SECURITIES
      AND EXCHANGE COMMISSION


WASHINGTON,
      D.C. 20549





**FORM
      10-Q**





(Mark
      One)





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





**For
      the quarterly period ended** **March
      31, 2007**





OR





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 001-16043


**ALTEON
        INC.**
 (Exact
        name of registrant as specified in its charter)
 
 **Delaware**
                **13-3304550**(State
                    or other jurisdiction of
                  incorporation
                    or organization)
                (I.R.S.
                    Employer Identification No.)
  **221
        West Grand Avenue, Suite 200, Montvale, New Jersey
        07645**
 (Address
        of principal executive offices)
 (Zip
        Code)
 
 (201)
        934-5000
 (Registrant's
        telephone number, including area code)
 
 Not
        Applicable
 (Former
        name, former address and former fiscal year,
 if
        changed since last report.)
 
 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 oAccelerated
        filer oNon-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
  On
        May 1,
        2007, 129,318,858 shares of the registrant’s Common Stock were
        outstanding.
  
  **ALTEON
        INC.**
 
 **INDEX**
 Page
 PART
                  I - FINANCIAL INFORMATION
 Item
                  1.
              Condensed
                  Consolidated Financial Statements (Unaudited)Condensed
                    Consolidated Balance Sheets as of March 31, 2007and
                    December 31, 2006
              3Condensed
                  Consolidated Statements of Operations for the three months ended
                  March 31, 2007 and 2006
              4Condensed
                  Consolidated Statement of Changes in Stockholders’ Equityfor thethree
                  months ended March 31, 2007
              5Condensed
                    Consolidated Statements of Cash Flows for the three monthsended
                    March 31, 2007 and 2006
              6Notes
                  to Condensed Consolidated Financial Statements
              7Item
                  2.
              Management’s
                    Discussion and Analysis ofFinancial
                    Condition and Results of Operations
              14Item
                  3.
              Qualitative
                  and Quantitative Disclosures about Market Risk
              19Item
                  4T.
              Controls
                  and Procedures
              19
 PART
                  II - OTHER INFORMATION
 Item
                  1A.
              Risk
                  Factors
              20Item
                  6.
              Exhibits
              24SIGNATURES
              
              25INDEX
                  TO EXHIBITS
              
              26
 
 2
  **PART
        I - FINANCIAL INFORMATION**
 
 **ITEM
        l.**   **Condensed
        Consolidated Financial Statements (Unaudited).**
 
 **ALTEON
        INC.**
 **CONDENSED
        CONSOLIDATED BALANCE SHEETS**
 **(Unaudited)**
 
  March
                    31,
                
                December
                    31,2007
                
                2006**ASSETS**Current
                    Assets:Cash
                    and cash equivalents
                
                $
                2,024,676
                
                $
                1,478,780Other
                    current assets
                
                
                440,398
                
                
                314,156Total
                    current assets
                
                
                2,465,074
                
                
                1,792,936Property
                    and equipment, net
                
                
                19,511
                
                
                10,500Other
                    assets
                
                
                694,085
                
                
                501,889Total
                    assets
                
                $
                3,178,670
                
                $
                2,305,325**LIABILITIES
                    AND STOCKHOLDERS' EQUITY**Current
                    Liabilities:Accounts
                    payable
                
                $
                352,203
                
                $
                809,492Accrued
                    expenses
                
                
                490,709
                
                
                253,022Convertible
                    note, net of unamortized debt discount of $1,307,143
                
                
                1,692,857
                
                
                —Total
                    liabilities
                
                
                2,535,769
                
                
                1,062,514Stockholders'
                    Equity:Preferred
                    stock, $0.01 par value; 1,993,329 shares authorized,0
                    shares issued and outstanding at March 31, 2007 andDecember
                    31, 2006
                
                
                —
                
                
                —Common
                    stock, $0.01 par value, 300,000,000 shares authorized,and
                    129,318,858 shares issued and outstanding,at
                    March 31, 2007 and December 31, 2006
                
                
                1,293,189
                
                
                1,293,189Additional
                    paid-in capital
                
                
                246,161,519
                
                
                243,095,483Accumulated
                    deficit
                
                
                (246,811,807
                )
                
                (243,145,861
                )Total
                    stockholders’ equity
                
                
                642,901
                
                
                1,242,811Total
                    liabilities and stockholders' equity
                
                $
                3,178,670
                
                $
                2,305,325
 
 The
        accompanying notes are an integral part of these unaudited condensed
        consolidated financial statements.
  3
  **ALTEON
        INC.**
 **CONDENSED
        CONSOLIDATED STATEMENTS OF OPERATIONS**
 **(Unaudited)**
 Three
                    Months Ended March 31,2007
                
                2006Income:Investment
                    income
                
                $
                36,360
                
                $
                60,364Total
                    income
                
                
                36,360
                
                
                60,364Expenses:Research
                    and development
                
                
                467,180
                
                
                449,840General
                    and administrative
                
                
                1,229,544
                
                
                1,231,851Interest
                    expense
                
                
                2,005,582
                
                
                —Total
                    expenses
                
                
                3,702,306
                
                
                1,681,691Net
                    loss
                
                
                (3,665,946
                )
                
                (1,621,327
                )Preferred
                    stock dividends
                
                
                —
                
                
                1,175,322Net
                    loss applicable to common stockholders
                
                $
                (3,665,946
                )
                $
                (2,796,649
                )Net
                    loss per common share:Basic
                    and diluted
                
                $
                (
                    0.03
                )
                $
                (0.05
                )Weighted
                    average common shares outstanding:Basic
                    and diluted
                
                
                129,318,858
                
                
                57,996,711
  
 The
        accompanying notes are an integral part of these unaudited condensed
        consolidated financial statements.
  4
  **ALTEON
        INC.**
 **CONDENSED
        CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY**
 **(Unaudited)**
 
 Additional
              
              
              
              TotalCommon
                  Stock
              
              Paid-in
              
              Accumulated
              
              Stockholders'Shares
              
              Amount
              
              Capital
              
              Deficit
              
              EquityBalance,
                  December 31, 2006
              
              
              129,318,858
              
              $
              1,293,189
              
              $
              243,095,483
              
              $
              (243,145,861
              )
              $
              1,242,811Net
                  loss
              
              
              —
              
              
              —
              
              
              —
              
              
              (3,665,946
              )
              
              (3,665,946
              )Warrants
                  issued and embedded conversion feature associated with debt
                  financing
              
              
              —
              
              
              —
              
              
              3,000,000
              
              
              —
              
              
              3,000,000Stock-based
                  compensation
              
              
              —
              
              
              —
              
              
              41,036
              
              
              —
              
              
              41,036Options
                  issued for consulting services
              
              
              —
              
              
              —
              
              
              2,732
              
              
              —
              
              
              2,732Compensation
                  costs related to restricted stock
              
              
              —
              
              
              —
              
              
              22,268
              
              
              —
              
              
              22,268Balance,
                  March 31, 2007
              
              
              129,318,858
              
              $
              1,293,189
              
              $
              246,161,519
              
              $
              (246,811,807
              )
              $
              642,901
  The
        accompanying notes are an integral part of these unaudited condensed
        consolidated financial statements.
  5
  **ALTEON
        INC.**
 **CONDENSED
        CONSOLIDATED STATEMENTS OF CASH FLOWS**
 **(Unaudited)**
 
 Three
                    Months Ended March 31,2007
                
                2006Cash
                    flows from operating activities:Net
                    loss
                
                $
                (3,665,946
                )
                $
                (1,621,327
                )Adjustments
                    to reconcile net loss to net cash used in operating
                    activities:Stock-based
                    compensation
                
                
                41,036
                
                
                —Options
                    issued for consulting services
                
                
                2,732
                
                
                —Compensation
                    costs related to restricted stock
                
                
                22,268
                
                
                —Amortization
                    of debt discount
                
                
                1,692,857
                
                
                —Depreciation
                    and amortization
                
                
                260,549
                
                
                14,473Changes
                    in operating assets and liabilities:Other
                    current assets
                
                
                74,018
                
                
                143,548Non-current
                    portion of other current assets and other assets
                
                
                12,115
                
                
                —Accounts
                    payable and accrued expenses
                
                
                (368,887
                )
                
                (448,566
                )Net
                    cash used in operating activities
                
                
                (1,929,258
                )
                
                (1,911,872
                )Cash
                    flows from investing activities:Capital
                    expenditures
                
                
                (10,207
                )
                
                —Other
                    assets
                
                
                —
                
                
                (201,916
                )Net
                    cash used in investing activities
                
                
                (10,207
                )
                
                (201,916
                )Cash
                    flows from financing activities:Proceeds
                    from debt financing
                
                
                3,000,000
                
                
                —Deferred
                    debt financing costs
                
                
                (514,639
                )
                
                —Net
                    cash provided by financing activities
                
                
                2,485,361
                
                
                —Net
                    increase(decrease) in cash and cash equivalents
                
                
                545,896
                
                
                (2,113,788
                )Cash
                    and cash equivalents, beginning of period
                
                
                1,478,780
                
                
                6,582,958Cash
                    and cash equivalents, end of period
                
                $
                2,024,676
                
                $
                4,469,170Supplemental
                    disclosure of cash flow information:Accrual
                    of deferred merger costs
                
                $
                —
                
                $
                93,000Accrual
                    of deferred financing costs
                
                $
                149,285
                
                $
                —Warrants
                    issued and embedded conversion feature associatedwith
                    debt financing
                
                $
                3,000,000
                
                $
                —
 
 The
        accompanying notes are an integral part of these unaudited condensed
        consolidated financial statements.
  6
  **ALTEON
        INC.**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
 **(Unaudited)**
 
 **Note
        1 - Significant Accounting Policies**
 
 ***Basis
        of Presentation***
 
 The
        accompanying unaudited financial statements have been prepared in accordance
        with accounting principles generally accepted in the United States of America
        for interim financial information and the instructions to Form 10-Q and Rule
        10-01 of Regulation S-X. Accordingly, they do not include all of the information
        and footnotes required by accounting principles generally accepted in the
        United
        States of America for complete financial statements. In the opinion of
        management, all adjustments (consisting of only normal recurring adjustments)
        considered necessary for a fair presentation have been included. Operating
        results for the three months ended March 31, 2007 are not necessarily indicative
        of the results that may be expected for the year ending December 31, 2007.
        For
        further information, refer to the financial statements and footnotes thereto
        included in the Company's Annual Report on Form 10-K for the year ended December
        31, 2006, as filed with the Securities and Exchange Commission.
 
 ***Principles
        of Consolidation***
 
 The
        accompanying condensed consolidated financial statements include the accounts
        of
        Alteon Inc. and its wholly owned subsidiary, HaptoGuard, Inc. All inter-company
        accounts and transactions have been eliminated in consolidation.
 
 ***Adoption
        of New Accounting Pronouncements*** **
  Effective
        January 1, 2007, the Company adopted *Financial
        Accounting Standards Board* (“FASB”) *Interpretation
        48* (“FIN
        48”), “ *Accounting
        for Uncertainty in Income Taxes — an interpretation of FASB Statement
        No. 109.* ”
The
        interpretation contains a two-step approach to recognizing and measuring
        uncertain tax positions accounted for in accordance with SFAS No. 109,
“ *Accounting
        for Income Taxes* .”
The
        first step is to evaluate the tax position for recognition by determining
        if the
        weight of available evidence indicates that it is more likely than not that
        the
        position will be sustained on audit, including resolution of related appeals
        or
        litigation processes, if any. The second step is to measure the tax benefit
        as
        the largest amount which is more than 50% likely of being realized upon ultimate
        settlement.
  The
        Company has sustained losses since inception which has generally resulted
        in a
        zero percent effective tax rate; hence the Company has not incurred any interest
        or penalties. The Company’s policy is to recognize interest and penalties
        accrued on any unrecognized tax benefits as a component of tax expense. At
        December 31, 2006, the Company had an $82.2 million deferred tax asset
        which was fully offset by a valuation allowance due to its history of losses.
  In
        addition, the Company has net operating loss carryfowards (“NOLs”) that may be
        subject to substantial annual limitations due to the ownership change
        limitations provided by the Internal Revenue Code and similar state provisions.
        The Company is currently evaluating whether there are any changes in ownership
        that would limit the future use of its NOLs. The Company’s final evaluation of
        its tax positions taken in open tax years and ownership change limitations
        may
        result in a reduction of NOLs available for use in future years and the related
        fully reserved deferred tax asset. However, given the Company’s history of
        losses, the Company does not expect the result of this evaluation will have
        a
        material impact on its consolidated financial statements.
 
 **Note
        2 - Liquidity**
 
 The
        Company has devoted substantially all of its resources to research, drug
        discovery and development programs. To date, it has not generated any revenues
        from the sale of products and does not expect to generate any such revenues
        for
        a number of years, if at all. As a result, Alteon has incurred net losses
        since
        inception, has an accumulated deficit of $246,811,807 as of March 31, 2007,
        and
        expects to incur net losses, potentially greater than losses in prior years,
        for
        a number of years, assuming the Company is able to continue as a going concern,
        of which there can be no assurance.
  7
 
 The
        Company has financed its operations through proceeds from the sale of common
        and
        preferred equity securities, debt securities, revenue from former collaborative
        relationships, reimbursement of certain of its research and development expenses
        by collaborative partners, investment income earned on cash and cash equivalent
        balances and short-term investments and the sale of a portion of the Company’s
        New Jersey state net operating loss carryforwards and research and development
        tax credit carryforwards.
 
 As
        of
        March 31, 2007, the Company had a negative working capital of $70,695, including
        $2,024,676 of cash and cash equivalents. The Company’s net cash used in
        operating activities for the three months ended March 31, 2007 was $1,929,258
        and for the year ended December 31, 2006 was $7,438,275.
  In
        April
        2007, the Company entered into a Series B Preferred Stock and Warrant Purchase
        Agreement with institutional investors  who will purchase from us,
        $25,000,000 of our newly created Series B Preferred Stock and warrants to
        purchase shares of Series B Preferred Stock (See Note 6 - Subsequent Event
        -
        Series B Preferred Stock and Warrant Purchase Agreement). The closing of
        this
        financing is subject to the satisfaction of various conditions, including
        stockholder approval. There can be no assurance that such financing will
        be
        completed. If the Company is unsuccessful in our efforts to raise
        additional funds through the sale of additional equity or debt securities
        or if
        the level of cash and cash equivalents falls below anticipated levels, the
        Company will not have the ability to continue as a going concern beyond the
        second quarter of 2007. ****
 
 The
        amount and timing of the Company’s future capital requirements will depend on
        numerous factors, including the timing of resuming
        its research
        and development programs, if
        at
        all, the
        number and characteristics of product candidates that the Company pursues,
        the
        conduct of preclinical tests and clinical studies, the status and timelines
        of
        regulatory submissions, the costs associated with protecting patents and
        other
        proprietary rights, the ability to complete strategic collaborations and
        the
        availability of third-party funding, if any.
 
 Selling
        securities to satisfy its capital requirements may have the effect of materially
        diluting the current holders of the Company’s outstanding stock. The Company may
        also seek additional funding through corporate collaborations and other
        financing vehicles. There can be no assurances that such funding will be
        available at all or on terms acceptable to the Company. The Company has
        significantly curtailed its research and development programs, until additional
        financing is obtained, if ever. If funds are obtained through arrangements
        with
        collaborative partners or others, the Company may be required to relinquish
        rights to its technologies or product candidates and alter its plans for
        the
        development of its product candidates. If the Company is unable to obtain
        the
        necessary funding, it will likely be forced to cease operations.
 
 **Note
        3 - Stock-Based Compensation**
 
 The
        Company estimates the fair value of option awards made under its equity
        compensation plans on the date of grant using the Black-Scholes option pricing
        model. The Company based expected volatility on historical volatility. The
        expected term of options granted represents the period of time that options
        granted are expected to be outstanding. The Company estimated the expected
        term
        of stock options using historical exercise and employee forfeiture
        experience.
  8
  The
        following table shows the weighted average assumptions the Company used to
        develop the fair value estimates for the determination of the compensation
        charges:
  **Three
                  months ended**
                  **March
                    31, 2007**Expected
                  volatility
              
              
              144
              %Dividend
                  yield
              
              
              -Expected
                  term (in years)
              
              
              6.35Risk-free
                  interest rate
              
              
              4.50
              %
 
 
 Options
        granted to consultants and other non-employees are accounted for in accordance
        with EITF No. 96-18 "Accounting for Equity Instruments That Are Issued to
        Other
        than Employees for Acquiring, or in Conjunction with Selling, Goods or
        Services."  Accordingly, such options are recorded at fair value at the
        date of grant and subsequently adjusted to fair value at the end of each
        reporting period until such options vest, and the fair value of the
        options, as adjusted, is charged to consulting expense over the related
        vesting period.  For the three months ended March 31, 2007, the Company
        recognized research and development consulting expenses of $2,732.
 
 For
        the
        three month period ended March 31, 2007, the Company recognized share-based
        employee compensation cost of $41,036 in accordance with SFAS 123(R),
“Share-Based Payment,” which was recorded as general and administrative expense.
        This expense related to the granting of stock options to employees, directors
        and officers on or after January 1, 2006. None of this expense resulted from
        the
        grants of stock options prior to January 1, 2006. The Company recognized
        compensation expense related to these stock options, taking into consideration a
        forfeiture rate of approximately 12.4% based on historical experience, on
        a
        straight line basis over the vesting period. The Company did not capitalize
        any
        share-based compensation cost.
 
 As
        of
        March 31, 2007, the total compensation cost related to non-vested option
        awards
        not yet recognized is $221,237. The weighted average period over which this
        cost
        is expected to be recognized is approximately 2.70 years.
 
 A
        summary
        of the status of the Company’s stock options outstanding as of March 31, 2007
        and changes during the three months then ended is presented below:
 **Shares**
                
                **Weighted
                    average exercise price**
                
                **Weighted
                    Average Remaining Contractual Term (years)**
                
                **Aggregate
                    Intrinsic Value**Outstanding
                    atDecember
                    31, 2006
                
                
                10,790,137
                
                $
                1.25Granted/assumed
                
                
                -
                
                
                -Exercised
                
                
                -
                
                
                -Cancelled
                
                
                (244,000
                )
                $
                2.96Outstanding
                    atMarch
                    31, 2007
                
                
                10,546,137
                
                $
                1.21
                
                
                5.10
                
                $
                -Options
                    exercisable atMarch
                    31, 2007
                
                
                8,209,084
                
                $
                1.50
                
                
                4.10
                
                $
                -
 9
  ***Restricted
        Stock***
 
 The
        Company recognized compensation cost of $22,268, which was recorded as general
        and administrative expense, for the three month period ended March 31, 2007
        as a
        result of the granting of 960,000 shares of restricted stock in 2006, of
        which
        320,000 were forfeited through March 31, 2007.
 
 A
        summary
        of the status of the Company’s nonvested shares as of March 31, 2007 and changes
        during the three months ended March 31, 2007, is presented below:
 
 **Nonvested
                  Shares**
              
              **Shares**
              
              **Weighted
                  average grant date fair value**Nonvested
                  atJanuary
                  1, 2007
              
              
              800,000
              
              $
              0.15Granted
              
              
              -
              
              $
              -Vested
              
              
              -
              
              
              -Forfeited
              
              
              160,000
              
              
              0.15Nonvested
                  atMarch
                  31, 2007
              
              
              640,000
              
              $
              0.15
 
 As
        of
        March 31, 2007, there was $55,737 of total unrecognized compensation cost
        related to nonvested share-based compensation arrangements granted. That
        cost is
        expected to be recognized over a weighted-average period of 2.3 years. The
        total
        fair value of shares vested during the three months ended March 31, 2007
        was
        $0.
 
 **Note
        4 - Convertible Notes Payable**
 
 On
        January 11, 2007, the Company entered into a Note and Warrant Purchase
        Agreement  (the “Agreement”) with institutional investors (the “Buyers” and
        together with the Company, the “Parties”). Pursuant to the terms and subject to
        the conditions contained in the Agreement, the Company issued and sold to
        the
        Buyers $3,000,000 principal amount of senior convertible secured promissory
        notes (the “Notes”). Each Note accrues interest at 8% per annum and the
        principal and interest on the Notes are due and payable, if not converted,
        on May 31, 2007. The Notes will automatically be converted into any
        security that is issued by the Company to the Buyers in connection with a
        private preferred stock and warrant financing of up to $20 million (See Note
        6 -
        Subsequent Events - Series B Preferred Stock and Warrant Purchase Agreement).
        The closing of any such additional financing, which the Company anticipates
        will
        be done at a discount from the market price, will be subject to the satisfaction
        of various conditions, including stockholder approval. In addition, at the
        option of the Buyers, the Notes may be converted into any security that is
        sold
        by the Company in any other financing on or prior to May 31, 2007. If the
        Notes
        have not been repaid or converted prior to May 31, 2007, the Company will
        be obligated to repay the outstanding principal amount plus any accrued but
        unpaid interest as well as (i) an additional $1,000,000 and (ii) fifteen
        percent
        (15%) of any amount received from financing, sale or licensing transactions
        completed prior to June 30, 2008, subject to a cap of $2,000,000 in the
        aggregate. Finally, at the option of the Buyers, unless otherwise converted,
        the
        Notes may be converted into shares of the Company’s common stock, $0.01 par
        value per share (the “Common Stock”), at a price equal to the closing price of
        the Common Stock on January 11, 2007. The Buyers may, at their option, demand
        that the Company repay the outstanding principal amount of the Notes
        plus any accrued but unpaid interest if (i) the Company fails to make any
        payments under the Notes; (ii) breach any representation, warranty, covenant
        or
        agreement in the Agreement; (iii) fail to pay any Indebtedness (as defined
        in
        the Agreement) when due in the aggregate amount of $500,000 or greater at
        any
        one time; (iv) a final judgment for the payment of money aggregating in excess
        of $500,000 is rendered against the Company and such judgment is not discharged
        within 60 days; (v) we are dissolved, become insolvent or make an assignment
        for
        the benefit of creditors; (vi) any petition for relief under bankruptcy,
        reorganization, arrangement, insolvency, readjustment of debt, receivership,
        liquidation or dissolution is filed or commenced against the Company or (vii)
        any trustee or receiver is appointed for the Company or any of our property,
        a
        meeting of creditors is convened or a committee of creditors is appointed
        for,
        or any petition for any relief under any bankruptcy, reorganization,
        arrangement, insolvency, readjustment of debt, receivership, liquidation
        or
        dissolution is filed or commenced against the Company and is not dismissed
        within 120 days.
  10
  In
        connection with the Agreement, the Company also issued to the Buyers warrants
        to
        purchase 25,734,453 shares of the Company’s Common Stock for a period of
        five years commencing on January 11, 2007 at an exercise price of $0.01 per
        share (the “Warrants”). The Warrants will be exercisable starting as
        of May 31, 2007, unless the Notes are converted prior to such date, in
        which case the Warrants will expire.
 
 The
        Company determined the initial carrying value of the Notes by a two-step
        allocation process: first to the associated Warrants and second, to an embedded
        conversion option. First, the Company allocated the proceeds from the sale
        of
        the Notes between the Notes and the Warrants based upon their relative fair
        values, which resulted in recording a discount on the Notes. The value of
        the
        Warrant was computed using the Black-Scholes option pricing model. Second,
        in
        accordance with Emerging Issues Task Force (EITF) No. 00-27, “Application of
        Issue 98-5 to Certain Convertible Instruments”, after allocating the Note
        proceeds as described above, the Company calculated the embedded conversion
        price and used it to measure the intrinsic value of the embedded conversion
        option. Since the conversion price was less than the fair value of the Company’s
        common stock at the closing date, an embedded conversion option was recorded
        as
        paid in capital.
 
 All
        of
        the proceeds were allocated to the Warrants and embedded beneficial conversion
        feature. This amount will be amortized as additional (non-cash) interest
        expense
        with a corresponding increase to the Note over the term of the Note. The
        fair
        value of the beneficial conversion feature and the warrants substantially
        exceeds the $3,000,000 face value of the Notes.
 
 During
        the three month period ended March 31, 2007, the Company amortized approximately
        $1,693,000, of non-cash interest expense related to this Note.
 
 Contemporaneously
        with the execution and delivery of the Agreement and the issuance by the
        Company
        to the Buyers of the Notes and the Warrants, the Parties executed (i) a Security
        and Guaranty Agreement (the “Security Agreement”), pursuant to which the Company
        and its wholly owned subsidiary HaptoGuard agreed to provide to the Buyers
        a
        first priority security interest in certain Collateral (as this term is defined
        in the Security Agreement) to secure the Company’s obligations under the
        Agreement and the Notes, and (ii) an Intellectual Property Security Agreement
        (“Intellectual Property Security Agreement”), pursuant to which the Company and
        its HaptoGuard agreed to provide to the Buyer a first priority security interest
        in certain IP Collateral (as this term is defined in the Intellectual Property
        Security Agreements) to secure the Company’s obligations under the Agreement and
        the Notes. The
        Security Agreement and the security interest in certain Collateral will,
        as
        amended, terminate upon the conversion of the Notes.
 
 Contemporaneously
        with the execution and delivery of the Agreement, as amended the Parties
        entered into a Registration Rights Agreement, as amended (the “Registration
        Rights Agreement”). Under
        the
        terms of the Registration Rights Agreement, the Company has agreed to file
        a
        registration statement with the United States Securities and Exchange Commission
        for the resale of the shares of common stock underlying the Warrants and
        the
        Notes sold in the private placement by June 15, 2007. Failure
        to file the registration statement in a timely manner will result in payment
        by
        the Company to each investor of liquidated damages, subject to certain
        limitations set forth in the Registration Rights Agreement. Such liquidated
        damages are also payable in the event that the resale registration statement
        has
        not been declared effective within certain time periods or if sales cannot
        be
        made pursuant to the registration statement following its effectiveness,
        each as
        described in the Registration Rights Agreement. The Company
        shall pay to each Holder an amount in cash, as partial liquidated damages
        and
        not as a penalty, equal to 2% of the aggregate purchase price paid by such
        Holder pursuant to the Purchase Agreement, subject to an overall limit of
        36%.
  11
 
 On
        March
        30, 2007, Alteon entered into a Waiver and Acknowledgement (the “Waiver and
        Acknowledgement”) with the Buyers. The Waiver and Acknowledgement addresses
        certain sections of (i) the Agreement, (ii) the Notes, (iii) the Warrants,
        (iv)
        the Security Agreement, and (v) the IP Security Agreement (collectively,
        the
“Note Documents”).
 
 Pursuant
        to the Waiver and Acknowledgement, the Purchasers agreed to waive compliance
        by
        the Company with certain deadlines set forth in the Note Documents regarding
        the
        timing for entering into definitive documents for the Preferred Financing
        (as
        defined in the Purchase Agreement), holding the Annual Meeting of Stockholders
        and the maturity date of each of the Notes. The Purchasers agreed that (i)
        the
        Company may enter into definitive documents for the Preferred Financing at
        any
        time prior to April 15, 2007, (ii) the Company may hold the 2007 Annual Meeting
        of Stockholders at any time on or prior to May 15, 2007 (which will be extended
        to June 15, 2007 if the SEC reviews the proxy statement for the Company’s 2007
        Annual Meeting of Stockholders, and (iii) the maturity date of each of the
        Notes
        is extended to June 18, 2007.
 
 In
        addition, in connection with the execution and delivery of the Agreement,
        the
        Company amended its Amended and Restated Stockholder Rights Agreement, dated
        as
        of July 27, 2005 (the “Rights Agreement”), to provide that the Buyers would not
        be deemed Acquiring Persons (as defined in the Rights Agreement) and that
        the
        purchase of the notes and warrants by the Buyers would not be deemed to trigger
        a Stock Acquisition Date or a Distribution Date each as defined in the Rights
        Agreement.
 
 **Note
        5 - Net Loss Per Share Applicable to Common Stockholders**
 
 Basic
        net
        loss per share is computed by dividing net loss applicable to common
        stockholders by the weighted average number of shares outstanding during
        the
        period. Diluted net loss per share is the same as basic net loss per share
        applicable to common stockholders, since the assumed exercise of stock options
        and warrants and the conversion of preferred stock would be antidilutive.
        The
        amount of potentially dilutive shares excluded from the calculation as of
        March
        31, 2007 and 2006, was 59,502,578 and 230,737,264 shares,
        respectively.
 
 **Note
        6 - Subsequent Events**
 
 ***Bio-Rap
        Technologies Ltd.***
 
 On
        April
        1, 2007, the Company entered into an amendment of Alteon’s License and Research
        Agreement with Bio-Rap Technologies Ltd. (“Bio-Rap”). Among other changes, the
        amendment extends to all fields the Company’s rights to sell therapeutic and
        diagnostic product pursuant to the licenses granted in that agreement.
 
 In
        addition, the amendment will result in an increase in annual research funding
        provided by Alteon to Bio-Rap, and in Alteon making certain defined payments
        to
        Bio-Rap over the course of the next 18 months. Other payments due to Bio-Rap
        based on Alteon’s sales of diagnostic products or grant of sublicense rights,
        including royalties, milestone payments and payments attributable to sublicense
        revenue, are significantly reduced. The amendment gives Alteon the right
        to
        further reduce royalty payments on diagnostic products on making a one time
        payment within eight years, and to further reduce payments resulting from
        sublicense revenue on a one time payment made within the next five
        years.
 
 Finally,
        under the amendment Alteon assumes all of Bio-Rap’s right and interest in a
        license with ARUP Laboratories at the University of Utah (“ARUP”). ARUP will, in
        the future, be a sublicensee of Alteon.
 
 ***Oxis
        International***
 
 On
        April
        2, 2007, the Company entered into an Amended and Restated Exclusive License
        Agreement with Oxis International (“Oxis”) that includes a worldwide exclusive
        license granted by Oxis to Alteon and covering a family of orally bioavailable
        organoselenium compounds that have shown anti-oxidant and anti-inflammatory
        properties in clinical and preclinical studies, and which changes certain
        rights
        and obligations under the Company’s previous agreement with Oxis. Among other
        changes, the amended agreement broadens the field of Alteon’s license to all
        uses of the licensed technology and eliminates the exclusive right of Oxis
        to
        act as a supplier of licensed product to Alteon.
  12
 
 The
        amended agreement also requires that Alteon make certain fixed payments to
        Oxis
        of up to $500,000 over the next six months, and enter into a share purchase
        agreement for the purchase of $500,000 of newly issued shares of Oxis common
        stock at a premium over the then current market price. Alteon further commits
        to
        a minimum investment in a development program from licensed
        products.
 
 Royalty
        and milestone payments are changed in the amended agreement, including the
        addition of a right to reduce royalty payments to Oxis in the event a royalty
        on
        a licensed product is payable to a third party.
 
 ***Series
        B Preferred Stock and Warrant Purchase Agreement***
 
 On
        April
        5, 2007, the Company entered into a Series B Preferred Stock and Warrant
        Purchase Agreement (the “Agreement”) with institutional investors. Pursuant to
        the terms and subject to the conditions contained in the Agreement, Alteon
        will
        issue and sell to the Buyers, and the Buyers will purchase from the Company,
        $25,000,000 of our newly created Series B Preferred Stock, $0.01 par value
        per
        share (the “Series B Preferred Stock”) and warrants to purchase shares of the
        Company’s Series B Preferred Stock (the “Financing”).
 
 Under
        the
        terms of the Agreement, the price per share at which the Series B Preferred
        Stock will be sold is subject to a floor and ceiling cap. At the floor price,
        and including the conversion of the Notes, Alteon may be required to issue
        up to
        500,000,000 shares of Series B Preferred Stock, at a price equal to 50% of
        the
        average closing price of the common stock for the 15 trading days immediately
        following the later of the 2007 annual meeting of stockholders or implementation
        of a reverse stock split, subject to certain floor and ceiling caps on the
        issue
        price, and warrants to purchase up to 125,000,000 shares of its Series B
        Preferred Stock, exercisable for a five-year period from the date of issuance
        at
        the same price per share that the Series B Preferred Stock is sold in the
        Financing.
 
 Upon
        the
        closing of the Financing, the Notes, in an aggregate principal amount of
        $3,000,000, issued by Alteon pursuant to the Note and Warrant Purchase
        Agreement, dated January 11, 2007, by and among Alteon and the lenders named
        therein, plus all accrued but unpaid interest thereon, will be automatically
        converted pursuant to their terms into that number of shares of Series B
        Preferred Stock equal to the principal plus all accrued but unpaid interest
        on
        the Notes divided by the price per share at which the Series B Preferred
        Stock
        is sold, and thereafter the Notes will be of no further force or effect,
        and the
        warrants to purchase an aggregate of 25,734,453 shares of the Company’s common
        stock that were issued to the purchasers in such financing will terminate
        and be
        of no further force or effect.
 
 The
        obligations of Alteon and the Buyers to complete the proposed Series B Preferred
        Stock Financing are subject to the satisfaction or, to the extent legally
        permissible, waiver of certain conditions. The more significant conditions
        include: (i) approval by the Alteon stockholders of the issuance of securities
        in the proposed Financing pursuant to the Agreement; (ii) the approval by
        the
        Alteon stockholders and the consummation of a reverse stock split of the
        Company’s issued and outstanding common stock within a range of 1:45 to 1:55,
        with the final ratio to be determined by the Board of Directors and reasonably
        acceptable to the Buyers; (iii) approval by the Alteon stockholders and the
        filing with the Secretary of State of the State of Delaware of Alteon’s Amended
        and Restated Certificate of Incorporation; and (iv) approval by the Alteon
        stockholders of an amendment to the Company’s equity incentive plan in order to
        reserve up to an additional 53,000,000 shares of common stock for issuance
        thereunder.
 
 In
        connection with the closing of the proposed Series B Preferred Stock Financing,
        Alteon will enter into a Registration Rights Agreement with the Buyers. Under
        the terms of the Registration Rights Agreement, the Company has agreed to
        file a
        registration statement with the Securities and Exchange Commission for the
        resale of the shares of common stock issuable upon conversion of Series B
        Preferred Stock issued in the proposed financing, as well as upon conversion
        of
        Series B Preferred Stock underlying the warrants sold in the Financing. Failure
        to file the registration statement in a timely manner will result in payment
        by
        the Company to each investor of liquidated damages, subject to limitations
        set
        forth in the Registration Rights Agreement. These liquidated damages will
        also
        be payable in the event that the resale registration statement has not been
        declared effective within certain time periods or if sales cannot be made
        pursuant to the registration statement following its effectiveness, each
        as
        described in the Registration Rights Agreement.
  13
  ITEM
        2.Management's
        Discussion and Analysis of Financial Condition**and
        Results of Operations.
 
 **Overview**
 
 We
        are a
        product-based biopharmaceutical company engaged in the development of small
        molecule drugs to treat and prevent cardiovascular disease and diabetes.
        We have
        identified several promising product candidates that we believe represent
        novel
        approaches to some of the largest pharmaceutical markets. We have advanced
        one
        of these products into Phase 2 clinical trials.
 
 In
        July
        2006, we completed a merger with HaptoGuard, Inc. (“HaptoGuard”), whereby the
        two companies’ combined operations, including their complementary product
        platforms in cardiovascular diseases, diabetes and other inflammatory diseases.
        By acquiring HaptoGuard, we expanded our portfolio with another compound
        in
        Phase 2 clinical development for cardiovascular complications of diabetes.
        The
        combined company has two lead products in clinical development:
 
 ●  ALT-2074,
        formerly HaptoGuard’s licensed lead compound BXT-51072, is a glutathione
        peroxidase mimetic in clinical development for reducing the morbidity and
        mortality of patients with diabetes following a myocardial infarction. ALT-2074
        has demonstrated potential efficacy in animal models of heart attack and
        in a
        20-patient clinical trial in ulcerative colitis. Our goal is to develop ALT-2074
        in acute coronary syndrome as a targeted drug for high risk diabetic patients.
        The compound has demonstrated the ability to reduce infarct size by
        approximately 85 percent in a mouse model of heart attack called ischemia
        reperfusion injury. It is currently being evaluated in a clinical trial for
        evidence of myocardial protection following angioplasty in high-risk diabetic
        patients. This Phase 2 clinical study was opened for enrollment in Israel,
        in
        May 2006. Progress has been slow with only 20 patients enrolled, due to poor
        study design, geopolitical problems, and a delay in acquiring the necessary
        financing. We are working to resolve these issues.
  ●  Alagebrium
        chloride or alagebrium (formerly ALT-711), is an Advanced Glycation End-product
        Crosslink Breaker being developed for diastolic heart failure (“DHF”).
        Alagebrium has demonstrated potential efficacy in two clinical trials in
        heart
        failure, as well as in animal models of heart failure, nephropathy, hypertension
        and erectile dysfunction (“ED”). Our goal is to develop alagebrium in DHF and
        nephropathy. These diseases represent a rapidly growing market of unmet medical
        needs, particularly common among diabetic patients. The compound has been
        tested
        in approximately 1,000 patients, which represents a sizeable human safety
        database, in a number of Phase 2 clinical studies. We have no subjects currently
        under protocol in any clinical study of alagebrium and have significantly
        curtailed all development activities of alagebrium due to insufficient financial
        resources to continue its development.
 
 ***Future
        Development Plans***
 
 We
        are
        primarily focused on fund-raising activities and exploring strategic
        relationships to support our development programs.  While we have entered
        into an agreement under which we intend to sell shares of a new class of
        our
        preferred stock to an institutional investor, significant conditions, including
        receipt of stockholder approval for the issuance of the shares in the financing,
        remain to be satisfied.  We cannot assure you that we will be able to
        satisfy these conditions in a timely manner, or at all.  However, if we are
        able to complete the financing, as to which no assurance can be given, we
        hope
        to proceed with several studies involving ALT-2074 and alagebrium.  With
        respect to ALT-2074, in addition to the myocardial protection study and other
        clinical development activities, we would plan to initiate a Phase II biomarker
        study designed to correlate the dose and schedule of ALT-2074 with an effect
        on
        inflammatory biomarker levels and various components of cholesterol.  With
        respect to alagebrium, we would plan, among other things, to initiate a small
        phase II study to examine the impact of alagebrium on heart function.  As
        previously reported, we also expect that alagebrium will be studied in a
        clinical trial of patients with Type I diabetes and microalbuminuria (protein
        in
        the urine), funded by the Juvenile Diabetes Research Foundation.
 
 We
        continue to evaluate potential pre-clinical and clinical studies in other
        therapeutic indications in which alagebrium and ALT-2074 may address significant
        unmet needs. For alagebrium, in addition to our anticipated clinical studies
        in
        heart failure, we have conducted preclinical studies focusing on
        atherosclerosis; Alzheimer's disease; photoaging of the skin; eye diseases,
        including age-related macular degeneration (“AMD”), and glaucoma; and other
        diabetic complications, including renal diseases. For ALT-2074, we plan the
        exploration of indications for myocardial protection, atherosclerosis and
        other
        inflammatory diseases. Such programs are largely curtailed until financing
        is
        achieved, and as a result, the timing of any further development is
        uncertain.
  14
 
 Since
        our
        inception in October 1986, we have devoted substantially all of our resources
        to
        research, drug discovery and development programs. To date, we have not
        generated any revenues from the sale of products and do not expect to generate
        any such revenues for a number of years, if at all. We have incurred an
        accumulated deficit of $246,811,807 as of March 31, 2007, and expect to incur
        net losses, potentially greater than losses in prior years, for a number
        of
        years.
 
 We
        have
        financed our operations through proceeds from public offerings of common stock,
        private placements of common and preferred equity and debt securities, revenue
        from former collaborative relationships, reimbursement of certain of our
        research and development expenses by our collaborative partners, investment
        income earned on cash and cash equivalent balances and short-term investments
        and the sale of a portion of our New Jersey State net operating loss
        carryforwards and research and development tax credit
        carryforwards.
 
 Our
        business is subject to significant risks including, but not limited to, (1)
        our
        ability to receive stockholder approval for and complete the proposed preferred
        stock financing and timing to obtain sufficient additional funding in the
        near
        term, whether through a strategic collaboration agreement or otherwise, to
        allow
        us to resume the development of ALT-2074 and alagebrium and to continue
        operations, (2) our ability to continue enrollment in our clinical studies
        of
        ALT-2074 and alagebrium should we have adequate financial and other resources
        to
        do so, (3) the risks inherent in our research and development efforts, including
        clinical trials and the length, expense and uncertainty of the process of
        seeking regulatory approvals for our product candidates, (4) uncertainties
        associated with obtaining and enforcing our patents and with the patent rights
        of others, (5) uncertainties regarding government healthcare reforms and
        product
        pricing and reimbursement levels, (6) technological change and competition,
        (7)
        manufacturing uncertainties, and (8) dependence on collaborative partners
        and
        other third parties. Even if our product candidates appear promising at an
        early
        stage of development, they may not reach the market for numerous reasons.
        These
        reasons include the possibilities that the products will prove ineffective
        or
        unsafe during preclinical or clinical studies, will fail to receive necessary
        regulatory approvals, will be difficult to manufacture on a large scale,
        will be
        uneconomical to market or will be precluded from commercialization by
        proprietary rights of third parties. These risks and others are discussed
        under
        the heading “Item 1A - Risk Factors.”
 
 **Results
        of Operations**
 
 **Three
        Months ended March 31, 2007 and 2006**
 
 Total
        revenues for the three months ended March 31, 2007 and 2006, was $36,000
        and
        $60,000, respectively. Revenues were derived from interest earned on cash
        and
        cash equivalents. The decrease from 2006 to 2007 was attributed to lower
        investment balances and partially offset by higher interest rates.
 
 Our
        total
        expenses were $3,702,000 for the three months ended March 31, 2007, compared
        to
        $1,682,000 for the three months ended March 31, 2006. This increase was
        primarily the result of approximately $2,006,000 of interest expense relating
        to
        the notes that we issued as part of our private
        financing completed in January 2007 .
 
 Research
        and development expenses were $467,000 for the three months ended March 31,
        2007, as compared to $450,000 for the same period in 2006, an increase of
        $17,000, or 3.8%. This increase was attributed to increased clinical trial
        costs
        and preclinical expenses offset by a decrease in personnel cost and product
        liability insurance. In 2007, of the total amount spent on research and
        development expenses, we incurred $101,000 in personnel and personnel-related
        expenses, $59,000 in third party consulting and $27,000 in product liability
        insurance. In 2006, of the total amount spent on research and development
        expenses, we incurred $233,000 in personnel and personnel-related expenses,
        $101,000 in product liability insurance and $86,000 in third party consulting.
        Research and development expenses normally include third-party expenses
        associated with pre-clinical and clinical studies, manufacturing costs,
        including the development and preparation of clinical supplies, personnel
        and
        personnel-related expenses and facility expenses.
  15
 
 General
        and administrative expenses were $1,230,000 for the three months ended March
        31,
        2007, as compared to $1,232,000 for the same period in 2006. Although general
        and administrative expenses remained relatively flat, 2007 reflects a decrease
        in personnel costs offset by increases in patent fees and legal
        expenses.
 
 Our
        net
        loss applicable to common stockholders was $3,666,000 for the three months
        ended
        March 31, 2007, compared to $2,797,000 in the same period in 2006, an
        increase of 31%. This increase was primarily a result of interest expense
        relating to the notes that we issued as part of our private
        financing completed in January 2007 .
        Included in the net loss applicable to common stockholders are preferred
        stock
        dividends of $0 and $1,175,000 for the three months ended March 31, 2007
        and
        2006, respectively.
 
 **Liquidity
        and Capital Resources** ****
  We
        had
        cash and cash equivalents at March 31, 2007, of $2,024,676, compared to
        $1,478,780 at December 31, 2006. The increase is attributable to $2,485,000
        of net cash provided by financing activities offset by $1,929,000 used in
        operating activities. At March 31, 2007, we had a negative working capital
        of
        $70,695.
 
 We
        do not
        have any approved products and currently derive cash from sales of our
        securities, sales of our New Jersey state net operating loss carryforwards
        and
        interest on cash and cash equivalents. We are highly susceptible to conditions
        in the global financial markets and in the pharmaceutical industry. Positive
        and
        negative movement in those markets will continue to pose opportunities and
        challenges to us. Previous downturns in the market valuations of biotechnology
        companies and of the equity markets more generally have restricted our ability
        to raise additional capital on favorable terms.
  If
        we are
        unsuccessful in our efforts to raise additional funds through the sale of
        additional securities or if the level of cash and cash equivalents falls
        below
        anticipated levels, we will not have the ability to continue as a going concern
        after the second quarter of 2007.
 
 On
        January 11, 2007, the Company entered into a Note and Warrant Purchase Agreement
        (the “Agreement”) with institutional investors (the “Buyers” and together with
        the Company, the “Parties”). Pursuant to the terms and subject to the conditions
        contained in the Agreement, the Company issued and sold to the Buyers $3,000,000
        principal amount of senior convertible secured promissory notes (the “Notes”).
        Each Note accrues interest at 8% per annum and the principal and interest
        on the
        Notes are due and payable, if not converted, on May 31, 2007. The Notes
        will automatically be converted into any security that is issued by the Company
        to the Buyers in connection with a private preferred stock and warrant financing
        of up to $20 million. The closing of any such additional financing, which
        the
        Company anticipates will be done at a discount from the market price, will
        be
        subject to the satisfaction of various conditions, including stockholder
        approval. In addition, at the option of the Buyers, the Notes may be converted
        into any security that is sold by the Company in any other financing on or
        prior
        to May 31, 2007. If the Notes have not been repaid or converted prior
        to May 31, 2007, the Company will be obligated to repay the outstanding
        principal amount plus any accrued but unpaid interest as well as (i) an
        additional $1,000,000 and (ii) fifteen percent (15%) of any amount received
        from
        financing, sale or licensing transactions completed prior to June 30, 2008,
        subject to a cap of $2,000,000 in the aggregate. Finally, at the option of
        the
        Buyers, unless otherwise converted, the Notes may be converted into shares
        of
        the Company’s common stock, $0.01 par value per share (the “Common Stock”), at a
        price equal to the closing price of the Common Stock on January 11, 2007.
        The
        Buyers may, at their option, demand that we repay the outstanding principal
        amount of the Notes plus any accrued but unpaid interest if (i) we fail to
        make
        any payments under the Notes; (ii) we breach any representation, warranty,
        covenant or agreement in the Agreement; (iii) we fail to pay any Indebtedness
        (as defined in the Agreement) when due in the aggregate amount of $500,000
        or
        greater at any one time; (iv) a final judgment for the payment of money
        aggregating in excess of $500,000 is rendered against us and such judgment
        is
        not discharged within 60 days; (v) we are dissolved, become insolvent or
        make an
        assignment for the benefit of creditors; (vi) any petition for relief under
        bankruptcy, reorganization, arrangement, insolvency, readjustment of debt,
        receivership, liquidation or dissolution is filed or commenced against us
        or
        (vii) any trustee or receiver is appointed for us or any of our property,
        a
        meeting of creditors is convened or a committee of creditors is appointed
        for,
        or any petition for any relief under any bankruptcy, reorganization,
        arrangement, insolvency, readjustment of debt, receivership, liquidation
        or
        dissolution is filed or commenced against us and is not dismissed within
        120
        days.
  16
 
 In
        connection with the Agreement, the Company also issued to the Buyers warrants
        to
        purchase 25,734,453 shares of the Company’s Common Stock for a period of
        five years commencing on January 11, 2007 at an exercise price of $0.01 per
        share (the “Warrants”). The Warrants will be exercisable starting as of May
        31, 2007, unless the Notes are converted prior to such date, in which case
        the
        Warrants will expire.
 
 Contemporaneously
        with the execution and delivery of the Agreement and the issuance by the
        Company
        to the Buyers of the Notes and the Warrants, the Parties executed (i) a Security
        and Guaranty Agreement (the “Security Agreement”), pursuant to which the Company
        and its wholly owned subsidiary HaptoGuard agreed to provide to the Buyers
        a
        first priority security interest in certain Collateral (as this term is defined
        in the Security Agreement) to secure our obligations under the Agreement
        and the
        Notes, and (ii) an Intellectual Property Security Agreement (“Intellectual
        Property Security Agreement”), pursuant to which the Company and HaptoGuard
        agreed to provide to the Buyer a first priority security interest in certain
        IP
        Collateral (as this term is defined in the Intellectual Property Security
        Agreements) to secure the Company’s obligations under the Agreement and the
        Notes. The
        Security Agreement and the security interest in certain Collateral will
        terminate upon the conversion of the Notes.
 
 Contemporaneously
        with the execution and delivery of the Agreement, the Parties entered into
        a
        Registration Rights Agreement, as amended, (the “Registration Rights
        Agreement”). Under the terms of the Registration Rights Agreement, the Company
        has agreed to file a registration statement with the United States Securities
        and Exchange Commission for the resale of the shares of common stock underlying
        the Warrants and the Notes sold in the private placement by June 15, 2007.
        Failure to file the registration statement in a timely manner will result
        in
        payment by the Company to each investor of liquidated damages, subject to
        certain limitations set forth in the Registration Rights Agreement. Such
        liquidated damages are also payable in the event that the resale registration
        statement has not been declared effective within certain time periods or
        if
        sales cannot be made pursuant to the registration statement following its
        effectiveness, each as described in the Registration Rights Agreement.
 
 On
        March
        30, 2007, we entered into a Waiver and Acknowledgement (the “Waiver and
        Acknowledgement”) with the Buyers. The Waiver and Acknowledgement addresses
        certain sections of (i) the Agreement, (ii) the Notes, (iii) the Warrants,
        (iv)
        the Security Agreement, and (v) the IP Security Agreement (collectively,
        the
“Note Documents”).
 
 Pursuant
        to the Waiver and Acknowledgement, the Purchasers agreed to waive compliance
        by
        the Company with certain deadlines set forth in the Note Documents regarding
        the
        timing for entering into definitive documents for the Preferred Financing
        (as
        defined in the Purchase Agreement), holding the Annual Meeting of Stockholders
        and the maturity date of each of the Promissory Notes. The Purchasers agreed
        that (i) the Company may enter into definitive documents for the Preferred
        Financing at anytime prior to April 15, 2007, (ii) the Company may hold the
        2007
        Annual Meeting of Stockholders at any time on or prior to May 15, 2007 (which
        will be extended to June 15, 2007 if the SEC reviews the proxy statement
        for the
        Company’s 2007 Annual Meeting of Shareholders), and (iii) the maturity date of
        each of the Promissory Notes is extended to June 18, 2007.
 
 In
        addition, in connection with the execution and delivery of the Agreement,
        the
        Company amended its Amended and Restated Stockholder Rights Agreement, dated
        as
        of July 27, 2005 (the “Rights Agreement”), to provide that the Buyers would not
        be deemed Acquiring Persons (as defined in the Rights Agreement) and that
        the
        purchase of the notes and warrants by the Buyers would not be deemed to trigger
        a Stock Acquisition Date or a Distribution Date each as defined in the Rights
        Agreement.
 
 We
        submitted a Plan of Compliance to AMEX on November 6, 2006, outlining our
        operational plan and strategic objectives, and amended our Plan of Compliance
        on
        January 3, 2007 and January 5, 2007. The Plan of Compliance was prepared
        in
        response to a letter received from AMEX on October 9, 2006, indicating we
        were
        below certain continued listing standards. These standards were (i) Section
        1003(a)(i) of the AMEX Company Guide, as a result of the Company’s stockholder’s
        equity of less than $2,000,000 and losses from continuing operations and/or
        net
        losses in two out of its three most recent fiscal years; (ii) Section
        1003(a)(ii) of the AMEX Company Guide, as a result of the Company’s
        shareholder’s equity of less than $4,000,000 and losses from continuing
        operations and/or net losses in three out of its four most recent fiscal
        years;
        and (iii) Section 1003(a)(iii) of the AMEX Company Guide, as a result of
        the
        Company’s stockholder’s equity of less than $6,000,000 and losses from
        continuing operations and/or net losses in its five most recent fiscal years.
        To
        date, we have not regained compliance with such continued listing standards,
        but
        we are working towards achieving that goal consistent with our Plan of
        Compliance.
  17
  On
        January 24, 2007, we received a notice from the staff (the “Staff”) of AMEX,
        that AMEX has accepted our plan to regain compliance with AMEX continued
        listing
        standards, and that our listing will be continued pursuant to an extension
        until
        April 9, 2008 (the “Extension Period”).
 
 We
        will
        be subject to periodic review by the Staff during the Extension Period, and
        is
        required to provide the Staff with periodic updates in connection with the
        Plan
        of Compliance. Failure to make progress consistent with the Plan of Compliance
        or to regain compliance with the continued listing standards by the end of
        the
        Extension Period could result in the Company being delisted from AMEX.
 
 On
        April
        1, 2007, the Company entered into an amendment of our License and Research
        Agreement with Bio-Rap Technologies Ltd. (“Bio-Rap”). Among other changes, the
        amendment extends to all fields our rights to sell therapeutic and diagnostic
        product pursuant to the licenses granted in that agreement.
 
 In
        addition, the amendment will result in an increase in annual research funding
        provided by Alteon to Bio-Rap, and in Alteon making certain defined payments
        to
        Bio-Rap over the course of the next 18 months. Other payments due to Bio-Rap
        based on Alteon sales of diagnostic products or grant of sublicense rights,
        including royalties, milestone payments and payments attributable to sublicense
        revenue, are significantly reduced. The amendment gives Alteon the right
        to
        further reduce royalty payments on diagnostic products on making a one time
        payment within eight years, and to further reduce payments resulting from
        sublicense revenue on a one time payment made within the next five years.
        (See
        Note 6 - Subsequent Events - Bio-Rap Technologies).
 
 On
        April
        2, 2007, the Company entered into an Amended and Restated Exclusive License
        Agreement with Oxis International (“Oxis”) that includes a worldwide exclusive
        license granted by Oxis to Alteon and covering a family of orally bioavailable
        organoselenium compounds that have shown anti-oxidant and anti-inflammatory
        properties in clinical and preclinical studies, and which changes certain
        rights
        and obligations under our previous agreement with Oxis. Among other changes,
        the
        amended agreement broadens the field of Alteon’s license to all uses of the
        licensed technology and eliminates the exclusive right of Oxis to act as
        a
        supplier of licensed product to Alteon.
 
 The
        amended agreement also requires that Alteon make certain fixed payments to
        Oxis
        of up to $500,000 over the next six months, and enter into a share purchase
        agreement for the purchase of $500,000 of newly issued shares of Oxis common
        stock at a premium over the then current market price. Alteon further commits
        to
        a minimum investment in a development program from
        licensed products. (See
        Note
        6 - Subsequent Events - Oxis International).
 
 On
        April
        5, 2007, the Company entered into a Series B Preferred Stock and Warrant
        Purchase Agreement (the “Agreement”) with institutional investors that are
        experienced in the biotechnology industry. Pursuant to the terms and subject
        to
        the conditions contained in the Agreement, we will issue and sell to the
        Buyers,
        and the Buyers will purchase from us, $25,000,000 of our newly created Series
        B
        Preferred Stock, $0.01 par value per share (the “Series B Preferred Stock”) and
        warrants to purchase shares of our Series B Preferred Stock (the
“Financing”)(See Note 6 - Subsequent Events - Series B Preferred Stock and
        Warrant Purchase Agreement).
 
 The
        amount and timing of our future capital requirements will depend on numerous
        factors, including the timing of resuming our
        research and development programs, if at all, the number and characteristics
        of
        product candidates that we pursue, the conduct of preclinical tests and clinical
        studies, the status and timelines of regulatory submissions, the costs
        associated with protecting patents and other proprietary rights, the ability
        to
        complete strategic collaborations and the availability of third-party funding,
        if any.
  18
 
 Selling
        securities to satisfy our capital requirements may have the effect of materially
        diluting the current holders of our outstanding stock. We may also seek
        additional funding through corporate collaborations and other financing
        vehicles. There can be no assurances that such funding will be available
        at all
        or on terms acceptable to us. We have significantly curtailed our research
        and
        development programs, until additional financing is obtained, if ever. If
        funds
        are obtained through arrangements with collaborative partners or others,
        we may
        be required to relinquish rights to our technologies or product candidates
        and
        alter our plans for the development of our product candidates. If we are
        unable
        to obtain the necessary funding, we may be forced to cease operations. There
        can
        be no assurance that the products or technologies acquired in the merger
        will
        result in revenues to the combined company or any meaningful return on
        investment to our stockholders .
 
 ***Forward-Looking
        Statements and Cautionary Statements***
 
 Statements
        in this Form 10-Q that are not statements or descriptions of historical facts
        are "forward-looking" statements under Section 21E of the Securities Exchange
        Act of 1934, as amended, and the Private Securities Litigation Reform Act
        of
        1995, and are subject to numerous risks and uncertainties. These forward-looking
        statements and other forward-looking statements made by us or our
        representatives are based on a number of assumptions. The words "believe,"
        "expect," "anticipate," "intend," "estimate" or other expressions, which
        are
        predictions of or indicate future events and trends and which do not relate
        to
        historical matters, identify forward-looking statements. Readers are cautioned
        not to place undue reliance on these forward-looking statements, as they
        involve
        risks and uncertainties, and actual results could differ materially from
        those
        currently anticipated due to a number of factors, including those set forth
        in
        this section and elsewhere in this Form 10-Q. These factors include, but
        are not
        limited to, the risks set forth below.
 
 The
        forward-looking statements represent our judgments and expectations as of
        the
        date of this Report. We assume no obligation to update any such forward-looking
        statements. See Part II, Item 1A - Risk Factors.
  **ITEM
        3.**  **Qualitative
        and Quantitative Disclosures about Market Risk.**
 
 Our
        exposure to market risk for changes in interest rates relates primarily to
        our
        investment in marketable securities. We do not use derivative financial
        instruments in our investments. All of our investments resided in money market
        accounts. Accordingly, we do not believe that there is any material market
        risk
        exposure with respect to derivative or other financial instruments that would
        require disclosure under this Item.
 
 **ITEM
        4T.**  **Controls
        and Procedures.**
 
 a)  *Evaluation* ****** *of
        Disclosure Controls and Procedures.* Our
        management has evaluated, with the participation of our Chief Executive Officer
        and our principal financial and accounting officer, the effectiveness of
        our
        disclosure controls and procedures (as defined in Rule 13a-15(e) under the
        Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the
        end
        of the fiscal quarter covered by this Quarterly Report on Form 10-Q. Based
        upon
        that evaluation, the Chief Executive Officer and the principal financial
        and
        accounting officer have concluded that as of the end of such fiscal quarter,
        our
        current disclosure controls and procedures were not effective, because of
        the
        material weakness in internal control over financial reporting described
        below.
        We have taken, and are continuing to take, steps to address this weakness
        as
        described below. With the exception of such weakness, however, the Chief
        Executive Officer and the principal financial and accounting officer believe
        that our current disclosure controls and procedures are adequate to ensure
        that
        information required to be disclosed in the reports we file under the Exchange
        Act is recorded, processed, summarized and reported on a timely
        basis.
 
 b)   *Material
        Weaknesses and Changes in Internal Controls* . During
        the audit of our financial statements for the year ended December 31, 2005,
        the
        review of our financial statements for the three months ended March 31, 2006
        and
        the review of our financial statements for the three- and nine-month periods
        ended September 30, 2006, our independent registered public accounting firm
        identified material weaknesses regarding our internal controls over the
        identification of and the accounting for non-routine transactions, including
        certain costs related to potential strategic transactions, severance benefits,
        the financial statement recording and disclosure of stock options that we
        have
        granted to non-employee consultants in accordance with Emerging Issues Task
        Force (“EITF”) 96-18, accounting for the acquisition of HaptoGuard and the
        adoption of SFAS 123(R). As defined by the Public Company Accounting Oversight
        Board Auditing Standard No. 2, a material weakness is a significant control
        deficiency or a combination of significant control deficiencies that results
        in
        there being more than a remote likelihood that a material misstatement of
        the
        annual or interim financial statements will not be prevented or detected.
        These
        material weaknesses did not result in the restatement of any previously reported
        financial statements or any other related financial disclosure. While these
        material weaknesses continue to exist as of March 31, 2007, management is
        in the
        process of implementing remedial controls to address these matters. The Company
        has solicited the services of an outside consulting firm to assist in complex
        and non-routine accounting transactions. Management is continuing to monitor
        and
        assess the controls to ensure compliance. In addition, the changes that would
        have resulted in the financial statements for the year ended December 31,
        2005,
        March 31, 2006 and September 30, 2006 as a consequence of the material
        weaknesses, were deemed by the Company to be immaterial but were nevertheless
        recorded by the Company.
 
 c)  Except
        for the changes in controls described above, there were no changes in our
        internal control over financial reporting (as defined in Rules 13a-15(f)
        and
        15d-15(f) under the Exchange Act) during the fiscal quarter covered by this
        Quarterly Report on Form 10-Q that have materially affected, or are reasonably
        likely to materially affect, our internal control over financial
        reporting.
  19
 **PART
        II - OTHER INFORMATION**
 
 **ITEM
        1A. Risk Factors.**
 
 There
        have been no material changes to the risk factors in our Annual Report on
        Form
        10-K, for the fiscal year ended December 31, 2006, other than as set forth
        below:
 
 **Risks
        Related to Our Business**
 
 ***If
        we are unable to obtain sufficient additional funding in the near term, we
        may
        be forced to cease operations.***
 
 While
        we
        intend to pursue the clinical development of ALT-2074 and alagebrium, any
        continued development of our compounds is contingent upon receipt of additional
        funding or a strategic partnership.
 
 In
        April
        2007, the Company entered into a Series B Preferred Stock and Warrant Purchase
        Agreement with institutional investors  who will purchase from us,
        $25,000,000 of our newly created Series B Preferred Stock and warrants. The
        closing of this financing will be subject to the satisfaction of various
        conditions, including stockholder approval. There can be no assurance that
        such
        financing will be completed. If we are unsuccessful in our efforts to raise
        additional funds through the sale of additional equity securities or if the
        level of cash and cash equivalents falls below anticipated levels, we will
        not
        have the ability to continue as a going concern beyond the second quarter
        of
        2007. ****
 
 As
        of
        March 31, 2007, we had a negative working capital of $70,695, including
        $2,024,676 of cash and cash equivalents. Our cash used in operating activities
        for the three months ended March 31, 2007 was $1,929,258.
 
 A s
        a
        result of a decrease in our available financial resources, we have significantly
        curtailed the research, product development, preclinical testing and clinical
        trials of our product candidates . The
        amount and timing of our future capital requirements will depend on numerous
        factors, including the timing of resuming our
        research and development programs, if
        at
        all, the
        number and characteristics of product candidates that we pursue, the conduct
        of
        preclinical tests and clinical studies, the status and timelines of regulatory
        submissions, the costs associated with protecting patents and other proprietary
        rights, the ability to complete strategic collaborations and the availability
        of
        third-party funding, if any.
 
 Selling
        equity securities to satisfy our capital requirements may have the effect
        of
        materially diluting the current holders of our outstanding stock. We may
        also
        seek additional funding through corporate collaborations and other financing
        vehicles. If funds are obtained through arrangements with collaborative partners
        or others, we may be required to relinquish rights to our technologies or
        product candidates.
 
 ***We
        need additional capital, but access to such capital is uncertain.***
  Our
        current resources are insufficient to fund our commercialization efforts
        and to
        continue our future operations beyond the second quarter of 2007. As of March
        31, 2007, we had cash and cash equivalents on hand of $2,024,676. In January
        2007, we closed on approximately $3.0 million in a private debt financing.
        Prior
        to the financing, we were expending approximately $450,000 in cash per month.
        Following the financing, we currently expect to spend approximately $680,000
        in
        cash per month. Our capital needs beyond the second quarter of 2007 will
        depend
        on many factors, including our research and development activities and the
        success thereof, the scope of our clinical trial program, the timing of
        regulatory approval for our products under development and the successful
        commercialization of our products. Our needs may also depend on the magnitude
        and scope of the activities, the progress and the level of success in our
        clinical trials, the costs of preparing, filing, prosecuting, maintaining
        and
        enforcing patent claims and other intellectual property rights, competing
        technological and market developments, changes in or terminations of existing
        collaboration and licensing arrangements, the establishment of new collaboration
        and licensing arrangements and the cost of manufacturing scale-up and
        development of marketing activities, if undertaken by us. We may not be able
        to
        secure additional funding on any terms or on terms that are favorable to
        us. If
        we raise additional funds by issuing additional stock, further dilution to
        our
        existing stockholders will result, and new investors may negotiate for rights
        superior to existing stockholders. If adequate funds are not available, we
        may
        be required to:
  ·
              delay,
                  reduce the scope of or eliminate one or more of our development
                  programs;
  20
  ·
              obtain
                  funds through arrangements with collaboration partners or others
                  that may
                  require us to relinquish rights to some or all of our technologies,
                  product candidates or products that we would otherwise seek to
                  develop or
                  commercialize ourselves;
  ·
              license
                  rights to technologies, product candidates or products on terms
                  that are
                  less favorable to us than might otherwise be available;
  ·
              seek
                  a buyer for all or a portion of our business; or
  ·
              wind
                  down our operations and liquidate our assets on terms that are
                  unfavorable
                  to us.
  ***The
        proposed series B preferred stock financing, if
        completed,*** ** ***will result in immediate and significant dilution to our current
        shareholders.***
  The
        pricing terms for the sale of Series B Preferred Stock to be issued in the
        proposed preferred financing will result in substantial and immediate dilution
        of the interests of our existing stockholders. In addition, holders of the
        Series B Preferred Stock will be entitled to rights and preferences that
        are more favorable than those afforded to the holders of our common stock,
        including a preference on payments in the event of a liquidation or sale
        of the
        Company.
 
 ***Alteon’s
        ability to continue as a going concern is dependent on future financing.***
  J.H.
        Cohn
        LLP, our independent registered public accounting firm, has included an
        explanatory paragraph in its report on our financial statements for the fiscal
        year ended December 31, 2006, which expresses substantial doubt about our
        ability to continue as a going concern. The inclusion of a going concern
        explanatory paragraph in J.H. Cohn LLP’s report on our financial statements
        could have a detrimental effect on our stock price and our ability to raise
        additional capital.
 
 Our
        financial statements have been prepared on the basis of a going concern,
        which
        contemplates the realization of assets and the satisfaction of liabilities
        in
        the normal course of business. We have not made any adjustments to the financial
        statements as a result of the outcome of the uncertainty described above.
        Accordingly, the value of the Company in liquidation may be different from
        the
        amounts set forth in our financial statements.
  Our
        continued success will depend on our ability to continue to raise capital
        in
        order to fund the development and commercialization of our products. Failure
        to
        raise additional capital may result in substantial adverse circumstances,
        including delisting of our common stock shares from the American Stock Exchange,
        which could substantially decrease the liquidity and value of such shares,
        or
        ultimately result in our liquidation.
 
 ***Alteon
        has historically incurred operating losses and we expect these losses to
        continue.***
  Alteon
        has historically incurred substantial operating losses due to its research
        and
        development activities and expect these losses to continue for the foreseeable
        future. As of March 31, 2007, Alteon had a consolidated accumulated deficit
        of
        $246,811,807. Alteon’s fiscal years 2006, 2005 and 2004 net losses were
        $17,679,737, $12,614,459 and $13,958,646, respectively. Alteon’s fiscal years
        2006, 2005 and 2004 net losses applicable to common stockholders were
        $20,332,416, $17,100,795 and $18,093,791, respectively. If we are able to
        obtain
        sufficient additional funding, we expect to expend significant amounts on
        research and development programs for alagebrium and ALT-2074. Research and
        development activities are time consuming and expensive, and will involve
        the
        need to engage in additional fund-raising activities, identify appropriate
        strategic and collaborative partners, reach agreement on basic terms, and
        negotiate and sign definitive agreements. We are actively seeking new financing
        to provide financial support for our research and development activities.
        However, at this time, we are not able to assess the probability of success
        in
        our fund-raising efforts or the terms, if any, under which we may secure
        financial support from strategic partners or other investors. We expect to
        continue to incur significant operating losses for the foreseeable future.
  21
 
 ***If
        we do not successfully develop any products, or are unable to derive revenues
        from product sales, we will never be profitable.***
 
 Virtually
        all of our revenues to date have been generated from collaborative research
        agreements and investment income. We have not received any revenues from
        product
        sales. We may not realize product revenues on a timely basis, if at all,
        and
        there can be no assurance that we will ever be profitable.
 
 At
        March
        31, 2007, we had an accumulated deficit of $246,811,807. We anticipate that
        we
        will incur substantial, potentially greater, losses in the future as we continue
        our research, development and clinical studies. We have not yet requested
        or
        received regulatory approval for any product from the FDA or any other
        regulatory body. All of our product candidates are still in research,
        preclinical or clinical development. We may not succeed in the development
        and
        marketing of any therapeutic or diagnostic product. We do not have any product
        candidates other than alagebrium and ALT-2074 in clinical development, and
        there
        can be no assurance that we will be able to bring any other compound into
        clinical development. Adverse results of any preclinical or clinical study
        could
        cause us to materially modify our clinical development programs, resulting
        in
        delays and increased expenditures, or cease development for all or part of
        our
        ongoing studies of alagebrium.
 
 To
        achieve profitable operations, we must, alone or with others, successfully
        identify, develop, introduce and market proprietary products. Such products
        will
        require significant additional investment, development and preclinical and
        clinical testing prior to potential regulatory approval and commercialization.
        The development of new pharmaceutical products is highly uncertain and expensive
        and subject
        to a number of significant risks. Potential products that appear to be promising
        at early stages of development may not reach the market for a number of reasons.
        Potential products may be found ineffective or cause harmful side effects
        during
        preclinical testing or clinical studies, fail to receive necessary regulatory
        approvals, be difficult to manufacture on a large scale, be uneconomical,
        fail
        to achieve market acceptance or be precluded from commercialization by
        proprietary rights of third parties. We may not be able to undertake additional
        clinical studies. In addition, our product development efforts may not be
        successfully completed, we may not have
        the
        funds to complete any ongoing clinical trials, we may not obtain
        regulatory approvals, and our products, if introduced, may not be successfully
        marketed or achieve customer acceptance. We do not expect any of our products,
        including alagebrium, to be commercially available for a number of years,
        if at
        all.
 
 ***Failure
        to remediate the material weaknesses in our internal controls and to achieve
        and
        maintain effective internal control in accordance with Section 404 of the
        Sarbanes-Oxley Act of 2002 could have a material adverse effect on our business
        and stock price.***
 
 During
        the audit of our financial statements for the year ended December 31, 2005,
        the
        review of our financial statements for the three months ended March 31, 2006
        and
        the review of our financial statements for the three- and nine-month periods
        ended September 30, 2006, our independent registered public accounting firm
        identified material weaknesses regarding our internal controls over the
        identification of and the accounting for non-routine transactions, including
        certain costs related to potential strategic transactions, severance benefits,
        the financial statement recording and disclosure of stock options that we
        have
        granted to non-employee consultants in accordance with Emerging Issues Task
        Force (“EITF”) 96-18, accounting for the acquisition of HaptoGuard and the
        adoption of SFAS 123(R). As defined by the Public Company Accounting Oversight
        Board Auditing Standard No. 2, a material weakness is a significant control
        deficiency or a combination of significant control deficiencies that results
        in
        there being more than a remote likelihood that a material misstatement of
        the
        annual or interim financial statements will not be prevented or detected.
        These
        material weaknesses did not result in the restatement of any previously reported
        financial statements or any other related financial disclosure. While
        these material weaknesses continue to exist as of March
        31,
        2007, management is in the process of implementing remedial controls to address
        these matters. The Company has solicited the services of an outside consulting
        firm to assist in complex and non-routine accounting transactions. Management
        is
        continuing to monitor and assess the controls to ensure compliance. In addition,
        the changes that would have resulted in the financial statements for the
        year
        ended December 31, 2005, March 31, 2006 and September 30, 2006 as a consequence
        of the material weaknesses, were deemed by the Company to be immaterial but
        were
        nevertheless recorded by the Company. However, we cannot currently assure
        you
        that the remedial measures that are currently being implemented will be
        sufficient to result in a conclusion that our internal controls no longer
        contain any material weaknesses, and that our internal controls are effective.
        In addition, we cannot assure you that, even if we are able to achieve effective
        internal control over financial reporting, our internal controls will remain
        effective for any period of time. The failure to maintain effective internal
        control over financial reporting could have a material adverse effect on
        our
        business and stock price.
  22
 
 ***ALT-2074
        compounds are licensed by third parties and if we are unable to continue
        licensing this technology, our future prospects may be materially adversely
        affected.***
 
 We
        are a
        party to various license agreements with third parties that give us exclusive
        and partial exclusive rights to use specified technologies applicable to
        research, development and commercialization of our products, including
        alagebrium and ALT-2074. We anticipate that we will continue to license
        technology from third parties in the future. To maintain the license for
        certain
        technology related to ALT-2074 that we received from OXIS, we are obligated
        to
        meet certain development and clinical trial milestones and to make certain
        payments. There can be no assurance that we will be able to meet any milestone
        or make any payment required under the license with OXIS. In addition, if
        we
        fail to meet any milestone or make any payment, there can be no assurance
        that
        we may be able to negotiate an arrangement with OXIS, as we have successfully
        done in the past, whereby we will continue to have access to the ALT-2074
        technology.
 
 The
        technology HaptoGuard licensed from third parties would be difficult or
        impossible to replace and the loss of this technology would materially adversely
        affect our business, financial condition and any future prospects.
 
 **Risks
        Related to Owning Alteon's Common Stock**
 
 ***We
        have been notified by the American Stock Exchange, Inc. ("AMEX") that
        we are not in compliance with continued listing standards, which may result
        in a
        delisting of our common stock if we cannot regain
        compliance.***
 
 On
        January 30, 2007, we reported that we had received a notice from AMEX indicating
        that AMEX has accepted our plan to regain compliance with AMEX continued
        listing
        standards, and that our listing will be continued pursuant to an extension
        until
        April 9, 2008. We submitted a plan of compliance to AMEX on November 6, 2006,
        outlining our operational plan and strategic objectives, and amended our
        plan of
        compliance on January 3, 2007 and January 5, 2007 (the “Plan of Compliance”).
        The Plan of Compliance was prepared in response to a notice we received from
        AMEX on October 9, 2006, indicating that we were below certain AMEX continuing
        listing standards due to (i) sustaining losses from continuing operations
        and/or
        net losses in two out of our three most recent fiscal years with
        stockholders' equity below $2,000,000; (ii) sustaining losses from continuing
        operations and/or net losses in three out of our four most recent
        fiscal years with stockholders' equity below $4,000,000; and (iii) sustaining
        losses from continuing operations and/or net losses in our five most recent
        fiscal years with stockholders' equity below $6,000,000. To date, we have
        not
        regained compliance with such continued listing standards and cannot assure
        you
        that we can achieve the Plan of Compliance in such a way as to regain
        compliance with AMEX's continuing listing standards.
 
 ***Our
        stock price is volatile and you may not be able to resell your shares at
        a
        profit.***
  We
        first
        publicly issued common stock on November 8, 1991 at $15.00 per share in our
        initial public offering and it has been subject to fluctuations since that
        time.
        For example, for the three month period ended March 31, 2007, the closing
        sale
        price of our common stock has ranged from a high of $0.16 per share to a
        low of
        $0.08 per share. The market price of our common stock could continue to
        fluctuate substantially due to a variety of factors, including:
  ·
              quarterly
                  fluctuations in results of operations;
  23
  ·
              material
                  weaknesses in our internal control over financial
                  reporting;
  ·
              the
                  announcement of new products or services by us or competitors;
  ·
              sales
                  of common stock by existing stockholders or the perception that
                  these
                  sales may occur;
  ·
              adverse
                  judgments or settlements obligating the combined company to pay
                  damages;
  ·
              negative
                  publicity;
  ·
              loss
                  of key personnel;
  ·
              developments
                  concerning proprietary rights, including patents and litigation
                  matters;
                  and
  ·
              clinical
                  trial or regulatory developments in both the United States and
                  foreign
                  countries.
  In
        addition, overall stock market volatility has often significantly affected
        the
        market prices of securities for reasons unrelated to a company’s operating
        performance. In the past, securities class action litigation has been commenced
        against companies that have experienced periods of volatility in the price
        of
        their stock. Securities litigation initiated against the combined company
        could
        cause it to incur substantial costs and could lead to the diversion of
        management’s attention and resources, which could have a material adverse effect
        on revenue and earnings.
  ***The
        sale of a substantial number of shares of our common stock could cause the
        market price of our common stock to decline and may impair the combined
        company’s ability to raise capital through additional offerings.***
 
 We
        currently have outstanding warrants and options to purchase an aggregate
        of
        58,862,578 shares of our common stock, including warrants to purchase 25,734,453
        shares of our common stock in connection with a private financing completed
        in
        January 2007. The shares underlying the warrants issued in such financing
        represent approximately 19% of the total number of shares of our common stock
        outstanding immediately prior to the financing.
 
 Sales
        of
        these shares in the public market, or the perception that future sales of
        such
        shares could occur, could have the effect of lowering the market price of
        our
        common stock below current levels and make it more difficult for us and our
        stockholders to sell our equity securities in the future.
 
 Our
        executive officers, directors and holders of more than 5% of our common stock
        collectively beneficially own approximately 28% of the outstanding common
        stock,
        which includes fully vested options to purchase common stock. In addition,
        approximately 2,166,856 shares of common stock issuable upon exercise of
        vested
        stock options could become available for immediate resale if such options
        were
        exercised.
 
 The
        actual sale or the availability for sale, of shares of common stock by
        stockholders could cause the market price of our common stock to decline
        and
        could impair our ability to raise capital through an offering of additional
        securities.
 
 **ITEM
        6.****Exhibits.**
 
 Exhibits
 
 See
        the
“Exhibit Index” on page 28 for exhibits required to be filed with this Quarterly
        Report on Form 10-Q.
  24
  **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.
  Date:
                  May 14, 2007**ALTEON
                  INC.**By:
              /s/
                Noah
                Berkowitz, M.D., Ph.D.Noah
                Berkowitz, M.D., Ph.D.President
                  and Chief Executive Officer
                  (principal
                    executive officer)
 By:
              /s/
                Jeffrey P. SteinJeffrey
                  P. Stein, CPA(principal
                  financial and accounting
                  officer)
 25
 
 **EXHIBIT
        INDEX**
 
 Exhibit
                  No.
              
              Description
                  of Exhibit10.1
              
              Employment
                  Agreement between HaptoGuard, Inc. and Malcolm MacNab, MD, PhD
                  dated
                  February 7, 2005.31.1
              
              Certification
                  Pursuant to Section 302 of the Sarbanes-Oxley Act of
                  2002.31.2
              
              Certification
                  Pursuant to Section 302 of the Sarbanes-Oxley Act of
                  2002.32.1
              
              Certification
                  Pursuant to Section 906 of the Sarbanes-Oxley Act of
                  2002.
  26