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UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549


Form 10-K


|   |  |                                                                                             
|-- |  | --------------------------------------------------------------------------------------------
|þ  |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934    
|  
|   |  | For the fiscal year ended September 30, 2005                                                
|  
|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 No. 1-15803


Avanir
Pharmaceuticals


(Exact name of registrant as specified in its charter)


|                                                                   |  |                                     
|------------------------------------------------------------------ |  | ------------------------------------
|California                                                         |  | 33-0314804                          
|(State or other jurisdiction of
    incorporation or organization) |  | (I.R.S. Employer Identification No.)
|                                                                  
|11388 Sorrento Valley Road,
    San Diego, California              |  | 92121(Zip Code)                     
|(Address of principal executive offices)                           |  |                                     

(858) 622-5200


(Registrants telephone number, including area code)


Securities registered pursuant to Section 12(b) of the
Act:


None


Securities registered pursuant to Section 12(g) of the
Act:


Class A Common Stock, no par value


þ o


o


þ o


o þ






DOCUMENTS INCORPORATED BY REFERENCE












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Table of Contents


|              |  |                                                                                                                      |    |      |    | 
|------------- |  | -------------------------------------------------------------------------------------------------------------------- | -- | ---- | -- | 
|              |  |                                                                                                                      |    | Page |   
|              |  |                                                                                                                      |    |      |   
|PART I       
|Item 1.       |  | Business                                                                                                             |    |      | 1  | 
|Item 2.       |  | Properties                                                                                                           |    |      | 14 | 
|Item 3.       |  | Legal Proceedings                                                                                                    |    |      | 14 | 
|Item 4.       |  | Submission of Matters to a Vote of Security
    Holders                                                              |    |      | 14 | 
|PART II      
|Item 5.       |  | Market For Registrants Common Equity,
    Related Stockholder Matters and Issuer Purchases of Equity
    Securities |    |      | 14 | 
|Item 6.       |  | Selected Financial Data                                                                                              |    |      | 15 | 
|Item 7.       |  | Managements Discussion and Analysis
    of Financial Condition and Results of Operations                            |    |      | 16 | 
|Item 7A.      |  | Quantitative and Qualitative Disclosures
    About Market Risk                                                       |    |      | 31 | 
|Item 8.       |  | Financial Statements and Supplementary
    Data                                                                      |    |      | 32 | 
|Item 9.       |  | Changes in and Disagreements With
    Accountants on Accounting and Financial Disclosure                             |    |      | 32 | 
|Item 9A.      |  | Controls and Procedures                                                                                              |    |      | 32 | 
|Item 9B.      |  | Other Information                                                                                                    |    |      | 34 | 
|PART III     
|Item 10.      |  | Directors and Executive Officers of the
    Registrant                                                               |    |      | 34 | 
|Item 11.      |  | Executive Compensation                                                                                               |    |      | 36 | 
|Item 12.      |  | Securities Ownership of Certain Beneficial
    Owners and Management and Related Stockholder Matters                 |    |      | 36 | 
|Item 13.      |  | Certain Relationships and Related
    Transactions                                                                   |    |      | 36 | 
|Item 14.      |  | Principal Accountant Fees and Services                                                                               |    |      | 36 | 
|PART IV      
|Item 15.      |  | Exhibits and Financial Statement
    Schedules                                                                       |    |      | 36 | 
|SIGNATURES    |  |                                                                                                                      | 39 |     
|EXHIBIT 10.4 
|EXHIBIT 10.21
|EXHIBIT 10.23
|EXHIBIT 10.25
|EXHIBIT 21.1 
|EXHIBIT 23.1 
|EXHIBIT 31.1 
|EXHIBIT 31.2 
|EXHIBIT 32.1 
|EXHIBIT 32.2 





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PART I







|        |         
|------- | --------
|Item 1. | Business

This annual report on Form 10-K contains forward-looking
statements concerning future events and performance of our
company. When used in this report, the words intend,
estimate, anticipate,
believe, plan and expect and
similar expressions as they relate to Avanir are included to
identify forward-looking statements. You should not rely on
these forward-looking statements, because they are only
predictions based on our current expectations and assumptions.
Many factors could cause our actual results to differ materially
from those indicated in these forward-looking statements. You
should review carefully the factors identified in this report as
set forth below and under the caption Risk Factors.
We disclaim any obligation to update or announce revisions to
any forward-looking statements to reflect actual events or
developments. Except as otherwise indicted herein, all dates
referred to in this Report represent periods or dates fixed with
reference to the calendar year, rather than our fiscal year
ending September 30.


The Company


tm


tm


info@avanir.com. www.avanir.com www.sec.gov www.avanir.com.


Neurodex  Pseudobulbar Affect (PBA)/ Emotional
Lability Indication




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Neurology


Neurodex  Neuropathic Pain Indication






2



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AVP-13358  Selective Cytokine Inhibitor






Reverse Cholesterol Transport Technology 
Atherosclerosis






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Macrophage Migration Inhibitory Factor
(MIF)  Inflammation




Xenerex Antibody Technology  Anthrax/ Other
Infectious Diseases






Docosanol 10% Cream  Cold Sores






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Competition




Neurodex for Pseudobulbar Affect/ Emotional Lability.




| |   |                                                                                                       
| | - | ------------------------------------------------------------------------------------------------------
| |  | Antidepressants, including Prozac®, Celexa®,
    Zoloft®, Paxil®, Elavil® and Pamelor® and
    others;
|
| |  | Atypical antipsychotics agents, including Zyprexa®,
    Resperdal®, Abilify®, Geodon® and others; and 
|
| |  | Miscellaneous agents, including Symmetrel®, Lithium and
    others.                                   

Neurodex for neuropathic pain.




| |   |                                                                                                                                                
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------
| |  | Cymbalta®;                                                                                                                                     
|
| |  | Narcotic products; and                                                                                                                         
|
| |  | Off-label uses of non-narcotic products, such as the
    anticonvulsants phenytoin and carbamazepine, and the
    antidepressant amitriptyline.

Reverse Cholesterol Transport.


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MIF Inhibitor Technology.


AVP-13358 (IgE down-regulation program).


Antibody generation technology.


Docosanol 10% cream.




| |   |                                                                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Over-the-counter monograph preparations, including Carmex®,
    Zilactin®, Campho®, Orajel®, Herpecin® and
    others;                                                     
|
| |  | Zovirax® acyclovir (oral and topical) and Valtrex®
    valacyclovir (oral) prescription products marketed by
    Biovail Corporation and GlaxoSmithKline, respectively, and
|
| |  | Famvir® famciclovir (oral) and
    Denavir®penciclovir (topical) prescription products
    marketed by Novartis.                                                           

Patents and Proprietary Rights


Patents.


|                                                     |  |                                 |    |  |                  |  |              |         |  |  |        |  |  |                  |     |  |         |  |         |  |  |  |     | 
|---------------------------------------------------- |  | ------------------------------- | -- |  | ---------------- |  | ------------ | ------- |  |  | ------ |  |  | ---------------- | --- |  | ------- |  | ------- |  |  |  | --- | 
|                                                     |  | Patents and Patent Applications |   
|                                                     |  |                                 |   
|                                                     |  | United States                   |    |  | Foreign          | 
|                                                     |  |                                 |    |  |                  | 
|Description:                                         |  | Issued                          |    |  | Expiration Dates |  |              | Pending |  |  | Issued |  |  | Expiration Dates |     |  | Pending | 
|                                                     |  |                                 |    |  |                  |  |              |         |  |  |        |  |  |                  |     |  |         | 
|Docosanol-related technologies                       |  |                                 | 10 |  |                  |  | 2008 to 2017 |         |  |  | 3      |  |  |                  | 73  |  |         |  | Various |  |  |  | 48  | 
|Xenerex proprietary antibody generation technologies |  |                                 | 5  |  |                  |  | 2008 to 2015 |         |  |  | 5      |  |  |                  | 14  |  |         |  | Various |  |  |  | 2   | 
|IgE down-regulation technology                       |  |                                 | 7  |  |                  |  | 2019         |         |  |  | 8      |  |  |                  | 23  |  |         |  | Various |  |  |  | 140 | 
|Neurodex                                             |  |                                 | 7  |  |                  |  | 2011 to 2019 |         |  |  | 1      |  |  |                  | 2   |  |         |  |        |  |  |  | 26  | 
|MIF inhibitor technology                             |  |                                 | 0  |  |                  |  |             |         |  |  | 8      |  |  |                  | 1   |  |         |  |        |  |  |  | 73  | 
|Atherosclerosis                                      |  |                                 | 0  |  |                  |  |             |         |  |  | 7      |  |  |                  | 0   |  |         |  |        |  |  |  | 71  | 
|                                                     |  |                                 |    |  |                  |  |              |         |  |  |        |  |  |                  |     |  |         | 
|Total                                                |  |                                 | 29 |  |                  |  |              |         |  |  | 32     |  |  |                  | 113 |  |         |  |         |  |  |  | 360 | 
|                                                     |  |                                 |    |  |                  |  |              |         |  |  |        |  |  |                  |     |  |         | 



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Government Regulations






| |   |                                                                                                            
| | - | -----------------------------------------------------------------------------------------------------------
| |  | Animal pharmacology studies to obtain preliminary information on
    the safety and efficacy of a drug; and
|
| |  | Nonclinical evaluation in vitroand in vivoincluding extensive toxicology studies.                          







| |   |                                                                                                                                                                                                                                                                                                                                  
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Phase I investigations are generally conducted in healthy
    subjects. In certain instances, subjects with a life-threatening
    disease, such as cancer, may participate in Phase I studies
    that determine the maximum tolerated dose and initial safety of
    the product;                                              
|
| |  | Phase II studies are conducted in limited numbers of
    subjects with the disease or condition to be treated and are
    aimed at determining the most effective dose and schedule of
    administration, evaluating both safety and whether the product
    demonstrates therapeutic effectiveness against the
    disease; and
|
| |  | Phase III studies involve large, well-controlled
    investigations in diseased subjects and are aimed at verifying
    the safety and effectiveness of the drug.                                                                                                                                                                





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Executive Officers of the Registrant




Human Resources




RISK FACTORS


Risks Relating to Our Business


We have a history of losses and we may never achieve or
maintain profitability.






We have experienced delays in obtaining the FDAs
acceptance for filing of our new drug application for Neurodex
due to requests by the Agency for additional discussions about
the data. Any further delays or any


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adverse decisions in the regulatory review or approval
process may harm our prospects and could harm our stock
price.








We have yet to market or sell Neurodex or any of our other
potential products.






We expect that over the next 12 to 24 months we will
need to raise additional capital to fund ongoing operations. If
we are unable to raise additional capital, we may be forced to
curtail operations. If we succeed in raising additional capital
through a licensing or financing transaction, it may affect our
stock price and future revenues.




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Changes in board and management composition that are intended
to strengthen the board and management team could adversely
disrupt our operations.




Our inability to attract and retain key management and
scientific personnel could negatively affect our business.






Our patents may be challenged and our pending patents may be
denied. Either result would seriously jeopardize our ability to
compete in the intended markets for our proposed products.




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| |   |                                                                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The claims in any pending patent applications will be allowed or
    that patents will be granted;                                                                         
|
| |  | Competitors will not develop similar or superior technologies
    independently, duplicate our technologies, or design around the
    patented aspects of our technologies;
|
| |  | Our proposed technologies will not infringe other patents or
    rights owned by others, including licenses that may be not be
    available to us;                        
|
| |  | Any of our issued patents will provide us with significant
    competitive advantages; or                                                                                  
|
| |  | Challenges will not be instituted against the validity or
    enforceability of any patent that we own or, if instituted, that
    these challenges will not be successful.



We depend on third parties to manufacture compounds for our
drugs and drug candidates. The failure of these third parties to
perform successfully could harm our business.




Because we depend on clinical research centers and other
contractors for clinical testing and for certain research and
development activities, the results of our clinical trials and
such research activities are, to a certain extent, beyond our
control.




Developing new pharmaceutical products for human use involves
product liability risks, for which we currently have limited
insurance coverage.




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Risks Relating to Our Stock


Our stock price has historically been volatile and we expect
that this volatility may continue for the foreseeable future.






| |   |                                                                                                                                                                                 
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Unfavorable announcements by us regarding our Neurodex NDA
    submission, clinical trial results or results of operations;                                                     
|
| |  | Announcements of developments regarding our agreements with
    Novartis and AstraZeneca, including delays in meeting goals or
    performance milestones by us or our partners;
|
| |  | Comments made by securities analysts, including changes in their
    recommendations;                                                                                           
|
| |  | Announcements by us of financing transactions and/or future
    sales of equity or debt securities;                                                                             
|
| |  | Announcements by us of significant acquisitions, strategic
    partnerships, joint ventures, or capital commitments;                                                            
|
| |  | Sales of our Class A common stock by our directors,
    officers, or significant shareholders;                                                                                  
|
| |  | Announcements by our competitors of clinical trial results or
    product approvals; and                                                                                        
|
| |  | Market and economic conditions.                                                                                                                                                 





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Performance under partnering arrangements  The
    recognition of the revenue under our partnering arrangements,
    including our license agreements for our MIF and RCT programs,
    will partially depend on the efforts and performance of our
    licensees in reaching milestones that are outside of our
    control, such as regulatory approval, product launch, or
    reaching a sales threshold.                                                                                    
|
| |  | Timing of FDA regulatory decisions  We are in
    the process of building a sales force for the planned
    commercialization of Neurodex. The timing and extent of these
    development expenditures will vary depending on the status and
    timing of the FDAs review and decision on approval of our
    NDA for Neurodex. As a result, our expenses could vary
    significantly from quarter-to-quarter while we await regulatory
    decisions and complete this building process.     
|
| |  | Acquisitions/alliances  Our acquisition of
    certain rights relating to Neurodex in fiscal 2005 resulted in
    charges of approximately $7.2 million. In the future, if we
    acquire complementary technologies, products, or businesses, we
    will incur potentially significant charges in connection with
    such acquisitions and may have ongoing charges after the closing
    of any such transaction. Any such acquisitions could adversely
    affect our results of operations.



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Our future financial results will be affected by changes in
the accounting rules governing the recognition of stock-based
compensation expense.




The board of directors currently has the authority to effect
a reverse stock split within a stated range until March 16,
2006. If implemented, the reverse stock split could negatively
affect the price and liquidity of our Class A common
stock.






Risks Relating to Our Industry


The pharmaceutical industry is highly competitive and most of
our competitors are larger and have greater resources. As a
result, we face significant competitive hurdles.






Our industry is highly regulated and our failure or inability
to comply with government regulations regarding the development,
production, testing, manufacturing and marketing of our products
may adversely affect our operations.




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|        |           
|------- | ----------
|Item 2. | Properties








|        |                  
|------- | -----------------
|Item 3. | Legal Proceedings








|        |                                                    
|------- | ---------------------------------------------------
|Item 4. | Submission of Matters to a Vote of Security Holders






PART II







|        |                                                                          
|------- | -------------------------------------------------------------------------
|Item 5. | Market for Registrants Common Equity and Related
    Stockholder Matters



|               |  |                            |      |  |             |   |      |      |  |   |      |  |  |   |      | 
|-------------- |  | -------------------------- | ---- |  | ----------- | - | ---- | ---- |  | - | ---- |  |  | - | ---- | 
|               |  | Class A Common Stock Price |     
|               |  |                            |     
|               |  | Fiscal 2005                |      |  | Fiscal 2004 |  
|               |  |                            |      |  |             |  
|               |  | High                       |      |  | Low         |   |      | High |  |   | Low  | 
|               |  |                            |      |  |             |   |      |      |  |   |      | 
|First Quarter  |  | $                          | 3.52 |  |             | $ | 2.80 |      |  | $ | 1.71 |  |  | $ | 1.42 | 
|Second Quarter |  | $                          | 3.73 |  |             | $ | 2.20 |      |  | $ | 2.24 |  |  | $ | 1.53 | 
|Third Quarter  |  | $                          | 3.04 |  |             | $ | 2.23 |      |  | $ | 1.91 |  |  | $ | 1.33 | 
|Fourth Quarter |  | $                          | 3.69 |  |             | $ | 2.84 |      |  | $ | 3.15 |  |  | $ | 1.56 | 



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|        |                                     
|------- | ------------------------------------
|Item 6. | Selected Consolidated Financial Data



Summary Financial Information


|                                                               |         |                                  |             |             |      |   |             |            |  |   |             |            |  |      |             |            |  |   |            |            | 
|-------------------------------------------------------------- | ------- | -------------------------------- | ----------- | ----------- | ---- | - | ----------- | ---------- |  | - | ----------- | ---------- |  | ---- | ----------- | ---------- |  | - | ---------- | ---------- | 
|                                                               |         | Fiscal Years Ended September 30, |            
|                                                               |         |                                  |            
|Statement of operations data:                                  |         | 2005(1)                          |             |             | 2004 |   |             | 2003       |  |   | 2002        |            |  | 2001 |            
|                                                               |         |                                  |             |             |      |   |             |            |  |   |             |            |  |      |            
|Total revenues                                                 |         | $                                | 16,690,574  |             |      | $ | 3,589,317   |            |  | $ | 2,438,733   |            |  | $    | 8,853,742   |            |  | $ | 12,678,602 |           
|Net income (loss)                                              |         | $                                | (30,606,564 | )           |      | $ | (28,154,853 | )          |  | $ | (23,236,348 | )          |  | $    | (10,249,512 | )          |  | $ | 233,122    |           
|Net income (loss) attributable to common shareholders          |         | $                                | (30,606,564 | )           |      | $ | (28,154,853 | )          |  | $ | (23,264,293 | )          |  | $    | (10,292,798 | )          |  | $ | 189,888    |           
|Basic net income (loss) per share                              |         | $                                | (0.30       | )           |      | $ | (0.36       | )          |  | $ | (0.39       | )          |  | $    | (0.18       | )          |  | $ | 0.00       |           
|Diluted net income (loss) per share                            |         | $                                | (0.30       | )           |      | $ | (0.36       | )          |  | $ | (0.39       | )          |  | $    | (0.18       | )          |  | $ | 0.00       |           
|Weighted average number of shares of common stock outstanding: |         |                                  |             |             |      |   |             |            |  |   |             |            |  |      |             |            |  |   |            |           
|                                                               | Basic   |                                  |             | 102,469,726 |      |   |             | 77,946,413 |  |   |             | 59,896,135 |  |      |             | 58,206,969 |  |   |            | 57,475,748 | 
|                                                               | Diluted |                                  |             | 102,469,726 |      |   |             | 77,946,413 |  |   |             | 59,896,135 |  |      |             | 58,206,969 |  |   |            | 61,130,415 | 
|Cash dividends declared per share                              |         | $                                |            |             |      | $ |            |            |  | $ |            |            |  | $    |            |            |  | $ |           |           

|                            |                                                            |               |            |            |      |   |            |            |  |   |            |            |  |      |            |            |  |   |            |            | 
|--------------------------- | ---------------------------------------------------------- | ------------- | ---------- | ---------- | ---- | - | ---------- | ---------- |  | - | ---------- | ---------- |  | ---- | ---------- | ---------- |  | - | ---------- | ---------- | 
|                            |                                                            | September 30, |           
|                            |                                                            |               |           
|Balance sheet data:         |                                                            | 2005          |            |            | 2004 |   |            | 2003       |  |   | 2002       |            |  | 2001 |           
|                            |                                                            |               |            |            |      |   |            |            |  |   |            |            |  |      |           
|Cash and cash equivalents   |                                                            | $             | 8,620,143  |            |      | $ | 13,494,083 |            |  | $ | 12,198,408 |            |  | $    | 8,630,547  |            |  | $ | 16,542,545 |           
|Investments in securities   |                                                            |               | 18,917,443 |            |      |   | 12,412,446 |            |  |   | 5,258,881  |            |  |      | 4,538,460  |            |  |   | 5,308,691  |           
|                            |                                                            |               |            |            |      |   |            |            |  |   |            |            |  |      |           
|                            | Total cash, cash equivalents and investments in securities |               | $          | 27,537,586 |      |   | $          | 25,906,529 |  |   | $          | 17,457,289 |  |      | $          | 13,169,007 |  |   | $          | 21,851,236 | 
|Working capital             |                                                            | $             | 11,969,450 |            |      | $ | 16,653,621 |            |  | $ | 10,619,216 |            |  | $    | 5,918,083  |            |  | $ | 16,027,577 |           
|Total assets                |                                                            | $             | 41,401,990 |            |      | $ | 37,403,953 |            |  | $ | 29,645,257 |            |  | $    | 20,332,929 |            |  | $ | 27,053,953 |           
|Deferred revenues           |                                                            | $             | 19,158,210 |            |      | $ | 21,009,115 |            |  | $ | 22,742,641 |            |  | $    | 233,333    |            |  | $ | 125,000    |           
|Long-term obligations       |                                                            | $             | 990,594    |            |      | $ | 1,107,064  |            |  | $ |           |            |  | $    |           |            |  | $ |           |           
|Total liabilities           |                                                            | $             | 32,267,111 |            |      | $ | 27,206,694 |            |  | $ | 28,608,026 |            |  | $    | 5,752,259  |            |  | $ | 2,592,490  |           
|Convertible preferred stock |                                                            | $             |           |            |      | $ |           |            |  | $ |           |            |  | $    | 521,189    |            |  | $ | 502,903    |           
|Shareholders equity        |                                                            | $             | 9,134,879  |            |      | $ | 10,197,259 |            |  | $ | 1,037,231  |            |  | $    | 14,059,481 |            |  | $ | 23,958,560 |           

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|                                                                                    |  |                       |            |   |                   |   |             |               |  |   |                    |   |  |   |             |  
|----------------------------------------------------------------------------------- |  | --------------------- | ---------- | - | ----------------- | - | ----------- | ------------- |  | - | ------------------ | - |  | - | ----------- | -
|                                                                                    |  | Fiscal Quarters Ended |           
|Quarterly statement of operations data for fiscal                                   |  |                       |           
|2005:                                                                               |  | December 31, 2004     |            |   | March 31, 2005(1) |   |             | June 30, 2005 |  |   | September 30, 2005 |  
|                                                                                    |  |                       |            |   |                   |   |             |               |  |   |                    |  
|Total revenues                                                                      |  | $                     | 888,365    |   |                   | $ | 644,733     |               |  | $ | 3,333,838          |   |  | $ | 11,823,638  |  
|Gross margin on product sales(2)                                                    |  | $                     | 14,298     |   |                   | $ |            |               |  | $ |                   |   |  | $ |            |  
|Net loss                                                                            |  | $                     | (7,088,589 | ) |                   | $ | (14,050,947 | )             |  | $ | (8,207,544         | ) |  | $ | (1,259,484  | )
|Basic and diluted net loss per share                                                |  | $                     | (0.07      | ) |                   | $ | (0.14       | )             |  | $ | (0.08              | ) |  | $ | (0.01       | )
|Basic and diluted weighted average number of shares of common
    stock outstanding |  |                       | 95,851,957 |   |                   |   | 98,262,726  |               |  |   | 107,367,798        |   |  |   | 108,358,209 |  

|                                                                                    |  |                       |            |   |                |   |            |               |  |   |                    |   |  |   |            |  
|----------------------------------------------------------------------------------- |  | --------------------- | ---------- | - | -------------- | - | ---------- | ------------- |  | - | ------------------ | - |  | - | ---------- | -
|                                                                                    |  | Fiscal Quarters Ended |           
|Quarterly statement of operations data for fiscal                                   |  |                       |           
|2004:                                                                               |  | December 31, 2003     |            |   | March 31, 2004 |   |            | June 30, 2004 |  |   | September 30, 2004 |  
|                                                                                    |  |                       |            |   |                |   |            |               |  |   |                    |  
|Total revenues                                                                      |  | $                     | 1,509,645  |   |                | $ | 855,837    |               |  | $ | 591,354            |   |  | $ | 632,481    |  
|Gross margin on product sales(2)                                                    |  | $                     | 549,258    |   |                | $ | 10,590     |               |  | $ | 14,298             |   |  | $ |           |  
|Net loss                                                                            |  | $                     | (6,280,212 | ) |                | $ | (6,690,555 | )             |  | $ | (6,617,493         | ) |  | $ | (8,566,593 | )
|Basic and diluted net loss per share                                                |  | $                     | (0.09      | ) |                | $ | (0.09      | )             |  | $ | (0.08              | ) |  | $ | (0.09      | )
|Basic and diluted weighted average number of shares of common
    stock outstanding |  |                       | 67,804,604 |   |                |   | 71,285,690 |               |  |   | 78,256,417         |   |  |   | 94,369,912 |  






|    |                                                                                                                            
|--- | ---------------------------------------------------------------------------------------------------------------------------
|(1) | Includes a research and development expense of $7,225,000
    related to the acquisition of contractual rights to Neurodex.
|   
|(2) | Represents product sales, net of cost of product sales.                                                                    






|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis of Financial
    Condition and Results of Operations

This annual report on Form 10-K contains forward-looking
statements concerning future events and performance of our
company. When used in this report, the words intend,
estimate, anticipate,
believe, plan and expect and
similar expressions as they relate to Avanir are included to
identify forward-looking statements. You should not rely on
these forward-looking statements, because they are only
predictions based on our current expectations and assumptions.
Many factors could cause our actual results to differ materially
from those indicated in these forward-looking statements. You
should review carefully the factors identified in this report as
set forth below and under the caption Risk Factors.
We disclaim any obligation to update or announce revisions to
any forward-looking statements to reflect actual events or
developments. Except as otherwise indicted herein, all dates
referred to in this Report represent periods or dates fixed with
reference to the calendar year, rather than our fiscal year
ending September 30.


Overview


Avanir tm




16



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##### Table of Contents
















17



---



##### Table of Contents







Novartis Collaboration.


AstraZeneca Collaboration.






18



---



##### Table of Contents



Critical Accounting Policies and Estimates








| |                    
| | -------------------
| | Revenue Recognition



License and Research and Development Service Revenues.






19



---



##### Table of Contents



Royalty Revenues.


Revenues from Sale of Royalty Rights.


Government Research Grant Revenue.


Product Sales  Active Pharmaceutical Ingredient
Docosanol.




| |                                                
| | -----------------------------------------------
| | Recognition of Expenses in Outsourced Contracts





| |                                  
| | ---------------------------------
| | Research and Development Expenses



20



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##### Table of Contents







| |   |                                                                                     
| | - | ------------------------------------------------------------------------------------
| |  | The technology is in the early stage of development and has no
    alternative uses;
|
| |  | There is substantial uncertainty of the technology or product
    being successful; 
|
| |  | There will be difficulty in completing the remaining
    development; and           
|
| |  | There is substantial cost to complete the work.                                     

Acquired contractual rights.




| |                                                                     
| | --------------------------------------------------------------------
| | Capitalization and Valuation of Long-Lived and Intangible
    Assets







| |   |                                                                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------
| |  | A significant underperformance relative to expected historical
    or projected future operating results;               
|
| |  | A significant change in the manner of our use of the acquired
    asset or the strategy for our overall business; and/or
|
| |  | A significant negative industry or economic trend.                                                                      





Nature of Operating Expenses




21



---



##### Table of Contents







Effects of Inflation




Results of Operations






Comparison of Fiscal 2005 and 2004




| |                         
| | ------------------------
| | Revenues  2005 vs. 2004



Revenue-generating contracts.


22



---



##### Table of Contents







| |                                   
| | ----------------------------------
| | Operating Expenses  2005 vs. 2004



|                    |                                     |                          |  |    |      |   |  |      |     |   |  |    |     |  
|------------------- | ----------------------------------- | ------------------------ |  | -- | ---- | - |  | ---- | --- | - |  | -- | --- | -
|                    |                                     | Operating Expenses       | 
|                    |                                     | Fiscal Years Ended       | 
|                    |                                     | September 30,            | 
|                    |                                     |                          | 
|                    |                                     | 2005                     |  |    | 2004 |   |  | 2003 |    
|                    |                                     |                          |  |    |      |   |  |      |    
|Operating expenses: |                                     |                          |  |    |      |   |  |      |     |   |  |   
|                    | Research and development            |                          |  | 61 | %    |   |  | 70   | %   |   |  | 72 | %  
|                    | Selling, general and administrative |                          |  | 39 | %    |   |  | 29   | %   |   |  | 28 | %  
|                    | Costs of product sales              |                          |  | 0  | %    |   |  | 1    | %   |   |  | 0  | %  
|                    |                                     |                          |  |    |      |   |  |      |    
|                    |                                     | Total operating expenses |  |    | 100  | % |  |      | 100 | % |  |    | 100 | %
|                    |                                     |                          |  |    |      |   |  |      |    

Research and development (R&D) expenses.


23



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##### Table of Contents





Research and Development Projects and Expenses


|                                                                                                                                           |       |                                  |            |            |               |   |            |            |  |   |            |            |  |                |            |             |  |                    |             |  | 
|------------------------------------------------------------------------------------------------------------------------------------------ | ----- | -------------------------------- | ---------- | ---------- | ------------- | - | ---------- | ---------- |  | - | ---------- | ---------- |  | -------------- | ---------- | ----------- |  | ------------------ | ----------- |  | 
|                                                                                                                                           |       |                                  |            | Inception  |               |   | Estimated  |           
|                                                                                                                                           |       | Fiscal Years Ended September 30, |            |            | Through       |   |            | Costs to   | 
|                                                                                                                                           |       |                                  |            |            | September 30, |   |            | Complete   | 
|                                                                                                                                           |       | 2005(1)                          |            |            | 2004(1)       |   |            | 2003(1)    |  |   | 2005(1)(2) |            |  | Projects(1)(3) |           
|                                                                                                                                           |       |                                  |            |            |               |   |            |            |  |   |            |            |  |                |           
|Company-funded Projects:                                                                                                                   |       |                                  |            |            |               |   |            |            |  |   |            |            |  |                |            |             |  |                    |             | 
|Development programs for Neurodex, selective cytokine inhibitor
    and other programs projected through fiscal 2007                       |       | $                                | 22,481,481 |            |               | $ | 15,057,628 |            |  | $ | 14,690,717 |            |  | $              | 78,752,783 |             |  | $                  | 40M to $50M | 
|Partner-funded Projects:                                                                                                                   |       |                                  |            |            |               |   |            |            |  |   |            |            |  |                |            |             |  |                    |             | 
|Preclinical atherosclerosis and MIF inhibitor research programs                                                                            |       |                                  | 6,005,067  |            |               |   | 6,444,871  |            |  |   | 3,085,453  |            |  |                | 19,426,437 |             |  | Funded by Partners
|Government-funded Projects:                                                                                                                |       |                                  |            |            |               |   |            |            |  |   |            |            |  |                |            |             |  |                    |             | 
|Preclinical research on various projects. Estimated timing to
    complete the current anthrax research project is less than
    12 months |       |                                  | 497,210    |            |               |   | 979,182    |            |  |   | 781,847    |            |  |                | 2,538,544  |             |  | $                  | 0.2M        | 
|                                                                                                                                           |       |                                  |            |            |               |   |            |            |  |   |            |            |  |                |           
|                                                                                                                                           | Total |                                  | $          | 28,983,758 |               |   | $          | 22,481,681 |  |   | $          | 18,558,017 |  |                | $          | 100,717,764 |  |                    |             |  | 
|                                                                                                                                           |       |                                  |            |            |               |   |            |            |  |   |            |            |  |                |           






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Each project includes an allocation of laboratory occupancy
    costs. M refers to millions. Estimated costs and
    timing to complete the projects are subject to the availability
    of funds. For each of the projects set forth in the table, other
    than Neurodex for PBA (which we intend to market ourselves) and
    the reverse cholesterol transport and the MIF inhibitor programs
    (which we have partnered), we may seek development partners or
    licensees to help defray part or all of the ongoing development
    costs.
|   
|(2) | Inception dates are on or after October 1, 1998, at which
    time we began identifying and tracking program costs.                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   
|(3) | Assumes completion of development of Neurodex in the treatment
    of PBA and for one Phase III clinical trial in the
    treatment of neuropathic pain, and continuation of studies of
    our selective cytokine inhibitor program. Projected spending
    thereafter will be subject to progress made in research that is
    currently underway.                                                                                                                                                                                                  





| |                                                               
| | --------------------------------------------------------------
| | Status of R&D Programs and Plans 
    Company-funded Projects

Neurodex for the treatment of Pseudobulbar Affect/ Emotional
Lability.


24



---



##### Table of Contents





Neurodex for the treatment of neuropathic pain.


Development program for selective cytokine inhibitor.




| |                                                               
| | --------------------------------------------------------------
| | Status of R&D Programs and Plans 
    Partner-funded Projects

Anti-inflammatory research program (MIF inhibitor).




25



---



##### Table of Contents



Development program for atherosclerosis.




| |                                                                  
| | -----------------------------------------------------------------
| | Status of R&D Programs and Plans 
    Government-funded Projects



Monoclonal antibodies anthrax toxin.


Other government-funded research.


Selling, general and administrative expenses.




| |   |                                                                                                                                                                                                                                                                                                                                                                               
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a $6.4 million increase in expenses related to the
    continued expansion of our medical education and awareness
    programs for PBA, market research, and pre-launch planning
    activities for Neurodex and hiring of additional sales and
    marketing personnel, including a new Senior Vice President,
    Sales and Marketing, and a new Senior Director, Marketing.
|
| |  | a $1.0 million increase in professional services mainly
    associated with corporate governance and SEC reporting, internal
    controls documentation and testing under the Sarbanes-Oxley Act
    of 2002;                                                                                                                                                                 
|
| |  | a $945,000 increase in expenses related to increases in
    headcount and salaries in general and administrative areas;                                                                                                                                                                                                                                                       
|
| |  | a $669,000 aggregate amount of severance expenses, including a
    $584,000 severance expense related to the resignation of our
    former CEO; and                                                                                                                                                                                                                           
|
| |  | a $471,000 increase in recruiting and temporary labor expenses.                                                                                                                                                                                                                                                                                                               



26



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##### Table of Contents







| |                                
| | -------------------------------
| | Interest Income  2005 vs. 2004





| |                         
| | ------------------------
| | Net Loss  2005 vs. 2004





Comparison of Fiscal 2004 and 2003




| |                         
| | ------------------------
| | Revenues  2004 vs. 2003





| |                                   
| | ----------------------------------
| | Operating Expenses  2004 vs. 2003



27



---



##### Table of Contents



Research and development expenses.




Selling, general and administrative expenses.




| |   |                                                                                                                                                                                                          
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a $851,000 increase in expenses related to the continued
    expansion of our medical education and awareness programs for
    PBA, market research, and pre-launch planning activities for
    Neurodex.
|
| |  | a $472,000 increase related to human resources, employee
    training, and other Company-wide employee programs;                                                                                         
|
| |  | a $436,000 increase related to legal and other professional
    services associated with corporate governance and compliance
    with the Sarbanes-Oxley Act of 2002; and                                
|
| |  | a $248,000 increase in building occupancy costs, primarily
    resulting from the utilization of additional office space in
    fiscal 2004.                                                             



Liquidity and Capital Resources




|                                                    |  |               |            |          |               |   |            |               |  |   |            | 
|--------------------------------------------------- |  | ------------- | ---------- | -------- | ------------- | - | ---------- | ------------- |  | - | ---------- | 
|                                                    |  |               |            | Increase |               |   |           
|                                                    |  | September 30, |            |          | (Decrease)    |   |            | September 30, | 
|                                                    |  | 2005          |            |          | During Period |   |            | 2004          | 
|                                                    |  |               |            |          |               |   |            |               | 
|Cash, cash equivalents and investment in securities |  | $             | 27,537,586 |          |               | $ | 1,631,057  |               |  | $ | 25,906,529 | 
|Cash and cash equivalents                           |  | $             | 8,620,143  |          |               | $ | (4,873,940 | )             |  | $ | 13,494,083 | 
|Net working capital                                 |  | $             | 11,969,450 |          |               | $ | (4,684,171 | )             |  | $ | 16,653,621 | 

28



---



##### Table of Contents



|                                                     |  |               |             |   |         |   |             |               |  |   |             |  
|---------------------------------------------------- |  | ------------- | ----------- | - | ------- | - | ----------- | ------------- |  | - | ----------- | -
|                                                     |  | Year Ended    |             |   | Change  |   |             | Year Ended    | 
|                                                     |  | September 30, |             |   | Between |   |             | September 30, | 
|                                                     |  | 2005          |             |   | Periods |   |             | 2004          | 
|                                                     |  |               |             |   |         |   |             |               | 
|Net cash used for operating activities               |  | $             | (20,054,211 | ) |         | $ | 4,620,144   |               |  | $ | (24,674,355 | )
|Net cash used for investing activities               |  |               | (8,888,225  | ) |         |   | 294,054     |               |  |   | (9,182,279  | )
|Net cash provided by financing activities            |  |               | 24,068,496  |   |         |   | (11,083,813 | )             |  |   | 35,152,309  |  
|                                                     |  |               |             |   |         |   |             |               | 
|Net increase (decrease) in cash and cash equivalents |  | $             | (4,873,940  | ) |         | $ | (6,169,615  | )             |  | $ | 1,295,675   |  
|                                                     |  |               |             |   |         |   |             |               | 

Operating activities.




Investing activities.


Financing activities.


29



---



##### Table of Contents













|                                    |       |                        |            |            |        |   |            |            |           |   |           |           |  |         |           |           |  |   |           |           | 
|----------------------------------- | ----- | ---------------------- | ---------- | ---------- | ------ | - | ---------- | ---------- | --------- | - | --------- | --------- |  | ------- | --------- | --------- |  | - | --------- | --------- | 
|                                    |       | Payments Due by Period |           
|                                    |       |                        |           
|                                    |       |                        |            | Less than  |        |   |            |            | More than |  
|                                    |       | Total                  |            |            | 1 Year |   |            | 1-3 Years  |           |   | 3-5 Years |           |  | 5 Years |          
|                                    |       |                        |            |            |        |   |            |            |           |   |           |           |  |         |          
|Long-term debt obligations          |       | $                      | 1,095,046  |            |        | $ | 396,612    |            |           | $ | 698,434   |           |  | $       |          |           |  | $ |          |          
|Capital (finance) lease obligations |       |                        | 38,322     |            |        |   | 28,742     |            |           |   | 9,580     |           |  |         |          |           |  |   |          |          
|Operating lease obligations         |       |                        | 10,462,636 |            |        |   | 1,801,259  |            |           |   | 3,683,185 |           |  |         | 2,224,547 |           |  |   | 2,753,645 |          
|Purchase obligations                |       |                        | 15,741,408 |            |        |   | 14,403,794 |            |           |   | 1,337,614 |           |  |         |          |           |  |   |          |          
|                                    |       |                        |            |            |        |   |            |            |           |   |           |           |  |         |          
|                                    | Total |                        | $          | 27,337,412 |        |   | $          | 16,630,407 |           |   | $         | 5,728,813 |  |         | $         | 2,224,547 |  |   | $         | 2,753,645 | 
|                                    |       |                        |            |            |        |   |            |            |           |   |           |           |  |         |          







30



---



##### Table of Contents





Management Outlook






Recent Accounting Pronouncements









|         |                                                               
|-------- | --------------------------------------------------------------
|Item 7A. | Quantitative and Qualitative Disclosures About Market
    Risk



31



---



##### Table of Contents



Interest Rate Sensitivity









|        |                                            
|------- | -------------------------------------------
|Item 8. | Financial Statements and Supplementary Data








|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|Item 9. | Changes in and Disagreements With Accountants on
    Accounting and Financial Disclosure








|         |                        
|-------- | -----------------------
|Item 9A. | Controls and Procedures

Disclosure Controls and Procedures




Managements Report on Internal Control Over Financial
Reporting


Internal Control 
Integrated Framework Internal
Control  Integrated Framework




32



---



##### Table of Contents



Report of Independent Registered Public Accounting Firm




Avanir


Avanir












Deloitte &
Touche LLP






33



---



##### Table of Contents








|         |                  
|-------- | -----------------
|Item 9B. | Other Information






PART III







|         |                                 
|-------- | --------------------------------
|Item 10. | Directors and Executive Officers



Executive Officers of the Registrant




|                          |  |     |    |  |          |                                                               
|------------------------- |  | --- | -- |  | -------- | --------------------------------------------------------------
|Name                      |  | Age |    |  | Position
|                          |  |     |    |  |         
|Eric K. Brandt            |  |     | 43 |  |          | President and Chief Executive Officer                         
|Keith A. Katkin           |  |     | 34 |  |          | Senior Vice President, Sales and Marketing                    
|James E. Berg             |  |     | 54 |  |          | Vice President, Clinical and Regulatory Affairs               
|R. Martin Emanuele, Ph.D. |  |     | 51 |  |          | Vice President, Business Development and Licensing            
|Gregory P. Hanson, CMA    |  |     | 59 |  |          | Vice President, Finance; Chief Financial Officer and Secretary
|Jagadish C. Sircar, Ph.D. |  |     | 70 |  |          | Vice President, Drug Discovery                                

Eric K. Brandt. Avanir


Keith Katkin. Avanir Avanir Avanir


34



---



##### Table of Contents





James E. Berg.


R. Martin Emanuele, Ph.D.


Gregory P. Hanson, CMA.


Jagadish Sircar, Ph.D. Avanir


Code of Ethics


www.avanir.com


35



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##### Table of Contents








|         |                       
|-------- | ----------------------
|Item 11. | Executive Compensation








|         |                                                                                                   
|-------- | --------------------------------------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial Owners and
    Management and Related Shareholder Matters








|         |                                               
|-------- | ----------------------------------------------
|Item 13. | Certain Relationships and Related Transactions








|         |                                       
|-------- | --------------------------------------
|Item 14. | Principal Accountant Fees and Services






PART IV







|         |                                             
|-------- | --------------------------------------------
|Item 15. | Exhibits, Financial Statements and Schedules





| |                                                                        
| | -----------------------------------------------------------------------
| | (1) Index to consolidated financial statements appears on
    page F-1.



| |    |    |  |                                                                                                                                                                                  
| | -- | -- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 3  | .1 |  | Restated Articles of Incorporation of the Registrant, dated
    April 1, 2004(13)                                                                                                
|
| | 3  | .2 |  | Amended and Restated Bylaws of the Registrant, dated
    September 25, 2005(14)                                                                                                  
|
| | 4  | .1 |  | Form of Class A Common Stock Certificate(1)                                                                                                                                      
|
| | 4  | .2 |  | Certificate of Determination with respect to Series C
    Junior Participating Preferred Stock of the Registrant(2)                                                              
|
| | 4  | .3 |  | Rights Agreement, dated as of March 5, 1999, with American
    Stock Transfer & Trust Company(2)                                                                                 
|
| | 4  | .4 |  | Form of Rights Certificate with respect to the Rights Agreement,
    dated as of March 5, 1999(2)                                                                                
|
| | 4  | .5 |  | Amendment No. 1 to Rights Agreement, dated
    November 30, 1999, with American Stock Transfer &
    Trust Company(4)                                                            
|
| | 4  | .6 |  | Form of Class A Stock Purchase Warrant, issued in
    connection with the Securities Purchase Agreement dated
    July 21, 2003(10)                                              
|
| | 4  | .7 |  | Form of Class A Stock Purchase Warrant, issued in
    connection with the Securities Purchase Agreement dated
    November 25, 2003(11)                                          
|
| | 10 | .1 |  | License Agreement, dated March 31, 2000, by and between
    AvanirPharmaceuticals and SB Pharmco Puerto Rico, a Puerto
    Rico Corporation(5)                                   
|
| | 10 | .2 |  | License Agreement, dated November 22, 2002, by and between
    AvanirPharmaceuticals and Drug Royalty USA, Inc.(17)                                                              
|
| | 10 | .3 |  | Research, Development and Commercialization Agreement, dated
    April 27, 2005, by and between
    AvanirPharmaceuticals and Novartis International Pharmaceutical
    Ltd.*(18)
|
| | 10 | .4 |  | Research Collaboration and License Agreement, dated July 8,
    2005, by and between
    AvanirPharmaceuticals and AstraZeneca UK Limited*                                       

36



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##### Table of Contents



| |    |     |  |                                                                                                                                                                                           
| | -- | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | 10 | .5  |  | Standard Industrial Net Lease by and between
    AvanirPharmaceuticals and BC Sorrento, LLC, effective
    September 1, 2000(6)                                                           
|
| | 10 | .6  |  | License Agreement, dated August 1, 2000, by and between
    AvanirPharmaceuticals (Licensee) and Irisys
    Research and Development, LLC, a California limited liability
    company(6)
|
| | 10 | .7  |  | Asset Purchase Agreement, dated March 8, 2005, by and among
    AvanirPharmaceuticals,
    AvanirHolding
    Company, IriSys, Inc., Gerald J. Yakatan, Ph.D. and Gina M.
    Stack(19)    
|
| | 10 | .8  |  | License Agreement, dated April 2, 1997, by and between
    Irisys Research & Development, LLC and the Center for
    Neurologic Study(16)                                                 
|
| | 10 | .9  |  | Amendment to License Agreement, dated April 11, 2000, by
    and between IriSys Research & Development, LLC and the
    Center for Neurologic Study(16)                                   
|
| | 10 | .10 |  | Amended and Restated 1998 Stock Option Plan(7)                                                                                                                                            
|
| | 10 | .11 |  | Amended and Restated 1994 Stock Option Plan(7)                                                                                                                                            
|
| | 10 | .12 |  | Standard Industrial Net Lease by and between
    AvanirPharmaceuticals (Tenant) and Sorrento Plaza,
    a California limited partnership (Landlord),
    effective May 20, 2002(8)    
|
| | 10 | .13 |  | Amended and Restated 2000 Stock Option Plan(9)                                                                                                                                            
|
| | 10 | .14 |  | Form of Restricted Stock Grant Notice for use with Amended and
    Restated 2000 Stock Option Plan(9)                                                                                     
|
| | 10 | .15 |  | 2003 Equity Incentive Plan(9)                                                                                                                                                             
|
| | 10 | .16 |  | Form of Non-qualified Stock Option Award Notice for use with
    2003 Equity Incentive Plan(9)                                                                                            
|
| | 10 | .17 |  | Form of Restricted Stock Grant for use with 2003 Equity
    Incentive Plan(9)                                                                                                             
|
| | 10 | .18 |  | Form of Restricted Stock Grant Notice (cash consideration) for
    use with 2003 Equity Incentive Plan(9)                                                                                 
|
| | 10 | .19 |  | Form of Indemnification Agreement with certain Directors and
    Executive Officers of the Registrant (12)                                                                                
|
| | 10 | .20 |  | Clinical Development Agreement, dated March 22, 2005, by
    and between AvanirPharmaceuticals and SCIREX Corporation(16)                                                                 
|
| | 10 | .21 |  | 2005 Equity Incentive Plan                                                                                                                                                                
|
| | 10 | .22 |  | Form of Stock Option Agreement for use with 2005 Equity
    Incentive Plan (20)                                                                                                           
|
| | 10 | .23 |  | Employment Agreement with Eric Brandt, dated August 15,
    2005*                                                                                                                         
|
| | 10 | .24 |  | Stock Purchase Agreement, dated October 18, 2005 (21)                                                                                                                                     
|
| | 10 | .25 |  | Employment Agreement with Keith Katkin, dated June 13, 2005                                                                                                                               
|
| | 21 | .1  |  | List of Subsidiaries                                                                                                                                                                      
|
| | 23 | .1  |  | Consent of Independent Registered Public Accounting Firm                                                                                                                                  
|
| | 24 | .1  |  | Power of Attorney (contained on signature page)                                                                                                                                           
|
| | 31 | .1  |  | Certification of Chief Executive Officer pursuant to
    Section 302 of Sarbanes-Oxley Act of 2002                                                                                        
|
| | 31 | .2  |  | Certification of Chief Financial Officer pursuant to
    Section 302 of Sarbanes-Oxley Act of 2002                                                                                        
|
| | 32 | .1  |  | Certification of Chief Executive Officer pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002                                                                                    
|
| | 32 | .2  |  | Certification of Chief Financial Officer pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002                                                                                    






| |   |                                  
| | - | ---------------------------------
| | * | Confidential treatment requested.



| |     |                                                                                                                                                                                                                    
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | Incorporated by reference to the similarly described exhibit
    included with the Registrants Registration Statement on
    Form S-1, File No. 33-32742, declared effective by the
    Commission on May 8, 1990.

37



---



##### Table of Contents





| |     |                                                                                                                                                          
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------
| | (2) | Incorporated by reference to the similarly described exhibit
    included with the Registrants Current Report on
    Form 8-K, filed March 11, 1999.    
|
| | (3) | Incorporated by reference to the similarly described exhibit
    included with the Registrants Current Report on
    Form 8-K, filed April 1, 1999.     
|
| | (4) | Incorporated by reference to the similarly described exhibit
    included with the Registrants Current Report on
    Form 8-K, filed December 3, 1999.  
|
| | (5) | Incorporated by reference to the similarly described exhibit
    included with the Registrants Current Report on
    Form 8-K, filed May 4, 2000.       
|
| | (6) | Incorporated by reference to the similarly described exhibit
    included with the Registrants Quarterly Report on
    Form 10-Q, filed August 14, 2000.
|
| | (7) | Incorporated by reference to the similarly described exhibit
    included with the Registrants Annual Report on
    Form 10-K, filed December 21, 2001. 
|
| | (8) | Incorporated by reference to the similarly described exhibit
    included with the Registrants Quarterly Report on
    Form 10-Q, filed August 13, 2002.
|
| | (9) | Incorporated by reference to the similarly described exhibit
    included with the Registrants Quarterly Report on
    Form 10-Q, filed May 13, 2003.   



|     |                                                                                                                                                                                                                
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(10) | Incorporated by reference to the similarly described exhibit
    included with the Registrants Registration on
    From S-3, File No. 333-107820, declared effective by
    the Commission on August 19, 2003.
|    
|(11) | Incorporated by reference to the similarly described exhibit
    included with the Registrants Current Report on
    Form 8-K, filed December 11, 2003.                                                       
|    
|(12) | Incorporated by reference to the similarly described exhibit
    included with the Registrants Annual Report on
    Form 10-K, filed December 23, 2003.                                                       
|    
|(13) | Incorporated by reference to the similarly described exhibit
    included with the Registrants Current Report on
    Form 8-K, filed on April 6, 2004.                                                        
|    
|(14) | Incorporated by reference to the similarly described exhibit
    included with the Registrants Current Report on
    Form 8-K, filed September 28, 2005.                                                      
|    
|(15) | Incorporated by reference to the similarly described exhibit
    included with the Registrants Current Report on
    Form 8-K, filed September 21, 2004.                                                      
|    
|(16) | Incorporated by reference to the similarly described exhibit
    included with the Registrants Current Report on
    Form 10-Q, filed May 13, 2005.                                                           
|    
|(17) | Incorporated by reference to the similarly described exhibit
    included with the Registrants Current Report on
    Form 8-K, filed January 7, 2003.                                                         
|    
|(18) | Incorporated by reference to the similarly described exhibit
    included with the Registrants Current Report on
    Form 10-Q, filed August 12, 2005.                                                        
|    
|(19) | Incorporated by reference to the similarly described exhibit
    included with the Registrants Current Report on
    Form 8-K, filed March 11, 2005.                                                          
|    
|(20) | Incorporated by reference to the similarly described exhibit
    included with the Registrants Current Report on
    Form 8-K, filed March 23, 2005.                                                          
|    
|(21) | Incorporated by reference to the similarly described exhibit
    included with the Registrants Current Report on
    Form 8-K, filed October 24, 2005.                                                        

38



---



##### Table of Contents






SIGNATURES






| |                       
| | ----------------------
| | Avanir Pharmaceuticals



| |     |                   
| | --- | ------------------
| | By: | /s/ Eric K. Brandt

| |                                      
| | -------------------------------------
| |                                      
| | Eric K. Brandt                       
| | President and Chief Executive Officer





|                                                                       |  |                                                                                                   |  |                   |  | 
|---------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------------------- |  | ----------------- |  | 
|Signature                                                              |  | Title                                                                                             |  | Date             
|                                                                       |  |                                                                                                   |  |                  
|                                                                      
|/s/ Eric K. BrandtEric
    K. Brandt                                   |  | President and Chief Executive Officer (Principal Executive
    Officer)                           |  | December 14, 2005
|                                                                      
|/s/ Gregory P. Hanson,
    CMAGregory
    P. Hanson, CMA               |  | Vice President, Finance, Chief Financial Officer (Principal
    Financial and Accounting Officer) |  | December 14, 2005
|                                                                      
|/s/ Charles A. MathewsCharles
    A. Mathews                           |  | Chairman of the Board                                                                             |  | December 14, 2005
|                                                                      
|/s/ Stephen G. Austin,
    CPAStephen
    G. Austin, CPA               |  | Director                                                                                          |  | December 14, 2005
|                                                                      
|/s/ David J.
    Mazzo, Ph.D.David
    J. Mazzo, Ph.D.                 |  | Director                                                                                          |  | December 14, 2005
|                                                                      
|/s/ Dennis G. PodlesakDennis
    G. Podlesak                           |  | Director                                                                                          |  | December 14, 2005
|                                                                      
|/s/ Jonathan T.
    Silverstein, J.D.Jonathan
    T. Silverstein, J.D. |  | Director                                                                                          |  | December 14, 2005
|                                                                      
|/s/ Paul G. ThomasPaul
    G. Thomas                                   |  | Director                                                                                          |  | December 14, 2005
|                                                                      
|/s/ Craig A. WheelerCraig
    A. Wheeler                               |  | Director                                                                                          |  | December 14, 2005
|                                                                      
|/s/ Scott M.
    Whitcup, M.D.Scott
    M. Whitcup, M.D.               |  | Director                                                                                          |  | December 14, 2005

39



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##### Table of Contents



Avanir
Pharmaceuticals


INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


|                                                                           |  |      |     | 
|-------------------------------------------------------------------------- |  | ---- | --- | 
|                                                                           |  | Page |    
|                                                                           |  |      |    
|Report of Independent Registered Public
    Accounting Firm                |  |      | F-2 | 
|CONSOLIDATED FINANCIAL STATEMENTS                                          |  |      |     | 
|Consolidated Balance Sheets                                                |  |      | F-3 | 
|Consolidated Statements of Operations                                      |  |      | F-4 | 
|Consolidated Statements of
    Shareholders Equity and Comprehensive Loss |  |      | F-5 | 
|Consolidated Statements of Cash Flows                                      |  |      | F-6 | 
|Notes to Consolidated Financial
    Statements                             |  |      | F-7 | 

F-1



---



##### Table of Contents






REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM







Avanir








Avanir










Avanir








Internal Control-Integrated
Framework








/s/ Deloitte &
Touche LLP















F-2



---



##### Table of Contents



Avanir
Pharmaceuticals





CONSOLIDATED BALANCE SHEETS


|                                                 |                                                                                                                                                                              |                            |           |              |            |  |           |              |            | 
|------------------------------------------------ | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | --------- | ------------ | ---------- |  | --------- | ------------ | ---------- | 
|                                                 |                                                                                                                                                                              | September 30,              |          
|                                                 |                                                                                                                                                                              |                            |          
|                                                 |                                                                                                                                                                              | 2005                       |           |              | 2004       | 
|                                                 |                                                                                                                                                                              |                            |           |              |            | 
|ASSETS                                          
|Current assets:                                  |                                                                                                                                                                              |                            |           |              |            |  |           |             
|                                                 | Cash and cash equivalents                                                                                                                                                    |                            | $         | 8,620,143    |            |  | $         | 13,494,083   |           
|                                                 | Short-term investments in securities                                                                                                                                         |                            |           | 14,215,005   |            |  |           | 8,803,982    |           
|                                                 | Receivables, net                                                                                                                                                             |                            |           | 1,169,654    |            |  |           | 239,879      |           
|                                                 | Inventory                                                                                                                                                                    |                            |           | 27,115       |            |  |           | 9,302        |           
|                                                 | Prepaid expenses                                                                                                                                                             |                            |           | 2,370,801    |            |  |           | 1,526,282    |           
|                                                 |                                                                                                                                                                              |                            |           |              |            | 
|                                                 |                                                                                                                                                                              | Total current assets       |           |              | 26,402,718 |  |           |              | 24,073,528 | 
|Investments in securities                        |                                                                                                                                                                              |                            | 3,845,566 |              |            |  | 2,751,867 |             
|Restricted investments in securities             |                                                                                                                                                                              |                            | 856,872   |              |            |  | 856,597   |             
|Property and equipment, net                      |                                                                                                                                                                              |                            | 6,004,527 |              |            |  | 6,390,964 |             
|Intangible assets, net                           |                                                                                                                                                                              |                            | 3,665,086 |              |            |  | 3,035,024 |             
|Long-term inventory                              |                                                                                                                                                                              |                            | 347,424   |              |            |  |          |             
|Other assets                                     |                                                                                                                                                                              |                            | 279,797   |              |            |  | 295,973   |             
|                                                 |                                                                                                                                                                              |                            |           |              |            | 
|                                                 |                                                                                                                                                                              | TOTAL ASSETS               |           | $            | 41,401,990 |  |           | $            | 37,403,953 | 
|                                                 |                                                                                                                                                                              |                            |           |              |            | 
|                                                
|LIABILITIES AND SHAREHOLDERS EQUITY            
|Current liabilities:                             |                                                                                                                                                                              |                            |           |              |            |  |           |             
|                                                 | Accounts payable                                                                                                                                                             |                            | $         | 6,751,781    |            |  | $         | 1,961,938    |           
|                                                 | Accrued expenses and other liabilities                                                                                                                                       |                            |           | 4,094,295    |            |  |           | 2,418,209    |           
|                                                 | Accrued compensation and payroll taxes                                                                                                                                       |                            |           | 1,272,231    |            |  |           | 710,368      |           
|                                                 | Current portion of deferred revenue                                                                                                                                          |                            |           | 1,970,989    |            |  |           | 1,961,530    |           
|                                                 | Current portion of notes payable                                                                                                                                             |                            |           | 317,667      |            |  |           | 211,092      |           
|                                                 | Current portion of capital lease obligations                                                                                                                                 |                            |           | 26,305       |            |  |           | 156,770      |           
|                                                 |                                                                                                                                                                              |                            |           |              |            | 
|                                                 |                                                                                                                                                                              | Total current liabilities  |           |              | 14,433,268 |  |           |              | 7,419,907  | 
|                                                 | Deferred revenue, net of current portion                                                                                                                                     |                            |           | 17,187,221   |            |  |           | 19,047,585   |           
|                                                 | Notes payable, net of current portion                                                                                                                                        |                            |           | 637,285      |            |  |           | 703,560      |           
|                                                 | Capital lease obligations, net of current portion                                                                                                                            |                            |           | 9,337        |            |  |           | 35,642       |           
|                                                 |                                                                                                                                                                              |                            |           |              |            | 
|                                                 |                                                                                                                                                                              | Total liabilities          |           |              | 32,267,111 |  |           |              | 27,206,694 | 
|                                                 |                                                                                                                                                                              |                            |           |              |            | 
|COMMITMENTS AND CONTINGENCIES(Notes 4, 8 and 12) |                                                                                                                                                                              |                            |           |              |            |  |           |             
|SHAREHOLDERS EQUITY:                            |                                                                                                                                                                              |                            |           |              |            |  |           |             
|                                                 | Preferred stock  no par value, 10,000,000 shares
    authorized, no shares issued or outstanding as of
    September 30, 2005 and 2004, respectively:                       |                            |           |             |            |  |           |             |           
|                                                 | Common stock  no par value, 200,000,000 shares
    authorized; 109,366,926 and 95,305,757 shares issued and
    outstanding as of September 30, 2005 and 2004, respectively |                            |           | 167,738,303  |            |  |           | 134,687,535  |           
|                                                 | Unearned compensation                                                                                                                                                        |                            |           | (3,477,144   | )          |  |           |             |           
|                                                 | Accumulated deficit                                                                                                                                                          |                            |           | (155,012,466 | )          |  |           | (124,405,902 | )         
|                                                 | Accumulated other comprehensive loss                                                                                                                                         |                            |           | (113,814     | )          |  |           | (84,374      | )         
|                                                 |                                                                                                                                                                              |                            |           |              |            | 
|                                                 |                                                                                                                                                                              | Total shareholders equity |           |              | 9,134,879  |  |           |              | 10,197,259 | 
|                                                 |                                                                                                                                                                              |                            |           |              |            | 
|                                                 | TOTAL LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                                   |                            | $         | 41,401,990   |            |  | $         | 37,403,953   |           
|                                                 |                                                                                                                                                                              |                            |           |              |            | 



F-3



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##### Table of Contents



Avanir
Pharmaceuticals





CONSOLIDATED STATEMENTS OF OPERATIONS


|                                                      |                                                                             |                           |             |             |            |   |             |             |            |   |             |             |            | 
|----------------------------------------------------- | --------------------------------------------------------------------------- | ------------------------- | ----------- | ----------- | ---------- | - | ----------- | ----------- | ---------- | - | ----------- | ----------- | ---------- | 
|                                                      |                                                                             | Years Ended September 30, |            
|                                                      |                                                                             |                           |            
|                                                      |                                                                             | 2005                      |             |             | 2004       |   |             | 2003        |           
|                                                      |                                                                             |                           |             |             |            |   |             |             |           
|REVENUES:                                             |                                                                             |                           |             |             |            |   |             |             |            |   |             |            
|                                                      | Licenses                                                                    |                           | $           | 12,800,000  |            |   | $           | 328,000     |            |   | $           | 53,000      |           
|                                                      | Royalties and sale of royalty rights                                        |                           |             | 1,752,321   |            |   |             | 1,715,152   |            |   |             | 1,780,893   |           
|                                                      | Research and development services                                           |                           |             | 1,617,525   |            |   |             |            |            |   |             |            |           
|                                                      | Government research grants                                                  |                           |             | 503,328     |            |   |             | 758,827     |            |   |             | 587,440     |           
|                                                      | Product sales                                                               |                           |             | 17,400      |            |   |             | 787,338     |            |   |             | 17,400      |           
|                                                      |                                                                             |                           |             |             |            |   |             |             |           
|                                                      |                                                                             | Total revenues            |             |             | 16,690,574 |   |             |             | 3,589,317  |   |             |             | 2,438,733  | 
|                                                      |                                                                             |                           |             |             |            |   |             |             |           
|OPERATING EXPENSES:                                   |                                                                             |                           |             |             |            |   |             |             |            |   |             |            
|                                                      | Research and development                                                    |                           |             | 28,983,758  |            |   |             | 22,481,681  |            |   |             | 18,558,017  |           
|                                                      | Selling, general and administrative                                         |                           |             | 18,796,188  |            |   |             | 9,340,260   |            |   |             | 7,358,111   |           
|                                                      | Cost of product sales                                                       |                           |             | 3,102       |            |   |             | 213,192     |            |   |             | 3,102       |           
|                                                      |                                                                             |                           |             |             |            |   |             |             |           
|                                                      |                                                                             | Total operating expenses  |             |             | 47,783,048 |   |             |             | 32,035,133 |   |             |             | 25,919,230 | 
|                                                      |                                                                             |                           |             |             |            |   |             |             |           
|LOSS FROM OPERATIONS                                  |                                                                             |                           | (31,092,474 | )           |            |   | (28,445,816 | )           |            |   | (23,480,497 | )          
|                                                      | Interest income                                                             |                           |             | 619,857     |            |   |             | 290,067     |            |   |             | 265,874     |           
|                                                      | Other income (expense)                                                      |                           |             | (39,601     | )          |   |             | 38,068      |            |   |             | 26,801      |           
|                                                      | Interest expense                                                            |                           |             | (92,533     | )          |   |             | (34,508     | )          |   |             | (44,927     | )         
|                                                      |                                                                             |                           |             |             |            |   |             |             |           
|LOSS BEFORE INCOME TAXES                              |                                                                             |                           | (30,604,751 | )           |            |   | (28,152,189 | )           |            |   | (23,232,749 | )          
|                                                      | Provision for income taxes                                                  |                           |             | (1,813      | )          |   |             | (2,664      | )          |   |             | (3,599      | )         
|                                                      |                                                                             |                           |             |             |            |   |             |             |           
|NET LOSS                                              |                                                                             | $                         | (30,606,564 | )           |            | $ | (28,154,853 | )           |            | $ | (23,236,348 | )          
|                                                      |                                                                             |                           |             |             |            |   |             |             |           
|NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS:         |                                                                             |                           |             |             |            |   |             |             |            |   |             |            
|                                                      | Net loss                                                                    |                           | $           | (30,606,564 | )          |   | $           | (28,154,853 | )          |   | $           | (23,236,348 | )         
|                                                      | Dividends on redeemable convertible preferred stock                         |                           |             |            |            |   |             |            |            |   |             | (16,122     | )         
|                                                      | Accretion of discount related to redeemable convertible
    preferred stock |                           |             |            |            |   |             |            |            |   |             | (11,823     | )         
|                                                      |                                                                             |                           |             |             |            |   |             |             |           
|NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS          |                                                                             | $                         | (30,606,564 | )           |            | $ | (28,154,853 | )           |            | $ | (23,264,293 | )          
|                                                      |                                                                             |                           |             |             |            |   |             |             |           
|NET LOSS PER SHARE:                                   |                                                                             |                           |             |             |            |   |             |             |            |   |             |            
|                                                      | BASIC AND DILUTED                                                           |                           | $           | (0.30       | )          |   | $           | (0.36       | )          |   | $           | (0.39       | )         
|                                                      |                                                                             |                           |             |             |            |   |             |             |           
|WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING: |                                                                             |                           |             |             |            |   |             |             |            |   |             |            
|                                                      | BASIC AND DILUTED                                                           |                           |             | 102,469,726 |            |   |             | 77,946,413  |            |   |             | 59,896,135  |           
|                                                      |                                                                             |                           |             |             |            |   |             |             |           



F-4



---



##### Table of Contents





Avanir
Pharmaceuticals





CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY AND
COMPREHENSIVE LOSS


|                                                                                                                            |                                                                    |              |             |            |         |   |             |             |             |       |          |               |   |         |       |        |               |   |              |               |  |   |            |   |  |      |          |   |  |   |             |            |  |   |             |   | 
|--------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------ | ------------ | ----------- | ---------- | ------- | - | ----------- | ----------- | ----------- | ----- | -------- | ------------- | - | ------- | ----- | ------ | ------------- | - | ------------ | ------------- |  | - | ---------- | - |  | ---- | -------- | - |  | - | ----------- | ---------- |  | - | ----------- | - | 
|                                                                                                                            |                                                                    | Common Stock |             |            |         |   |             |             |             |       |          |               |  
|                                                                                                                            |                                                                    |              |             |            |         |   |             |             | Accumulated |       |          |               |   |        
|                                                                                                                            |                                                                    |              |             |            |         |   |             |             |             | Other |          |               |   |         |      
|                                                                                                                            |                                                                    | Class A      |             |            | Class B |   |             |             |             |       |          | Comprehensive |   |         | Total |        |               |  
|                                                                                                                            |                                                                    |              |             |            |         |   |             | Accumulated |             |       | Unearned |               |   | Income  |       |        | Shareholders |   |              | Comprehensive | 
|                                                                                                                            |                                                                    | Shares       |             |            | Amount  |   |             | Shares      |             |       | Amount   |               |   | Deficit |       |        | Compensation  |   |              | (Loss)        |  |   | Equity     |   |  | Loss |         
|                                                                                                                            |                                                                    |              |             |            |         |   |             |             |             |       |          |               |   |         |       |        |               |   |              |               |  |   |            |   |  |      |         
|BALANCE, OCTOBER 1, 2002                                                                                                    |                                                                    |              | 58,270,533  |            |         | $ | 87,053,257  |             |             |       | 13,500   |               |   | $       | 8,395 |        |               | $ | (73,002,878  | )             |  | $ |           |   |  | $    | 707      |   |  | $ | 14,059,481  |            |  |   |             |  
|Net loss                                                                                                                    |                                                                    |              |             |            |         |   |             |             |             |       |          |               |   |         |       |        |               |   | (23,236,348  | )             |  |   |            |   |  |      |          |   |  |   | (23,236,348 | )          |  | $ | (23,236,348 | )
|Issuance of Class A common stock in connection with:                                                                        |                                                                    |              |             |            |         |   |             |             |             |       |          |               |   |         |       |        |               |   |              |               |  |   |            |   |  |      |          |   |  |   |             |            |  |   |             |  
|                                                                                                                            | Exercise of warrants                                               |              |             | 53,200     |         |   |             | 59,850      |             |       |          |               |   |         |       |        |               |   |              |               |  |   |            |   |  |      |          |   |  |   |             | 59,850     |  |   |             |   | 
|                                                                                                                            | Exercise of stock options                                          |              |             | 24,000     |         |   |             | 25,500      |             |       |          |               |   |         |       |        |               |   |              |               |  |   |            |   |  |      |          |   |  |   |             | 25,500     |  |   |             |   | 
|                                                                                                                            | Restricted stock granted to directors                              |              |             | 80,000     |         |   |             | 92,800      |             |       |          |               |   |         |       |        |               |   |              |               |  |   |            |   |  |      |          |   |  |   |             | 92,800     |  |   |             |   | 
|                                                                                                                            | Sale of stock and warrants                                         |              |             | 6,728,396  |         |   |             | 9,381,317   |             |       |          |               |   |         |       |        |               |   |              |               |  |   |            |   |  |      |          |   |  |   |             | 9,381,317  |  |   |             |   | 
|                                                                                                                            | Conversions of Series D Redeemable convertible preferred
    stock |              |             | 660,305    |         |   |             | 536,630     |             |       |          |               |   |         |       |        |               |   |              |               |  |   |            |   |  |      |          |   |  |   |             | 536,630    |  |   |             |   | 
|Dividends on preferred stock                                                                                                |                                                                    |              |             |            |         |   | (16,120     | )           |             |       |          |               |   |         |       |        |               |   |              |               |  |   |            |   |  |      |          |   |  |   | (16,120     | )          |  |   |             |  
|Accretion of discount related to Series D redeemable
    convertible preferred stock.                                       |                                                                    |              |             |            |         |   |             |             |             |       |          |               |   |         |       |        |               |   | (11,823      | )             |  |   |            |   |  |      |          |   |  |   | (11,823     | )          |  |   |             |  
|Compensation expense related to valuation of stock options
    granted to employees and non-employees for services rendered |                                                                    |              |             |            |         |   | 153,199     |             |             |       |          |               |   |         |       |        |               |   |              |               |  |   |            |   |  |      |          |   |  |   | 153,199     |            |  |   |             |  
|Unrealized losses on investments in securities                                                                              |                                                                    |              |             |            |         |   |             |             |             |       |          |               |   |         |       |        |               |   |              |               |  |   |            |   |  |      | (7,255   | ) |  |   | (7,255      | )          |  |   | (7,255      | )
|                                                                                                                            |                                                                    |              |             |            |         |   |             |             |             |       |          |               |   |         |       |        |               |   |              |               |  |   |            |   |  |      |         
|BALANCE, SEPTEMBER 30, 2003                                                                                                 |                                                                    |              | 65,816,434  |            |         |   | 97,286,433  |             |             |       | 13,500   |               |   |         | 8,395 |        |               |   | (96,251,049  | )             |  |   |           |   |  |      | (6,548   | ) |  |   | 1,037,231   |            |  | $ | (23,243,603 | )
|                                                                                                                            |                                                                    |              |             |            |         |   |             |             |             |       |          |               |   |         |       |        |               |   |              |               |  |   |            |   |  |      |         
|Net loss                                                                                                                    |                                                                    |              |             |            |         |   |             |             |             |       |          |               |   |         |       |        |               |   | (28,154,853  | )             |  |   |            |   |  |      |          |   |  |   | (28,154,853 | )          |  | $ | (28,154,853 | )
|Issuance of Class A common stock in connection with:                                                                        |                                                                    |              |             |            |         |   |             |             |             |       |          |               |   |         |       |        |               |   |              |               |  |   |            |   |  |      |          |   |  |   |             |            |  |   |             |  
|                                                                                                                            | Exercise of warrants                                               |              |             | 294,895    |         |   |             | 448,671     |             |       |          |               |   |         |       |        |               |   |              |               |  |   |            |   |  |      |          |   |  |   |             | 448,671    |  |   |             |   | 
|                                                                                                                            | Exercise of stock options                                          |              |             | 124,009    |         |   |             | 160,823     |             |       |          |               |   |         |       |        |               |   |              |               |  |   |            |   |  |      |          |   |  |   |             | 160,823    |  |   |             |   | 
|                                                                                                                            | Sale of stock and warrants                                         |              |             | 28,020,112 |         |   |             | 34,015,320  |             |       |          |               |   |         |       |        |               |   |              |               |  |   |            |   |  |      |          |   |  |   |             | 34,015,320 |  |   |             |   | 
|                                                                                                                            | Research milestone obligation of MIF technology                    |              |             | 1,036,807  |         |   |             | 2,733,023   |             |       |          |               |   |         |       |        |               |   |              |               |  |   |            |   |  |      |          |   |  |   |             | 2,733,023  |  |   |             |   | 
|                                                                                                                            | Conversions of Class B common stock                                |              |             | 13,500     |         |   |             | 8,395       |             |       |          | (13,500       | ) |         |       | (8,395 | )             |   |              |               |  |   |            |   |  |      |          |   |  |   |             |           |  |   |             |   | 
|Compensation expense related to valuation of stock options
    granted to employees and non-employees for services rendered |                                                                    |              |             |            |         |   | 34,870      |             |             |       |          |               |   |         |       |        |               |   |              |               |  |   |            |   |  |      |          |   |  |   | 34,870      |            |  |   |             |  
|Unrealized losses on investments in securities                                                                              |                                                                    |              |             |            |         |   |             |             |             |       |          |               |   |         |       |        |               |   |              |               |  |   |            |   |  |      | (77,826  | ) |  |   | (77,826     | )          |  |   | (77,826     | )
|                                                                                                                            |                                                                    |              |             |            |         |   |             |             |             |       |          |               |   |         |       |        |               |   |              |               |  |   |            |   |  |      |         
|BALANCE, SEPTEMBER 30, 2004                                                                                                 |                                                                    |              | 95,305,757  |            |         |   | 134,687,535 |             |             |       |         |               |   |         |      |        |               |   | (124,405,902 | )             |  |   |           |   |  |      | (84,374  | ) |  |   | 10,197,259  |            |  | $ | (28,232,679 | )
|                                                                                                                            |                                                                    |              |             |            |         |   |             |             |             |       |          |               |   |         |       |        |               |   |              |               |  |   |            |   |  |      |         
|Net loss                                                                                                                    |                                                                    |              |             |            |         |   |             |             |             |       |          |               |   |         |       |        |               |   | (30,606,564  | )             |  |   |            |   |  |      |          |   |  |   | (30,606,564 | )          |  | $ | (30,606,564 | )
|Issuance of Class A common stock in connection with:                                                                        |                                                                    |              |             |            |         |   |             |             |             |       |          |               |   |         |       |        |               |   |              |               |  |   |            |   |  |      |          |   |  |   |             |            |  |   |             |  
|                                                                                                                            | Exercise of warrants                                               |              |             | 845,942    |         |   |             | 1,293,339   |             |       |          |               |   |         |       |        |               |   |              |               |  |   |            |   |  |      |          |   |  |   |             | 1,293,339  |  |   |             |   | 
|                                                                                                                            | Exercise of stock options                                          |              |             | 111,894    |         |   |             | 125,491     |             |       |          |               |   |         |       |        |               |   |              |               |  |   |            |   |  |      |          |   |  |   |             | 125,491    |  |   |             |   | 
|                                                                                                                            | Sale of stock and warrants                                         |              |             | 10,103,333 |         |   |             | 22,765,135  |             |       |          |               |   |         |       |        |               |   |              |               |  |   |            |   |  |      |          |   |  |   |             | 22,765,135 |  |   |             |   | 
|                                                                                                                            | Acquisition of certain contractual rights to Neurodex              |              |             | 2,000,000  |         |   |             | 5,300,000   |             |       |          |               |   |         |       |        |               |   |              |               |  |   |            |   |  |      |          |   |  |   |             | 5,300,000  |  |   |             |   | 
|Issuance of restricted Class A common stock                                                                                 |                                                                    |              | 1,000,000   |            |         |   | 3,556,000   |             |             |       |          |               |   |         |       |        |               |   |              |               |  |   | (3,555,000 | ) |  |      |          |   |  |   | 1,000       |            |  |   |             |  
|Amortization of unearned compensation                                                                                       |                                                                    |              |             |            |         |   |             |             |             |       |          |               |   |         |       |        |               |   |              |               |  |   | 77,856     |   |  |      |          |   |  |   | 77,856      |            |  |   |             |  
|Compensation expense related to valuation of stock options
    granted to non-employees for services rendered               |                                                                    |              |             |            |         |   | 10,803      |             |             |       |          |               |   |         |       |        |               |   |              |               |  |   |            |   |  |      |          |   |  |   | 10,803      |            |  |   |             |  
|Unrealized losses on investments in securities                                                                              |                                                                    |              |             |            |         |   |             |             |             |       |          |               |   |         |       |        |               |   |              |               |  |   |            |   |  |      | (29,440  | ) |  |   | (29,440     | )          |  |   | (29,440     | )
|                                                                                                                            |                                                                    |              |             |            |         |   |             |             |             |       |          |               |   |         |       |        |               |   |              |               |  |   |            |   |  |      |         
|BALANCE, SEPTEMBER 30, 2005                                                                                                 |                                                                    |              | 109,366,926 |            |         | $ | 167,738,303 |             |             |       |         |               |   | $       |      |        |               | $ | (155,012,466 | )             |  | $ | (3,477,144 | ) |  | $    | (113,814 | ) |  | $ | 9,134,879   |            |  | $ | (30,636,004 | )
|                                                                                                                            |                                                                    |              |             |            |         |   |             |             |             |       |          |               |   |         |       |        |               |   |              |               |  |   |            |   |  |      |         



F-5



---



##### Table of Contents



Avanir
Pharmaceuticals





CONSOLIDATED STATEMENTS OF CASH FLOWS


|                                                                                               |                                                                                                                                        |                                                      |             |             |             |   |             |            |             |   |             |            |            |  
|---------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------- | ----------- | ----------- | ----------- | - | ----------- | ---------- | ----------- | - | ----------- | ---------- | ---------- | -
|                                                                                               |                                                                                                                                        | Years Ended September 30,                            |            
|                                                                                               |                                                                                                                                        |                                                      |            
|                                                                                               |                                                                                                                                        | 2005                                                 |             |             | 2004        |   |             | 2003       |            
|                                                                                               |                                                                                                                                        |                                                      |             |             |             |   |             |            |            
|OPERATING ACTIVITIES:                                                                          |                                                                                                                                        |                                                      |             |             |             |   |             |            |             |   |             |           
|Net loss                                                                                       |                                                                                                                                        | $                                                    | (30,606,564 | )           |             | $ | (28,154,853 | )          |             | $ | (23,236,348 | )         
|Adjustments to reconcile net loss to net cash provided by (used
    for) operating activities: |                                                                                                                                        |                                                      |             |             |             |   |             |            |             |   |             |           
|                                                                                               | Depreciation and amortization                                                                                                          |                                                      |             | 1,852,427   |             |   |             | 1,826,372  |             |   |             | 1,011,802  |           
|                                                                                               | Compensation paid with common stock, stock options and warrants                                                                        |                                                      |             | 88,659      |             |   |             | 34,870     |             |   |             | 245,999    |           
|                                                                                               | Expense for issuance of common stock in connection with the
    acquisition of additional contractual rights to Neurodex
    (Note 12) |                                                      |             | 5,300,000   |             |   |             |           |             |   |             |           |           
|                                                                                               | Research milestone obligation paid with common stock                                                                                   |                                                      |             |            |             |   |             | 2,733,023  |             |   |             |           |           
|                                                                                               | Loss on sale and impairment of investment                                                                                              |                                                      |             | 84,252      |             |   |             |           |             |   |             |           |           
|                                                                                               | Loss on disposal of assets                                                                                                             |                                                      |             | 16,400      |             |   |             | 162        |             |   |             | 7,193      |           
|                                                                                               | Intangible assets impaired and abandoned                                                                                               |                                                      |             | 423,123     |             |   |             |           |             |   |             | 74,432     |           
|Changes in assets and liabilities:                                                             |                                                                                                                                        |                                                      |             |             |             |   |             |            |             |   |             |           
|                                                                                               | Receivables                                                                                                                            |                                                      |             | (929,775    | )           |   |             | 31,802     |             |   |             | 827,273    |           
|                                                                                               | Inventory                                                                                                                              |                                                      |             | (365,237    | )           |   |             | 201,552    |             |   |             | 27,272     |           
|                                                                                               | Prepaid expenses and other assets                                                                                                      |                                                      |             | (848,219    | )           |   |             | (9,912     | )           |   |             | (845,761   | )         
|                                                                                               | Accounts payable                                                                                                                       |                                                      |             | 4,615,629   |             |   |             | (300,210   | )           |   |             | (1,578     | )         
|                                                                                               | Accrued expenses and other liabilities                                                                                                 |                                                      |             | 1,604,136   |             |   |             | 612,151    |             |   |             | 207,431    |           
|                                                                                               | Accrued compensation and payroll taxes                                                                                                 |                                                      |             | 561,863     |             |   |             | 84,214     |             |   |             | 164,036    |           
|                                                                                               | Deferred revenue                                                                                                                       |                                                      |             | (1,850,905  | )           |   |             | (1,733,526 | )           |   |             | 22,509,308 |           
|                                                                                               |                                                                                                                                        |                                                      |             |             |             |   |             |            |            
|                                                                                               |                                                                                                                                        | Net cash provided by (used for) operating activities |             |             | (20,054,211 | ) |             |            | (24,674,355 | ) |             |            | 991,059    |  
|                                                                                               |                                                                                                                                        |                                                      |             |             |             |   |             |            |            
|INVESTING ACTIVITIES:                                                                          |                                                                                                                                        |                                                      |             |             |             |   |             |            |             |   |             |           
|                                                                                               | Investments in securities                                                                                                              |                                                      |             | (23,448,802 | )           |   |             | (9,381,391 | )           |   |             | (3,727,676 | )         
|                                                                                               | Proceeds from sales and maturities of investments in securities                                                                        |                                                      |             | 16,830,113  |             |   |             | 2,150,000  |             |   |             | 3,000,000  |           
|                                                                                               | Patent costs                                                                                                                           |                                                      |             | (1,278,935  | )           |   |             | (1,156,975 | )           |   |             | (615,627   | )         
|                                                                                               | Purchases of property and equipment                                                                                                    |                                                      |             | (990,601    | )           |   |             | (793,913   | )           |   |             | (5,361,054 | )         
|                                                                                               |                                                                                                                                        |                                                      |             |             |             |   |             |            |            
|                                                                                               |                                                                                                                                        | Net cash used for investing activities               |             |             | (8,888,225  | ) |             |            | (9,182,279  | ) |             |            | (6,704,357 | )
|                                                                                               |                                                                                                                                        |                                                      |             |             |             |   |             |            |            
|FINANCING ACTIVITIES:                                                                          |                                                                                                                                        |                                                      |             |             |             |   |             |            |             |   |             |           
|                                                                                               | Proceeds from issuances of common stock and warrants, net of
    commissions and offering costs                                        |                                                      |             | 24,184,966  |             |   |             | 34,624,814 |             |   |             | 9,466,667  |           
|                                                                                               | Dividends paid on preferred stock                                                                                                      |                                                      |             |            |             |   |             |           |             |   |             | (12,500    | )         
|                                                                                               | Proceeds from issuances of notes payable                                                                                               |                                                      |             | 395,244     |             |   |             | 1,074,570  |             |   |             | 244,805    |           
|                                                                                               | Payments on notes and capital lease obligations                                                                                        |                                                      |             | (511,714    | )           |   |             | (547,075   | )           |   |             | (417,813   | )         
|                                                                                               |                                                                                                                                        |                                                      |             |             |             |   |             |            |            
|                                                                                               |                                                                                                                                        | Net cash provided by financing activities            |             |             | 24,068,496  |   |             |            | 35,152,309  |   |             |            | 9,281,159  |  
|                                                                                               |                                                                                                                                        |                                                      |             |             |             |   |             |            |            
|Net increase (decrease) in cash and cash equivalents                                           |                                                                                                                                        |                                                      | (4,873,940  | )           |             |   | 1,295,675   |            |             |   | 3,567,861   |           
|Cash and cash equivalents at beginning of year                                                 |                                                                                                                                        |                                                      | 13,494,083  |             |             |   | 12,198,408  |            |             |   | 8,630,547   |           
|                                                                                               |                                                                                                                                        |                                                      |             |             |             |   |             |            |            
|Cash and cash equivalents at end of year                                                       |                                                                                                                                        | $                                                    | 8,620,143   |             |             | $ | 13,494,083  |            |             | $ | 12,198,408  |           
|                                                                                               |                                                                                                                                        |                                                      |             |             |             |   |             |            |            
|SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:                                             |                                                                                                                                        |                                                      |             |             |             |   |             |            |             |   |             |           
|                                                                                               | Interest paid                                                                                                                          |                                                      | $           | 92,533      |             |   | $           | 34,508     |             |   | $           | 44,927     |           
|                                                                                               | Income taxes paid                                                                                                                      |                                                      | $           | 1,912       |             |   | $           | 2,664      |             |   | $           | 3,599      |           
|SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING
    ACTIVITIES:                   |                                                                                                                                        |                                                      |             |             |             |   |             |            |             |   |             |           
|                                                                                               | Issuance of 1.0 million shares of restricted Class A
    common stock for unearned compensation cost                                   |                                                      | $           | 3,555,000   |             |   | $           |           |             |   | $           |           |           
|                                                                                               | Purchases of property and equipment which are included in ending
    balances of accounts payable and accrued expense                  |                                                      | $           | 242,213     |             |   | $           | 3,951      |             |   | $           | 595,407    |           
|                                                                                               | Conversions of Series D redeemable convertible preferred
    stock to Class A common stock                                             |                                                      | $           |            |             |   | $           |           |             |   | $           | 536,630    |           



F-6



---



##### Table of Contents



Avanir
Pharmaceuticals





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




|   |                        
|-- | -----------------------
|1. | Description of Business

Avanir Avanir






|   |                                           
|-- | ------------------------------------------
|2. | Summary of Significant Accounting Policies



| |                      
| | ---------------------
| | Basis of presentation





| |                     
| | --------------------
| | Management estimates





| |                          
| | -------------------------
| | Cash and cash equivalents





| |                                     
| | ------------------------------------
| | Restricted investments in securities



|                                                |       |                         |         |         |            |  |          |  | 
|----------------------------------------------- | ----- | ----------------------- | ------- | ------- | ---------- |  | -------- |  | 
|                                                |       | Restricted Amount as of |         |         |           
|                                                |       | September 30,           |         |         | Lease Term | 
|Property Location                               |       | 2005                    |         |         | Expires on | 
|                                                |       |                         |         |         |            | 
|11388 Sorrento Valley Road, San Diego           |       | $                       | 388,122 |         |            |  | 08/31/08 | 
|11404 and 11408 Sorrento Valley Road, San Diego |       |                         | 468,750 |         |            |  | 08/31/12 | 
|                                                |       |                         |         |         |            | 
|                                                | Total |                         | $       | 856,872 |            |  |          |  | 
|                                                |       |                         |         |         |            | 

F-7



---



##### Table of Contents



AvanirPharmaceuticals


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |            
| | -----------
| | Investments





| |               
| | --------------
| | Concentrations









| |          
| | ---------
| | Inventory





| |                                
| | -------------------------------
| | Impairment of long-lived assets





| |                       
| | ----------------------
| | Property and equipment



F-8



---



##### Table of Contents



AvanirPharmaceuticals


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






| |                  
| | -----------------
| | Intangible assets



tm






| |              
| | -------------
| | Deferred rent





| |                                    
| | -----------------------------------
| | Fair value of financial instruments





| |                    
| | -------------------
| | Revenue recognition



F-9



---



##### Table of Contents



AvanirPharmaceuticals


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Licenses and Research and Development Service Revenues.






Royalty Revenues.


Revenues from Sale of Royalty Rights.


Government Research Grant Revenue.


Product sales  Active Pharmaceutical Ingredient
Docosanol.


F-10



---



##### Table of Contents



AvanirPharmaceuticals


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






| |                                                
| | -----------------------------------------------
| | Recognition of expenses in outsourced contracts





| |                                  
| | ---------------------------------
| | Research and development expenses







| |   |                                                                                     
| | - | ------------------------------------------------------------------------------------
| |  | The technology is in the early stage of development and has no
    alternative uses;
|
| |  | There is substantial uncertainty of the technology or product
    being successful; 
|
| |  | There will be difficulty in completing the remaining
    development; and           
|
| |  | There is substantial cost to complete the work.                                     



Expenses for contract rights to Neurodex.


F-11



---



##### Table of Contents



AvanirPharmaceuticals


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


Expenses related to the MIF inhibitor technology.








| |                                        
| | ---------------------------------------
| | Accounting for stock-based compensation





F-12



---



##### Table of Contents



AvanirPharmaceuticals


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                                                                                    |                                 |                                                        |             |       |             |   |             |       |             |   |             |       |             |  
|------------------------------------------------------------------------------------------------------------------- | ------------------------------- | ------------------------------------------------------ | ----------- | ----- | ----------- | - | ----------- | ----- | ----------- | - | ----------- | ----- | ----------- | -
|                                                                                                                    |                                 | Year Ended September 30,                               |            
|                                                                                                                    |                                 |                                                        |            
|                                                                                                                    |                                 | 2005                                                   |             |       | 2004        |   |             | 2003  |            
|                                                                                                                    |                                 |                                                        |             |       |             |   |             |       |            
|Net loss attributable to common shareholders, as reported                                                           |                                 | $                                                      | (30,606,564 | )     |             | $ | (28,154,853 | )     |             | $ | (23,264,293 | )    
|Add: Stock-based employee compensation included in reported net
    loss attributable to common shareholders        |                                 |                                                        | 77,856      |       |             |   | 24,069      |       |             |   | 234,638     |      
|Deduct: Total stock-based employee compensation expense
    determined under fair value based method for all awards |                                 |                                                        | (1,777,838  | )     |             |   | (1,026,844  | )     |             |   | (1,788,674  | )    
|                                                                                                                    |                                 |                                                        |             |       |             |   |             |       |            
|                                                                                                                    |                                 | Pro forma net loss attributable to common shareholders |             | $     | (32,306,546 | ) |             | $     | (29,157,628 | ) |             | $     | (24,818,329 | )
|                                                                                                                    |                                 |                                                        |             |       |             |   |             |       |            
|Net loss per share:                                                                                                 |                                 |                                                        |             |       |             |   |             |       |             |   |             |      
|                                                                                                                    | Basic and diluted  as reported |                                                        | $           | (0.30 | )           |   | $           | (0.36 | )           |   | $           | (0.39 | )          
|                                                                                                                    | Basic and diluted  pro forma   |                                                        | $           | (0.32 | )           |   | $           | (0.37 | )           |   | $           | (0.41 | )          



|                        |  |                           |      |   |      |  |      |      |  |  |      |  
|----------------------- |  | ------------------------- | ---- | - | ---- |  | ---- | ---- |  |  | ---- | -
|                        |  | Years Ended September 30, |     
|                        |  |                           |     
|                        |  | 2005                      |      |   | 2004 |  |      | 2003 | 
|                        |  |                           |      |   |      |  |      |      | 
|Risk free interest rate |  |                           | 3.8  | % |      |  | 2.4  | %    |  |  | 2.7  | %
|Expected life (years)   |  |                           | 3.4  |   |      |  | 3.4  |      |  |  | 4.6  |  
|Expected volatility     |  |                           | 95   | % |      |  | 133  | %    |  |  | 125  | %
|Expected dividends      |  |                           | None |   |      |  | None |      |  |  | None |  





| |             
| | ------------
| | Income taxes



F-13



---



##### Table of Contents



AvanirPharmaceuticals


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |                            
| | ---------------------------
| | Comprehensive income (loss)





| |                                         
| | ----------------------------------------
| | Computation of net loss per common share





|               |  |                           |  |           |  |          
|-------------- |  | ------------------------- |  | --------- |  | ---------
|               |  | Years Ended September 30,
|               |  |                          
|               |  | 2005                      |  | 2004      |  | 2003     
|               |  |                           |  |           |  |          
|Stock options  |  | 6,400,131                 |  | 5,253,593 |  | 5,308,604
|Stock warrants |  | 4,488,211                 |  | 5,322,106 |  | 2,289,900



| |                                 
| | --------------------------------
| | Recent accounting pronouncements

Financial Accounting Standards No. 151
(FAS 151).


Financial Accounting Standards No. 153
(FAS 153).


FASB Interpretation No. 47
(FIN 47).


Financial Accounting Standards No. 154
(FAS 154).


F-14



---



##### Table of Contents



AvanirPharmaceuticals


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




Emerging Issues Task Force No. 05-6
(EITF 05-6).




|   |                          
|-- | -------------------------
|3. | Investments in Securities



|                          |                            |                                  |                       |            |            |   |            |            |  |   |            |          |   |   |          |            |            |           |            | 
|------------------------- | -------------------------- | -------------------------------- | --------------------- | ---------- | ---------- | - | ---------- | ---------- |  | - | ---------- | -------- | - | - | -------- | ---------- | ---------- | --------- | ---------- | 
|                          |                            |                                  |                       | Gross      |            |   | Gross      |            |  |  
|                          |                            | Amortized                        |                       |            | Unrealized |   |            | Unrealized |  |   |           
|                          |                            | Cost                             |                       |            | Gains(1)   |   |            | Losses(1)  |  |   | Fair Value |         
|                          |                            |                                  |                       |            |            |   |            |            |  |   |            |         
|As of September 30, 2005: |                            |                                  |                       |            |            |   |            |            |  |   |            |          |   |   |          |           
|                          | Certificates of deposit    |                                  | $                     | 956,872    |            |   | $          | 48         |  |   | $          |         |   |   | $        | 956,920    |           
|                          | Government debt securities |                                  |                       | 18,074,385 |            |   |            |           |  |   |            | (113,862 | ) |   |          | 17,960,523 |           
|                          |                            |                                  |                       |            |            |   |            |            |  |   |            |         
|                          |                            |                                  |                       | Total      |            | $ | 19,031,257 |            |  | $ | 48         |          |   | $ | (113,862 | )          |            | $         | 18,917,443 | 
|                          |                            |                                  |                       |            |            |   |            |            |  |   |            |         
|Reported as:              |                            |                                  |                       |            |            |   |            |            |  |   |            |          |   |   |          |           
|                          | Short-term investments:    |                                  |                       |            |            |   |            |            |  |   |            |          |   |   |          |            |           
|                          |                            | Classified as available-for-sale |                       |            |            |   |            |            |  |   |            |          |   |   |          | $          | 14,215,005 |          
|                          |                            |                                  |                       |            |            |   |            |            |  |   |            |         
|                          | Long-term investments:     |                                  |                       |            |            |   |            |            |  |   |            |          |   |   |          |            |           
|                          |                            | Classified as available-for-sale |                       |            |            |   |            |            |  |   |            |          |   |   |          |            | 3,845,566  |          
|                          |                            | Restricted investments(2)        |                       |            |            |   |            |            |  |   |            |          |   |   |          |            | 856,872    |          
|                          |                            |                                  |                       |            |            |   |            |            |  |   |            |         
|                          |                            |                                  | Long-term investments |            |            |   |            |            |  |   |            |          |   |   |          |            |            | 4,702,438 |           
|                          |                            |                                  |                       |            |            |   |            |            |  |   |            |         
|                          |                            |                                  |                       | Total      |            |   |            |            |  |   |            |          |   |   |          |            |            | $         | 18,917,443 | 
|                          |                            |                                  |                       |            |            |   |            |            |  |   |            |         

F-15



---



##### Table of Contents



AvanirPharmaceuticals


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


|                          |                                |                                  |                       |           |            |   |            |            |  |   |            |         |   |   |         |           |           |           |            | 
|------------------------- | ------------------------------ | -------------------------------- | --------------------- | --------- | ---------- | - | ---------- | ---------- |  | - | ---------- | ------- | - | - | ------- | --------- | --------- | --------- | ---------- | 
|                          |                                |                                  |                       | Gross     |            |   | Gross      |            |  |  
|                          |                                | Amortized                        |                       |           | Unrealized |   |            | Unrealized |  |   |           
|                          |                                | Cost                             |                       |           | Gains(4)   |   |            | Losses(4)  |  |   | Fair Value |        
|                          |                                |                                  |                       |           |            |   |            |            |  |   |            |        
|As of September 30, 2004: |                                |                                  |                       |           |            |   |            |            |  |   |            |         |   |   |         |          
|                          | Certificates of deposit        |                                  | $                     | 1,356,597 |            |   | $          | 3,558      |  |   | $          |        |   |   | $       | 1,360,155 |          
|                          | Adjustable rate mutual fund(3) |                                  |                       | 3,014,365 |            |   |            |           |  |   |            | (68,650 | ) |   |         | 2,945,715 |          
|                          | Government debt securities     |                                  |                       | 8,125,858 |            |   |            | 6,186      |  |   |            | (25,468 | ) |   |         | 8,106,576 |          
|                          |                                |                                  |                       |           |            |   |            |            |  |   |            |        
|                          |                                |                                  |                       | Total     |            | $ | 12,496,820 |            |  | $ | 9,744      |         |   | $ | (94,118 | )         |           | $         | 12,412,446 | 
|                          |                                |                                  |                       |           |            |   |            |            |  |   |            |        
|Reported as:              |                                |                                  |                       |           |            |   |            |            |  |   |            |         |   |   |         |          
|                          | Short-term investments:        |                                  |                       |           |            |   |            |            |  |   |            |         |   |   |         |           |          
|                          |                                | Classified as available-for-sale |                       |           |            |   |            |            |  |   |            |         |   |   |         | $         | 8,803,982 |          
|                          |                                |                                  |                       |           |            |   |            |            |  |   |            |        
|                          | Long-term investments:         |                                  |                       |           |            |   |            |            |  |   |            |         |   |   |         |           |          
|                          |                                | Classified as available-for-sale |                       |           |            |   |            |            |  |   |            |         |   |   |         |           | 2,751,867 |          
|                          |                                | Restricted investments(2)        |                       |           |            |   |            |            |  |   |            |         |   |   |         |           | 856,597   |          
|                          |                                |                                  |                       |           |            |   |            |            |  |   |            |        
|                          |                                |                                  | Long-term investments |           |            |   |            |            |  |   |            |         |   |   |         |           |           | 3,608,464 |           
|                          |                                |                                  |                       |           |            |   |            |            |  |   |            |        
|                          |                                |                                  |                       | Total     |            |   |            |            |  |   |            |         |   |   |         |           |           | $         | 12,412,446 | 
|                          |                                |                                  |                       |           |            |   |            |            |  |   |            |        






|    |                                                                                                                                                                                                                                                                                                                                                                    
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Gross unrealized gains of $48 and gross unrealized losses of
    $113,862 on government securities and certificates of deposit
    represent an accumulated net unrealized loss of $113,814, which
    is reported as accumulated other comprehensive loss
    on the consolidated balance sheet as of September 30, 2005.                                       
|   
|(2) | Restricted investments amounting to $856,872 and $856,597 as of
    September 30, 2005 and 2004, respectively, represent
    amounts pledged to our bank as collateral for letters of credit
    issued in connection with our leases of office and laboratory
    space.                                                                                          
|   
|(3) | Represents an investment in a mutual fund that invested
    primarily in adjustable rate mortgage-backed securities. This
    investment was sold in February 2005.                                                                                                                                                                                                
|   
|(4) | Gross unrealized gains of $9,744 and gross unrealized losses of
    $94,118 on government securities, the adjustable rate mutual
    fund, and certificates of deposit represent an accumulated net
    unrealized loss of $84,374, which is reported as
    accumulated other comprehensive loss on the
    consolidated balance sheet as of September 30, 2004.





|   |                 
|-- | ----------------
|4. | Receivables, Net



|                                |  |                           |           |   |      |   |         |  
|------------------------------- |  | ------------------------- | --------- | - | ---- | - | ------- | -
|                                |  | Years Ended September 30, |          
|                                |  |                           |          
|                                |  | 2005                      |           |   | 2004 |  
|                                |  |                           |           |   |      |  
|Unbilled receivables            |  | $                         | 1,010,902 |   |      | $ |        |  
|Other receivables               |  |                           | 186,851   |   |      |   | 257,379 |  
|                                |  |                           |           |   |      |  
|                                |  |                           | 1,197,753 |   |      |   | 257,379 |  
|Allowance for doubtful accounts |  |                           | (28,099   | ) |      |   | (17,500 | )
|                                |  |                           |           |   |      |  
|Receivables, net                |  | $                         | 1,169,654 |   |      | $ | 239,879 |  
|                                |  |                           |           |   |      |  

F-16



---



##### Table of Contents



AvanirPharmaceuticals


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|   |                       
|-- | ----------------------
|5. | Property and Equipment



|                                          |                              |                    |           |            |                    |   |            |            |   |          |           |           |             |              |           |            |     |   |            |            |   |   |           |           | 
|----------------------------------------- | ---------------------------- | ------------------ | --------- | ---------- | ------------------ | - | ---------- | ---------- | - | -------- | --------- | --------- | ----------- | ------------ | --------- | ---------- | --- | - | ---------- | ---------- | - | - | --------- | --------- | 
|                                          |                              | September 30, 2005 |           |            | September 30, 2004 |  
|                                          |                              |                    |           |            |                    |  
|                                          |                              | Gross              |           |            |                    |   | Gross      |            |   |         
|                                          |                              | Carrying           |           |            | Accumulated        |   |            |            |   | Carrying |           |           | Accumulated |              |           |           
|                                          |                              | Value              |           |            | Depreciation       |   |            | Net        |   |          | Value     |           |             | Depreciation |           |            | Net |  
|                                          |                              |                    |           |            |                    |   |            |            |   |          |           |           |             |              |           |            |     |  
|Research and development equipment        |                              | $                  | 3,903,735 |            |                    | $ | (2,567,843 | )          |   | $        | 1,335,892 |           |             | $            | 3,701,461 |            |     | $ | (2,021,193 | )          |   | $ | 1,680,268 |          
|Computer equipment and related software   |                              |                    | 1,038,390 |            |                    |   | (565,137   | )          |   |          | 473,253   |           |             |              | 999,073   |            |     |   | (545,953   | )          |   |   | 453,120   |          
|Leasehold improvements                    |                              |                    | 5,583,177 |            |                    |   | (1,641,485 | )          |   |          | 3,941,692 |           |             |              | 5,032,605 |            |     |   | (1,048,184 | )          |   |   | 3,984,421 |          
|Office equipment, furniture, and fixtures |                              |                    | 558,911   |            |                    |   | (305,221   | )          |   |          | 253,690   |           |             |              | 558,970   |            |     |   | (285,815   | )          |   |   | 273,155   |          
|                                          |                              |                    |           |            |                    |   |            |            |   |          |           |           |             |              |           |            |     |  
|                                          | Total property and equipment |                    | $         | 11,084,213 |                    |   | $          | (5,079,686 | ) |          | $         | 6,004,527 |             |              | $         | 10,292,109 |     |   | $          | (3,901,145 | ) |   | $         | 6,390,964 | 
|                                          |                              |                    |           |            |                    |   |            |            |   |          |           |           |             |              |           |            |     |  





|   |                  
|-- | -----------------
|6. | Intangible Assets



|                                                  |                                |                         |           |           |              |  |                  |          |          |                     |            |           |           |  |  |      |  | 
|------------------------------------------------- | ------------------------------ | ----------------------- | --------- | --------- | ------------ |  | ---------------- | -------- | -------- | ------------------- | ---------- | --------- | --------- |  |  | ---- |  | 
|                                                  |                                | September 30, 2005      |          
|                                                  |                                |                         |          
|                                                  |                                | Gross                   |           |           |              |  | Weighted Average |         
|                                                  |                                | Carrying                |           |           | Accumulated  |  |                  |          |          | Amortization Period |           
|                                                  |                                | Value                   |           |           | Amortization |  |                  | Net      |          |                     | (in Years) |          
|                                                  |                                |                         |           |           |              |  |                  |          |          |                     |            |          
|Intangible assets with finite lives:              |                                |                         |           |           |              |  |                  |          |          |                     |            |           |           |  |  |     
|                                                  | Patent applications pending(1) |                         | $         | 3,029,127 |              |  | $                | (336,457 | )        |                     | $          | 2,692,670 |           |  |  | 20.0 | 
|                                                  | Patents(2)                     |                         |           | 1,429,532 |              |  |                  | (506,144 | )        |                     |            | 923,388   |           |  |  | 15.4 | 
|                                                  | Licenses                       |                         |           | 42,461    |              |  |                  | (17,904  | )        |                     |            | 24,557    |           |  |  | 15.5 | 
|                                                  |                                |                         |           |           |              |  |                  |          |          |                     |            |          
|Total intangible assets with finite lives         |                                |                         | 4,501,120 |           |              |  | (860,505         | )        |          |                     | 3,640,615  |           |           |  |  |     
|Intangible assets with indefinite useful lives(3) |                                |                         | 24,471    |           |              |  |                 |          |          |                     | 24,471     |           |           |  |  |     
|                                                  |                                |                         |           |           |              |  |                  |          |          |                     |            |          
|                                                  |                                | Total intangible assets |           | $         | 4,525,591    |  |                  | $        | (860,505 | )                   |            | $         | 3,665,086 |  |  |      |  | 
|                                                  |                                |                         |           |           |              |  |                  |          |          |                     |            |          

F-17



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##### Table of Contents



AvanirPharmaceuticals


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


|                                               |                             |                         |           |           |              |  |                  |          |          |                     |            |           |           |  |  |      |  | 
|---------------------------------------------- | --------------------------- | ----------------------- | --------- | --------- | ------------ |  | ---------------- | -------- | -------- | ------------------- | ---------- | --------- | --------- |  |  | ---- |  | 
|                                               |                             | September 30, 2004      |          
|                                               |                             |                         |          
|                                               |                             | Gross                   |           |           |              |  | Weighted Average |         
|                                               |                             | Carrying                |           |           | Accumulated  |  |                  |          |          | Amortization Period |           
|                                               |                             | Value                   |           |           | Amortization |  |                  | Net      |          |                     | (in Years) |          
|                                               |                             |                         |           |           |              |  |                  |          |          |                     |            |          
|Intangible assets with finite lives:           |                             |                         |           |           |              |  |                  |          |          |                     |            |           |           |  |  |     
|                                               | Patent applications pending |                         | $         | 2,462,704 |              |  | $                | (166,000 | )        |                     | $          | 2,296,704 |           |  |  | 20.0 | 
|                                               | Patents                     |                         |           | 1,010,097 |              |  |                  | (339,552 | )        |                     |            | 670,545   |           |  |  | 17.0 | 
|                                               | Licenses                    |                         |           | 42,461    |              |  |                  | (15,647  | )        |                     |            | 26,814    |           |  |  | 15.5 | 
|                                               |                             |                         |           |           |              |  |                  |          |          |                     |            |          
|Total intangible assets with finite lives      |                             |                         | 3,515,262 |           |              |  | (521,199         | )        |          |                     | 2,994,063  |           |           |  |  |     
|Intangible assets with indefinite useful lives |                             |                         | 40,961    |           |              |  |                 |          |          |                     | 40,961     |           |           |  |  |     
|                                               |                             |                         |           |           |              |  |                  |          |          |                     |            |          
|                                               |                             | Total intangible assets |           | $         | 3,556,223    |  |                  | $        | (521,199 | )                   |            | $         | 3,035,024 |  |  |      |  | 
|                                               |                             |                         |           |           |              |  |                  |          |          |                     |            |          






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Patent applications pending are net of impairments of $111,497
    in fiscal 2005 based on managements determination that
    certain patent applications pending had no future value. Patent
    applications pending are also net of abandonments totaling
    $220,324 (net of accumulated amortization of $34,621) in fiscal
    2005. We abandoned certain therapeutic use patent applications
    pending in selected countries, because we were able to obtain
    superior claims in composition-of-matter patents.
|   
|(2) | Patents are net of impairments of $64,889 and an abandonment of
    $2,944 (net of accumulated amortization of $68) in fiscal 2005
    for the same reasons as described above.                                                                                                                                                                                                                                                                                                                                             
|   
|(3) | Intangible assets with indefinite useful lives are net of
    $23,469 in trademarks abandoned in fiscal 2005.                                                                                                                                                                                                                                                                                                                                                                                                               



|                                 |       |   |           |           | 
|-------------------------------- | ----- | - | --------- | --------- | 
|Amortization Expense             |       |  
|                                 |       |  
|Fiscal year ending September 30: |       |   |           |          
|2006                             |       | $ | 249,834   |          
|2007                             |       |   | 249,834   |          
|2008                             |       |   | 249,491   |          
|2009                             |       |   | 241,812   |          
|2010                             |       |   | 219,600   |          
|Thereafter                       |       |   | 2,430,044 |          
|                                 |       |   |          
|                                 | Total |   | $         | 3,640,615 | 
|                                 |       |   |          



|   |                 
|-- | ----------------
|7. | Deferred Revenue



F-18



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##### Table of Contents



AvanirPharmaceuticals


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








|                                          |                                          |                        |            |            |            |   |         |          |         |   |            |            |            | 
|----------------------------------------- | ---------------------------------------- | ---------------------- | ---------- | ---------- | ---------- | - | ------- | -------- | ------- | - | ---------- | ---------- | ---------- | 
|                                          |                                          | Drug Royalty           |            |            | Other      |   |         |         
|                                          |                                          | USA Agreement          |            |            | Agreements |   |         | Total    |        
|                                          |                                          |                        |            |            |            |   |         |          |        
|Deferred revenue as of September 30, 2004 |                                          | $                      | 20,800,782 |            |            | $ | 208,333 |          |         | $ | 21,009,115 |           
|Changes during the year:                  |                                          |                        |            |            |            |   |         |          |         |   |            |           
|                                          | Recognized as revenue during the year    |                        |            | (1,750,905 | )          |   |         | (100,000 | )       |   |            | (1,850,905 | )         
|                                          |                                          |                        |            |            |            |   |         |          |        
|Deferred revenue as of September 30, 2005 |                                          | $                      | 19,049,877 |            |            | $ | 108,333 |          |         | $ | 19,158,210 |           
|                                          |                                          |                        |            |            |            |   |         |          |        
|Classified as:                            |                                          |                        |            |            |            |   |         |          |         |   |            |           
|                                          | Current portion of deferred revenue      |                        | $          | 1,937,656  |            |   | $       | 33,333   |         |   | $          | 1,970,989  |           
|                                          | Deferred revenue, net of current portion |                        |            | 17,112,221 |            |   |         | 75,000   |         |   |            | 17,187,221 |           
|                                          |                                          |                        |            |            |            |   |         |          |        
|                                          |                                          | Total deferred revenue |            | $          | 19,049,877 |   |         | $        | 108,333 |   |            | $          | 19,158,210 | 
|                                          |                                          |                        |            |            |            |   |         |          |        



|   |                              
|-- | -----------------------------
|8. | Commitments and Contingencies

Operating lease commitments.




F-19



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##### Table of Contents



AvanirPharmaceuticals


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                          |       |          |           |            | 
|------------------------- | ----- | -------- | --------- | ---------- | 
|                          |       | Minimum  |          
|Year Ending September 30, |       | Payments |          
|                          |       |          |          
|2006                      |       | $        | 1,801,259 |           
|2007                      |       |          | 1,850,930 |           
|2008                      |       |          | 1,832,255 |           
|2009                      |       |          | 1,090,463 |           
|2010                      |       |          | 1,134,084 |           
|Thereafter                |       |          | 2,753,645 |           
|                          |       |          |          
|                          | Total |          | $         | 10,462,636 | 
|                          |       |          |          

Capital lease commitments.




|                                    |       |                                   |        |        |         |  
|----------------------------------- | ----- | --------------------------------- | ------ | ------ | ------- | -
|                                    |       | Minimum                           |       
|Year Ending September 30,           |       | Payments                          |       
|                                    |       |                                   |       
|2006                                |       | $                                 | 28,742 |       
|2007                                |       |                                   | 9,581  |       
|                                    |       |                                   |       
|                                    | Total |                                   |        | 38,323 |        
|                                    |       | Less amount representing interest |        |        | (2,681  | )
|                                    |       |                                   |       
|Present value of net lease payments |       |                                   | 35,642 |       
|                                    |       | Less current portion              |        |        | (26,305 | )
|                                    |       |                                   |       
|Long-term portion of obligation     |       | $                                 | 9,337  |       
|                                    |       |                                   |       

Legal contingencies.




|   |              
|-- | -------------
|9. | Notes Payable



F-20



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##### Table of Contents



AvanirPharmaceuticals


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                |       |                                   |         |           |          |  
|------------------------------- | ----- | --------------------------------- | ------- | --------- | -------- | -
|                                |       | Minimum                           |        
|Year Ending September 30,       |       | Payments                          |        
|                                |       |                                   |        
|2006                            |       | $                                 | 396,612 |          
|2007                            |       |                                   | 396,612 |          
|2008                            |       |                                   | 268,194 |          
|2009                            |       |                                   | 33,628  |          
|                                |       |                                   |        
|                                | Total |                                   |         | 1,095,046 |         
|                                |       | Less amount representing interest |         |           | (140,094 | )
|                                |       |                                   |        
|Present value of payments       |       |                                   | 954,952 |          
|                                |       | Less current portion              |         |           | (317,667 | )
|                                |       |                                   |        
|Long-term portion of obligation |       | $                                 | 637,285 |          
|                                |       |                                   |        

Other Notes Payable.




|    |                     
|--- | --------------------
|10. | Shareholders Equity





| |                
| | ---------------
| | Preferred Stock





F-21



---



##### Table of Contents



AvanirPharmaceuticals


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






| |             
| | ------------
| | Common stock



| |                      
| | ---------------------
| | Class A common stock.

Fiscal 2005.










Fiscal 2004.




F-22



---



##### Table of Contents



AvanirPharmaceuticals


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








Fiscal 2003.






F-23



---



##### Table of Contents



AvanirPharmaceuticals


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                      |                                                                    |       |  |                |              |  |              |             |            |               |              |            |            |  |   |      |  | 
|------------------------------------- | ------------------------------------------------------------------ | ----- |  | -------------- | ------------ |  | ------------ | ----------- | ---------- | ------------- | ------------ | ---------- | ---------- |  | - | ---- |  | 
|Common Stock Issued and Warrants      |                                                                    |       |  | Class A        |              |  | Gross Amount |             |            | Average Price |             
|and Stock Options Exercised           |                                                                    | Date  |  |                | Common Stock |  |              | Received(1) |            |               | Per Share(2) |           
|                                      |                                                                    |       |  |                |              |  |              |             |            |               |              |           
|Fiscal year ended September 30, 2005: |                                                                    |       |  |                |              |  |              |             |            |               |              |            |            |  |   |     
|                                      | Private placement of common stock                                  |       |  | December 2004  |              |  |              | 2,333,333   |            |               | $            | 6,999,999  |            |  | $ | 3.00 | 
|                                      | Private placement of common stock                                  |       |  | April 2005     |              |  |              | 7,770,000   |            |               |              | 17,094,000 |            |  | $ | 2.20 | 
|                                      | Acquisition of certain contractual rights to Neurodex              |       |  | March 2005     |              |  |              | 2,000,000   |            |               |              | 5,300,000  |            |  | $ | 2.65 | 
|                                      | Restricted stock award                                             |       |  | September 2005 |              |  |              | 1,000,000   |            |               |              | 1,000      |            |  | $ | 0.00 | 
|                                      | Stock options                                                      |       |  | Various        |              |  |              | 111,894     |            |               |              | 125,491    |            |  | $ | 1.12 | 
|                                      | Warrants(4)                                                        |       |  | Various        |              |  |              | 845,942     |            |               |              | 1,293,339  |            |  | $ | 1.53 | 
|                                      |                                                                    |       |  |                |              |  |              |             |            |               |              |           
|                                      |                                                                    | Total |  |                |              |  |              |             | 14,061,169 |               |              | $          | 30,813,829 |  |   |      |  | 
|                                      |                                                                    |       |  |                |              |  |              |             |            |               |              |           
|Fiscal year ended September 30, 2004: |                                                                    |       |  |                |              |  |              |             |            |               |              |            |            |  |   |     
|                                      | Underwritten public offering(3)                                    |       |  | June 2004      |              |  |              | 22,637,796  |            |               | $            | 26,737,500 |            |  | $ | 1.18 | 
|                                      | Private placement of common stock and warrants                     |       |  | December 2003  |              |  |              | 5,382,316   |            |               |              | 8,019,652  |            |  | $ | 1.49 | 
|                                      | Issuance of common stock to Ciblex                                 |       |  | August 2004    |              |  |              | 1,036,807   |            |               |              | 2,733,023  |            |  | $ | 2.64 | 
|                                      | Conversions of Class B common stock                                |       |  | Various        |              |  |              | 13,500      |            |               |              | 8,395      |            |  | $ | 0.62 | 
|                                      | Stock options                                                      |       |  | Various        |              |  |              | 124,009     |            |               |              | 160,823    |            |  | $ | 1.30 | 
|                                      | Warrants(4)                                                        |       |  | Various        |              |  |              | 294,895     |            |               |              | 448,671    |            |  | $ | 1.59 | 
|                                      |                                                                    |       |  |                |              |  |              |             |            |               |              |           
|                                      |                                                                    | Total |  |                |              |  |              |             | 29,489,323 |               |              | $          | 38,108,064 |  |   |      |  | 
|                                      |                                                                    |       |  |                |              |  |              |             |            |               |              |           
|Fiscal year ended September 30, 2003: |                                                                    |       |  |                |              |  |              |             |            |               |              |            |            |  |   |     
|                                      | Private placement of common stock and warrants                     |       |  | July 2003      |              |  |              | 6,728,396   |            |               | $            | 10,025,320 |            |  | $ | 1.49 | 
|                                      | Conversions of Series D redeemable convertible preferred
    stock |       |  | May 2003       |              |  |              | 660,305     |            |               |              | 536,630    |            |  | $ | 0.81 | 
|                                      | Restricted stock grants to directors                               |       |  | March 2003     |              |  |              | 80,000      |            |               |              | 92,800     |            |  | $ | 1.16 | 
|                                      | Stock options                                                      |       |  | Various        |              |  |              | 24,000      |            |               |              | 25,500     |            |  | $ | 1.06 | 
|                                      | Warrants(4)                                                        |       |  | Various        |              |  |              | 53,200      |            |               |              | 59,850     |            |  | $ | 1.13 | 
|                                      |                                                                    |       |  |                |              |  |              |             |            |               |              |           
|                                      |                                                                    | Total |  |                |              |  |              |             | 7,545,901  |               |              | $          | 10,740,100 |  |   |      |  | 
|                                      |                                                                    |       |  |                |              |  |              |             |            |               |              |           






|    |                                                                                                                                                                  
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Amount received represents the amount before the cost of
    financing and after underwriters discount, if any.                                                 
|   
|(2) | Average price per share has been rounded to two decimal places.                                                                                                  
|   
|(3) | Price per share of $1.18 in the underwritten public offering is
    after underwriters discount of $2.0 million,
    representing approximately $0.09 per share.
|   
|(4) | Includes 19,119 shares issued on a cashless
    exercise basis at an average exercise price of $1.05 per
    share.                                            

Class B common stock conversions.


F-24



---



##### Table of Contents



AvanirPharmaceuticals


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




| |         
| | --------
| | Warrants

Class A warrants.


Class G warrants.


Class J warrants.




|                                  |             |                      |           |           |                |   |      |                 |  |   |            |            | 
|--------------------------------- | ----------- | -------------------- | --------- | --------- | -------------- | - | ---- | --------------- |  | - | ---------- | ---------- | 
|                                  |             | Shares of Class A    |           |           | Weighted       |   |      |                
|                                  |             | Common Stock         |           |           | Average        |   |      |                
|                                  |             | Purchasable Upon     |           |           | Exercise Price |   |      | Range of        | 
|                                  |             | Exercise of Warrants |           |           | per Share      |   |      | Exercise Prices | 
|                                  |             |                      |           |           |                |   |      |                 | 
|Outstanding at October 1, 2002    |             |                      | 1,084,550 |           |                | $ | 1.42 |                 |  | $ | 0.91$2.72 |           
|                                  | Issued      |                      |           | 1,345,673 |                |   | $    | 2.23            |  |   | $          | 2.23       | 
|                                  | Expired     |                      |           | (87,123   | )              |   | $    | 1.28            |  |   | $          | 1.28       | 
|                                  | Exercised   |                      |           | (53,200   | )              |   | $    | 1.13            |  |   | $          | 1.13       | 
|                                  |             |                      |           |           |                |   |      |                 | 
|Outstanding at September 30, 2003 |             |                      | 2,289,900 |           |                | $ | 1.91 |                 |  | $ | 0.91$2.72 |           
|                                  | Issued      |                      |           | 3,402,906 |                |   | $    | 1.75            |  |   | $          | 1.75       | 
|                                  | Tendered(1) |                      |           | (30,881   | )              |   | $    | 1.05            |  |   | $          | 1.05       | 
|                                  | Expired     |                      |           | (32,877   | )              |   | $    | 2.44            |  |   | $          | 2.44       | 
|                                  | Exercised   |                      |           | (294,895  | )              |   | $    | 1.59            |  |   | $          | 1.05-$1.75 | 
|                                  |             |                      |           |           |                |   |      |                 | 
|Outstanding at September 30, 2004 |             |                      | 5,334,153 |           |                | $ | 1.83 |                 |  | $ | 1.38$2.72 |           
|                                  | Exercised   |                      |           | (845,942  | )              |   | $    | 1.53            |  |   | $          | 1.45-$2.19 | 
|                                  |             |                      |           |           |                |   |      |                 | 
|Outstanding at September 30, 2005 |             |                      | 4,488,211 |           |                | $ | 1.89 |                 |  | $ | 1.75-$2.23 |           
|                                  |             |                      |           |           |                |   |      |                 | 






|    |                                                                                                                                                          
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Warrant shares tendered represent 30,881 in the amount of
    warrant shares given up, in lieu of cash, for warrants exercised
    (cashless exercise).



| |              
| | -------------
| | Stock options

Stock options to employees.


Stock options to non-employee directors.


F-25



---



##### Table of Contents



AvanirPharmaceuticals


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




2005 Equity Incentive Plan.


2003 Equity Incentive Plan.


2000 Stock Option Plan.


1998 Stock Option Plan.


Canceled stock options.


F-26



---



##### Table of Contents



AvanirPharmaceuticals


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                  |           |                    |           |            |                 |   |      |      | 
|--------------------------------- | --------- | ------------------ | --------- | ---------- | --------------- | - | ---- | ---- | 
|                                  |           | Number of Shares   |           |            | Weighted        |  
|                                  |           | Underlying Class A |           |            | Average Option  |  
|                                  |           | Stock Options      |           |            | Price Per Share |  
|                                  |           |                    |           |            |                 |  
|Outstanding at October 1, 2002    |           |                    | 5,739,306 |            |                 | $ | 2.25 |     
|                                  | Granted   |                    |           | 737,500    |                 |   | $    | 1.15 | 
|                                  | Exercised |                    |           | (24,000    | )               |   | $    | 1.06 | 
|                                  | Canceled  |                    |           | (1,144,202 | )               |   | $    | 2.93 | 
|                                  |           |                    |           |            |                 |  
|Outstanding at September 30, 2003 |           |                    | 5,308,604 |            |                 | $ | 1.96 |     
|                                  | Granted   |                    |           | 243,000    |                 |   | $    | 1.81 | 
|                                  | Exercised |                    |           | (124,009   | )               |   | $    | 1.30 | 
|                                  | Canceled  |                    |           | (174,002   | )               |   | $    | 2.64 | 
|                                  |           |                    |           |            |                 |  
|Outstanding at September 30, 2004 |           |                    | 5,253,593 |            |                 | $ | 1.95 |     
|                                  | Granted   |                    |           | 1,519,500  |                 |   | $    | 3.15 | 
|                                  | Exercised |                    |           | (111,894   | )               |   | $    | 1.12 | 
|                                  | Canceled  |                    |           | (261,068   | )               |   | $    | 3.53 | 
|                                  |           |                    |           |            |                 |  
|Outstanding at September 30, 2005 |           |                    | 6,400,131 |            |                 | $ | 2.19 |     
|                                  |           |                    |           |            |                 |  
|Exercisable at September 30, 2005 |           |                    | 5,031,583 |            |                 | $ | 1.98 |     
|                                  |           |                    |           |            |                 |  
|Exercisable at September 30, 2004 |           |                    | 4,656,411 |            |                 | $ | 1.99 |     
|                                  |           |                    |           |            |                 |  
|Exercisable at September 30, 2003 |           |                    | 4,303,092 |            |                 | $ | 1.99 |     
|                                  |           |                    |           |            |                 |  

:


|                         |  |                     |           |           |                     |  |          |          |  |   |             |          |  |          |           |  |  |   |      | 
|------------------------ |  | ------------------- | --------- | --------- | ------------------- |  | -------- | -------- |  | - | ----------- | -------- |  | -------- | --------- |  |  | - | ---- | 
|                         |  | Options Outstanding |           |           | Options Exercisable | 
|                         |  |                     |           |           |                     | 
|                         |  |                     |           | Weighted  |                     |  |          |          | 
|                         |  |                     |           | Average   |                     |  | Weighted |          |  |   |             | Weighted | 
|                         |  |                     |           | Remaining |                     |  | Average  |          |  |   |             | Average  | 
|                         |  | Number              |           |           | Contractual         |  |          | Exercise |  |   | Number      |          |  | Exercise |          
|Range of Exercise Prices |  | Outstanding         |           |           | Life in Years       |  |          | Price    |  |   | Exercisable |          |  | Price    |          
|                         |  |                     |           |           |                     |  |          |          |  |   |             |          |  |          |          
|$0.30  $0.72            |  |                     | 882,974   |           |                     |  | 3.44     |          |  | $ | 0.69        |          |  |          | 882,974   |  |  | $ | 0.69 | 
|$0.78                    |  |                     | 15,000    |           |                     |  | 3.79     |          |  | $ | 0.78        |          |  |          | 15,000    |  |  | $ | 0.78 | 
|$1.00  $1.16            |  |                     | 838,305   |           |                     |  | 6.36     |          |  | $ | 1.13        |          |  |          | 768,689   |  |  | $ | 1.12 | 
|$1.28  $2.31            |  |                     | 1,638,466 |           |                     |  | 4.28     |          |  | $ | 1.66        |          |  |          | 1,544,200 |  |  | $ | 1.66 | 
|$2.47  $2.94            |  |                     | 1,131,631 |           |                     |  | 6.83     |          |  | $ | 2.70        |          |  |          | 614,965   |  |  | $ | 2.57 | 
|$3.00  $3.57            |  |                     | 1,705,000 |           |                     |  | 7.73     |          |  | $ | 3.37        |          |  |          | 1,017,000 |  |  | $ | 3.39 | 
|$4.00  $6.44            |  |                     | 188,755   |           |                     |  | 5.72     |          |  | $ | 4.70        |          |  |          | 188,755   |  |  | $ | 4.70 | 
|                         |  |                     |           |           |                     |  |          |          |  |   |             |          |  |          |          
|                         |  |                     | 6,400,131 |           |                     |  | 5.85     |          |  | $ | 2.18        |          |  |          | 5,031,583 |  |  | $ | 1.98 | 
|                         |  |                     |           |           |                     |  |          |          |  |   |             |          |  |          |          



|    |                             
|--- | ----------------------------
|11. | License and Other Agreements

Novartis International Pharmaceutical Ltd.
(Novartis).


F-27



---



##### Table of Contents



AvanirPharmaceuticals


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)








AstraZeneca UK Limited (AstraZeneca).






F-28



---



##### Table of Contents



AvanirPharmaceuticals


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




CTS Chemical Industries, Ltd. (CTS).


Boryung Pharmaceuticals Company Ltd
(Boryung).


GlaxoSmithKline Subsidiary, SB Pharmco Puerto Rico, Inc.
(GlaxoSmithKline).


Bruno Farmaceutici (Bruno).


P.N. Gerolymatos SA. (Gerolymatos).


ACO HUD.


F-29



---



##### Table of Contents



AvanirPharmaceuticals


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




Government research grants.




|    |                           
|--- | --------------------------
|12. | Related Party Transactions



| |                                     
| | ------------------------------------
| | IriSys Research and Development, LLC

License Agreement.






F-30



---



##### Table of Contents



AvanirPharmaceuticals


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






Fair Value Analysis.


Research and development.




|    |             
|--- | ------------
|13. | Income Taxes



|                                                          |  |      |             |   |      |   |             |      |  |   |             |  
|--------------------------------------------------------- |  | ---- | ----------- | - | ---- | - | ----------- | ---- |  | - | ----------- | -
|                                                          |  | 2005 |             |   | 2004 |   |             | 2003 | 
|                                                          |  |      |             |   |      |   |             |      | 
|Current:                                                  |  |      |             |   |      |   |             |      |  |   |             |  
|State and foreign                                         |  | $    | (1,813      | ) |      | $ | (2,664      | )    |  | $ | (3,599      | )
|                                                          |  |      |             |   |      |   |             |      | 
|Deferred:                                                 |  |      |             |   |      |   |             |      |  |   |             |  
|Federal                                                   |  |      | 10,143,270  |   |      |   | 10,900,106  |      |  |   | 8,676,371   |  
|State                                                     |  |      | 5,017,269   |   |      |   | 246,528     |      |  |   | 3,892,419   |  
|                                                          |  |      |             |   |      |   |             |      | 
|                                                          |  |      | 15,160,539  |   |      |   | 11,146,634  |      |  |   | 12,568,790  |  
|                                                          |  |      |             |   |      |   |             |      | 
|Increase in deferred income tax asset valuation allowance |  |      | (15,160,539 | ) |      |   | (11,146,634 | )    |  |   | (12,568,790 | )
|                                                          |  |      |             |   |      |   |             |      | 
|Total income tax provision                                |  | $    | (1,813      | ) |      | $ | (2,664      | )    |  | $ | (3,599      | )
|                                                          |  |      |             |   |      |   |             |      | 

F-31



---



##### Table of Contents



AvanirPharmaceuticals


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                          |  |      |     |    |      |  |     |      |  |  |     |   
|--------------------------------------------------------- |  | ---- | --- | -- | ---- |  | --- | ---- |  |  | --- | --
|                                                          |  | 2005 |     |    | 2004 |  |     | 2003 | 
|                                                          |  |      |     |    |      |  |     |      | 
|Federal statutory rate                                    |  |      | (34 | )% |      |  | (34 | )%   |  |  | (34 | )%
|Increase in deferred income tax asset valuation allowance |  |      | 50  |    |      |  | 40  |      |  |  | 54  |   
|State income taxes, net of federal effect                 |  |      | (6  | )  |      |  | (6  | )    |  |  | (6  | ) 
|Research and development credits                          |  |      | (5  | )  |      |  | (4  | )    |  |  | (5  | ) 
|Foreign tax credit                                        |  |      |    |    |      |  |    |      |  |  |    |   
|State net operating loss limitations                      |  |      |    |    |      |  | 1   |      |  |  | (1  | ) 
|Other                                                     |  |      | (5  | )  |      |  | 3   |      |  |  | (8  | ) 
|                                                          |  |      |     |    |      |  |     |      | 
|Effective income tax rate                                 |  |      | 0   | %  |      |  | 0   | %    |  |  | 0   | % 
|                                                          |  |      |     |    |      |  |     |      | 



|                                                            |  |               |             |   |      |   |             |  
|----------------------------------------------------------- |  | ------------- | ----------- | - | ---- | - | ----------- | -
|                                                            |  | September 30, |            
|                                                            |  |               |            
|                                                            |  | 2005          |             |   | 2004 |  
|                                                            |  |               |             |   |      |  
|Net operating loss carryforwards                            |  | $             | 45,035,045  |   |      | $ | 36,718,417  |  
|Deferred revenue                                            |  |               | 7,631,558   |   |      |   | 8,368,855   |  
|Research credit carryforwards                               |  |               | 10,468,702  |   |      |   | 8,720,996   |  
|Capitalized research and development costs                  |  |               | 3,903,561   |   |      |   | 2,449,685   |  
|Capitalized license fees                                    |  |               | 5,193,944   |   |      |   | 626,822     |  
|Foreign tax credits                                         |  |               | 595,912     |   |      |   | 590,342     |  
|Other                                                       |  |               | 694,531     |   |      |   | 887,461     |  
|                                                            |  |               |             |   |      |  
|Net deferred income tax assets                              |  |               | 73,523,253  |   |      |   | 58,362,578  |  
|Less valuation allowance for net deferred income tax assets |  |               | (73,523,253 | ) |      |   | (58,362,578 | )
|                                                            |  |               |             |   |      |  
|                                                            |  | $             |            |   |      | $ |            |  
|                                                            |  |               |             |   |      |  





|    |                      
|--- | ---------------------
|14. | Employee Savings Plan



F-32



---



##### Table of Contents



AvanirPharmaceuticals


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|    |                    
|--- | -------------------
|15. | Segment Information









|    |                 
|--- | ----------------
|16. | Subsequent Event





F-33



---



##### Table of Contents



Exhibit Index


|       |    |               |  |                                                                                                                                                                                           
|------ | -- | ------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number |    | Exhibit Title
|       |    |              
|       | 3  | .1            |  | Restated Articles of Incorporation of the Registrant, dated
    April 1, 2004(13)                                                                                                         
|      
|       | 3  | .2            |  | Amended and Restated Bylaws of the Registrant, dated
    September 25, 2005(14)                                                                                                           
|      
|       | 4  | .1            |  | Form of Class A Common Stock Certificate(1)                                                                                                                                               
|      
|       | 4  | .2            |  | Certificate of Determination with respect to Series C
    Junior Participating Preferred Stock of the Registrant(2)                                                                       
|      
|       | 4  | .3            |  | Rights Agreement, dated as of March 5, 1999, with American
    Stock Transfer & Trust Company(2)                                                                                          
|      
|       | 4  | .4            |  | Form of Rights Certificate with respect to the Rights Agreement,
    dated as of March 5, 1999(2)                                                                                         
|      
|       | 4  | .5            |  | Amendment No. 1 to Rights Agreement, dated
    November 30, 1999, with American Stock Transfer &
    Trust Company(4)                                                                     
|      
|       | 4  | .6            |  | Form of Class A Stock Purchase Warrant, issued in
    connection with the Securities Purchase Agreement dated
    July 21, 2003(10)                                                       
|      
|       | 4  | .7            |  | Form of Class A Stock Purchase Warrant, issued in
    connection with the Securities Purchase Agreement dated
    November 25, 2003(11)                                                   
|      
|       | 10 | .1            |  | License Agreement, dated March 31, 2000, by and between
    AvanirPharmaceuticals and SB Pharmco Puerto Rico, a Puerto
    Rico Corporation(5)                                            
|      
|       | 10 | .2            |  | License Agreement, dated November 22, 2002, by and between
    AvanirPharmaceuticals and Drug Royalty USA, Inc.(17)                                                                       
|      
|       | 10 | .3            |  | Research, Development and Commercialization Agreement, dated
    April 27, 2005, by and between
    AvanirPharmaceuticals and Novartis International Pharmaceutical
    Ltd.*(18)         
|      
|       | 10 | .4            |  | Research Collaboration and License Agreement, dated July 8,
    2005, by and between
    AvanirPharmaceuticals and AstraZeneca UK Limited*                                                
|      
|       | 10 | .5            |  | Standard Industrial Net Lease by and between
    AvanirPharmaceuticals and BC Sorrento, LLC, effective
    September 1, 2000(6)                                                           
|      
|       | 10 | .6            |  | License Agreement, dated August 1, 2000, by and between
    AvanirPharmaceuticals (Licensee) and Irisys
    Research and Development, LLC, a California limited liability
    company(6)
|      
|       | 10 | .7            |  | Asset Purchase Agreement, dated March 8, 2005, by and among
    AvanirPharmaceuticals,
    AvanirHolding
    Company, IriSys, Inc., Gerald J. Yakatan, Ph.D. and Gina M.
    Stack(19)    
|      
|       | 10 | .8            |  | License Agreement, dated April 2, 1997, by and between
    Irisys Research & Development, LLC and the Center for
    Neurologic Study(16)                                                 
|      
|       | 10 | .9            |  | Amendment to License Agreement, dated April 11, 2000, by
    and between IriSys Research & Development, LLC and the
    Center for Neurologic Study(16)                                   
|      
|       | 10 | .10           |  | Amended and Restated 1998 Stock Option Plan(7)                                                                                                                                            
|      
|       | 10 | .11           |  | Amended and Restated 1994 Stock Option Plan(7)                                                                                                                                            
|      
|       | 10 | .12           |  | Standard Industrial Net Lease by and between
    AvanirPharmaceuticals (Tenant) and Sorrento Plaza,
    a California limited partnership (Landlord),
    effective May 20, 2002(8)    
|      
|       | 10 | .13           |  | Amended and Restated 2000 Stock Option Plan(9)                                                                                                                                            
|      
|       | 10 | .14           |  | Form of Restricted Stock Grant Notice for use with Amended and
    Restated 2000 Stock Option Plan(9)                                                                                     
|      
|       | 10 | .15           |  | 2003 Equity Incentive Plan(9)                                                                                                                                                             
|      
|       | 10 | .16           |  | Form of Non-qualified Stock Option Award Notice for use with
    2003 Equity Incentive Plan(9)                                                                                            
|      
|       | 10 | .17           |  | Form of Restricted Stock Grant for use with 2003 Equity
    Incentive Plan(9)                                                                                                             
|      
|       | 10 | .18           |  | Form of Restricted Stock Grant Notice (cash consideration) for
    use with 2003 Equity Incentive Plan(9)                                                                                 
|      
|       | 10 | .19           |  | Form of Indemnification Agreement with certain Directors and
    Executive Officers of the Registrant (12)                                                                                
|      
|       | 10 | .20           |  | Clinical Development Agreement, dated March 22, 2005, by
    and between AvanirPharmaceuticals and SCIREX Corporation(16)                                                                 
|      
|       | 10 | .21           |  | 2005 Equity Incentive Plan                                                                                                                                                                



---



##### Table of Contents



|       |    |               |  |                                                                                                       
|------ | -- | ------------- |  | ------------------------------------------------------------------------------------------------------
|Number |    | Exhibit Title
|       |    |              
|      
|       | 10 | .22           |  | Form of Stock Option Agreement for use with 2005 Equity
    Incentive Plan (20)                       
|      
|       | 10 | .23           |  | Employment Agreement with Eric Brandt, dated August 15,
    2005*                                     
|      
|       | 10 | .24           |  | Stock Purchase Agreement, dated October 18, 2005 (21)                                                 
|      
|       | 10 | .25           |  | Employment Agreement with Keith Katkin, dated June 13, 2005                                           
|      
|       | 21 | .1            |  | List of Subsidiaries                                                                                  
|      
|       | 23 | .1            |  | Consent of Independent Registered Public Accounting Firm                                              
|      
|       | 24 | .1            |  | Power of Attorney (contained on signature page)                                                       
|      
|       | 31 | .1            |  | Certification of Chief Executive Officer pursuant to
    Section 302 of Sarbanes-Oxley Act of 2002    
|      
|       | 31 | .2            |  | Certification of Chief Financial Officer pursuant to
    Section 302 of Sarbanes-Oxley Act of 2002    
|      
|       | 32 | .1            |  | Certification of Chief Executive Officer pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002
|      
|       | 32 | .2            |  | Certification of Chief Financial Officer pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002






| |   |                                  
| | - | ---------------------------------
| | * | Confidential treatment requested.



| |     |                                                                                                                                                                                                                    
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) | Incorporated by reference to the similarly described exhibit
    included with the Registrants Registration Statement on
    Form S-1, File No. 33-32742, declared effective by the
    Commission on May 8, 1990.
|
| | (2) | Incorporated by reference to the similarly described exhibit
    included with the Registrants Current Report on
    Form 8-K, filed March 11, 1999.                                                              
|
| | (3) | Incorporated by reference to the similarly described exhibit
    included with the Registrants Current Report on
    Form 8-K, filed April 1, 1999.                                                               
|
| | (4) | Incorporated by reference to the similarly described exhibit
    included with the Registrants Current Report on
    Form 8-K, filed December 3, 1999.                                                            
|
| | (5) | Incorporated by reference to the similarly described exhibit
    included with the Registrants Current Report on
    Form 8-K, filed May 4, 2000.                                                                 
|
| | (6) | Incorporated by reference to the similarly described exhibit
    included with the Registrants Quarterly Report on
    Form 10-Q, filed August 14, 2000.                                                          
|
| | (7) | Incorporated by reference to the similarly described exhibit
    included with the Registrants Annual Report on
    Form 10-K, filed December 21, 2001.                                                           
|
| | (8) | Incorporated by reference to the similarly described exhibit
    included with the Registrants Quarterly Report on
    Form 10-Q, filed August 13, 2002.                                                          
|
| | (9) | Incorporated by reference to the similarly described exhibit
    included with the Registrants Quarterly Report on
    Form 10-Q, filed May 13, 2003.                                                             



|     |                                                                                                                                                                                                                
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(10) | Incorporated by reference to the similarly described exhibit
    included with the Registrants Registration on
    From S-3, File No. 333-107820, declared effective by
    the Commission on August 19, 2003.
|    
|(11) | Incorporated by reference to the similarly described exhibit
    included with the Registrants Current Report on
    Form 8-K, filed December 11, 2003.                                                       
|    
|(12) | Incorporated by reference to the similarly described exhibit
    included with the Registrants Annual Report on
    Form 10-K, filed December 23, 2003.                                                       
|    
|(13) | Incorporated by reference to the similarly described exhibit
    included with the Registrants Current Report on
    Form 8-K, filed on April 6, 2004.                                                        
|    
|(14) | Incorporated by reference to the similarly described exhibit
    included with the Registrants Current Report on
    Form 8-K, filed September 28, 2005.                                                      
|    
|(15) | Incorporated by reference to the similarly described exhibit
    included with the Registrants Current Report on
    Form 8-K, filed September 21, 2004.                                                      
|    
|(16) | Incorporated by reference to the similarly described exhibit
    included with the Registrants Current Report on
    Form 10-Q, filed May 13, 2005.                                                           
|    
|(17) | Incorporated by reference to the similarly described exhibit
    included with the Registrants Current Report on
    Form 8-K, filed January 7, 2003.                                                         



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##### Table of Contents





|     |                                                                                                                                                        
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------
|(18) | Incorporated by reference to the similarly described exhibit
    included with the Registrants Current Report on
    Form 10-Q, filed August 12, 2005.
|    
|(19) | Incorporated by reference to the similarly described exhibit
    included with the Registrants Current Report on
    Form 8-K, filed March 11, 2005.  
|    
|(20) | Incorporated by reference to the similarly described exhibit
    included with the Registrants Current Report on
    Form 8-K, filed March 23, 2005.  
|    
|(21) | Incorporated by reference to the similarly described exhibit
    included with the Registrants Current Report on
    Form 8-K, filed October 24, 2005.