----

| ☒  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934  |
|---------------|-----------------------------------------------------------------------------------------------|
| ☐  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934  |
|---------------|------------------------------------------------------------------------------------------------|
| Delaware                                                                                                      |   | 56-1953785                                 |
|---------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------|
| (State or Other Jurisdiction of Incorporation or Organization)                                           |   | (I.R.S. Employer Identification No.)  |
| 26361 Crown Valley Parkway, Suite 150Mission Viejo, California (Address of Principal Executive Offices)  |   | 92691 (Zip Code)                      |
| (Registrant's Telephone Number, Including Area Code)949-481-9825                                         |
| Large accelerated filer ☐  | Non-accelerated filer ☐ (Do not check if a smaller reporting company)  |
|---------------------------------------|-----------------------------------------------------------------------------------|
| Accelerated filer ☐        | Smaller reporting company ☒                                            |
| Class Common Stock, par value $.01 per share  |   |  Outstanding as ofMay 16, 2016 151,559,745 shares  |
|----------------------------------------------------|--------|--------------------------------------------------------------|

----

|     |                  |  Page                                                                                                             |
|----------|-----------------------|------------------------------------------------------------------------------------------------------------------------|
|     |                  |                                                                                                                   |
| PART I.  | FINANCIAL INFORMATION | 3                                                                                                                      |
|     | Item 1.               | Financial Statements                                                                                                   | 3 |
|     |                  | Condensed Consolidated Balance Sheets as of March 31, 2016 (unaudited) and September 30, 2015 (unaudited)              | 3 |
|     |                  | Condensed Consolidated Statements of Operations for the Three and Six Months ended March 31, 2016 and 2015 (unaudited) | 4 |
|     |                  | Condensed Consolidated Statements of Cash Flows for the Six Months ended March 31, 2016 and 2015 (unaudited)           | 5 |
|     |                  | Notes to Condensed Consolidated Financial Statements (unaudited)                                                       | 6 |
|     | Item 2.               | Management's Discussion and Analysis of Financial Condition and Results of Operations                                  | 15 |
|     | Item 3.               | Quantitative and Qualitative Disclosures About Market Risk                                                             | 21 |
|     | Item 4.               | Controls and Procedures                                                                                                | 21 |
| PART II. | OTHER INFORMATION     | 21                                                                                                                     |
|     | Item 1A.              | Risk Factors                                                                                                           | 21 |
|     | Item 6.               | Exhibits                                                                                                               | 22 |
|     | SIGNATURES            | 23                                                                                                                     |

----

| Item 1. | Financial Statements |
|---------|----------------------|

|                                                                                                                                                                                                                                                                                                                             |   | March 31,2016 |          |   | September 30, 2015 |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------|---------------|--------|--------------------|--------|
| ASSETS                                                                                                                                                                                                                                                                                                                           |   |          |          |   |               |   |
| Current assets:                                                                                                                                                                                                                                                                                                                  |   |          |          |   |               |   |
| Cash and cash equivalents                                                                                                                                                                                                                                                                                                        |   | $             | 4,509         |   |               | $      | 94 |   |
| Accounts receivable                                                                                                                                                                                                                                                                                                              |   |          | 1,366         |   |               |   | 1,585 |   |
| Deferred subcontractor cost                                                                                                                                                                                                                                                                                                      |   |          | 197           |   |               |   | 21 |   |
| Prepaid expenses and other current assets                                                                                                                                                                                                                                                                                        |   |          | 156           |   |               |   | 45 |   |
| Total current assets                                                                                                                                                                                                                                                                                                             |   |          | 6,228         |   |               |   | 1,745 |   |
|  Investment in CPEC LLC                                                                                                                                                                                                                                                                                                     |   |          | 32            |   |               |   | 32 |   |
| Total assets                                                                                                                                                                                                                                                                                                                     |   | $             | 6,260         |   |               | $      | 1,777 |   |
|                                                                                                                                                                                                                                                                                                                             |   |          |          |   |               |   |   |   |
| LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)                                                                                                                                                                                                                                                                                   |   |          |          |   |               |   |   |   |
| Current liabilities:                                                                                                                                                                                                                                                                                                             |   |          |          |   |               |   |   |   |
| Accounts payable and accrued expenses                                                                                                                                                                                                                                                                                            |   | $             | 1,031         |   |               | $      | 1,598 |   |
| Deferred revenue                                                                                                                                                                                                                                                                                                                 |   |          | 205           |   |               |   | 22 |   |
| Note payable to shareholders, net of debt discount of $273                                                                                                                                                                                                                                                                       |   |          | —       |   |               |   | 727 |   |
| Note payable to shareholders redemption liability                                                                                                                                                                                                                                                                                |   |          | —       |   |               |   | 275 |   |
| Total current liabilities                                                                                                                                                                                                                                                                                                        |   |          | 1,236         |   |               |   | 2,622 |   |
|                                                                                                                                                                                                                                                                                                                             |   |          |          |   |               |   |   |   |
| Total liabilities                                                                                                                                                                                                                                                                                                                |   |          | 1,236         |   |               |   | 2,622 |   |
|  Commitments and Contingencies (Note H)                                                                                                                                                                                                                                                                                     |   |          |          |   |               |   |   |   |
|  Stockholders' equity:                                                                                                                                                                                                                                                                                                      |   |          |          |   |               |   |   |   |
| Preferred stock, $.01 par value per share, 10,000,000 shares authorized:                                                                                                                                                                                                                                                         |   |          |          |   |               |   |   |   |
| Series A nonredeemable convertible preferred stock, 1,250,000 shares authorized as of March 31, 2016 and September 30, 2015, respectively; no shares issued and outstanding as of March 31, 2016 and September 30, 2015, respectively                                                                             |   |          | —       |   |               |   | — |   |
| Series B nonredeemable convertible preferred stock, 1,600,000 and 1,600,000 shares authorized as of March 31, 2016 and September 30, 2015, respectively; 526,080 and 526,080 shares issued and outstanding as of March 31, 2016 and September 30, 2015, respectively                                                             |   |          | 5             |   |               |   | 5 |   |
|     Series C nonredeemable convertible preferred stock, 5,000 and zero shares authorized as     of March 31, 2016 and September 30, 2015, respectively; 4,500 and zero shares issued      and outstanding as of March 31, 2016 and September 30, 2015, respectively  |   |          |  — |   |               |   |  — |   |
| Common stock, $.01 par value per share, 200,000,000 shares authorized; 151,559,745 and 135,930,068 shares issued and outstanding as of March 31, 2016 and September 30, 2015, respectively                                                                                                                                       |   |          | 1,515         |   |               |   | 1,359 |   |
| Additional paid-in capital                                                                                                                                                                                                                                                                                                       |   |          | 191,797       |   |               |   | 184,421 |   |
| Accumulated deficit                                                                                                                                                                                                                                                                                                              |   |          | (188,293      | )      |               |   | (186,630 | ) |
| Total stockholders' equity (deficit)                                                                                                                                                                                                                                                                                             |   |          | 5,024         |   |               |   | (845 | ) |
| Total liabilities and stockholders' equity (deficit)                                                                                                                                                                                                                                                                             |   | $             | 6,260         |   |               | $      | 1,777 |   |

----

|                                                                   |   | Three months EndedMarch 31, |    |   | Six Months EndedMarch 31, |   |
|------------------------------------------------------------------------|--------|-----------------------------|---------|--------|---------------------------|--------|
|                                                                   |   | 2016                        |    |   | 2015                      |   |   | 2016 |   |   | 2015 |   |
| Revenue:                                                               |   |                        |    |   |                      |   |   |   |   |   |   |   |
| Contract revenue                                                       |   | $                           | 565     |   |                      | $      | 1,189 |   |   | $ | 870 |   |   | $ | 2,114 |   |
|  Costs and expenses:                                              |   |                        |    |   |                      |   |   |   |   |   |   |   |   |   |   |   |
| Research and development                                               |   |                        | 501     |   |                      |   | 1,297 |   |   |   | 993 |   |   |   | 2,270 |   |
| General and administrative                                             |   |                        | 693     |   |                      |   | 604 |   |   |   | 1,254 |   |   |   | 1,254 |   |
| Total costs and expenses                                               |   |                        | 1,194   |   |                      |   | 1,901 |   |   |   | 2,247 |   |   |   | 3,524 |   |
| Loss from operations                                                   |   |                        | (629    | )      |                      |   | (712 | ) |   |   | (1,377 | ) |   |   | (1,410 | ) |
|                                                                   |   |                        |    |   |                      |   |   |   |   |   |   |   |   |   |   |   |
| Interest expense                                                       |   |                        | — |   |                      |   | — |   |   |   | (285 | ) |   |   | — |   |
| Net loss                                                               |   |                        | (629    | )      |                      |   |  (712 | )  |   |   | (1,662 | ) |   |   | (1,410 | ) |
| Deemed dividend on Series C preferred stock                            |   |                        | 1,906   |   |                      |   | — |   |   |   | 2,486 |   |   |   | — |   |
| Net loss attributable to common stockholders                           |   | $                           | (2,535  | )      |                      | $      | (712 | ) |   | $ | (4,148 | ) |   | $ | (1,410 | ) |
|  Net loss per weighted share attributable to common stockholders: |   |                        |    |   |                      |   |   |   |   |   |   |   |   |   |   |   |
| Basic (Note E)                                                         |   | $                           | (0.02   | )      |                      | $      | (0.01 | ) |   | $ | (0.03 | ) |   | $ | (0.01 | ) |
| Diluted (Note E)                                                       |   | $                           | (0.02   | )      |                      | $      | (0.01 | ) |   | $ | (0.03 | ) |   | $ | (0.01 | ) |
|  Weighted average common shares outstanding:                      |   |                        |    |   |                      |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                                                  |   |                        | 151,560 |   |                      |   | 135,850 |   |   |   | 145,466 |   |   |   | 135,850 |   |
| Diluted                                                                |   |                        | 151,560 |   |                      |   | 135,850 |   |   |   | 145,466 |   |   |   | 135,850 |   |

----

|                                                                                         |   | Six Months Ended March 31, |   |
|----------------------------------------------------------------------------------------------|--------|----------------------------|--------|
|                                                                                         |   | 2016                       |   |   | 2015 |   |
| Cash flows from operating activities:                                                        |   |                       |   |   |   |   |
| Net loss                                                                                     |   | $                          | (1,662 | ) |   | $ | (1,410 | ) |
| Adjustments to reconcile net loss to net cash used in operating activities:                  |   |                       |   |   |   |   |   |   |
| Amortization of discount on note payable to shareholders                                     |   |                       | 273    |   |   |   | — |   |
| Accrued interest                                                                             |   |                       | 12     |   |   |   | — |   |
| Non-cash compensation                                                                        |   |                       | 74     |   |   |   | 259 |   |
| Change in assets and liabilities:                                                            |   |                       |   |   |   |   |   |   |
| Accounts receivable                                                                          |   |                       | 219    |   |   |   | (248 | ) |
| Deferred subcontractor cost                                                                  |   |                       | (176   | ) |   |   | 375 |   |
| Prepaid expenses and other current assets                                                    |   |                       | (111   | ) |   |   | (64 | ) |
| Accounts payable and accrued expenses                                                        |   |                       | (567   | ) |   |   | 209 |   |
| Deferred revenue                                                                             |   |                       | 183    |   |   |   | (390 | ) |
| Net cash used in operating activities                                                        |   |                       | (1,755 | ) |   |   | (1,269 | ) |
|                                                                                         |   |                       |   |   |   |   |   |   |
| Cash flows from financing activities:                                                        |   |                       |   |   |   |   |   |   |
| Proceeds from issuance of common stock and common stock warrants, net                        |   |                       | 2,005  |   |   |   | — |   |
| Proceeds from issuance of preferred stock and common stock warrants, net                     |   |                       | 4,165  |   |   |   | — |   |
| Net cash provided by financing activities                                                    |   |                       | 6,170  |   |   |   | — |   |
| Net increase (decrease) in cash and cash equivalents                                         |   |                       | 4,415  |   |   |   | (1,269 | ) |
| Cash and cash equivalents at beginning of period                                             |   |                       | 94     |   |   |   | 1,517 |   |
| Cash and cash equivalents at end of period                                                   |   | $                          | 4,509  |   |   | $ | 248 |   |
|                                                                                         |   |                       |   |   |   |   |   |   |
| Supplemental disclosure of non-cash financing activities:                                    |   |                       |   |   |   |   |   |   |
| Conversion of note payable to shareholders for common stock and warrants                     |   | $                          | 1,000  |   |   | $ | — |   |
| Conversion of accrued interest on note payable to shareholders for common stock and warrants |   | $                          | 12     |   |   | $ | — |   |
| Issuance of warrants for financing costs                                                     |   | $                          | 266    |   |   | $ | — |   |
| Deemed dividend on Series C preferred stock                                                  |   | $                          | 2,486  |   |   | $ | — |   |

----

| A. | Organization, Business and Summary of Significant Accounting Policies |
|----|-----------------------------------------------------------------------|

----

|  | · | Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities. |
|--|--------|----------------------------------------------------------------------------------------------------------------------|

|  | · | Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active. |
|--|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | · | Level 3: Unobservable inputs that reflect the reporting entity's own assumptions. |
|--|--------|-----------------------------------------------------------------------------------|

----

| Fair value at March 31, 2016 |    |
|------------------------------|---------|
| Level 1                      |    |   | Level 2 |   |   | Level 3 |   |
| $                            | — |   |   | $ | — |   |   | $ | — |   |

| Fair value measurement of redemption liability                     |   |
|--------------------------------------------------------------------|--------|
| Balance at September 30, 2015                                      |   | $ | 275 |   |
| Conversion of convertible promissory notes with redemption feature |   |   | (275 | ) |
| Change in fair value of redemption liability                       |   |   | — |   |
| Balance at March 31, 2016                                          |   | $ | — |   |

----

| B. | Liquidity |
|----|-----------|

| C.                 Stockholders' Equity |
|-------------------------------------------------------------------------------------------------------------------------|

----

----

|   | Number of Shares |                                                                                             | Exercise Price |   | Expiration Date                                              |
|--------|----------------------------|--------------------------------------------------------------------------------------------------|---------------------|--------|-------------------------------------------------------------------|
|   |                       |                50,000 |                | $      | 0.50                                                              |   | May 2016 |
|   |                       | 50,000                                                                                           |                | $      | 0.50                                                              |   | July 2016 |
|   |                       |                50,000 |                | $      | 1.00                                                              |   | July 2016 |
|   |                       |                50,000 |                | $      | 1.50                                                              |   | July 2016 |
|   |                       |                50,000 |                | $      | 2.00                                                              |   | July 2016 |
|   |                       |                50,000 |                | $      | 2.50                                                              |   | July 2016 |
|   |                       |            1,337,627                      |                | $      |           0.40  |   | March 2017 |
|   |                       |            325,000                        |                | $      |           0.40  |   | April 2017 |
|   |                       |             300,000                  |                | $      |           0.258 |   | June 2017 |
|   |                       | 50,000                                                                                           |                | $      | 0.26                                                              |   | June 2017 |
|   |                       | 140,000                                                                                          |                | $      | 0.35                                                              |   | October 2017 |
|   |                       | 12,205,000                                                                                       |                | $      | 0.25                                                              |   | February 2018 |
|   |                       | 1,242,000                                                                                        |                | $      |           0.25  |   | March 2018 |
|   |                       | 50,000                                                                                           |                | $      | 0.49                                                              |   | January 2020 |
|   |                       | 37,298,250                                                                                       |                | $      | 0.22                                                              |   | December 2020 |
|   |                       | 53,247,877                                                                                       |                |   |                                                              |   |   |

----

|                                        |   |             |       |   | Weighted Average |   |   |                                  |   |
|---------------------------------------------|--------|------------------|------------|--------|------------------|--------|--------|---------------------------------------|--------|
|                                        |   | Number of Shares |       |   | Exercise Price   |   |   | Remaining Contractual Term (in years) |   |   | Aggregate Intrinsic Value |   |
| Outstanding at 9/30/2015                    |   |             | 16,845,664 |   |             | $      | 0.27   |                                  |   |   | 2.2 |   |   | $ | 206,626 |   |
|     Granted             |   |             | 37,298,250 |   |             | $      | 0.22   |                                  |   |   | 4.7 |   |   | $ | 1,864,913 |   |
|     Exercised           |   |             | -          |   |             | $      | -      |                                  |   |   | - |   |   | $ | - |   |
|     Expired or Canceled |   |             | (896,037   | )      |             | $      | 0.01   |                                  |   |   | - |   |   | $ | 156,000 |   |
|     Forfeited           |   |             | -          |   |             | $      | -      |                                  |   |   | - |   |   | $ | - |   |
|     Vested              |   |             | -          |   |             | $      | -      |                                  |   |   | - |   |   | $ | - |   |
| Outstanding at 3/31/2016                    |   |             | 53,247,877 |   |             | $      | 0.24   |                                  |   |   | 3.8 |   |   | $ | - |   |

|                                        |   |             |       |   | Weighted Average |   |   |                                  |   |
|---------------------------------------------|--------|------------------|------------|--------|------------------|--------|--------|---------------------------------------|--------|
|                                        |   | Number of Shares |       |   | Exercise Price   |   |   | Remaining Contractual Term (in years) |   |   | Aggregate Intrinsic Value |   |
| Outstanding at 9/30/2014                    |   |             | 16,925,664 |   |             | $      | 0.27   |                                  |   |   | 3.1 |   |   | $ | 206,089 |   |
|     Granted             |   |             | 50,000     |   |             | $      | 0.49   |                                  |   |   | 4.8 |   |   | $ | - |   |
|     Exercised           |   |             | -          |   |             | $      | -      |                                  |   |   | - |   |   | $ | - |   |
|     Expired or Canceled |   |             | -          |   |             | $      | -      |                                  |   |   | - |   |   | $ | - |   |
|     Forfeited           |   |             | -          |   |             | $      | -      |                                  |   |   | - |   |   | $ | - |   |
|     Vested              |   |             | -          |   |             | $      | -      |                                  |   |   | - |   |   | $ | - |   |
| Outstanding at 3/31/2015                    |   |             | 16,975,664 |   |             | $      | 0.27   |                                  |   |   | 2.7 |   |   | $ | 1,682,066 |   |

| D.            Stock-Based Compensation |
|-----------------------------------------------------------------------------------------------|

|                                        |   |             |       |   | Weighted Average |   |   |                                  |   |
|---------------------------------------------|--------|------------------|------------|--------|------------------|--------|--------|---------------------------------------|--------|
|                                        |   | Number of Shares |       |   | Exercise Price   |   |   | Remaining Contractual Term (in years) |   |   | Aggregate Intrinsic Value |   |
| Outstanding at 9/30/2015                    |   |             | 12,164,591 |   |             | $      | 0.42   |                                  |   |   | 5.4 |   |   | $ | 1 |   |
|     Granted             |   |             | 700,000    |   |             | $      | 0.23   |                                  |   |   | - |   |   | $ | - |   |
|     Exercised           |   |             | -          |   |             | $      | -      |                                  |   |   | - |   |   | $ | - |   |
|     Expired or Canceled |   |             | (101,591   | )      |             | $      | 0.94   |                                  |   |   | - |   |   | $ | - |   |
|     Forfeited           |   |             | -          |   |             | $      | -      |                                  |   |   | - |   |   | $ | - |   |
| Outstanding at 3/31/2016                    |   |             | 12,763,000 |   |             | $      | 0.40   |                                  |   |   | 5.2 |   |   | $ | - |   |

----

|                                        |   |             |       |   | Weighted Average |   |   |                                  |   |
|---------------------------------------------|--------|------------------|------------|--------|------------------|--------|--------|---------------------------------------|--------|
|                                        |   | Number of Shares |       |   | Exercise Price   |   |   | Remaining Contractual Term (in years) |   |   | Aggregate Intrinsic Value |   |
| Outstanding at 9/30/2014                    |   |             | 11,671,591 |   |             | $      | 0.43   |                                  |   |   | 6.1 |   |   | $ | 675 |   |
|     Granted             |   |             | 775,000    |   |             | $      | 0.25   |                                  |   |   | - |   |   | $ | - |   |
|     Exercised           |   |             | -          |   |             | $      | -      |                                  |   |   | - |   |   | $ | - |   |
|     Expired or Canceled |   |             | (23,000    | )      |             | $      | 0.95   |                                  |   |   | - |   |   | $ | - |   |
|     Forfeited           |   |             | -          |   |             | $      | -      |                                  |   |   | - |   |   | $ | - |   |
| Outstanding at 3/31/2015                    |   |             | 12,423,591 |   |             | $      | 0.42   |                                  |   |   | 5.9 |   |   | $ | 255,299 |   |

|     |       |   | Options Outstanding |   |      | Options Exercisable |   |
|----------|------------|--------|---------------------|--------|-----------|---------------------|--------|
|     |       |   |                |   |      |                |   |   | Weighted |   |   |   |   |   |   |   |   | Weighted |   |
|     |       |   | Number              |   | Weighted  |                |   | Average |   |   | Number |   | Weighted |   |   | Average |   |
| Range of |       |   | Outstanding         |   | Average   |                |   | Remaining |   |   | Exercisable |   | Average |   |   | Remaining |   |
| Exercise |       |   | at March            |   | Exercise  |                |   | Contractual |   |   | At March |   | Exercise |   |   | Contractual |   |
| Prices   |       |   |  31, 2016      |   | Price     |                |   | Life (in years) |   |   | 31, 2016 |   | Price |   |   | Life (in years) |   |
| $        | 0.19-$0.20 |   |                |   | 250,000   |                |   | $ | 0.19 |   |   |   | 9.92 |   |   |   | - |   |   | $ | - |   |   |   | - |   |
| $        | 0.21-$0.30 |   |                |   | 3,537,500 |                |   | $ | 0.27 |   |   |   | 6.33 |   |   |   | 3,274,998 |   |   | $ | 0.27 |   |   |   | 6.07 |   |
| $        | 0.31-$0.40 |   |                |   | 6,551,500 |                |   | $ | 0.39 |   |   |   | 5.33 |   |   |   | 6,551,500 |   |   | $ | 0.39 |   |   |   | 5.33 |   |
| $        | 0.41-$0.50 |   |                |   | 502,000   |                |   | $ | 0.45 |   |   |   | 5.75 |   |   |   | 502,000 |   |   | $ | 0.45 |   |   |   | 5.75 |   |
| $        | 0.51-$0.60 |   |                |   | 982,250   |                |   | $ | 0.59 |   |   |   | 3.21 |   |   |   | 982,250 |   |   | $ | 0.59 |   |   |   | 3.21 |   |
| $        | 0.61-$0.70 |   |                |   | 60,000    |                |   | $ | 0.68 |   |   |   | 0.53 |   |   |   | 60,000 |   |   | $ | 0.68 |   |   |   | 0.53 |   |
| $        | 0.71-$0.80 |   |                |   | 352,750   |                |   | $ | 0.75 |   |   |   | 1.30 |   |   |   | 352,750 |   |   | $ | 0.75 |   |   |   | 1.30 |   |
| $        | 0.81-$0.90 |   |                |   | 525,000   |                |   | $ | 0.87 |   |   |   | 0.84 |   |   |   | 525,000 |   |   | $ | 0.87 |   |   |   | 0.84 |   |
| $        | 0.91-$1.19 |   |                |   | 2,000     |                |   | $ | 1.19 |   |   |   | 1.08 |   |   |   | 2,000 |   |   | $ | 1.19 |   |   |   | 1.08 |   |

|                                |   | For the three months ended March 31, |    |   | For the six months ended March 31, |   |
|-------------------------------------|--------|--------------------------------------|---------|--------|------------------------------------|--------|
|                                |   | 2016                                 |    |   | 2015                               |   |   | 2016 |   |   | 2015 |   |
| Research and Development Expenses   |   | $                                    | — |   |                               | $      | — |   |   | $ | — |   |   | $ | — |   |
| General and Administrative Expenses |   |                                 | 36      |   |                               |   | 68 |   |   |   | 74 |   |   |   | 259 |   |
|                                |   | $                                    | 36      |   |                               | $      | 68 |   |   | $ | 74 |   |   | $ | 259 |   |

----

|                     |   | For the three months endedMarch 31, |       |    | For the six months endedMarch 31, |   |
|--------------------------|--------|-------------------------------------|------------|---------|-----------------------------------|--------|
|                     |   | 2016                                |       |    | 2015                              |   |   | 2016 |   |   | 2015 |   |
| Dividend yield           |   |                                | 0          | %  |                              |   | 0 | %  |   |   | 0 | %  |   |   | 0 | %  |
| Pre-vest forfeiture rate |   |                                | 18.95      | %  |                              |   | 11.65 | %  |   |   | 7.87 | %  |   |   | 5.01 | %  |
| Expected volatility      |   |                                | 111.31     | %  |                              |   | 125.49 | %  |   |   | 117.14 | %  |   |   | 138.09 | %  |
| Risk-free interest rate  |   |                                | 1.42       | %  |                              |   | 1.64 | %  |   |   | 1.42 | %  |   |   | 1.71 | %  |
| Expected term            |   |                                | 5.27 years |    |                              |   | 5.27 years |  |   |   | 5.27 years |   |   |   | 5.27 years |   |

| E. | Net Income (Loss) Per Common Share |
|----|------------------------------------|

|                                                              |   | For the three months                  |    |   | For the six months |   |
|--------------------------------------------------------------|--------|---------------------------------------|---------|--------|--------------------|--------|
|                                                         |   | ended March 31,                       |    |   | ended March 31,    |   |
|                                                         |   | 2016                                  |    |   | 2015               |   |   | 2016 |   |   | 2015 |   |
|                                                         |   | (in thousands, except per share data) |    |
| Numerator:                                                   |   |                                       |    |   |               |   |   |   |   |   |  |   |
| Net loss                                                     |   | $                                     | (629    | )      |               | $      | (712 | ) |   | $ | (1,662 | ) |   | $ | (1,410 | ) |
| Less deemed dividend on Series C preferred stock             |   |                                  | (1,906  | )      |               |   | - |   |   |   | (2,486 | ) |   |   | - |   |
| Net loss attributable to common stockholders – basic   |   | $                                     | (2,535  | )      |                    | $      | (712 | ) |  | $ | (4,148 | ) |  | $ | (1,410 | ) |
|                                                         |   |                                  |    |   |               |   |   |   |   |   |   |   |   |   |   |   |
| Net loss attributable to common stockholders – diluted |   | $                                     | (2,535  | )      |               | $      | (712 | ) |   | $ | (4,148 | ) |   | $ | (1,410 | ) |
|                                                         |   |                                  |    |   |               |   |   |   |   |   |   |   |   |   |   |   |
| Denominator:                                                 |   |                                  |    |   |               |   |   |   |   |   |   |   |   |   |   |   |
| Weighted-average shares used in computing net loss per       |   |                                  |    |   |               |   |   |   |   |   |   |   |   |   |   |   |
| share attributable to common stockholders – basic      |   |                                  | 151,560 |   |               |   | 135,850 |   |   |   | 145,466 |   |   |   | 135,850 |   |
| Effect of potentially dilutive securities:                   |   |                                  |    |   |               |   |   |   |   |   |   |   |   |   |   |   |
| Common stock warrants                                        |   |                                  | -       |   |               |   | - |   |   |   | - |   |   |   | - |   |
| Convertible preferred warrants                               |   |                                  | -       |   |               |   | - |   |   |   | - |   |   |   | - |   |
| Convertible preferred stock                                  |   |                                  | -       |   |               |   | - |   |   |   | - |   |   |   | - |   |
| Common stock options                                         |   |                                  | -       |   |               |   | - |   |   |   | - |   |   |   | - |   |
| Non-participating common stock warrants                      |   |                                  | -       |   |               |   | - |   |   |   | - |   |   |   | - |   |
| Weighted-average shares used in computing net loss           |   |                                  |    |   |               |   |   |   |   |   |   |   |   |   |   |   |
| per share attributable to common stockholders - diluted      |   |                                  | 151,560 |   |               |   | 135,850 |   |   |   | 145,466 |   |   |   | 135,850 |   |
| Basic net loss per common share                              |   | $                                     | (0.02   | )      |               | $      | (0.01 | ) |   | $ | (0.03 | ) |   | $ | (0.01 | ) |
| Diluted net loss per common share                            |   | $                                     | (0.02   | )      |               | $      | (0.01 | ) |   | $ | (0.03 | ) |   | $ | (0.01 | ) |

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| F.          Debt |
|---------------------------------------------------------------|

| G. | Recently Issued Accounting Pronouncements |
|----|-------------------------------------------|

| H.             Commitments |
|----------------------------------------------------------------------------------------|

|                 Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations |
|----------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------|

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|                Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
|----------------------------------------------------------------------------------------------|------------------------------------------------------------|

|                Item 4. | Controls and Procedures |
|----------------------------------------------------------------------------------------------|-------------------------|

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| Exhibit #     |    | Description                                                                                                                                                                                   |
|---------------|---------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 31.1     |    | Certification of the Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a).                                                                                     |
| 31.2     |    | Certification of the Interim Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a).                                                                             |
| 32.1     |    | Certification by the Chief Executive Officer and Interim Chief Financial Officer pursuant to 18 U.S.C. §1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.  |
| 101.INS  | +  | XBRL Instance Document                                                                                                                                                                   |
| 101.SCH  | +  | XBRL Taxonomy Extension Schema Document                                                                                                                                                  |
| 101.CAL  | +  | XBRL Taxonomy Extension Calculation Linkbase Document                                                                                                                                    |
| 101.DEF  | +  | XBRL Taxonomy Extension Definition Linkbase Document                                                                                                                                     |
| 101.LAB  | +  | XBRL Taxonomy Extension Label Linkbase Document                                                                                                                                          |
| 101.PRE  | +  | XBRL Taxonomy Extension Presentation Linkbase Document                                                                                                                                   |

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|               | AEOLUS PHARMACEUTICALS, INC. |
|--------------------|------------------------------|
|               |                         |   |
|               |                         |   |
| Date: May 16, 2016 | By                      |                                                                                                                       |
|               |                         | John L. McManus |
|               |                         | President and Chief Executive Officer |
|               |                         | (Principal Executive Officer) |
|               |                         |   |
|               |  By                |                                                                                                                       |
|               |                         | David Cavalier |
|               |                         | Chairman, Chief Financial Officer and Secretary |
|               |                         | (Principal Financial and Accounting Officer) |

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