----

----

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

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

|   |  Delaware                                   |   |  83-0221517                           |   |
|--------|--------------------------------------------------|--------|--------------------------------------------|--------|
|   |  (State or      other jurisdiction of  |   |  (I.R.S. Employer      I.D. No.) |   |
|   |  incorporation      or organization)        |   |                                       |   |

|                                |   |                                              |   |                              |   |                                       |
|-------------------------------------|--------|---------------------------------------------------|--------|-----------------------------------|--------|--------------------------------------------|
| Large      accelerated filer o |   | Accelerated      filer o                     |   | Non-accelerated      filer o |   | Smaller      reporting company þ |
|                                |   | (Do      not check if a smaller reportingcompany) |

----

|  ACCESS PHARMACEUTICALS,      INC. |           |
|-----------------------------------------|----------------|
|                                    |           |
|  INDEX                             |           |
|                                    |  Page No. |
| PART      I - FINANCIAL INFORMATION     |           |
|                                    |           |   |   |   |
|                                    | Item      1.   |   | Financial      Statements: |   |
|                                    |           |   |   |   |
|                                    |           |   | Condensed      Consolidated Balance Sheets at March 31, 2010 |   |
|                                    |           |   | (unaudited)      and December 31, 2009 | 12 |
|                                    |           |   |   |   |
|                                    |           |   | Condensed      Consolidated Statements of Operations (unaudited) for the |   |
|                                    |           |   | three      months ended March 31, 2010 and March 31, 2009 | 13 |
|                                    |           |   |   |   |
|                                    |           |   | Condensed      Consolidated Statement of Stockholders’ Deficit(unaudited) |   |
|                                    |           |   | for      the three months ended March 31, 2010 | 14 |
|                                    |           |   |   |   |
|                                    |           |   | Condensed      Consolidated Statements of Cash Flows (unaudited) for the |   |
|                                    |           |   | three      months ended March 31, 2010 and March 31, 2009 | 15 |
|                                    |           |   |   |   |
|                                    |           |   | Notes      to Unaudited Condensed Consolidated Financial Statements | 16 |
|                                    |           |   |   |   |
|                                    | Item      2.   |   | Management's      Discussion and Analysis of Financial Condition and |   |
|                                    |           |   | Results      of Operations | 2 |
|                                    |           |   |   |   |
|                                    | Item      3.   |   | Quantitative      and Qualitative Disclosures About Market Risk | 7 |
|                                    |           |   |   |   |
|                                    | Item      4T.  |   | Controls      and Procedures | 7 |
|                                    |           |   |   |   |
|                                    |           |   |   |   |
|                                    |           |   |   |   |
| PART      II - OTHER INFORMATION        |           |   |
|                                    |           |   |   |   |
|                                    | Item      1.   |   | Legal      Proceedings | 8 |
|                                    |           |   |   |   |
|                                    | Item      2.   |   | Unregistered      Sales of Equity Securities and Use of Proceeds | 8 |
|                                    |           |   |   |   |
|                                    | Item      3.   |   | Defaults      Under Senior Securities | 8 |
|                                    |           |   |   |   |
|                                    | Item      4.   |   | Removed      and Reserved | 9 |
|                                    |           |   |   |   |
|                                    | Item      5.   |   | Other      Information | 9 |
|                                    |           |   |   |   |
|                                    | Item      6.   |   | Exhibits | 9 |
|                                    |           |   |   |   |
| SIGNATURES                              |           |   | 11 |
|                                    |           |   |   |   |
| CERTIFICATIONS                          |           |   |   |

----

| ITEM      2. | MANAGEMENT'S      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF      OPERATIONS |
|--------------|-------------------------------------------------------------------------------------------------|

----

| ·   | MuGard™      is our approved product for the management of oral mucositis, a frequent      side-effect of cancer therapy for which there is no established treatment.      The market for mucositis treatment is estimated to be in excess of $1      billion world-wide. MuGard, a proprietary nanopolymer formulation, has      received marketing allowance in the U.S. from the Food & Drug      Administration (FDA). MuGard has been launched in Germany, Italy, UK,      Greece and the Nordic countries by our European commercial partner,      SpePharm. Our manufacturing of MuGard is underway as we expect to launch      MuGard in North America during the second quarter of 2010. We are working      with our partners in Korea and China for  marketing. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Our      lead development candidate for the treatment of cancer is ProLindac™, a      nanopolymer DACH-platinum prodrug. We recently completed a Phase 2      clinical trial on ProLindac in the EU in patients with recurrent ovarian      cancer. The clinical study had positive safety and efficacy results. On      January 7, 2010, we announced that we are initiating a study of ProLindac      combined with Paclitaxel in second line treatment of platinum pretreated      advanced ovarian cancer patients. This multi-center study of up to 25      evaluable patients will be conducted in Europe. We are also currently      planning a number of combination trials, looking at combining ProLindac      with other cancer agents in solid tumor indications including colorectal      and ovarian cancer. The DACH-platinum incorporated in ProLindac is the      same active moiety as that in oxaliplatin (Eloxatin; Sanofi-Aventis),      which has sales in excess of $2.0billion. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Thiarabine,      or 4-thio Ara-C, is a next generation nucleoside analog licensed from      Southern Research Institute. Previously named SR9025 and OSI-7836, the      compound has been in two Phase 1/2 solid tumor human clinical trials and      was shown to have anti-tumor activity. We are working with leukemia and      lymphoma specialists at MD Anderson Cancer Center in Houston and intend to      initiate additional Phase 2 clinical trials in adult AML, ALL and other      indications. |
|--------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Cobalamin™      is our proprietary preclinical nanopolymer oral drug delivery technology      based on the natural vitamin B12 oral uptake mechanism. We are currently      developing a product for the oral delivery of insulin, and have conducted      sponsored development of a product for oral delivery of human growth      hormone. We are in discussion with several companies regarding the      sponsored development of Cobalamin oral drug delivery formulations of      proprietary and non-proprietaryactives. |
|--------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Cobalamin-mediated      cancer targeted delivery is a preclinical technology which makes use of      the fact that cell surface receptors for vitamins such as B12 are often      overexpressed by cancer cells. This technology uses nanopolymer constructs      to deliver more anti-cancer drug to tumors while protecting normal      tissues. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| Compound                                                                                |   | Originator                            |   |  Technology   |   | Indication |   | ClinicalStage (1)                              |
|-----------------------------------------------------------------------------------------|--------|---------------------------------------|--------|--------------------|--------|------------|--------|------------------------------------------------|
|                                                                                    |   |                                  |   |               |   |       |   |                                           |
| MuGard™                                                                           |   | Access                                |   | Mucoadhesiveliquid |   | Mucositis  |   | (510k)      Marketing clearance received  |
| ProLindacTM      (Polymer   Platinate,      AP5346)  (2)  |   | Access      /Univ      ofLondon  |   | Syntheticpolymer   |   | Cancer     |   | Phase      2                                   |
| Thiarabine      (4-thio Ara-C) (3)                                                      |   | SouthernResearchInstitute        |   | Smallmolecule      |   | Cancer     |   | Phase      1/2                                 |
| Oral      Insulin                                                                  |   | Access                                |   | Cobalamin          |   | Diabetes   |   | Pre-clinical                                   |
| Oral      Delivery System                                                          |   | Access                                |   | Cobalamin          |   | Various    |   | Pre-clinical                                   |
| Cobalamin™-Targeted      Therapeutics                                             |   | Access                                |   | Cobalamin          |   | Anti-tumor |   | Pre-clinical                                   |

----

| (1)   | For      more information, see “Government Regulation” in our Annual Report on Form      10-K for description of clinicalstages. |
|-----------------|----------------------------------------------------------------------------------------------------------------------------------------------|

| (2)   | Licensed      from the School of Pharmacy, The University of  London. |
|-----------------|-----------------------------------------------------------------------|

| (3)   | Licensed      from Southern Research Institute of Birmingham,  Alabama. |
|-----------------|-------------------------------------------------------------------------|

----

----

| ·  | increased      costs for clinical development as we prepared to start our new ProLindac      combination therapy clinical  trial  ($80,000); |
|--------------|--------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·  | increased      costs for our internal lab costs for various trials    ($48,000); |
|--------------|----------------------------------------------------------------------------------|

| ·  | increased      stock option expenses due to new employees  ($36,000); |
|--------------|-----------------------------------------------------------------------|

| ·  | increased      salary and related costs due to a new employee  ($33,000); |
|--------------|---------------------------------------------------------------------------|

| ·  | other      net increases in research spending($31,000); |
|--------------|---------------------------------------------------------|

| ·  | offset      by lower costs for product manufacturing for ProLindac which were higher      in 2009 ($65,000); and |
|--------------|------------------------------------------------------------------------------------------------------------------|

| ·  | offset      by lower scientific consulting expenses  ($64,000). |
|--------------|-----------------------------------------------------------------|

| ·  | lower      accrual of potential liquidated damages under an investor rights agreement      with certain investors($158,000); |
|--------------|------------------------------------------------------------------------------------------------------------------------------|

| ·  | lower      general and administrative expenses incurred by MacroChem in the first      quarter of 2009 that are no longer ongoing  ($135,000); |
|--------------|------------------------------------------------------------------------------------------------------------------------------------------------|

| ·  | lower      general business consulting expenses($110,000); |
|--------------|------------------------------------------------------------|

| ·  | offset      by higher professional fees ($55,000);and |
|--------------|-------------------------------------------------------|

| ·  | other      net decreases in general and administrative expenses    ($1,000). |
|--------------|------------------------------------------------------------------------------|

----

| ITEM      3. | QUANTITATIVE      AND QUALITATIVE DISCLOSURES ABOUT MARKETRISK |
|--------------|----------------------------------------------------------------|

----

| ITEM      2. | UNREGISTERED      SALES OF EQUITY SECURITIES AND USE OFPROCEEDS |
|--------------|-----------------------------------------------------------------|

----

| ITEM      6. | EXHIBITS |
|--------------|----------|

| 2.2 | Agreement and Plan of Merger, by and among Access      Pharmaceuticals, Inc., Somanta Acquisition Corporation, Somanta      Pharmaceuticals, Inc., Somanta Incorporated and Somanta Limited, dated      April 18, 2007. (Incorporated by reference to Exhibit 2.1 to our Form 8-K      dated April 18, 2007) |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 2.3 | Agreement and Plan of Merger, by and among Access Pharmaceuticals,      Inc., MACM Acquisition Corporation and MacroChem Corporation, dated July      9, 2008. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 3.1 | Certificate      of Incorporation (Incorporated by Reference to Exhibit 3(a) of our Form      8-B dated July 12, 1989, Commission File Number  9-9134) |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| 3.3 | Certificate      of Merger filed January 25, 1996. (Incorporated by reference to Exhibit E      of our Registration Statement on Form S-4 dated December 21, 1995,      Commission File No. 33-64031) |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 3.4 | Certificate      of Amendment of Certificate of Incorporation filed January 25, 1996.      (Incorporated by reference to Exhibit E of our Registration Statement on      Form S-4 dated December 21, 1995, Commission File No.      33-64031) |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 3.5 | Certificate      of Amendment of Certificate of Incorporation filed July 18, 1996.      (Incorporated by reference to Exhibit 3.8 of our Form 10-K for the year      ended December 31, 1996) |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 3.6 | Certificate      of Amendment of Certificate of Incorporation filed June 18, 1998.      (Incorporated by reference to Exhibit 3.8 of our Form 10-Q for the quarter      ended June 30, 1998) |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 3.7   | Certificate      of Amendment of Certificate of Incorporation filed July 31, 2000.      (Incorporated by reference to Exhibit 3.8 of our Form 10-Q for the quarter      ended March 31, 2001) |
|-----------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 3.8 | Certificate      of Designations of Series A Junior Participating Preferred Stock filed      November 7, 2001 (Incorporated by reference to Exhibit 4.1.h of our      Registration Statement on Form S-8, dated December 14, 2001, Commission      File No. 333-75136) |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 3.9 | Amended      and Restated Bylaws (Incorporated by reference to Exhibit 3.1 of our Form      10-Q for the quarter ended June 30,1996) |
|-----|--------------------------------------------------------------------------------------------------------------------------------------|

| 3.10 | Certificate      of Designations, Rights and Preferences of Series A Cumulative Convertible      Preferred Stock (Incorporated by reference to Exhibit 3.10 to our Form      10-K for the year ended December 31,2007) |
|------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 3.11 | Certificate      of Amendment to Certificate of Designations, Rights and Preferences of      Series A Cumulative Convertible Preferred Stock filed June 11, 2008 (Incorporated      by reference to Exhibit 3.11 of our Form 10-Q for the quarter ended June      30, 2008) |
|------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10.1 | Form      of Securities Purchase Agreement (Incorporated by reference to Exhibit      10.29 of our Form S-1 filed on January 15,2010) |
|------|---------------------------------------------------------------------------------------------------------------------------------------|

| 10.2 | Form      of Warrant (Incorporated by reference to Exhibit 10.30 of our Form S-1      filed on January 15, 2010) |
|------|------------------------------------------------------------------------------------------------------------------|

| 10.3† | Employment      Agreement of David P. Nowotnik, PhD (Incorporated by reference to Exhibit      10.31 of our Form 8-K February 8,2010) |
|-------------|---------------------------------------------------------------------------------------------------------------------------------------|

| 31.1 | Certification      of Chief Executive Officer of Access Pharmaceuticals, Inc. pursuant to      Rule 13a-14(a)/15d-14(a) |
|------|-------------------------------------------------------------------------------------------------------------------------|

| 31.2 | Certification      of Chief Financial Officer of Access Pharmaceuticals, Inc. pursuant to      Rule 13a-14(a)/15d-14(a) |
|------|-------------------------------------------------------------------------------------------------------------------------|

| 32.1* | Certification      of Chief Executive Officer of Access Pharmaceuticals, Inc. pursuant to 18      U.S.C. Section 1350 |
|-------|-----------------------------------------------------------------------------------------------------------------------|

| 32.2* | Certification      of Chief Financial Officer of Access Pharmaceuticals, Inc. pursuant to 18      U.S.C. Section 1350 |
|-------|-----------------------------------------------------------------------------------------------------------------------|

----

----

| Date:  |  May 17,      2010 |                                             |   | By: |  /s/ Jeffrey B. Davis    |   |
|--------|------------------------------|--------------------------------------------------|--------|-----|-------------------------------|--------|
|   |                         | Jeffrey      B. Davis                            |
|   |                         | Chief      Executive Officer                     |
|   |                         | (Principal      Executive Officer)               |
|   |                         |                                             |
| Date:  |  May 17,      2009 |                                             |   | By: |  /s/ Stephen B. Thompson |   |
|   |                         | Stephen      B. Thompson                         |
|   |                         | Vice      President and Chief Financial Officer  |
|   |                         | (Principal      Financial and Accounting Officer |
|   |                         |                                             |

----

|                            ASSETS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  March 31, 2010(unaudited)                                                                                  |   |  December 31,      2009                                                                                                                                                             |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                                                                                             |   |                                                                                                                                                                                               |
| Current      assetsCash and cash      equivalents   ReceivablesPrepaid expenses and other      current assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |  $          4,278,00035,00050,000                         |   |  $             607,00036,000               42,000 |
|                 Total      current assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | 4,363,000                                                                                                        |   | 685,000                                                                                                                                                                                            |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                                                                                             |   |                                                                                                                                                                                               |
| Property      and equipment, net                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          | 42,000                                                                                                           |   | 50,000                                                                                                                                                                                             |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                                                                                             |   |                                                                                                                                                                                               |
| Patents,      net                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | 734,000                                                                                                          |   | 787,000                                                                                                                                                                                            |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                                                                                             |   |                                                                                                                                                                                               |
| Other      assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | 56,000                                                                                                           |   | 61,000                                                                                                                                                                                             |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                                                                                             |   |                                                                                                                                                                                               |
|             Total      assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | $          5,195,000                                           |   | $          1,583,000                                                                                                                             |
|         LIABILITIES      AND STOCKHOLDERS' DEFICIT                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |                                                                                                             |   |                                                                                                                                                                                               |
|   Current      liabilities  Accounts      payable  Accrued      expenses  Dividends      payable  Accrued      interest payable  Current      portion of deferred revenue                                                                                                                                                                                                                                                                                                                                                                                                                |   $          3,859,000857,0003,254,000232,000347,000 |   |    $          4,094,000857,0002,773,000563,000347,000                                                                             |
|                       Total current liabilities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | 8,549,000                                                                                                        |   | 8,634,000                                                                                                                                                                                          |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |                                                                                                             |   |                                                                                                                                                                                               |
| Derivative      liabilityLong-term      deferred revenueLong-term      debt                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               | 6,831,0004,644,0005,500,000                                                                                      |   | 9,708,0004,730,0005,500,000                                                                                                                                                                        |
|  Total      liabilities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              | 25,524,000                                                                                                       |   | 28,572,000                                                                                                                                                                                         |
| Commitments      and contingencies                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                                                                                                             |   |                                                                                                                                                                                               |
|  Stockholders'      deficit  Convertible      Series A preferred stock - $.01 par value; authorized      2,000,000      shares; 2,985.3617 shares issued at March 31, 2010      and      2,992.3617 shares issued at December 31, 2009  Common      stock - $.01 par value; authorized 100,000,000 shares;     issued,      15,380,672 at March 31, 2010 and 13,171,545 at     December      31, 2009  Additional      paid-in capital  Notes      receivable from stockholders  Treasury      stock, at cost – 163 shares  Accumulated      deficit |     -  154,000221,726,000(1,045,000)(4,000)(241,160,000)                           |   |     -  132,000215,735,000(1,045,000)(4,000)(241,807,000)                                                                                                             |
|                      Total stockholders' deficit                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               | (20,329,000)                                                                                                     |   | (26,989,000)                                                                                                                                                                                       |
|                             Total liabilities and stockholders' deficit                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  $          5,195,000                                     |   |  $          1,583,000                                                                                                                       |

----

|                                                                                        |   | Three Months ended March      31, |       |
|---------------------------------------------------------------------------------------------|--------|-----------------------------------|------------|
|                                                                                        |   | 2010                              |       |   | 2009 |   |
| Revenues                                                                                    |   |                              |       |   |   |   |
| Licenserevenues                                                                             |   | $                                 | 87,000     |   |   | $ | 41,000 |   |
| Royalties                                                                                   |   |                              | 15,000     |   |   |   | - |   |
| Total revenues                                                                              |   |                              | 102,000    |   |   |   | 41,000 |   |
|                                                                                        |   |                              |       |   |   |   |   |   |
| Expenses                                                                                    |   |                              |       |   |   |   |   |   |
| Research and      development                                                               |   |                              | 786,000    |   |   |   | 687,000 |   |
| General and      administrative                                                             |   |                              | 898,000    |   |   |   | 1,247,000 |   |
| Depreciation and      amortization                                                          |   |                              | 61,000     |   |   |   | 66,000 |   |
|             Total      expenses |   |                              | 1,745,000  |   |   |   | 2,000,000 |   |
|                                                                                        |   |                              |       |   |   |   |   |   |
| Loss      from operations                                                                   |   |                              | (1,643,000 | ) |   |   | (1,959,000 | ) |
|                                                                                        |   |                              |       |   |   |   |   |   |
| Interest      and miscellaneous income                                                      |   |                              | 4,000      |   |   |   | 14,000 |   |
| Interest      and other expense                                                             |   |                              | (149,000   | ) |   |   | (144,000 | ) |
| Gain      on change in fair value of derivative                                             |   |                              | 2,877,000  |   |   |   | - |   |
|                                                                                        |   |                              | 2,732,000  |   |   |   | (130,000 | ) |
| Net      income (loss)                                                                      |   |                              | 1,089,000  |   |   |   | (2,089,000 | ) |
|  Less      preferred stock dividends                                                   |   |                              | 442,000    |   |   |   | 480,000 |   |
| Net      income (loss) allocable to common stockholders                                     |   | $                                 | 647,000    |   |   | $ | (2,569,000 | ) |
|                                                                                        |   |                              |       |   |   |   |   |   |
| Net      income (loss) per shareBasic                                                       |   | $                                 | 0.04       |   |   | $ |  (0.24 |  )  |
|             Diluted                                           |   | $                                 | 0.04       |   |   | $ | (0.24 | ) |
|                                                                                        |   |                              |       |   |   |   |   |   |
| Weighted      average number of common shares outstandingBasic                              |   |                              | 14,766,947 |   |   |   | 10,497,219 |   |
|                 Diluted                   |   |                              | 17,756,979 |   |   |   | 10,497,219 |   |

----

|                                                                              |   | Common Stock |          |   | Preferred Stock |   |     |   |   |   |  Notes |   |   |                     |     |   |                              |   |
|-----------------------------------------------------------------------------------|--------|--------------|---------------|--------|-----------------|--------|----------|--------|--------|--------|-------------|--------|--------|--------------------------|----------|--------|-----------------------------------|--------|
|                                                                              |   | Shares       |          |   | Amount          |   |     | Shares |   |   | Amount      |   |   | Additionalpaid-incapital |     |   | receivable      from stockholders |   |   |  Treasury      stock |   |   |  Accumulated      deficit |   |
| Balance       December 31, 2009                                              |   |         | 13,172,000    |   |            | $      | 132,000  |   |   |   | 2,992.3617  |   |   | $                        | -        |   |                              | $      | 215,735,000 |   |   | $ | (1,045,000 | ) |   | $ | (4,000 | ) |   | $ | (241,807,000 | ) |
| Restricted      commonstock      issued for services                              |   |         | 73,000        |   |            |   | 1,000    |   |   |   | -           |   |   |                     | -        |   |                              |   | 17,000 |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Warrants      issued for  services                                      |   |         | -             |   |            |   | -        |   |   |   | -           |   |   |                     | -        |   |                              |   | 19,000 |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Preferred      stock converted into common stock                                  |   |         | 23,000        |   |            |   | -        |   |   |   | (7.0000     | )      |   |                     | -        |   |                              |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Stock      option  compensation      expense                            |   |         | -             |   |            |   | -        |   |   |   | -           |   |   |                     | -        |   |                              |   | 114,000 |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Common      stock issued  for      cash exercise of  options  |   |         |   10,000 |   |            |   |   - |   |   |   |   -    |   |   |                     |   - |   |                              |   |   14,000 |   |   |   |   - |   |   |   |   - |   |   |   |   - |   |
| Common      stock issued  for      cashless warrant  exercise |   |         |   20,000 |   |            |   |   - |   |   |   |   -    |   |   |                     |   - |   |                              |   |   - |   |   |   |   - |   |   |   |   - |   |   |   |   - |   |
| Common      stock issued $3.00      share, net of costs                      |   |         | 2,083,000     |   |            |   | 21,000   |   |   |   | -           |   |   |                     | -        |   |                              |   | 5,827,000 |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Preferred      dividends                                                          |   |         | -             |   |            |   | -        |   |   |   | -           |   |   |                     | -        |   |                              |   | - |   |   |   | - |   |   |   | - |   |   |   | (442,000 | ) |
| Net      income                                                                   |   |         | -             |   |            |   | -        |   |   |   | -           |   |   |                     | -        |   |                              |   | - |   |   |   | - |   |   |   | - |   |   |   | 1,089,000 |   |
| Balance      at March 31, 2010                                                    |   |         | 15,381,000    |   |            | $      | 154,000  |   |   |   | 2,985.3617  |   |   | $                        | -        |   |                              | $      | 221,726,000 |   |   | $ | (1,045,000 | ) |   | $ | (4,000 | ) |   | $ | (241,160,000 | ) |

----

|                                                                                                                                                                                      |   | Three Months ended March      31, |       |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------|------------|
|                                                                                                                                                                                      |   | 2010                              |       |   | 2009 |   |
| Cash      flows from operating activities:                                                                                                                                                |   |                              |       |   |   |   |
|      Net      income (loss)                                                                                                                                      |   | $                                 | 1,089,000  |   |   | $ | (2,089,000 | ) |
|   Adjustments to      reconcile net income (loss) to cash used              in      operating activities: |   |                              |       |   |   |   |   |   |
| Gain on change in fair value of      derivative                                                                                                                                           |   |                              | (2,877,000 | ) |   |   | - |   |
| Depreciation and      amortization                                                                                                                                                        |   |                              | 61,000     |   |   |   | 66,000 |   |
| Stock option compensation      expense                                                                                                                                                    |   |                              | 114,000    |   |   |   | 56,000 |   |
| Stock and warrants issued for      services                                                                                                                                               |   |                              | 37,000     |   |   |   | 157,000 |   |
| Change in operating assets and      liabilities:                                                                                                                                          |   |                              |       |   |   |   |   |   |
| Receivables                                                                                                                                                                               |   |                              | 1,000      |   |   |   | 17,000 |   |
| Prepaid      expenses and other current assets                                                                                                                                            |   |                              | (8,000     | ) |   |   | 49,000 |   |
| Other      assets                                                                                                                                                                         |   |                              | 5,000      |   |   |   | 4,000 |   |
| Accounts      payable and accrued expenses                                                                                                                                                |   |                              | (235,000   | ) |   |   | (157,000 | ) |
| Dividends      payable                                                                                                                                                                    |   |                              | 39,000     |   |   |   | (149,000 | ) |
| Accrued      interest payable                                                                                                                                                             |   |                              | (331,000   | ) |   |   | 132,000 |   |
| Deferred      revenue                                                                                                                                                                     |   |                              | (86,000    | ) |   |   | 1,442,000 |   |
| Net cash used in operating      activities                                                                                                                                                |   |                              | (2,191,000 | ) |   |   | (472,000 | ) |
|                                                                                                                                                                                      |   |                              |       |   |   |   |   |   |
| Cash      flows from investing activities:                                                                                                                                                |   |                              |       |   |   |   |   |   |
|     Capital      expenditures                                                                                                                                         |   |                              | -          |   |   |   | (2,000 | ) |
|  Proceeds from sale of      asset                                                                                                                                                    |   |                              | -          |   |   |   | 1,000 |   |
| Net cash used in investing      activities                                                                                                                                                |   |                              | -          |   |   |   | (1,000 | ) |
|                                                                                                                                                                                      |   |                              |       |   |   |   |   |   |
| Cash      flows from financing activities:                                                                                                                                                |   |                              |       |   |   |   |   |   |
|  Proceeds from exercise of      stock options                                                                                                                                        |   |                              | 14,000     |   |   |   | - |   |
|     Proceeds      from common stock issuances, net of costs                                                                                                           |   |                              | 5,848,000  |   |   |   | - |   |
| Net cash provided by financing      activities                                                                                                                                            |   |                              | 5,862,000  |   |   |   | - |   |
|                                                                                                                                                                                      |   |                              |       |   |   |   |   |   |
| Net      increase (decrease) in cash and cash equivalents                                                                                                                                 |   |                              | 3,671,000  |   |   |   | (473,000 | ) |
| Cash      and cash equivalents at beginning of period                                                                                                                                     |   |                              | 607,000    |   |   |   | 2,679,000 |   |
| Cash      and cash equivalents at end of period                                                                                                                                           |   | $                                 | 4,278,000  |   |   | $ | 2,206,000 |   |
|                                                                                                                                                                                      |   |                              |       |   |   |   |   |   |
| Supplemental      cash flow information:                                                                                                                                                  |   |                              |       |   |   |   |   |   |
|    Cash      paid for interest                                                                                                                                             |   | $                                 | 440,000    |   |   | $ | - |   |
|                                                                                                                                                                                      |   |                              |       |   |   |   |   |   |
| Supplemental      disclosure of noncash transactions:                                                                                                                                     |   |                              |       |   |   |   |   |   |
| Shares issued for payables,      notes payable and accrued interest                                                                                                                       |   |                              | -          |   |   |   | 859,000 |   |
| Shares issued for dividends on      preferred stock                                                                                                                                       |   |                              | -          |   |   |   | 856,000 |   |
|   Preferred      stock dividends in dividends payable                                                                                                                           |   |                              | 442,000    |   |   |   | 480,000 |   |
|                                                                                                                                                                                      |   |                              |       |   |   |   |   |   |

----

| (1)   | Interim      Financial Statements |
|-----------------|-----------------------------------|

----

|                                            | March      31, 2010                                                            | December      31, 2009                                             |
|-------------------------------------------------|--------------------------------------------------------------------------------|--------------------------------------------------------------------|
|                                            | Grosscarryingvalue                                                             |  Accumulatedamortization                                      | Grosscarryingvalue |  AccumulatedAmortization |
| Amortizable      intangible assets Patents |   $          2,624 |   $        1,890 |   $      2,624 |   $      1,837 |
|                                            |                                                                           |                                                               |   |   |

|  2010                           |   |  $            159 |
|-------------------------------------------|--------|------------------------------------------------------------------------------------|
|  2011                           |   |  212                                                                          |
|  2012                           |   |  82                                                                           |
|  2013                      |   |  44                                                                           |
|  2014                 |   |  44                                                                           |
|  over 5      years    |   |  193                                                                          |
|                                      |   |                                                                               |
|  Total                |   |  $            734 |

| ·   | Level      1 – Quoted prices in active markets for identical assets or      liabilities. |
|--------------------|------------------------------------------------------------------------------------------------|

| ·   | Level      2 – Observable inputs other than quoted prices included in Level 1, such      as quoted prices for similar assets and liabilities in active markets;      quoted prices for identical or similar assets and liabilities in markets      that are not active; or other inputs that are observable or can be      corroborated by observable marketdata. |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Level      3 – Unobservable inputs that are supported by little or no market activity      and that are significant to the fair value of the assets and liabilities.      This includes certain pricing models, discounted cash flow methodologies      and similar valuation techniques that use significant unobservable      inputs. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (in      thousands)                               | March      31, 2010                                      | December      31, 2009                                         |
|---------------------------------------------------|----------------------------------------------------------|----------------------------------------------------------------|
|                                              | Level      1                                             | Level      2                                                   | Total | Level      1 | Level      2 | Total |
| Assets:                                           |                                                     |                                                           |   |   |   |   |
|  Cash                                        | $4,278                                                   | $          - | $4,278 | $607 | $        - | $    607 |
|                                              |                                                     |                                                           |   |   |   |   |
| Liabilities:                                      |                                                     |                                                           |   |   |   |   |
|  Derivative    liability | $         - | $6,831                                                         | $6,834 | $         - | $9,708 | $9,708 |

----

|                                                                                      |   | Three      months endedMarch 31, |    |
|-------------------------------------------------------------------------------------------|--------|----------------------------------|---------|
|                                                                                      |   | 2010                             |    |   | 2009 |   |
| Research      and development                                                             |   | $                                | 73,000  |   |   | $ | 36,000 |   |
| General      and administrative                                                           |   |                             | 41,000  |   |   |   | 20,000 |   |
| Stock-based      compensation expense   included      in operating expense |   | $                                | 114,000 |   |   | $ | 56,000 |   |

|                         | 3/31/10       |   |   |
|------------------------------|---------------|--------|--------|
| Expected      life           | 5.97      yrs |   |   |
| Risk      free interest rate | 2.4           | %      |   |
| Expected      volatility(a)  | 118           | %      |   |
| Expected      dividend yield | 0.0           | %      |   |
|                         |          |   |   |

----

| (a) | Reflects      movements in our stock price over the most recent historical period      equivalent to the expected life. |
|-----|-------------------------------------------------------------------------------------------------------------------------|

----

|  (in      thousands, except share and per share amounts) |   | Three      months endedMarch      31, |       |
|---------------------------------------------------------------|--------|---------------------------------------|------------|
|                                                          |   | 2010                                  |       |   | 2009 |   |
|                                                          |   |                                  |       |   |   |   |
| Net      income (loss)                                        |   | $                                     | 647        |   |   | $ | (2,569 | ) |
| Weighted      average shares outstanding                      |   |                                  | 14,766,947 |   |   |   | 10,497,219 |   |
| Basic      net income (loss) per common share                 |   | $                                     | 0.04       |   |   | $ | (0.24 | ) |
|                                                          |   |                                  |       |   |   |   |   |   |
| Net      income (loss)                                        |   | $                                     | 647        |   |   | $ | (2,569 | ) |
| Weighted      average shares outstanding                      |   |                                  | 14,766,947 |   |   |   | 10,497,219 |   |
| Effect      of dilutive options and warrants                  |   |                                  | 2,990,032  |   |   |   | - |   |
| Weighted      average shares outstanding assuming dilution    |   |                                  | 17,756,979 |   |   |   | 10,497,219 |   |
| Diluted      net income (loss) per common share               |   | $                                     | 0.04       |   |   | $ | (0.24 | ) |
|                                                          |   |                                  |       |   |   |   |   |   |

|                                       |   | Three      months endedMarch      31, |          |
|--------------------------------------------|--------|---------------------------------------|---------------|
|                                       |   | 2010                                  |          |   | 2009 |   |
| Warrants                                   |   |                                  | 6,124,749     |   |   |   | 9,564,570 |   |
|     Stock      options |   |                                  |  886,404 |   |   |   | 1,354,820 |   |
| Convertible      note                      |   |                                  | 200,000       |   |   |   | 200,000 |   |
| Preferred      stock                       |   |                                  | 9,951,198     |   |   |   | 9,974,539 |   |
| Total                                      |   |                                  | 17,162,351    |   |   |   | 21,093,929 |   |
|                                       |   |                                  |          |   |   |   |   |   |

----