
                  2.Unregistered
                  Sales of Equity Securities andUse of Proceeds
              21Item
                  3.Defaults
                  Upon Senior Securities
              21Item
                  4.Submission
                  of Matters to a Vote of Security Holders
              22Item
                  5.Other
                  Information
              22Item
                  6.Exhibits
              23SIGNATURES
              24
   2


**AEOLUS
      PHARMACEUTICALS, INC.**






**PART
      I - FINANCIAL INFORMATION**





ITEM
      1.  Financial
      Statements.





**Statement
      Regarding Financial Information**





The
      condensed consolidated financial statements of Aeolus Pharmaceuticals, Inc.
      and
      its wholly-owned subsidiary, Aeolus Sciences, Inc. (collectively the “Company”),
      included herein have been prepared by management, without audit (except for
      the
      Consolidated Balance Sheet as of September 30, 2005), pursuant to the rules
      and
      regulations of the Securities and Exchange Commission (“SEC”). Certain
      information normally included in the consolidated financial statements prepared
      in accordance with accounting principles generally accepted in the United States
      has been condensed or omitted pursuant to such rules and regulations. However,
      the Company believes that the disclosures are adequate to make the information
      presented not misleading. The Company recommends that you read the consolidated
      financial statements included herein in conjunction with the audited
      consolidated financial statements and notes thereto included in the Company’s
      Annual Report on Form 10-K for the fiscal year ended September 30, 2005, filed
      with the SEC on December 27, 2005.








3





AEOLUS
                PHARMACEUTICALS, INC.CONDENSED
                CONSOLIDATED BALANCE SHEETS(In
                thousands, except shares and per share data)March
                31,
            
            September
                30,2006
            
            2005(Unaudited)ASSETSCurrent
                assets:Cash
                and cash equivalents
            
            $
            304
            
            $
            626Accounts
                receivable
            
            
            5
            
            
            14Prepaids
                and other current assets
            
            
            360
            
            
            289Total
                current assets
            
            
            669
            
            
            929Investment
                in CPEC LLC
            
            
            442
            
            
            8Total
                assets
            
            $
            1,111
            
            $
            937LIABILITIES
                AND STOCKHOLDERS' DEFICITCurrent
                liabilities:Accounts
                payable
            
            $
            1,195
            
            $
            712Accrued
                expenses
            
            
            128
            
            
            290Current
                maturity of long-term note payable
            
            
            911
            
            
            -Total
                current liabilities
            
            
            2,234
            
            
            1,002Long-term
                note payable
            
            
            -
            
            
            867Total
                liabilities
            
            
            2,234
            
            
            1,869Series
                A cumulative convertible preferred stock, $.01 par value per share,liquidation
                value $3.00 per share, 1,250,000 shares authorized, issued andoutstanding
                at March 31, 2006 and no shares authorized, issued,outstanding
                at September 30, 2005
            
            
            354
            
            
            -Stockholders'
                deficit:Preferred
                stock, $.01 par value per share, 10,000,000 shares authorized atMarch
                31, 2006 and 3,000,000 shares authorized at September 30,
                2005:Series
                B nonredeemable convertible preferred stock, 600,000 shares
                authorized;475,087
                shares issued and outstanding at March 31, 2006 andSeptember
                30, 2005
            
            
            5
            
            
            5Common
                stock, $.01 par value per share, 50,000,000 shares
                authorized;14,098,096
                and 14,038,259 shares issued and outstanding at March 31,
                2006and
                September 30, 2005, respectively
            
            
            141
            
            
            140Additional
                paid-in capital
            
            
            147,887
            
            
            146,016Accumulated
                deficit
            
            
            (149,510
            )
            
            (147,093
            )Total
                stockholders' deficit
            
            
            (1,477
            )
            
            (932
            )Total
                liabilities and stockholders' deficit
            
            $
            1,111
            
            $
            937The
                accompanying notes are an integral part of these unaudited condensed
                consolidated financial statements.




4


AEOLUS
                PHARMACEUTICALS, INC.CONDENSED
                CONSOLIDATED STATEMENTS OF OPERATIONS(Unaudited)(In
                thousands, except per share data)Three
                Months Ended
            
            Six
                Months EndedMarch
                31,
            
            March
                31,2006
            
            2005
            
            2006
            
            2005RevenueGrant
                income
            
            $
            91
            
            $
            6
            
            $
            92
            
            $
            115Costs
                and expenses:Research
                and development
            
            
            965
            
            
            1,152
            
            
            2,258
            
            
            2,772General
                and administrative
            
            
            556
            
            
            516
            
            
            1,047
            
            
            966Total
                costs and expenses
            
            
            1,521
            
            
            1,668
            
            
            3,305
            
            
            3,738Loss
                from operations
            
            
            (1,430
            )
            
            (1,662
            )
            
            (3,213
            )
            
            (3,623
            )Interest
                expense, net
            
            
            (8
            )
            
            (5
            )
            
            (19
            )
            
            (7
            )Equity
                in income of CPEC LLC
            
            
            433
            
            
            -
            
            
            433
            
            
            -Other
                income
            
            
            19
            
            
            8
            
            
            36
            
            
            14Decrease
                in fair value of common stock warrants
            
            
            147
            
            
            -
            
            
            401
            
            
            -Net
                loss
            
            
            (839
            )
            
            (1,659
            )
            
            (2,362
            )
            
            (3,616
            )Preferred
                stock dividend accreted
            
            
            (55
            )
            
            -
            
            
            (55
            )
            
            -Net
                loss attributable to common stockholders
            
            $
            (894
            )
            $
            (1,659
            )
            $
            (2,417
            )
            $
            (3,616
            )Net
                loss per weighted share attributable to common
                stockholders:(basic
                and diluted)
            
            $
            (0.06
            )
            $
            (0.12
            )
            $
            (0.17
            )
            $
            (0.26
            )Weighted
                average common shares outstanding:Basic
                and diluted
            
            
            14,077
            
            
            13,974
            
            
            14,058
            
            
            13,961The
                accompanying notes are an integral part of these unaudited condensed
                consolidated financial statements.




5


AEOLUS
                PHARMACEUTICALS, INC.CONDENSED
                CONSOLIDATED STATEMENTS OF CASH FLOWS(Unaudited)(In
                thousands)Six
                Months EndedMarch
                31,2006
            
            2005Cash
                flows from operating activities:Net
                loss
            
            $
            (2,362
            )
            $
            (3,616
            )Adjustments
                to reconcile net loss to net cash used in operating
                activities:Depreciation
                and amortization
            
            
            -
            
            
            5Noncash
                compensation
            
            
            156
            
            
            45Noncash
                interest expense
            
            
            41
            
            
            39Equity
                in income of CPEC LLC
            
            
            (433
            )
            
            -Decrease
                in fair value of common stock warrants
            
            
            (401
            )
            
            -Change
                in assets and liabilities:Accounts
                receivable
            
            
            9
            
            
            125Prepaids
                and other assets
            
            
            (71
            )
            
            (87
            )Accounts
                payable and accrued expenses
            
            
            284
            
            
            (625
            )Net
                cash used in operating activities
            
            
            (2,777
            )
            
            (4,114
            )Cash
                flows from financing activities:Proceeds
                from issuance of Series A Preferred Stock
            
            
            2,413
            
            
            -Proceeds
                from exercise of stock options
            
            
            42
            
            
            -Net
                cash provided by financing activities
            
            
            2,455
            
            
            -Net
                decrease in cash and cash equivalents
            
            
            (322
            )
            
            (4,114
            )Cash
                and cash equivalents at beginning of period
            
            
            626
            
            
            7,381Cash
                and cash equivalents at end of period
            
            $
            304
            
            $
            3,267The
                accompanying notes are integral part of these unaudited condensed
                consolidated financial statements.




6


**Aeolus
      Pharmaceuticals, Inc.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**





A. Organization
      and Business and Basis of Presentation





Aeolus
      Pharmaceuticals, Inc. is a San Diego-based biopharmaceutical company that is
      developing a new class of catalytic antioxidant compounds for diseases and
      disorders of the central nervous system, respiratory system, autoimmune system
      and oncology. The Company has reported positive safety results from a completed
      Phase I single dose study of its lead product, AEOL 10150, in patients diagnosed
      with amyotrophic lateral sclerosis (“ALS,” also commonly referred to as “Lou
      Gehrig’s disease”) and in
      September 2005, we launched a Phase I multiple dose study of AEOL 10150 in
      patients diagnosed with ALS. We expect to complete this study during the third
      quarter of fiscal year 2006. The
      safety data from these studies could be utilized to support subsequent efficacy
      studies of AEOL 10150 in ALS, as well as other indications for which the Company
      has developed preclinical efficacy data. In addition, the Company has launched
      the “Aeolus Pipeline Initiative” whereby the Company, in conjunction with a
      variety of academic collaborations, is focused on identifying between 1-2
      compounds evaluated from six disease categories for potential entrance into
      human clinical evaluation in 2006. The Aeolus Pipeline Initiative is an internal
      development initiative focused on advancing several of the most promising
      catalytic antioxidant compounds from our proprietary library of 200 compounds.
      The initial therapeutic focus areas for the Aeolus Pipeline Initiative are:
      radiation therapy protection and tumor therapy; Parkinson’s disease; Cystic
      Fibrosis; Chronic Obstructive Lung Disease; tumor suppression/bone marrow
      transplantation; and stroke. These therapeutic focus areas were selected based
      upon preliminary data developed using our catalytic antioxidant
      compounds.





The
      “Company” or “Aeolus” refers collectively to Aeolus Pharmaceuticals, Inc., a
      Delaware corporation (“Aeolus”), and its wholly owned subsidiary, Aeolus
      Sciences, Inc., a Delaware corporation. As of March 31, 2006, Aeolus also owned
      a 35.0% interest in CPEC LLC, a Delaware limited liability company (“CPEC”). The
      Company’s primary operations are located in San Diego, California.




All
      significant intercompany activity has been eliminated in the preparation of
      the
      consolidated financial statements. The unaudited condensed consolidated
      financial statements have been prepared in accordance with the requirements
      of
      Form 10-Q and Rule 10-01 of Regulation S-X. Some information and footnote
      disclosures normally included in financial statements prepared in accordance
      with generally accepted accounting principles have been condensed or omitted
      pursuant to those rules and regulations. In the opinion of management, the
      accompanying unaudited consolidated financial statements include all adjustments
      (consisting only of normal recurring adjustments) necessary to present fairly
      the consolidated financial position, results of operations and cash flows of
      the
      Company. The consolidated balance sheet at September 30, 2005 was derived from
      the Company’s audited financial statements included in the Company’s Annual
      Report on Form 10-K for the fiscal year ended September 30, 2005. The unaudited
      condensed consolidated financial statements included herein should be read
      in
      conjunction with the audited consolidated financial statements and the notes
      thereto included in that Annual Report on Form 10-K and in the Company’s other
      SEC filings. Results for the interim period are not necessarily indicative
      of
      the results for any other period.


7




**Aeolus
        Pharmaceuticals, Inc.**
  **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


B. Liquidity





The
      Company has incurred significant losses from operations of $3,213,000 and
      $6,937,000, and cash outflows from operations of $2,777,000 and $6,842,000,
      for
      the six months ended March 31, 2006 and for the fiscal year ended September
      30,
      2005, respectively. The Company expects to incur additional losses and negative
      cash flow from operations during the remainder of fiscal year 2006 and for
      several more years.





M anagement
      believes the Company has adequate financial resources to conduct operations
      through the third quarter of fiscal year 2006. This raises substantial doubt
      about our ability to continue as a going concern, which will be dependent on
      our
      ability to generate sufficient cash flows to meet our obligations on a timely
      basis, to obtain additional financing and, ultimately, to achieve operating
      profit.





The
      Company intends to explore strategic and financial alternatives, including
      a
      merger or acquisition with or by another company, the sale of shares of stock,
      the establishment of new collaborations for current research programs that
      include initial cash payments and on-going research support and the
      out-licensing of our compounds for development by a third party. The Company
      believes that without additional investment capital it will not have sufficient
      cash to fund its activities in the near future, and will not be able to continue
      operating. As such, the Company’s continuation as a going concern is dependent
      upon its ability to raise additional financing. The Company is actively pursuing
      additional equity financing to provide the necessary funds for working capital
      and other planned activities.





If
      the
      Company is unable to obtain additional financing to fund operations beyond
      the
      third quarter of fiscal year 2006, it will need to eliminate some or all of
      its
      activities, merge with another company, sell some or all of its assets to
      another company, or cease operations entirely. There can be no assurance that
      the Company will be able to obtain additional financing on favorable terms
      or at
      all, or that the Company will be able to merge with another Company or sell
      any
      or all of its assets.








C. Net
      Loss Per Common Share





The
      Company computes basic net loss per weighted average share attributable to
      common stockholders using the weighted average number of shares of common stock
      outstanding during the period. The Company computes diluted net loss per
      weighted average share attributable to common stockholders using the weighted
      average number of shares of common and dilutive potential common shares
      outstanding during the period. Diluted weighted average common shares excluded
      incremental shares of approximately 10,166,000 as of March 31, 2006 issuable
      upon the exercise or conversion of stock options to purchase common stock,
      convertible preferred stock, convertible debt and warrants to purchase common
      stock. These shares were excluded due to their antidilutive effect as a result
      of the Company’s net losses.





8


**Aeolus
      Pharmaceuticals, Inc.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**





D. Series
      A Convertible Preferred Stock





On
      November 21, 2005, the Company completed a private placement whereby the Company
      issued to certain accredited investors an aggregate of 1,250,000 shares of
      Series A Convertible Preferred Stock (the “Series A Preferred Stock”) at a
      stated price of $2.00 per share and warrants to purchase up to an aggregate
      of
      2,500,000 shares of common stock at an exercise price of $1.00 per share and
      a
      five year term resulting in net proceeds of $2,413,000. The Series A Preferred
      Stock accrues dividends at the rate of 6% of the stated price annually, which
      may be paid in either cash or in our common stock at the Company’s discretion
      and will be accreted to earnings available to common stockholders on a quarterly
      basis. Each convertible preferred share is convertible into two shares of our
      common stock and has a liquidation preference of $3.00 per share. Subject to
      certain limitations, in the event we issue securities at a price per share
      lower
      than the current conversion price per share, then the conversion price of the
      Series A Preferred Stock shall be reduced to such issue price. The warrants
      contain a “cashless exercise” feature that allows the holders, under certain
      circumstances, to exercise the warrants without making a cash payment to the
      Company.





The
      fair
      value of the warrants on November 21, 2005 was estimated to be $2,146,000 using
      the Black-Scholes option pricing model with the following assumptions: dividend
      yield of 0%; expected volatility of 112% risk free interest rate of 4.4%; and
      an
      expected life of five years. The proceeds from the private placement were first
      allocated to the fair value of the warrants and the remaining proceeds were
      attributed to the value of the preferred stock, resulting in a carrying value
      of
      the Series A Preferred Stock of $354,000. The carrying value of the Series
      A
      Preferred Stock has not been accreted to its redemption value as the occurrence
      of the redemption event is not considered probable.





Offering
      costs of the private placement were $87,000 which were charged to additional
      paid in capital.





Pursuant
      to the terms of the registration rights agreement entered into in connection
      with the transaction, the Company filed a registration statement which was
      declared effective on March 1, 2006. The registration rights agreement further
      provides that if a registration statement is not filed, or declared effective
      within specified time periods, the Company would be required to pay each holder
      an amount in cash, as liquidated damages, equal to 1.5% per month of the
      aggregate purchase price paid by such holder in the private placement for the
      common stock and warrants then held. In accordance with EITF 00-19, “Accounting
      for Derivative Financial Instruments Indexed To, and Potentially Settled In
      a
      Company’s Own Stock,” and the terms of the warrants and the transaction
      documents, at the closing date, November 21, 2005, the fair value of the
      warrants issued in the private placement were accounted for as a liability.
      The
      warrant liability was reclassified to equity when the Securities and Exchange
      Commission declared the registration statement effective on March 1, 2006.
      Through March 1, 2006, the warrant liability was revalued at each balance sheet
      date and the change in fair value was charged to the statement of operations.
      Between November 21, 2005 and March 1, 2006, the fair value of the warrant
      decreased by $401,000 which was credited to the statement of operations.





Certain
      provisions of the Certificate of Designations, Preferences and Rights of Series
      A Convertible Preferred Stock (the “Certificate of Designations”) provide that
      the Company shall not perform certain activities without the consent of a
      majority of the holders of the outstanding shares of Series A Preferred Stock,
      including, but not limited to:





9
 
  **Aeolus
          Pharmaceuticals, Inc.**
  **NOTES
          TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


·
            amend
                any of the provisions of the Certificate of Incorporation or Bylaws
                of the
                Company or the Certificate of
                Designations;


·
            authorize,
                create, designate, issue or sell any class or series of capital stock
                which is senior to or*pari
                passu*with the Series A Preferred Stock;


·
            increase
                the number of authorized shares of Series A Preferred Stock or authorize
                the issuance of or issue any shares of Series A Preferred
                Stock;


·
            increase
                or decrease the number of authorized shares of any class of capital
                stock
                of the Company;


·
            declare
                or pay any dividend, except with respect to the Series A Preferred
                Stock
                as set forth above;


·
            materially
                change the nature or scope of the business of the
                Company;


·
            consummate
                or agree to make any sale, transfer, assignment, pledge, lease, license
                or
                similar transaction by which the Company grants on an exclusive basis
                any
                rights to any of the Company’s intellectual property;


·
            approve
                the annual budget of the Company or any changes
                thereto;


·
            incur
                any indebtedness for borrowed money in excess of $50,000.00;


·
            create,
                incur, assume or suffer to exist, any material lien, charge or other
                encumbrance on any of the Company’s properties or assets; or


·
            increase
                the compensation or benefits payable or to become payable to the
                Company’s
                directors or executives, subject to certain
                exceptions.





The
      Certificate of Designations also provides that so long as the lead investors
      in
      the private placement shall own any shares of Series A Preferred Stock, each
      of
      these investors shall have the right to elect a majority of the Company’s Board
      of Directors. This right to control the Company’s Board of Directors results in
      Series A preferred stockholders having the ability to require the Company to
      redeem all, or a potion, of the outstanding shares of Series A Preferred Stock
      for cash of $3.00 per share, plus all accrued and unpaid dividends, should
      the
      Company execute a definitive agreement with respect to an acquisition, as
      defined in the related transaction documents. As a result, and in accordance
      with the guidance provided in EITF D-98, the Company has presented the Series
      A
      Preferred Stock outside of permanent equity.





E. Stock-Based
      Compensation





Below
      is
      a summary of Aeolus stock option activity during the six-month period ended
      March 31, 2006:


**Shares**
              
              **Weighted
                  Average Exercise Price**Outstanding
                  at September 30, 2005
              
              
              2,394,091
              
              $
              4.05Granted
              
              
              109,891
              
              $
              0.94Exercised
              
              
              (41,666
              )
              $
              1.00Forfeited
              
              
              -
              
              
              -Outstanding
                  at March 31, 2006
              
              
              2,462,316
              
              $
              3.96Exercisable
                  at March 31, 2006
              
              
              2,402,235
              
              $
              4.04
  10
 
 **Aeolus
              Pharmaceuticals, Inc.**
  **NOTES
              TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


For
      the
      six months ended March 31, 2006 and 2005, all stock options were issued with
      an
      exercise price at or above the fair market value of the Company’s common stock
      on the date of grant.





Beginning
      October 1, 2005, the Company adopted Statement of Financial Accounting Standards
      (“SFAS”) No. 123(R), “Share-Based Payments” (“SFAS No. 123(R)”) on a modified
      prospective transition method to account for its employee stock options. Under
      the modified prospective transition method, fair value of new and previously
      granted but unvested equity awards are recognized as compensation expense in
      the
      statement of operations, and prior period results are not restated. As a result
      of the adoption, the Company’s loss from continuing operations increased by
      $55,000 for the six months ended March 31, 2006.





For
      the
      six months ended March 31, 2006, stock-based compensation expense recognized
      in
      the statement of operations is as follows (in thousands):




Research
                  and development expenses
              
              $
              23General
                  and administrative expenses
              
              
              133Total
                  stock-based compensation expense
              
              $
              156


The
      total
      deferred compensation expense for outstanding stock options was $43,000 as
      of
      March 31, 2006, which will be recognized over the next six months. The fair
      value of the options associated with the above compensation expense for the
      six
      months ended March 31, 2006, was determined at the date of the grant using
      the
      Black-Scholes option pricing model with the following weighted average
      assumptions:




Dividend
                yield
            
            
            0
            %Expected
                volatility
            
            
            187
                - 189
            %Risk-free
                interest rate
            
            
            4.3%
                - 4.9
            %Expected
                option life
            
            
            10
                years





If
      the
      Company had accounted for stock-based compensation plans using the fair value
      based accounting method described by SFAS No. 123 for the periods prior to
      October 1, 2005, the Company’s net loss per common share-basic and diluted for
      the three and six months ended March 31, 2005, would have approximated the
      following (in thousands, except per share data):






11


**Aeolus
            Pharmaceuticals, Inc.**
  **NOTES
            TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


Three
                  Months Ended March 31, 2005
              
              Six
                  Months Ended
                March
                  31, 2005Net
                  loss attributable to common stockholders as reported
              
              $
              (1,659
              )
              $
              (3,616
              )Pro
                  forma adjustment for stock-based compensation
              
              
              (87
              )
              
              (289
              )Pro
                  forma net loss attributable to common stockholders
              
              $
              (1,746
              )
              $
              (3,905
              )Basic
                  and diluted net loss per weighted share attributableto
                  common stockholders:As
                  reported
              
              $
              (0.12
              )
              $
              (0.26
              )Pro
                  forma - adjusted for stock-based compensation
              
              $
              (0.12
              )
              $
              (0.28
              )


The
      fair
      value of each option grant for employees and consultants was estimated on the
      date of the grant using the Black-Scholes option valuation model with the
      following weighted-average assumptions used for grants for the six months ended
      March 31, 2005:





Dividend
                yield
            
            
            0
            %Expected
                volatility
            
            
            195
            %Risk-free
                interest rate
            
            
            2.9%
                - 4.3
            %Expected
                option life (in years from vesting)
            
            
            3
                years








F. CPEC
      LLC





The
      Company uses the equity method to account for its 35.0% ownership interest
      in
      CPEC. During fiscal 2003, CPEC licensed bucindolol, a drug previously under
      development by the Company for the treatment of heart failure, to ARCA
      Discovery, Inc. in return for possible future royalty and milestone payments.
      During the three months ended March 31, 2006, CPEC agreed to modify the license
      agreement between CPEC and ARCA Discovery, Inc. and received 400,000 shares
      of
      ARCA Discovery, Inc. common stock as consideration for the amendment. In
      addition, during the three months ended March 31, 2006, CPEC received a
      milestone payment of $1,000,000 as a result of ARCA Discovery, Inc. completing
      a
      financing. CPEC had $1,260,000 of net assets at March 31, 2006.





12
 
 **Aeolus
              Pharmaceuticals, Inc.**
  **NOTES
              TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


G. Commitments
      and Contingencies




At
      March
      31 2006, the Company had future contractual operating lease commitments of
      $64,000 primarily for its former office and laboratory facilities in North
      Carolina, for which the Company has accrued the entire amount as a reserve
      related to future rent costs for its office and laboratory facilities that
      are
      no longer in use.





In
      December 1999, the Company sold its anti-infectives division (“IRL”) to a
      private pharmaceutical company. The Company remains contingently liable through
      May 2007 for a lease obligation of approximately $1,139,000 assumed by the
      purchaser on the former IRL facility in Cranbury, New Jersey. No amounts are
      recorded in the accompanying financial statements for this contingent
      liability.





13


Aeolus
      Pharmaceuticals,
      Inc.




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





Introduction





Unless
      otherwise noted, the terms “we,” “our” or “us” refer collectively to
      Aeolus Pharmaceuticals, Inc. and our
      wholly owned subsidiary, Aeolus Sciences, Inc.





This
      report contains, in addition to historical information, statements by us with
      respect to expectations about our business and future results which are
“forward-looking” statements under the Private Securities Litigation Reform Act
      of 1995. These statements and other statements made elsewhere by us or by our
      representatives, which are identified or qualified by words such as “likely,”
“will,” “suggests,” “expects,” “might,” “believe,” “could,” “should,” “may,”
“estimates,” “potential,” “predict,” “continue,” “would,” “anticipates,”
“plans,” or similar expressions, are based on a number of assumptions that are
      subject to risks and uncertainties. Such statements include, but are not limited
      to, those relating to Aeolus’ product candidates, as well as its proprietary
      technologies and uncertainties and other factors that may cause Aeolus’ actual
      results to be materially different from historical results or from any results
      expressed or implied by such forward-looking statements. Important factors
      that
      could cause results to differ include risks associated with uncertainties of
      progress and timing of clinical trials, scientific testing, obtaining regulatory
      approval, the need to obtain funding for pre-clinical and clinical trails and
      operations, the scope and validity of intellectual property protection for
      Aeolus’ product candidates, proprietary technologies and their uses, new
      accounting and SEC requirements and competition from other biopharmaceutical
      companies. Certain of these factors and others are more fully described in
      Aeolus’ filings with the SEC, including, but not limited to, Aeolus’ Annual
      Report on Form 10-K for the fiscal year ended September 30, 2005. All
      forward-looking statements are based on information available as of the date
      hereof, and we do not assume any obligation to update such forward-looking
      statements. Readers are cautioned not to place undue reliance on these
      forward-looking statements, which speak only as of the date hereof.





14




Aeolus
      Pharmaceuticals,
      Inc.


Operations
      Summary





We
      are
      developing a series of catalytic antioxidant molecules to protect against the
      damaging effects of reactive oxygen derived molecules, commonly referred to
      as
      free radicals. Free radicals cause damage in a broad group of diseases and
      conditions. Our initial target applications will be the use of our catalytic
      antioxidants for amyotrophic lateral sclerosis, also known as “ALS” or “Lou
      Gehrig’s disease,” stroke, Parkinson’s disease and cancer radiation therapy. We
      have
      reported positive safety results from a completed Phase I single dose study
      of
      AEOL 10150 in patients diagnosed with ALS. In addition, in September 2005,
      we
      launched a Phase I multiple dose study of AEOL 10150 in patients diagnosed
      with
      ALS. We expect to complete this study during the third quarter of fiscal year
      2006. The
      safety data from these studies could be utilized to support subsequent efficacy
      studies of AEOL 10150 in ALS, as well as other indications for which the Company
      has developed preclinical efficacy data.





We
      do not
      have any revenue, other than grant income, and therefore we must rely on public
      or
      private equity offerings, debt financings, collaboration arrangements or grants
      to
      finance our operations.





Need
      for Additional Funds





We
      believe we have adequate financial resources to fund our operations through
      the
      third quarter of fiscal year 2006, but in order to fund on-going operating
      cash
      requirements beyond the third quarter of fiscal year 2006, or to accelerate
      or
      expand our programs, we will need to raise significant additional funds. Our
      need for additional financing is discussed under “Liquidity and Capital
      Resources.”





Results
      of Operations





*Three
      months ended March 31, 2006 versus three months ended March 31,
      2005*





We
      had
      net losses attributable to common stockholders of $894,000 for the three months
      ended March 31, 2006, versus net losses attributable to common stockholders
      of
      $1,659,000 for the three months ended March 31, 2005.





In
      August
      2003, we were awarded a $100,000 Small Business Innovation and Research (“SBIR”)
      Phase I grant from the National Cancer Institute, a division of the National
      Institutes of Health. In March 2004, we were awarded up to $375,000 for the
      first year of a SBIR Phase II grant and received approval for a second year
      of
      the Phase II grant program in January 2005. Pursuant to the grants, we are
      studying the antitumor and radiation-protective effects of our catalytic
      antioxidants. The study is a collaboration between us and the Department of
      Radiation Oncology at Duke University Medical Center. We recognized $91,000
      and
      $6,000 of grant income during the three months ended March 31, 2006 and 2005,
      respectively.





Research
      and development (“R&D”) expenses decreased $187,000, or 16%, to $965,000 for
      the three months ended March 31, 2006 from $1,152,000 for the three months
      ended
      March 31, 2005. Research and development activities were limited during the
      three months ended March 31, 2006 due to our limited financial resources and
      as
      we analyzed the results of our ongoing Phase I multiple dose clinical trial
      for
      the treatment of ALS, while our primary operational focus and R&D spending
      during the three months ended March 31, 2005 was on preclinical pharmacology
      and
      toxicology tests on our lead compound, AEOL 10150, and our Phase I single dose
      clinical trial for the treatment of ALS resulting in a lower level of clinical
      trial expenses during the three months ended March 31, 2006 compared to the
      three months ended March 31, 2005. Patent fees increased during the three months
      ended March 31, 2006 ($475,000) compared to the three months ended March 31,
      2005 ($103,000) as a result of some of our patents entering the international
      validation phase.


15
 Aeolus
        Pharmaceuticals,
        Inc.


General
      and administrative (“G&A”) expenses increased $40,000, or 8%, to $556,000
      for the three months ended March 31, 2006 from $516,000 for the three months
      ended March 31, 2005. G&A expenses were higher during the three months ended
      March 31, 2006 versus the three months ended March 31, 2005 due to a higher
      level of consulting fees and legal fees offset by a decline in employment costs
      and rent expenses. During the three months ended March 31, 2006, the Company’s
      administration and accounting activities were outsourced while during the same
      period in 2005, employees performed these functions resulting in a higher level
      of consulting fees ($87,000) and a lower level of employment costs ($120,000)
      during the quarter ended March 31, 2006. Legal fees increased $86,000 during
      the
      quarter ended March 31, 2006 as a result of the Company’s increased regulatory
      compliance responsibilities. Rental expenses decreased by $38,000 during the
      quarter ended March 31, 2006 when compared to the same quarter last year as
      the
      Company closed its administrative offices in August 2005 and outsourced all
      of
      its administration functions, as a result of which we did not incur any rental
      expense during the quarter.





Effective
      October 1, 2005, we adopted SFAS No. 123(R). SFAS No. 123(R) required that
      we
      recognize the fair value of equity awards granted to our employees as
      compensation expense in the income statement over the requisite service period.
      For the three months ended March 31, 2006, we recognized $43,000 in employee
      stock-based compensation expense as a result of the adoption of SFAS No. 123(R),
      which is included in G&A expenses. Additionally, we recognized $36,000 of
      stock-based compensation charges associated with stock option grants to
      consultants.





During
      the three months ended March 31, 2006, CPEC LLC (“CPEC”) received a milestone
      payment and equity consideration from ARCA Discovery, Inc., a privately held
      cardiovascular-focused company (“ARCA”). In 2003, CPEC, of which we own 35%
      out-licensed all rights to a potential therapeutic compound referred to as
      “bucindolol” to ARCA. During the three months ended March 31, 2006, CPEC agreed
      to modify the license agreement between CPEC and ARCA Discovery, Inc. and
      received 400,000 shares of ARCA Discovery, Inc. common stock as consideration
      for the amendment. In addition, during the three months ended March 31, 2006,
      CPEC received a milestone payment of $1,000,000 as a result of ARCA Discovery,
      Inc. completing a financing. We recorded $433,000 of income during the three
      months ended March 31, 2006 as a result of our equity ownership of CPEC
      LLC.







16
 
 Aeolus
          Pharmaceuticals,
          Inc.
 
 In
          accordance with EITF 00-19, “Accounting for Derivative Financial Instruments
          Indexed To, and Potentially Settled In a Company’s Own Stock,” and the terms of
          the warrants and the transaction documents, at the closing date, November
          21,
          2005, the fair value of the warrants issued in the Series A Preferred Stock
          private placement were accounted for as a liability until such date in
          which a
          registration statement registering the shares underlying the warrants was
          declared effective. The warrant liability was revalued at each balance
          sheet
          date and changes in fair value were charged to the statement of operations.
          During the three months ended March 31, 2006, the fair value of the warrant
          decreased by $147,000 which was credited to the statement of operations.
          On
          March 1, 2006, the Securities and Exchange Commission declared the registration
          statement registering the shares underlying the warrants effective and
          accordingly the warrant liability was reclassified to additional paid in
          capital. The warrant liability and revaluations have not and will not have
          any
          impact on the Company’s working capital, liquidity, or business
          operations.


*Six
      months ended March 31, 2006 versus six months ended March 31,
      2005*





We
      had
      net losses attributable to common stockholders of $2,417,000 for the six months
      ended March 31, 2006, versus net losses attributable to common stockholders
      of
      $3,616,000 for the six months ended March 31, 2005.





We
      recognized $92,000 and $115,000 of grant income during the six months ended
      March 31, 2006 and 2005, respectively from our SBIR grant from the National
      Cancer Institute.





Research
      and development (“R&D”) expenses decreased $514,000, or 19%, to $2,258,000
      for the six months ended March 31, 2006 from $2,772,000 for the six months
      ended
      March 31, 2005. Our primary operational focus and R&D spending during the
      six months ended March 31, 2006 was on conducting our Phase I multiple dose
      clinical trial for the treatment of ALS and the advancement of the Aeolus
      Pipeline Initiative, while our primary operational focus and R&D spending
      during the six months ended March 31, 2005 was on preclinical pharmacology
      and
      toxicology tests on our lead compound, AEOL 10150, and the launch of our Phase
      I
      single dose clinical trial for the treatment of ALS. Clinical trial expenses
      for
      the six months ended March 31, 2006 was $850,000 compared to $900,000 during
      the
      six months ended March 31, 2005. Preclinical expenses primarily related to
      the
      Aeolus Pipeline Initiative for the six months ended March 31, 2006 were
      $400,000, whereas preclinical expenses related to pharmacology and toxicology
      testing of AEOL 10150 during the six months ended March 31, 2005 were
      $1,104,000. Offsetting these declines were increased patent fees ($424,000)
      as a
      result of some of our patents entering the international validation
      phase.





R&D
      expenses for our antioxidant program have totaled $30,931,000 from inception
      through March 31, 2006. Because of the uncertainty of our research and
      development and clinical studies, we are unable to predict the level of spending
      and the anticipated program completion date, if any. However, we expect that
      R&D expenses during the remainder of fiscal year 2006 will be higher than
      those incurred in the quarter ended March 31, 2006 as we continue the clinical
      development of AEOL 10150 and expand our pre-clinical testing activities to
      further the development of other compounds in our pipeline.





17
 
 Aeolus
          Pharmaceuticals,
          Inc.


General
      and administrative (“G&A”) expenses increased $81,000, or 8%, to $1,047,000
      for the six months ended March 31, 2006 from $966,000 for the six months ended
      March 31, 2006. G&A expenses were higher during the six months ended March
      31, 2006 versus the six months ended March 31, 2005 due to a higher level of
      consulting fees and legal fees offset by a decline in employment costs and
      rent
      expenses. During the six months ended March 31, 2006, the Company’s
      administration and accounting activities were outsourced while during the same
      period in 2005, employees performed these functions resulting in a higher level
      of consulting fees ($147,000) and a lower level of employment costs ($186,000)
      during the six months ended March 31, 2006. Legal fees increased $116,000 during
      the six months ended March 31, 2006 as a result of the Company’s increased
      regulatory compliance responsibilities. Rental expenses decreased by $56,000
      during the six months ended March 31, 2006 when compared to the same period
      last
      year as the Company closed its administrative offices in August 2005 and
      outsourced all of its administration functions, as a result of which we did
      not
      incur any rental expense during the quarter.





Effective
      October 1, 2005, we adopted SFAS No. 123(R). SFAS No. 123(R) required that
      we
      recognize the fair value of equity awards granted to our employees as
      compensation expense in the income statement over the requisite service period.
      For the six months ended March 31, 2006, we recognized $71,000 in employee
      stock-based compensation expense as a result of the adoption of SFAS No. 123(R),
      which is included in G&A expenses. Additionally, we recognized $85,000 of
      stock-based compensation charges associated with stock option grants to
      consultants.





During
      the six months ended March 31, 2006, CPEC LLC, received a milestone payment
      and
      equity consideration from ARCA Discovery, Inc., a privately held
      cardiovascular-focused company (“ARCA”). In 2003, CPEC LLC (“CPEC”), of which we
      own 35%, out-licensed all rights to a potential therapeutic compound referred
      to
      as “bucindolol” to ARCA. During the six months ended March 31, 2006, CPEC agreed
      to modify the license agreement between CPEC and ARCA and received 400,000
      shares of ARCA common stock as consideration for the amendment. In addition,
      during the six months ended March 31, 2006, CPEC received a milestone payment
      of
      $1,000,000 as a result of ARCA completing a financing. We recorded $433,000
      of
      income during the six months ended March 31, 2006 as a result of our equity
      ownership of CPEC LLC.





18
 
 Aeolus
          Pharmaceuticals,
          Inc.


In
      accordance with EITF 00-19, “Accounting for Derivative Financial Instruments
      Indexed To, and Potentially Settled In a Company’s Own Stock,” and the terms of
      the warrants and the transaction documents, at the closing date, November 21,
      2005, the fair value of the warrants issued in the Series A Preferred Stock
      private placement were accounted for as a liability until such date in which
      a
      registration statement registering the shares underlying the warrants was
      declared effective. The warrant liability was revalued at each balance sheet
      date and changes in fair value were charged to the statement of operations.
      Between November 21, 2005 and March 31, 2006, the fair value of the warrant
      decreased by $401,000 which was credited to the statement of operations. On
      March 1, 2006, the Securities and Exchange Commission declared the registration
      statement registering the shares underlying the warrants effective and
      accordingly the warrant liability was reclassified to additional paid in
      capital. The warrant liability and revaluations have not and will not have
      any
      impact on the Company’s working capital, liquidity, or business
      operations.




Liquidity
      and Capital Resources





We
      do not
      have any revenue, other than grant income, and therefore we rely on investors,
      grants, collaborations and licensing of our compounds to finance our operations.
      At March 31, 2006, we had $304,000 of cash, a decrease of $322,000 from
      September 30, 2005. The decrease in cash was primarily due to the $2,362,000
      net
      loss for the six months ended March 31, 2006 and an increase of $284,000 in
      accounts payable and accrued expenses due to a higher level of payables as
      of
      March 31, 2006 when compared to September 30, 2005, offset by net proceeds
      of
      $2,413,000 from the sale of the Series A Convertible Preferred Stock. We
      believe we have adequate financial resources to conduct operations through
      the
      third quarter of fiscal year 2006, but in order to fund on-going operating
      cash
      requirements beyond that point, or to further accelerate or expand our programs,
      we need to raise significant additional funds.





We
      incurred significant losses from operations of $3,213,000 and $6,937,000, and
      cash outflows from operations of $2,777,000 and $6,842,000, for the six months
      ended March 31, 2006 and for the fiscal year ended September 30, 2005,
      respectively. Our ongoing future cash requirements will depend on numerous
      factors, particularly the progress of our catalytic antioxidant program and
      clinical trials and our ability to negotiate and complete collaborative
      agreements or out-licensing arrangements. In order to help fund our on-going
      operating cash requirements, we intend to seek new collaborations for our
      antioxidant research program that include initial cash payments and on-going
      research support. In addition, we might sell additional shares of our stock
      and
      explore other strategic and financial alternatives, including a merger with
      another company, the sale of stock, the establishment of new collaborations
      for
      current research programs, that include initial cash payments and ongoing
      research support and the out-licensing of our compounds for development by
      a
      third party.





There
      are
      significant uncertainties as to our ability to access potential sources of
      capital. We may not be able to enter into any collaboration on terms acceptable
      to us, or at all, due to conditions in the pharmaceutical industry or in the
      economy in general or based on the prospects of our catalytic antioxidant
      program. Even if we are successful in obtaining a collaboration for our
      antioxidant program, we may have to relinquish rights to technologies, product
      candidates or markets that we might otherwise develop ourselves. These same
      risks apply to any attempt to out-license our compounds.





19


Similarly,
      due to market conditions, the illiquid nature of our stock and other possible
      limitations on equity offerings, we may not be able to sell additional
      securities or raise other funds on terms acceptable to us, if at all. Any
      additional equity financing, if available, would likely result in substantial
      dilution to existing stockholders.





Our
      forecast of the period of time through which our financial resources will be
      adequate to support our operations is forward-looking information, and actual
      results could vary.




Off-Balance
      Sheet Arrangements





We
      do not
      have any off-balance sheet arrangements that have or are reasonably likely
      to
      have a current or future effect on our financial condition, changes in financial
      condition, revenues or expenses, results of operations, liquidity, capital
      expenditures or capital resources. We do have operating leases, which are
      generally for office and laboratory space. In accordance with accounting
      principles generally accepted in the United States, operating leases are not
      reflected in the accompanying consolidated balance sheets. We do not have any
      capital leases.




ITEM
      3. Quantitative
      and Qualitative Disclosures About Market Risk.





Our
      exposure to market risk is presently limited to the interest rate sensitivity
      of
      our cash and cash equivalents, which is affected by changes in the general
      level
      of U.S. interest rates. However, we believe that we are not subject to any
      material market risk exposure and do not expect that changes in interest rates
      would have a material effect upon our financial position. A hypothetical 10%
      change in interest rates would not have a material effect on our Statement
      of
      Operations or Cash Flows for the six months ended March 31, 2006. We do not
      have
      any foreign currency or other derivative financial instruments.





20
 
 Aeolus
          Pharmaceuticals,
          Inc.


ITEM
      4. Controls
      and Procedures .





As
      of the
      end of the period covered by this report, we carried out an evaluation, under
      the supervision and with the participation of our management, including our
      Chief Executive Officer and Chief Accounting Officer, of the effectiveness
      of
      our disclosure controls and procedures (as defined in Rule 13a-15(e)) pursuant
      to Rule 13a-15 of the Securities and Exchange Act of 1934 as amended. Based
      upon
      their evaluation, our Chief Executive Officer and Chief Accounting Officer
      have
      concluded that our disclosure controls and procedures are
      effective.





No
      change
      in our internal control over financial reporting occurred during our last fiscal
      quarter that has materially affected, or is reasonably likely to materially
      affect, our internal control over financial reporting.





Management
      is aware that there is a lack of segregation of duties due to the small number
      of employees and consultants addressing the Company’s general administrative and
      financial matters. However, management has determined that, considering the
      employees involved and the control procedures in place, risks associated with
      such lack of segregation are not significant and any potential benefits of
      adding employees or consultants to clearly segregate duties do not justify
      the
      expenses associated with such increases at this time.





**PART
      II. - OTHER INFORMATION**





ITEM
      1. Legal
      Proceedings.





None.





ITEM
      1A. Risk
      Factors .





None.





ITEM
      2. Unregistered
      Sales of Equity Securities and Use of Proceeds.





None.





ITEM
      3. Defaults
      Upon Senior Securities.





None.




21




Aeolus
      Pharmaceuticals,
      Inc.


ITEM
      4. Submission
      of Matters to a Vote of Security Holders.





The
      Annual Meeting of Stockholders of Aeolus Pharmaceuticals was held on March
      23,
      2006. The following is a brief description of each matter voted upon at the
      meeting and the number of affirmative votes and the number of negative votes
      cast with respect to each matter.





(a)
            The
                stockholders elected the following persons as directors of Aeolus
                Pharmaceuticals: David C. Cavalier, John M. Farah, Jr., Joseph J.
                Krivulka, Amit Kumar, Michael E. Lewis, Chris A. Rallis and Peter
                D.
                Suzdak, The votes for and against (withheld) each nominee were as
                follows:




Votes
              Votes
              VotesNominee
              
              For
              Withheld
              AbstainedDavid
                  C. Cavalier
              
              14,245,225
              14,828
              0John
                  M. Farah, Jr.
              
              14,434,105
              13,148
              0Joseph
                  J. Krivulka
              
              14,245,905
              14,148
              0Amit
                  Kumar
              
              14,246,905
              13,148
              0Michael
                  E. Lewis
              
              14,246,905
              13,148
              0Chris
                  A. Rallis
              
              14,236,905
              23,148
              0Peter
                  D. Suzdak
              
              14,236,905
              23,148
              0





(b)
            The
                stockholders approved ratification of the appointment by the Audit
                Committee of the Board of Directors of Haskell & White LLP as the
                Company’s independent public accountants to audit the Company’s financial
                statements for fiscal 2006, with 14,224,951 shares voting for approval,
                24,702 shares voting against and 10,400 shares
                abstained.





(c)
            The
                stockholders approved the amendment of the Company’s Amended and Restated
                Certificate of Incorporation to increase the authorized number of
                shares
                of Preferred Stock of Aeolus from 3,000,000 shares to 10,000,000
                shares,
                with 12,325,163 shares voting for approval, 120,783 shares voting
                against,
                7,414 shares abstained and 1,806,693 shares were broker non-votes.
                In
                addition, preferred stockholders voting as a class approved the amendment
                with 2,150,000 shares voting for
                approval.








ITEM
      5. Other
      Information.





None.





22
 
 Aeolus
          Pharmaceuticals,
          Inc.


ITEM
      6. Exhibits





**Exhibit
                #**
            
            **Description**3.1
            
            Certificate
                of Amendment of Amended and Restated Certificate of Incorporation
                (incorporated by reference to Exhibit 3.1 of the Company’s Form 8-K filed
                dated March 27, 2006).31.1
            
            Certification
                of the Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a)
                and 15d-14(a).31.2
            
            Certification
                of theChief
                Accounting Officerpursuant to Exchange Act Rules 13a-14(a) and 15d-14(a).32.1
            
            Certification
                by the Chief Executive Officer and Chief Accounting Officer pursuant
                to 18
                U.S.C. §1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
                of 2002.






23




Aeolus
      Pharmaceuticals,
      Inc.


**SIGNATURES**





Pursuant
      to the requirements of the Securities Exchange Act of 1934, the registrant
      has
      duly caused this report to be signed on its behalf by the undersigned thereunto
      duly authorized.







AEOLUS
              PHARMACEUTICALS, INC.Date:May
                12, 2006
            By:
            /s/
                Richard P. Burgoon, Jr.Richard
                P. Burgoon, Jr.
              Chief
                Executive Officer
              (Principal
                Executive Officer)Date:May
                12, 2006
            By:
            /s/
                Michael P. McManusMichael
                P. McManus
              Chief
                Accounting Officer and Treasurer
              (Principal
                Financial and Accounting Officer)





24