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Aeolus Announces Third Quarter Fiscal Year 2014 Financial Results and Achievements in Lung-ARS Development Program

MISSION VIEJO, CA -- (Marketwired) -- 08/15/14 -- Aeolus Pharmaceuticals, Inc. (OTCQB: AOLS), a biotechnology company developing compounds to protect against radiological and chemical threats with significant funding from the US Government, announced today financial results for the three and nine months ended June 30, 2014.

The Company reported net income of approximately $1,576,000, or $0.01 per share for the three months ended June 30, 2014. This compares to a net loss of $786,000, or $0.01 per share, for the three months ended June 30, 2013.

For the nine months ended June 30, 2014, the Company reported net income of $445,000 or $0.00 per share. This compares to a net loss of $2,541,000 (including a non-cash adjustment for increases in valuation of warrants of $510,000) or $0.03 per share for the nine months ended June 30, 2013.

"During the quarter, we continued to make significant progress towards our goal of filing a pre-Emergency Use Authorization application for AEOL 10150 as a treatment for pulmonary effects of Acute Radiation Syndrome ('Lung-ARS') and we look forward to announcing a series of completed milestones in the development program over the next several months," stated John L. McManus, President and Chief Executive Officer. "We expect to file our IND for Lung-ARS before the end of August and to submit a Fast Track Application soon thereafter. Also, we expect to report preliminary results from our large rhesus macaque monkey study in Lung-ARS before the end of the current quarter, complete the remaining items in our manufacturing program to produce registration batches and present our annual report on progress to the Biomedical Advanced Research and Development Authority ('BARDA'). At the BARDA meeting we will request exercise of the next set of options under our development contract."

"Pending clearance of the Lung-ARS IND by the Food and Drug Administration ('FDA'), we plan to initiate a Phase 1 study in healthy normal volunteers funded by our BARDA contract. Thereafter, we will request Pre-IND meetings with the respiratory and oncology divisions of the FDA to finalize details for new INDs with those divisions to enable Phase 2 clinical studies in patients as we expand development of AEOL 10150 to other indications. These accomplishments, combined with the work already completed under our contract with BARDA should position us well to begin the process of a pre-Emergency Use Authorization filing."

Key Accomplishments During the Quarter:

  • In June, three studies in two different strains of mice were initiated under the BARDA contract. The studies are designed to (1) determine the optimal duration of treatment with AEOL 10150 after radiation exposure, (2) expand beyond 24 hours the time at which treatment can be administered and, (3) explore the natural history of radiation damage to the lungs and AEOL 10150's effect beyond 180 days after exposure. Results from the duration and treatment window studies should be reported during the 1st half of calendar 2015. Natural history results are expected in the second half of 2015.
  • Bridging studies comparing the new, improved formulation of AEOL 10150 to the old formulation were completed. The old formulation met FDA regulatory/toxicity guidelines for clinical administration in multiple human studies. The new regulatory compliant (GLP) studies demonstrated that the toxicity and pharmacokinetics of the formulations were comparable. This demonstration of comparability is expected to allow toxicology data generated with the old formulation to be used to support regulatory filings for the new formulation. These studies also showed that the new formulation is more stable at room temperature, less likely to cause irritation and has superior bioavailability in animals.
  • Additional data was presented at the NIH CounterACT meeting in June providing further evidence of AEOL 10150's efficacy in improving survival in sulfur mustard exposure to the lungs and in providing protection against skin damage from nitrogen mustard exposure.

As of June 30, 2014, the Company had approximately $1,272,000 in cash and cash equivalents and 134,550,068 common shares outstanding. The Company had accounts receivable of $2,719,000 and accounts payable of $2,426,000 on June 30, 2014.

On May 5, 2014, the Company executed a Modification of Contract with BARDA. The purpose of the Modification was to (1) make available $1,777,882 in reimbursement to the Company for actual indirect costs incurred under the first three years of its contract with BARDA, (2) establish an increased provisional indirect billing rate for FY2014 and, (3) cap future adjustments to the indirect billing rate for the remaining contract period of performance. The Company received payment of the $1,777,882 on May 15, 2014. The effect of the Modification was (a) to increase the cash balance of the Company and (b) to increase the billing rate for indirect costs under the contract.

Results of Operations for the Three Months Ended June 30, 2014

Revenue for the three months ended June 30, 2014 was approximately $4,983,000, versus revenue of $844,000 for the three months ended June 30, 2013. The revenue is from the contract with BARDA announced on February 11, 2011. Higher revenue in 2014 reflects the timing of the initiation of program items, the receipt of $1,777,882 in reimbursement under the Modification of Contract and revenue recognition under accounting rules.

Research and development expenses increased to approximately $2,829,000 for the three months ended June 30, 2014, from approximately $727,000 for the three months ended June 30, 2013. The increase in 2014 expenses reflects both the initiation of program items under the BARDA contract (including manufacturing improvements and non-human primate studies) and expense recognition under accounting rules.

General and administrative expenses were approximately $577,000 for the three months ended June 30, 2014 compared to approximately $903,000 for the three months ended June 30, 2013. The lower expense was due to savings in employee salaries and benefits and reduced legal expenses.

Results of Operations for the Nine Months Ended June 30, 2014

Revenue for the nine months ended June 30, 2014 was approximately $7,214,000, which compares to revenue of $3,045,000 for the nine months ended June 30, 2013. The revenue is from the contract with BARDA announced on February 11, 2011. Higher revenue in 2014 reflects the initiation of program items, the receipt of $1,777,882 in reimbursement under the Modification of Contract and revenue recognition under accounting rules.

Research and development expenses increased to approximately $4,709,000 for the nine months ended June 30, 2014, from approximately $2,514,000 for the nine months ended June 30, 2013. The increase in 2014 expenses reflects both the initiation of program items under the BARDA contract (including manufacturing improvements and non-human primate studies) and expense recognition under accounting rules.

General and administrative expenses were approximately $2,059,000 for the nine months ended June 30, 2014 compared to approximately $2,562,000 for the nine months ended June 30, 2013. The lower expense was due to savings in employee salaries and benefits and legal expenses.

Aeolus has filed today with the SEC its Quarterly Report on Form 10-Q for the quarter ended June 30, 2014. Aeolus urges its investors to read this quarterly filing as well as its Annual Report on Form 10-K, also filed with the SEC, for further details concerning the Company. The Quarterly Report on Form 10-Q and the Annual Report on Form 10-K are also available on the Company's website, at www.aolsrx.com.

About AEOL 10150
AEOL 10150 is a broad-spectrum catalytic antioxidant specifically designed to neutralize reactive oxygen and nitrogen species. The neutralization of these species reduces oxidative stress, inflammation, and subsequent tissue damage-signaling cascades resulting from radiation exposure. AEOL 10150 may have a profound beneficial impact on people who have been exposed, or are about to be exposed, to high-doses of radiation in the treatment of oncology.

AEOL 10150 has performed well in preclinical and non-clinical studies, demonstrating statistically significant survival benefit in an acute radiation-induced lung injury model, and was well-tolerated in two human clinical trials. The Company believes it could have a profound beneficial impact on people who have been exposed, or are about to be exposed, to high-doses of radiation, whether from cancer therapy or a nuclear event.

About Aeolus Pharmaceuticals
Aeolus Pharmaceuticals is developing a platform of a new class of broad-spectrum, catalytic-antioxidant compounds that protect healthy tissue from the damaging effects of radiation. Its first compound, AEOL 10150, is being developed, with funding by the US Department of Health and Human Services, as a medical countermeasure against chemical and radiological weapons, where its initial target indications are as a protective agent against the effects of acute radiation syndrome and delayed effects of acute radiation exposure. Aeolus' strategy is to leverage the substantial investment in toxicology, manufacturing, and preclinical and clinical studies made by US Government agencies in AEOL 10150, including the contract with BARDA valued, with options, at up to $118.4 million, to efficiently develop the compound for use in oncology. For more information, please visit Aeolus's corporate website at www.aolsrx.com.

Forward-Looking Statements

The statements in this press release that are not purely statements of historical fact are forward-looking statements. Such statements include, but are not limited to, those relating to Aeolus' product candidates, as well as its proprietary technologies and research programs, the Company's potential initiation of large efficacy studies in mice and NHPs, as well as a phase 1 study in healthy normal volunteers, the BARDA Contract, and the expected use of proceeds from the financing. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause Aeolus' actual results to be materially different from historical results or from any results expressed or implied by such forward-looking statements. Important factors that could cause results to differ include risks associated with uncertainties of progress and timing of clinical trials, scientific research and product development activities, difficulties or delays in development, testing, obtaining regulatory approval, the need to obtain funding for pre-clinical and clinical trials and operations, the scope and validity of intellectual property protection for Aeolus' product candidates, proprietary technologies and their uses, and competition from other biopharmaceutical companies, and whether BARDA exercises one or more additional options under the BARDA Contract. Certain of these factors and others are more fully described in Aeolus' filings with the Securities and Exchange Commission, including, but not limited to, Aeolus' Annual Report on Form 10-K for the year ended September 30, 2013. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof.

                        AEOLUS PHARMACEUTICALS, INC.
                   CONDENSED CONSOLIDATED BALANCE SHEETS
                                (Unaudited)
                   (In thousands, except per share data)

                                                  June 30,    September 30,
                                                    2014           2013
                                               -------------  -------------
                    ASSETS
Current assets:
  Cash and cash equivalents                    $       1,272  $         869
  Accounts receivable                                  2,719            370
  Deferred subcontractor cost                            794            656
  Prepaid and other current assets                        70             39
                                               -------------  -------------
    Total current assets                               4,855          1,935
Investment in CPEC LLC                                    32             32
                                               -------------  -------------
    Total assets                               $       4,887  $       1,966
                                               =============  =============

     LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable and accrued expenses        $       2,426  $         579
  Deferred revenue                                       825            682
                                               -------------  -------------
    Total current liabilities                          3,251          1,261
                                               -------------  -------------

    Total liabilities                                  3,251          1,261
Commitments and Contingencies (Note F)
Stockholders' equity :
  Preferred stock, $.01 par value per share,
   10,000,000 shares authorized:
  Series B nonredeemable convertible preferred
   stock, 1,600,000 and 1,600,000 shares
   authorized as of June 30, 2014 and
   September 30, 2013, respectively; 526,080
   and 526,080 shares issued and outstanding
   as of June 30, 2014 and September 30, 2013,
   respectively                                            5              5
  Common stock, $.01 par value per share,
   200,000,000 shares authorized; 134,550,068
   and 134,550,068 shares issued and
   outstanding as of June 30, 2014 and
   September 30, 2013, respectively                    1,346          1,346
  Additional paid-in capital                         183,762        183,276
  Accumulated deficit                               (183,477)      (183,922)
                                               -------------  -------------
    Total stockholders' equity                         1,636            705
                                               -------------  -------------
    Total liabilities and stockholders' equity $       4,887  $       1,966
                                               =============  =============

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

                        AEOLUS PHARMACEUTICALS, INC.
              CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                (Unaudited)
                   (In thousands, except per share data)

                                    Three Months Ended   Nine Months Ended
                                         June 30,             June 30,
                                   -------------------  -------------------
                                      2014      2013       2014      2013
                                   --------- ---------  --------- ---------
Revenue:
  Contract revenue                 $   4,983 $     844  $   7,214 $   3,045
Costs and expenses:
  Research and development             2,829       727      4,709     2,514
  General and administrative             577       903      2,059     2,562
                                   --------- ---------  --------- ---------
    Total costs and expenses           3,406     1,630      6,769     5,076
                                   --------- ---------  --------- ---------
Income (Loss) from operations          1,576      (786)       445    (2,031)
Non-cash financing charges and
 change in fair value of warrants
 (Note B)                                 --        --         --      (510)
                                   --------- ---------  --------- ---------
Net income (loss)                  $   1,576 $    (786) $     445 $  (2,541)
                                   ========= =========  ========= =========
Net income (loss) per weighted
 share attributable to common
 stockholders:
  Basic (Note D)                   $    0.01 $   (0.01) $    0.00 $   (0.03)
                                   ========= =========  ========= =========
  Diluted (Note D)                 $    0.01 $   (0.01) $    0.00 $   (0.03)
                                   ========= =========  ========= =========
Weighted average common shares
 outstanding:
  Basic                              134,550   134,550    134,550    97,120
                                   ========= =========  ========= =========
  Diluted                            136,861   134,550    136,829    97,120
                                   ========= =========  ========= =========

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

                        AEOLUS PHARMACEUTICALS, INC.
              CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                (Unaudited)
                               (In thousands)
                                                        Nine Months Ended
                                                            June 30,
                                                     ----------------------
                                                        2014        2013
                                                     ----------  ----------
Cash flows used in operating activities:
  Net income (loss)                                  $      445  $   (2,541)
  Adjustments to reconcile net income (loss) to net
   cash used in operating activities:
    Stock-based compensation                                485         584
    Change in fair value of warrants                         --         510
    Change in assets and liabilities:
      Accounts receivable                                (2,349)        539
      Deferred subcontractor cost                          (138)       (935)
      Prepaid and other assets                              (31)         10
      Accounts payable and accrued expenses               1,846        (246)
      Deferred revenue                                      143         972
                                                     ----------  ----------
Net cash provided by (used in) operating activities         403      (1,107)
                                                     ----------  ----------
Cash flows provided by financing activities:
  Proceeds from issuance of common stock and
   warrants                                                  --       3,616
  Costs related to the issuance of common stock and
   warrants                                                  --         (58)
                                                     ----------  ----------
Net cash provided by financing activities                    --       3,558
                                                     ----------  ----------
Net increase (decrease) in cash and cash equivalents        403       2,451
Cash and cash equivalents at beginning of period            869         281
                                                     ----------  ----------
Cash and cash equivalents at end of period           $    1,272  $    2,732
                                                     ==========  ==========

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

Contact:
John McManus
President and Chief Executive Officer
Aeolus Pharmaceuticals, Inc.
1-(949) 481-9825

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