Intellect Neurosciences, Inc. - FORM 10-Q

Attached files

file	filename
EX-32.1 - Intellect Neurosciences, Inc.	v185394_ex32-1.htm
EX-32.2 - Intellect Neurosciences, Inc.	v185394_ex32-2.htm
EX-31.1 - Intellect Neurosciences, Inc.	v185394_ex31-1.htm
EX-31.2 - Intellect Neurosciences, Inc.	v185394_ex31-2.htm

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

	For the quarterly period ended March 31, 2010

	Or

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

	For the transition period from to

Commission File Number: 333-128226

INTELLECT NEUROSCIENCES, INC.

(Exact Name of Registrant as Specified in Its Charter)

Delaware	20-2777006
(State or Other Jurisdiction of	(I.R.S. Employer
Incorporation)	Identification Number)

7 West 18th Street
New York, New York	10011
(Address of Principal Executive Offices)	(Zip Code)

(212) 448-9300

(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes R No £

Indicate by checkmark whether the Registrant has submitted electronically and posted on its corporate website, if any, any Interactive Data File required to be submitted and posted pursuant to Rule 405 of regulation S-T (Section 232.405) of this chapter during the preceding 12 months or for such shorter period that the Registrant was required to submit and post such files. Yes£ No £

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer £	Accelerated filer £	Non-accelerated filer £	Smaller reporting company R
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes £ No R

The registrant had 580,720,990 shares of Common Stock, par value $.001 par value per share, outstanding as of May 10, 2010.

Index

		PAGE

PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements: (Unaudited)

	Consolidated Condensed Balance Sheet as of June 30, 2009 and March 31, 2010	3

	Consolidated Condensed Statements of Operations for the three and nine months ended March 31, 2010 and 2009 and for the period April 25, 2005 (inception) through March 31, 2010.	4

	Consolidated Condensed Statement of Changes in Capital Deficiency for the period ended March 31, 2010	6

	Consolidated Condensed Statements of Cash Flows for the nine months ended March 31, 2010 and 2009 and for the period April 25, 2005 (inception) through March 31, 2010	7

	Notes to Consolidated Condensed Financial Statements	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	25

Item 4T.	Controls and Procedures	25

PART II.	OTHER INFORMATION

Item 6.	Exhibits	26

SIGNATURES		27

CERTIFICATIONS

Intellect Neurosciences, Inc.

(a development stage company)

Consolidated Condensed Balance Sheet

	March 31, 2010			June 30, 2009
ASSETS
Current assets:
Cash and cash equivalents	$	3,627		$	270,589
Prepaid expenses & other current assets		8,859			14,390
Deferred debt costs, net		12,024			19,239
Total current assets	$	24,510		$	304,218

Fixed assets, net		58,046			162,760
Security deposits		70,652			70,652
Restricted cash		21,524			-
Total Assets	$	174,732		$	537,630

LIABILITIES AND CAPITAL DEFICIENCY

Current Liabilities:
Accounts payable and accrued expenses	$	4,061,384		$	4,192,008
Convertible promissory notes		200,000			-
Convertible promissory notes (past due)		5,855,118			5,305,088
Accrued interest - convertible promissory notes		2,975,613			2,052,497
Derivative instruments		436,614			307,905
Preferred stock liability		551,171			872,867
Preferred stock dividend payable		1,942,439			1,574,035
Total Current liabilities	$	16,022,339		$	14,304,400

Commitments and Contingencies

Notes payable (long term; net of debt discount of $99,101)		2,127,071			2,104,777
Notes payable, due to shareholder		3,872,828			3,773,828
Deferred lease liability		3,650			11,489
Other long-term liabilities		26,285
Total Liabilities	$	22,052,173		$	20,194,494

Capital deficiency:

Preferred stock, $0.001 per share, 15,000,000 shares authorized
Series B Convertible Preferred stock - 459,309 shares designated and 459,309 shares issued (classified as liability above) (liquidation preference $9,980,357)
Common stock, par value $0.001 per share, 100,000,000 shares authorized; 30,843,873 issued and outstanding	$	30,844		$	30,844
Additional paid in capital		22,507,182			22,488,585
Deficit accumulated during the development stage		(44,415,467	)		(42,176,294	)

Total Capital Deficiency	$	(21,877,440	)	$	(19,656,865	)

Total Liabilities and Capital Deficiency	$	174,732		$	537,630

See notes to condensed consolidated financial statements

Intellect Neurosciences, Inc.

(a development stage company)

Consolidated Statements of Operations

(Unaudited)

	Three Months Ended
	March 31,
	2010			2009

Revenues:
License fees	$	-		$	-
Total revenue	$	-		$	-

Costs and Expenses:
Research and development	$	2,400		$	145,294
General and administrative		230,302			786,482
Total cost and expenses	$	232,702		$	931,775

Income /(loss) from operations	$	(232,702	)	$	(931,775	)

Other income/(expenses):

Interest expense	$	(584,577	)	$	(474,025	)

Changes in value of derivative instruments and preferred stock liability		(134,936	)		(1,546,355	)
Other		-			-

Total other income/(expense):	$	(719,513	)	$	(2,020,380	)

Net income/(loss)	$	(952,214	)	$	(2,952,155	)

Basic income/(loss) per share	$	(0.03	)	$	(0.10	)

Diluted income/(loss) per share	$	(0.01	)	$	(0.06	)

Weighted average number of shares outstanding:
Basic		30,843,873			30,843,873
Diluted		42,045,904			41,772,009

See notes to condensed consolidated financial statements

Intellect Neurosciences, Inc.

(a development stage company)

Consolidated Statements of Operations

(Unaudited)

	Nine Months Ended
	March 31,						April 25, 2005 (inception) through March 31, 2010
	2010			2009			April 25, 2005 (inception) through March 31, 2010

Revenues:
License fees	$	-		$	4,016,667		$	4,016,667
Total revenue	$	-		$	4,016,667		$	4,016,667

Costs and Expenses:
Research and development	$	43,108		$	510,290		$	13,314,905
General and administrative		1,108,858			2,672,152			29,458,250
Total cost and expenses	$	1,151,966		$	3,182,442		$	42,773,155

Net income/ (loss) from operations	$	(1,151,966	)	$	834,225		$	(38,756,488	)

Other income/(expenses):

Interest expense	$	(980,256	)	$	(1,334,439	)	$	(13,329,350	)

Changes in value of derivative instruments and preferred stock liability		594,918			2,891,906		$	15,105,977
Loss on extinguishment of debt		(701,869	)		(701,869	)	$	(701,869	)
Other		-			32,752		$	(6,583,736	)
Write off of investment							$	(150,000	)

Total other income/(expense):	$	(1,087,207	)	$	888,350		$	(5,658,978	)

Net income/(loss)	$	(2,239,173	)	$	1,722,575		$	(44,415,467	)

Basic income/(loss) per share	$	(0.07	)	$	0.06

Diluted income/(loss) per share	$	(0.02	)	$	0.04

Weighted average number of shares outstanding:
Basic		30,843,873			30,843,873
Diluted		41,973,807			41,740,617

See notes to condensed consolidated financial statements

Intellect Neurosciences, Inc.

(a development stage company)

Consolidated Statement of Changes in Capital Deficiency

	Common Stock
	Number of Shares		Amount		Additional paid in capital			Deficit accumulated during the development stage			Total

Balance as of June 30, 2009		30,843,873	$	30,844	$	22,488,585		$	(42,176,294	)	$	(19,656,864	)

Stock based compensation
- Clinical and Advisory Board						(1,625	)					(1,625	)
- Extension of Director options						12,522						12,522
- Employees and Directors						7,700						7,700

Net loss for the period									(2,239,173	)		(2,239,173	)

Balance as of March 31, 2010	$	30,843,873	$	30,844	$	22,507,182		$	(44,415,467	)	$	(21,877,440	)

See notes to condensed consolidated financial statements

Consolidated Condensed Statements of Cash Flows

	Nine Months Ended
	March 31,
							April 25, 2005
							(inception) through
	2010			2009			March 31, 2010

Cashflows from operating activities:
Net cash used by operating activities:		(1,043,397	)		(348,085	)		(17,464,642	)

Cashflows from investing activities:
Security deposit		-			-			(70,649	)
Acquistion of property and equipment		-			(12,619	)		(1,059,699	)
Restricted cash		(21,524	)		(12,059	)		(21,524	)
Investment in Ceptor		-			-			(150,000	)

Net cash provided by investing activities:		(21,524	)		(24,678	)		(1,301,872	)

Cashflows from financing activities:
Borrowings from stockholders		119,000			485,000			5,598,828
Proceeds from sale of common stock		-			-			21,353
Proceeds from sale of preferred stock		-			-			6,761,150
Preferred stock issuance costs		-			-			(814,550	)
Proceeds from sale of Convertible Promissory Notes		698,960			843,500			10,720,460
Repayment of borrowings from stockholder		(20,000	)		(100,000	)		(1,726,000	)
Convertible Promissory Notes issuance cost		-			-			(466,100	)
Repayment of borrowings from noteholders		-			(426,000	)		(1,325,000	)
Warrants issued for extensions		-			-			-

Net cash provided by financing activities:		797,960			802,500			18,770,141

Net increase in cash and cash equivalents		(266,961	)		429,737			3,627

Cash and cash equivalents beginning of period		270,588			210,758			-

Cash and cash equivalents end of period	$	3,627		$	640,495		$	3,627

Supplemental disclosure of cash flow informations:
Cash paid during the period for:
Interest	$	-					$	71,737
Non-cash investing and financing tranactions:
Common Stock Subscription Receivable								-
Conversion of Convertible Notes payable and accrued interest into Series B preferred stock
Conversion of Series B preferred into common								3,114,115
Conversion of Series A preferred into common								198,868
Accrued dividend on Series B prefs treated as capital contribution								387,104
Exchange of common stock for note								23,400

1. Nature of Operations and Liquidity

Intellect Neurosciences, Inc. a Delaware corporation, (“Intellect”, “our”, “us”, “we” or the “Company” refer to Intellect Neurosciences, Inc. and its subsidiaries) is a biopharmaceutical company, which together with its subsidiaries Intellect Neurosciences, USA, Inc. (“Intellect USA”) and Intellect Neurosciences, (Israel) Ltd. (“Intellect Israel”), is conducting research and developing proprietary drug candidates to treat Alzheimer’s disease (“AD”) and other diseases associated with oxidative stress. In addition, we have developed and are advancing a patent portfolio related to specific therapeutic approaches for treating AD. Since inception of Intellect USA in 2005, we have devoted substantially all of our efforts and resources to research and development activities and advancing our patent estate. We operate under a single segment. Our fiscal year end is June 30. We have had no product sales through March 31, 2010 but we have received $4,050,000 in license fees from inception through March 31, 2010. Our losses from operations have been funded primarily with the proceeds of equity and debt financings and fees from license arrangements.

As of March 31, 2010, we had approximately $3,627 in cash and investments, a capital deficit of approximately $21.9 million and a deficit accumulated during the development stage of our Company of approximately $44.4 million. Our net loss from operations for the three months ended March 31, 2010 and 2009 was approximately $232,702 and $931,775, respectively. As described more fully below in Note 13, Subsequent Events, on April 23, 2010, we issued and sold (i) Secured Convertible Promissory Notes with an aggregate principal amount of $580,000, (ii) 58,000,000 shares of Common Stock at a per share price of $0.03 and (iii) 77,333,334 Class A Warrants, 77,333,334 Class B Warrants and 77,333,334 Class C Warrants for an aggregate purchase price of $2,320,000. Net proceeds from the sale of the securities was approximately $2,220,000 and is being held in escrow and distributed to us on a monthly basis pursuant to the terms of an Escrow Agreement. As a result of this financing transaction, we anticipate that our existing capital resources will enable us to continue operations for the next twelve months.

We have taken actions to reduce the rate of our cash burn and preserve our existing cash resources. We have sublet approximately 75% of our office space at our New York City office facility, closed our research laboratory in Israel and terminated employees both in Israel and New York. The lease is held by our wholly-owned subsidiary, Intellect Israel. On July 16, 2009, Intellect Israel entered into an agreement with the landlord of the Israeli facilities pursuant to which the lease was terminated in exchange for surrender of amounts available under certain lease guarantees and an agreement by Intellect Israel to pay the landlord certain costs related to rewiring the facilities, estimated at up to approximately $4,800. . We will continue to conduct research through outsourced facilities and arrangements. Currently, we have a total of two employees.

We continue to seek additional funding through various financing alternatives. If additional capital is raised through the sale of equity or convertible debt securities, the issuance of such securities will result in dilution to our existing stockholders. We cannot assure you that financing will be available on favorable terms or at all.

The previously disclosed engagement with HFP Capital Markets LLC to assist the Company to obtain equity funding terminated in accordance with its terms as of January 16, 2010.

As described more fully below in Note 6, Convertible Promissory Notes, as of March 31, 2010, we were in default on convertible promissory notes with an aggregate carrying value of approximately $5.8 million. As described more fully below in Note 13, Subsequent Events, as of April 23, 2010, all but one of our note holders accepted common stock in repayment of their convertible promissory notes. As described more fully below in Note 5, Material Agreements, we are in default with respect to certain payment obligations arising from various research agreements. We have entered into discussions with the counterparties to the research agreements and with the remaining note holder to obtain their agreement to accept common stock in repayment of their debt.

Effective January 24, 2010, Mr. William Keane, Mr. Harvey Kellman and Dr. Kelvin Davies resigned as members of the Board of Directors of the Company (the “Board”). Effective January 22, 2010, Ms. Kathleen Mullinix resigned as a member of the Board. The Directors advised the Company that they were resigning because of inadequate funds to renew the Directors and Officers Liability insurance coverage. The resignations were not motivated by any disagreement with the Company on any matter relating to the Company’s operations, policies or practices.

Effective as of May 4, 2010, pursuant to the authority granted by the Company’s Bylaws, the Company appointed Mr. Isaac Onn as a member of its Board of Directors (the “Board”) to fill an existing vacancy on the Board. The appointment of Mr. Onn was taken by the affirmative unanimous vote of the directors of the Board then in office.

We are a development stage company and our core business strategy is to leverage our intellectual property estate through license arrangements and to develop our proprietary compounds that we have purchased, developed internally or in-licensed from universities and others, through human proof of concept (Phase II) studies or earlier if appropriate and then seek to enter into collaboration agreements, licenses or sales to complete product development and commercialize the resulting drug products. Our objective is to obtain revenues from licensing fees, milestone payments, development fees and royalties related to the use of our intellectual property estate and the use of our proprietary compounds for specific therapeutic indications or applications. As of March 31, 2010, we had no products approved for sale by the U.S. Food and Drug Administration (“FDA”). There can be no assurance that our research and development efforts will be successful, that any products developed by any of our licensees will obtain necessary government regulatory approval or that any approved products will be commercially viable. In addition, we operate in an environment of rapid change in technology and are dependent upon the continued services of our current employees, consultants and subcontractors.

A key asset of the Company is our ANTISENILIN patent estate. We have entered into two license agreements and one license option agreement with major global pharmaceutical companies. To-date, we have received $4,050,000 in license fees and milestone payments and the agreements provide for potential future milestone and royalty payments.

The Company’s proprietary internal pipeline includes:

•

OXIGON (OX1), an orally administered, small molecular weight, copper-binding compound that prevents oxidative stress and blocks formation of toxic Aß aggregates. Phase I trials in Europe have been completed and the drug candidate is planned to enter Phase II trials in AD patients, provided the Company obtains sufficient financing.

•

IN-N01, an Aß specific, humanized monoclonal antibody generated using the Company’s ANTISENILIN® platform technology. The prototype drug candidate is in preclinical optimization-stage. The antibody product would be administered to AD patients by infusion.

•

RECALL-VAX, an active vaccine against Aß based on the Company’s RECALL-VAX™ technology. The prototype drug candidate is ready for preclinical optimization. The vaccine product would be used to inoculate individuals by injection with a modified non-toxic form of Aß so that they become “immunized” to the naturally occurring toxin.

Intellect USA was incorporated on April 25, 2005 under the name Eidetic Biosciences, Inc. It changed its name to Mindset Neurosciences, Inc. on April 28, 2005, to Lucid Neurosciences, Inc. on May 17, 2005 and finally to Intellect Neurosciences, Inc. on May 20, 2005. Intellect Israel was incorporated in Israel as a private limited company in July 2005 for the purpose of conducting research relating to our proprietary compounds. Currently, Intellect Israel is dormant and we conduct our research activities through third party outsourcing arrangements.

2. Basis of Presentation

The unaudited consolidated condensed financial statements presented herein have been prepared in accordance with the instructions to Form 10-Q and do not include all the information and note disclosures required by accounting principles generally accepted in the United States. The consolidated condensed financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto contained in the Company’s Current Report on Form 10-K for the fiscal year ended June 30, 2009 filed with the Securities and Exchange Commission (the “SEC”) on October 13, 2009. The consolidated financial statements include the accounts of our wholly owned subsidiary, Intellect Israel and the accounts of Mindgenix, Inc. (“Mindgenix”), a wholly-owned subsidiary of Mindset Biopharmaceuticals, Inc. (“Mindset”). We consolidate Mindgenix because we have agreed to absorb certain costs and expenses incurred that are attributable to its research. Dr. Chain, our CEO, is a controlling shareholder of Mindset and the President of Mindgenix. All inter-company transactions have been eliminated in consolidation.

In the opinion of management, this interim information includes all material adjustments, which are of a normal and recurring nature, necessary for fair presentation. No adjustment has been made to the carrying amount and classification of assets and the carrying amount of liabilities based on the going concern uncertainty.

3. Stock-Based Compensation Plans

Total compensation expense recorded during the three months ended March 31, 2010 and 2009 for share-based payment awards was $5,799 and $88,687, respectively, of which $0 and $10,003, respectively, is shown in research and development costs and $5,799 and $76,684, respectively, is shown in general and administrative expenses in the condensed statement of operations.

At March 31, 2010, total unrecognized estimated compensation expense related to non-vested stock options granted prior to that date was approximately $0.0.

Summary of all option plans at March 31, 2010:

	Year Ended June 30, 2009			Weighted Average Exercise Price		Instrinisic value		Weighted Average Remaining Contractual Life

Options outstanding at June 30, 2009		12,205,478		$	0.74	$	-
Granted		-		$	-
Cancelled/Forfeited		-		$	-		-
Expired		(375,000	)	$	0.73
Balance at the end of period		11,830,478		$	0.74		-		6.56
Options excercisable at March 31, 2010		11,814,228		$	0.74		-		6.56

Options vested or expected to vest		11,830,478		$	0.74		-		6.56

A summary of the status of the Company’s non-vested shares as of March 31, 2010:

	Number of Awards			Weighted Average Exercise Price		Weighted Average Grant Date Fair Value		Weighted Average Remaining Amortization Period

Balance, beginning of the period		47,500		$	0.43	$	0.33
Granted		-
Vested		(31,250	)	$	0.38	$	0.29
Cancelled		-
Forfeited		-
Balance at March 31, 2010		16,250		$	0.52	$	0.45		0.60

A summary of the Company’s stock options at March 31, 2010 is as follows:

	Options Outstanding						Options Exercisable
Range of Exercise Price	Number Outstanding		Weighted Average Remaining Contractual Life		Weighted Average Exercise Price		Number Exercisable		Weighted Average Exercise Price

$0.08 - $0.40		575,000		7.86	$	0.18		568,750	$	0.17
$0.41 - $0.78		11,255,478		6.50	$	0.77		11,245,478	$	0.77

		11,830,478		6.56		0.74		11,814,228		0.74

4. Convertible Promissory Notes Payable

Convertible Promissory Notes and Warrants issued through the fiscal year ended June 30, 2006.

During the period beginning on May 10, 2005 through January 10, 2006, Intellect USA issued Convertible Promissory Notes in a private placement to accredited investors. Each investor purchased an investment unit consisting of a convertible promissory note (the "2006 Notes") and a warrant to purchase shares of our common stock (the "2006 Warrants"). The 2006 Notes were due on the earlier of May 10, 2006 or the closing of an equity financing or financings with one or more third parties with gross proceeds to us of not less than $5,000,000 (the "Next Equity Financing") except for one Note with a face amount of $250,000, which was due on the earlier of January 5, 2006 or the closing of the Next Equity Financing. This Note was repaid on February 16, 2006. The Next Equity Financing occurred on or about May 12, 2006.

On May 12, 2006, Intellect USA issued the 2006 Warrants, entitling the holders to purchase up to 2,171,424 shares of our common stock. The 2006 Warrants expire five years from date of issuance of the related 2006 Note. We valued the 2006 Warrants as of May 12, 2006, the measurement date, and recorded a charge to interest expense and a corresponding derivative liability of $746,972. See Note 6, Derivative Instrument Liability, for a further discussion of the liability related to the issuance of the 2006 Warrants.

As of March 31, 2010, all of the original 2006 Notes have been repaid or converted into shares of our Series B Preferred Stock and warrants to purchase up to 2,282,574 shares of our common stock are issued and outstanding. Also, an additional note with a face amount of $75,000 issued in connection with the extension of the maturity date of certain of the 2006 Notes is outstanding and past due. As described more fully below in Note 10, Subsequent Events, on April 23, 2010, this note holder accepted common stock in repayment of his note.

Convertible Promissory Notes and Warrants issued during the fiscal year ended June 30, 2007 (“2007 Notes”).

During the fiscal year ended June 30, 2007, we issued $5,678,000 aggregate face amount of Convertible Promissory Notes (the “2007 Notes”) together with warrants to purchase up to 3,236,000 shares of our common stock at a price of $1.75 per share. All of the 2007 Notes bear interest at 10% and are unsecured obligations. Certain of the 2007 Notes are due no later than 6 months from the date of issuance and others are due no later than one year from the date of issuance.

We determined the initial fair value of the warrants issued to the purchasers of the 2007 Notes to be $3,425,861 based on the Black-Scholes option pricing model, which we treated as a liability with a corresponding decrease in the carrying value of the 2007 Notes. This difference has been amortized over the term of the 2007 Notes as interest expense, calculated using an effective interest method. See Note 6, Derivative Instrument Liability, for a further discussion of the liability related to the issuance of the warrants.

During the fiscal year ended June 30, 2007, we incurred placement fees of $340,000 and issued 485,714 warrants to a placement agent in connection with the issuance of 2007 Notes with an aggregate face amount of $3.4 million. We recorded the $340,000 placement fee and the value of the warrants as deferred financing costs, which have been amortized over the term of these 2007 Notes, without regard to any extension of the maturity date of such Notes. We determined the initial fair value of the warrants on the closing date of July 5, 2007 to be $1,116,250 using the Black Scholes option pricing model. This amount was recorded as a warrant liability with an offset to deferred financing costs. The warrant liability will be marked to market at each future reporting date. See Note 6, Derivative Instrument Liability, for a further discussion of the liability related to the issuance of the 2007 Warrants.

As of March 31, 2010, we are in default with all of the remaining 2007 Notes, which have an aggregate carrying value of $5,305,088. In addition, warrants to purchase 3,837,546 shares of our common stock are issued and outstanding in connection with the issuance of the 2007 Notes. As described more fully below in Note 10, Subsequent Events, as of April 23, 2010, all but one of our note holders accepted common stock in repayment of their convertible promissory notes and agreed to the cancellation of their warrants. The remaining outstanding 2007 Notes have an aggregate principle amount of $300,000.

Convertible Promissory Notes and Warrants issued during the fiscal year ended June 30, 2008 (“2008 Notes”).

During the fiscal year ended June 30, 2008, we issued convertible promissory notes with an aggregate face amount of $325,000 (“the 2008 Notes”) due 12 months from date of issuance. The 2008 Notes bear interest at 10% and are unsecured liabilities, except for one Note with a face amount of $100,000 that bears interest at 17% and is due six months from the date of issuance. In connection with the 2008 Notes, we issued 185,744 warrants.

We determined the initial fair value of the warrants issued with the 2008 Notes to be $52,740 based on the Black-Scholes option pricing model, which has been treated as a liability with a corresponding decrease in the carrying value of the 2008 Notes. See Note 6, Derivative Instrument Liability, for a further discussion of the liability related to the issuance of the warrants. This difference will be amortized over the term of the 2008 Notes as interest expense calculated using an effective interest method.

As of March 31, 2010, we are in default with respect to 2008 Notes with an aggregate face amount of $180,000. The maturity dates of 2008 Notes with an aggregate face amount of $135,000 have been extended until July 31, 2013 pursuant to the royalty transaction described below and are now included as part of the Senior Notes described below. As described more fully below in Note 10, Subsequent Events, as of April 23, 2010, all of the holders of the 2008 Notes accepted common stock in repayment of their convertible promissory notes and agreed to the cancellation of their warrants.

Convertible Promissory Notes Issued Without Warrants.

Through the fiscal year ended June 30, 2008, we issued Convertible Promissory Notes without warrants with an aggregate face amount of $5,984,828 that are due one year from date of issuance (the “Warrantless Notes”). The Notes bear interest at 8% and are unsecured obligations. Through the fiscal year ended June 30, 2008, we repaid Warrantless Notes with an aggregate principal amount of $1,286,000.

During July 2008, we issued additional Warrantless Notes with identical terms and an aggregate principal amount of $268,500, of which $75,000 was provided by related parties. As more fully described below, on July 31, 2008, the Warrantless Notes effectively were exchanged for Senior Notes.

Royalty Participation Transaction

Effective as of July 31, 2008, holders of Warrantless Notes with an aggregate face amount of $4,967,328 and holders of 2008 Notes with an aggregate face amount of $107,672 exchanged their Warrantless Notes and Convertible Notes, respectively, for senior promissory notes (the “Senior Notes”). In addition, unrelated party lenders advanced $650,000 to us in exchange for a Senior Note. Each Senior Note has a maturity date of five years and bears interest at 10% per annum. We issued to the holders of the Warrantless Notes and the other lenders new Senior Notes with an aggregate face amount of $5,725,000 dated as of July 31, 2008, together with 3,271,429 warrants, and granted these holders and lenders the right to receive 25% of future royalties that we receive from the license of our ANTISENILIN patent estate.

We accounted for the exchange of the Convertible Promissory Notes, as described above, as an extinguishment of debt in accordance with authoritative guidance issued by FASB and concluded that it was necessary to reflect the Senior Notes at fair market value and record a loss on extinguishment of debt of approximately $702,000 in the three-month period ended September 30, 2008. We accounted for the issuance of the Senior Note with a face amount of $650,000 to an unrelated party as a new issuance. We accounted for the 371,429 Royalty Warrants issued to this holder as a liability, measured at fair value, which has been offset by a reduction in the carrying value of the associated Senior Note. See Note 6, Derivative Instrument Liability.)

On March 22, 2009, in connection with the settlement of certain litigation relating to a convertible promissory note in default, one of our shareholders who is a related party purchased the note in default from the original note holder and agreed to cancel the note. In exchange, we issued to the related party shareholder an additional Senior Note with a face amount of $310,000 and repaid $100,000 of Notes held by the shareholder. We did not issue any additional warrants to the shareholder. At March 31, 2010, Senior Notes Payable to related parties of $3,753,828 and Senior Notes Payable to unrelated parties with a carrying value of $2,127,071 remain outstanding. As described more fully below in Note 10, Subsequent Events, as of April 23, 2010, all of the holders of the Senior Notes Payable accepted common stock in repayment of their notes and agreed to the cancellation of their warrants.

Bridge Note Financing

On August 12, 2009, we issued and sold a 10% Senior Promissory Note (the “August Note”) with a principal amount of $450,000, resulting in net proceeds of approximately $360,000. The August Note bears interest at 10% annually and matures upon the earlier of 6 months from the date of the Note or the closing of an equity financing with gross proceeds to us of at least $1,125,000 (the “Liquidity Event”). The payment and performance obligations of the Company under the Note are guaranteed by Margie Chassman, a principal shareholder of the Company. In consideration of the guaranty provided by Ms. Chassman, we paid her a fee of $30,000. As of March 31, 2010, we are in default with respect to the August Note, which has a face amount of $450,000. As described more fully below in Note 10, Subsequent Events, on April 23, 2010, the holder of the August Note accepted common stock in repayment of his note.

As additional consideration to repayment of the August Note and interest in cash, the purchaser of the August Note will receive at maturity or early repayment of the August Note either (1) a number of shares of common stock, par value $0.001, of the Company (the “Shares”), equal to the quotient of the principal amount of the August Note divided by 0.15; or (2) warrants to purchase a number of shares of common stock, par value $0.001, of the Company (the “Purchaser Warrants”), equal to the quotient of the principal amount of the August Note divided by 0.15, at an exercise price equal to $1.75 per share, as adjusted upon the occurrence of certain events as set forth in the Purchaser Warrant. If the Liquidity Event occurs on or prior to the maturity date of the August Note, the purchaser will receive Shares. If the Liquidity Event has not occurred on or prior to the maturity date of the August Note, the purchaser will receive Purchaser Warrants.

We determined at the time of issuance of the August Note that it was probable that the holder of the August Note would receive Purchaser Warrants rather than the Shares at maturity of the Note. We based this determination on our estimate of the likelihood that the Liquidity Event would occur on or before the maturity date of the August Note. We determined the initial fair value of the warrants issued to the purchaser of the August Note to be $151,930 based on the Black-Scholes option pricing model, which we treated as a liability with a corresponding decrease in the carrying value of the August Note. This difference will be amortized over the term of the August Note as interest expense, calculated using an effective interest method. See Note 6, Derivative Instrument Liability, for a further discussion of the liability related to the Purchaser Warrants. As described more fully below in Note 10, Subsequent Events, on April 23, 2010, we issued to the purchaser of the August Note 15 million shares of our common stock in lieu of Purchaser Warrants.

Sandgrain Securities Inc. acted as placement agent for the offering of the August Note. We paid to Sandgrain a commission of $45,000 (10% of the principal amount of the Note sold) plus reimbursement of expenses. We are obligated to issue to Sandgrain (or its designees) warrants (the “Sandgrain Warrants”) to purchase 750,000 shares of the Company’s common stock, exercisable for 5 years from their date of issuance. The Sandgrain Warrants will be issued to Sandgrain (or its designees) at the time that we issue to the purchaser of the August Note either the Shares or the Purchaser Warrants. The exercise price of the Sandgrain Warrants will be $$0.15 per share if we issue Shares to the Purchasers or $1.75 per share if we issue Purchaser Warrants to the Purchasers. The Sandgrain Warrants may be exercised on a cashless basis and will have registration, anti-dilution and other rights similar to the Purchaser Warrants. In addition, we have agreed to extend the expiration date of warrants to purchase 485,714 shares of our common stock, which were issued to Sandgrain (or its designees) in July 2007 in connection with a previous financing transaction by the Company. The expiration date of all such warrants will be extended from July 16, 2012 until the expiration date of the Sandgrain Warrants to be issued in connection with this offering of August Note.

On November 17, 2009, we issued and sold 14% Convertible Promissory Notes (the “November Notes”) with an aggregate principal amount of $200,000, resulting in net proceeds to the Company of approximately $192,500. The November Notes bear interest at 14% annually and mature 3 months from the issue date of the November Notes. Interest is payable quarterly in arrears on the last day of each calendar quarter, commencing December 31, 2009. Each November Note may be converted into shares of Company common stock equal to the sum of the principal owed and interest that has accrued on such Note divided by the conversion price of $1.75. The November Notes are not entitled to dividends, distributions or other payments and carry no registration rights related to the underlying common stock. As described more fully below in Note 13, Subsequent Events, on April 23, 2010, the holders of the November Notes accepted common stock in repayment of their notes.

In connection with the sale of the November Notes, the purchasers of the November Notes will receive at maturity of the November Notes 2.5 million shares of Company common stock (the “Purchaser Shares”). Daniel Chain, CEO of the Company, has transferred to an escrow agent, 2.5 million shares of Company common stock issued to him at the time that he founded the Company in 2005 as collateral for the purchasers’ right to receive such shares.

We calculated the initial fair value of the Purchaser Shares to be $250,000 based on the closing price of the Company’s common stock on the date of issuance of the November Notes. We treated this amount as a liability with a corresponding decrease in the carrying value of the November Notes, with any excess treated as interest expense for the current period. The decrease in the carrying value of the November Notes will be amortized over the term of the November Notes as interest expense, calculated using an effective interest method. See Note 6, Derivative Instrument Liability, for a further discussion of the liability related to the Purchaser Shares. As described more fully below in Note 10, Subsequent Events, on April 23, 2010, the escrow agent released the Purchaser Shares to the holders of the November Notes.

5. Series B Convertible Preferred Stock

In February 2006, Intellect USA’s Board of Directors authorized the issuance of up to 7,164,445 shares of convertible preferred stock to be designated as "Series B Convertible Preferred Stock" ("Old Series B Preferred") with a par value per share of $0.001. The shares carry a cumulative dividend of 6% per annum. The initial conversion price of the Old Series B Preferred is $1.75 and is subject to certain anti-dilution adjustments to protect the holders of the Old Series B Preferred in the event that we subsequently issue share of common stock or warrants with a price per share or exercise price less than the conversion price of the Old Series B Preferred. In addition, Intellect USA’s Board of Directors authorized the issuance of warrants to purchase our common stock in connection with each sale of Series B Preferred.

During the period February 8, 2006 through December 31, 2006, Intellect USA issued 4,593,091 shares of Series B Convertible Preferred Stock ("Old Series B Preferred") with a par value per share of $0.001 and warrants to purchase up to 3,046,756 shares of our common stock. The shares carry a cumulative dividend of 6% per annum and carry a stated value of 1.75 per share. Each share of Old Series B Preferred is convertible into the Company’s common share at an initial conversion price of 1.75 per share. Each investor purchased an investment unit consisting of a share of Old Series B Preferred and a warrant to purchase 0.5 shares of our common stock (the "Series B Warrants"). Total proceeds from issuance of the Old Series B Preferred for the year ended June 30, 2006 were $6,384,794, which included the cancellation of Notes with an aggregate face amount of $1,100,000 and accrued interest of $67,294 and for the year ended June 30, 2007 was $1,653,122, which included the cancellation of Notes with an aggregate face amount of $100,000 and accrued interest of $9,472. See Note 6, Derivative Instrument Liability, for a further discussion of the liability related to the issuance of the Series B Warrants.

In May, 2007, we effectively exchanged the Old Series B Preferred for 459,309 shares of new Series B Convertible Preferred Stock (the “New Series B Preferred”), containing the same designations, preferences rights and qualifications as the Old Series B Preferred Stock, except that each share of New Series B Preferred carries a stated value of $17.50 rather than 1.75 and is convertible into 10 shares rather than one share of the Company’s common stock.

Based on authoritative guidance, we accounted for the Series B Preferred and the Series B Warrants as derivative liabilities at the time of issuance using the Black Scholes Option pricing model. We recorded the amount received in consideration for the Series B Preferred as a liability for the Series B Preferred shares with an allocation to the Series B Warrants and the difference recorded as additional paid in capital. The liability related to the Series B preferred stock and the Warrants will be marked to market for all future periods they remain outstanding with an offsetting charge to earnings. At March 31, 2010 the Series B Preferred stock liability was $551,171 with an increase in fair value of $91,862 for the three months ended March 31, 2010, recorded in other income. See Note 8, Derivative Instrument Liability, for a further discussion of the liability related to the issuance of the Series B Preferred Warrants. As of March 31, 2010, we have accrued Series B Preferred Stock dividends payable of $1,942,459 which are recognized as interest expense.

As described more fully below in Note 10, Subsequent Events, as of April 23, 2010, almost all of the holders of the Series B Preferred Stock converted their shares into Company common stock and agreed to the cancellation of their warrants. Series B Preferred Stock with an aggregate liquidation preference of $887,000 excluding accrued dividends remains outstanding.

6. Derivative Instrument Liability

Derivative instruments consist of the following:

	March 31, 2010

Warrants and shares related to Convertible Promissory Notes:	$	434,496

Warrants issued with Series B Convertible Preferred Stock:		2,118

Total	$	436,614

Warrants issued with Convertible Promissory Notes.

As described above in Note 4. Convertible Promissory Notes Payable, in connection with the issuance of Convertible Promissory Notes, we issued warrants to purchase up to 6,677,267 shares of our common stock, of which 2,282,574 were issued in connection with Notes issued during fiscal year ended June 30, 2006; 3,837,546 were issued in connection with Notes issued during fiscal year June 30, 2007; 185,714 were issued in connection with Notes issued during fiscal year June 30, 2008; 371,429 were issued in connections with a Note issued during fiscal year ended June 30, 2009; and 3,000,000 were issued in connection with a Note issued during the fiscal year ended June 30, 2010.

Based on authoritative guidance, we have accounted for the Convertible Note Warrants as liabilities. The liability for the Convertible Note Warrants, measured at fair value as determined in the manner described below, has been offset by a reduction in the carrying value of the Notes. The liability for the Convertible Note Warrants will be marked to market for each future period they remain outstanding.

The weighted average exercise price of the outstanding Warrants is $1.47 per common share and the weighted average remaining life of the warrants is 1.58 years. At March 31, 2010, the Convertible Note Warrant liability was $434,496 with an increase in fair value of the outstanding warrants of $43,723 and $211,303 for the three months and nine months ended March 31, 2010, recorded in other income.

As described more fully below in Note 10, Subsequent Events, as of April 23, 2010, all but one of our note holders accepted common stock in repayment of their convertible promissory notes and agreed to the cancellation of their warrants. 462,856 Warrants remaining outstanding, which consist of 171,428 held by such note holder and 291,428 held by certain other former note holders.

Warrants issued with the Series B Convertible Preferred Stock (the “Series B Warrants”).

As described above in Note 5. Series B Convertible Preferred Stock, in connection with the issuance of the Old Series B Preferred, we issued warrants to purchase up to 3,046,756 shares of our common stock for the year ended June 30, 2006 and 186,692 shares of our common stock for the year ended June 30, 2007.

Based on authoritative guidance, we have accounted for the Series B Warrants as liabilities. The liability for the Series B Warrants, measured at fair value as determined in the manner described below, has been offset by a charge to earnings rather than as a discount from the carrying value of the Series B Preferred. The liability for the Series B Warrants will be marked to market for each future period they remain outstanding.

As of March 31, 2010, we had 3,046,756 Series B Warrants outstanding. The weighted average strike price of the Series B warrants is $1.75 per common share and the weighted average remaining life of the warrants is .91 years. At March 31, 2010 the Series B Warrant liability was $2,118 with a decrease in fair value of $649 and $41,662 for the three months and six months ended March 31, 2010 recorded in other income.

Warrants issued in connection with the Royalty Participation Transaction (the “Senior Note Warrants”).

As described above in Note 6, Convertible Promissory Notes Payable, we issued warrants to purchase up to 3,271,429 of our common shares (the “Senior Note Warrants”) to the lenders who participated in the Royalty Participation Transaction. We issued approximately 371,429 warrants to the lender who advanced new funds of $650,000 to us and issued the remaining 2,900,000 warrants to the other lenders. The Senior Note Warrants contain the same terms as the warrants issued together with the Convertible Notes described above.

Based on authoritative guidance, we have accounted for the 371,429 Senior Note Warrants as a liability. The carrying value of the associated Senior Notes has been reduced by the initial fair value of these Senior Note Warrants. The Senior Notes will be accreted back up to their face value over the term of the Notes. The Senior Note Warrants have been valued at the date of the exchange and the resulting liability will be marked to market for each future period the Senior Note Warrants remain outstanding with the resulting gain or loss being recorded in the statement of operations. The weighted average exercise price of these outstanding Senior Note Warrants is $1.75 per common share and the weighted average remaining life of the warrants is 3.3 years. At March 31, 2010, the Warrant liability for these Senior Note Warrants was $31,123.

We have accounted for the remaining 2,900,000 Senior Note Warrants as interest expense incurred in exchange for an extension of the maturity dates of the Notes exchanged in the transaction. We calculated the fair value of these remaining warrants on the issue date of the warrants to be $1,172,062, using a Black Scholes pricing model. We recorded this amount as additional interest expense incurred in the period ending September 30, 2008.

As described more fully below in Note 10, Subsequent Events, as of April 23, 2010, all of the holders of the Senior Notes accepted common stock in repayment of their notes and agreed to the cancellation of their Senior Note Warrants.

Warrants to be issued in connection with the August Notes (the “Purchaser Warrants”).

As described above in Note 6, Convertible Promissory Notes Payable, we expect to issue warrants to purchase up to 3.0 million of our common shares (the Purchaser Warrants) to the purchaser of the August Note. Based on authoritative guidance, we have accounted for the Purchaser Warrants as a liability. The carrying value of the associated August Note has been reduced by the initial fair value of these Purchaser Warrants. The August Note will be accreted back up to its face value over the term of the Note. The Purchaser Warrants have been valued at the date of the issuance of the August Note and the resulting liability will be marked to market for each future period the August Note remains outstanding with the resulting gain or loss being recorded in the statement of operations. At March 31, 2010, the Warrant liability for these Purchaser Warrants was $99,516 As described more fully below in Note 13, Subsequent Events, on April 23, 2010, we issued to the purchaser of the August Note 15 million shares of our common stock in lieu of Purchaser Warrants.

Shares to be issued in connection with the November Notes (the “Purchaser Shares”).

As described above in Note 6, Convertible Promissory Notes Payable, we expect to issue a total of 2.5 million of our common shares (the Purchaser Shares) to the purchasers of the November Notes. We have accounted for the Purchaser Shares as a liability for the reasons described above. The carrying value of the associated November Notes has been reduced by the initial fair value of these Purchaser Shares, with the excess treated as interest expense for the current period. The November Notes will be accreted back up to their face value over the term of the Notes. The Purchaser Shares have been valued at the date of the issuance of the November Notes and the resulting liability will be marked to market for each future period the November Notes remain outstanding with the resulting gain or loss being recorded in the statement of operations. At March 31, 2010, the liability for these Purchaser Shares was $300,000. As described more fully below in Note 13, Subsequent Events, on April 23, 2010, the escrow agent released the Purchaser Shares to the holders of the November Notes.

7. Related Party Transactions

Our AD research activities require that we test our drug candidates in a certain type of transgenic mouse that exhibits the human AD pathology. Mindgenix, Inc., a wholly-owned subsidiary of Mindset, holds a license on the proprietary intellectual property related to these particular mice from the University of South Florida Research Foundation (“USFRF”). We have engaged Mindgenix to perform testing services for us using these transgenic mice. Dr. Chain, our CEO, is a controlling shareholder of Mindset. We consolidate the results of operations of Mindgenix with our results of operations because we have agreed to absorb certain costs and expenses incurred that are attributable to their research.

In December of 2006, we entered into an agreement with USFRF as a co-obligor with Mindgenix, pursuant to which USFRF agreed to reinstate the license with Mindgenix in exchange for our agreement to pay to USFRF $209,148 plus accrued interest of $50,870 in installments. We have paid $184,151 through June 30, 2008 and established a liability for the remainder of the payments.

Related Party Consulting Fees. On January 3, 2007, we entered into a consulting contract with a former member of our Board of Directors and significant shareholder pursuant to which he is to provide us with consulting services related to identifying, soliciting and procuring collaboration agreements on behalf of Intellect. Under the agreement, Intellect is obligated to pay this former director and shareholder consulting fees of $10,000 per month beginning in January 2007. In addition, to the extent permitted under our applicable group health insurance policy, we are obligated to provide health insurance to this individual and his family without any reimbursement from him. In further consideration of the provision of services by this individual, he is entitled to receive cash payments in an amount equal to 2.5% of all revenues received by us, including payments we receive from collaboration agreements, as we realize the revenue through the receipt of cash payments from third parties. Total amounts payable to this former director and shareholder under the Consulting Agreement are limited to $1 million, calculated by taking into account all consulting fees paid to this director, cost of health insurance and revenue participation payments. The agreement may be terminated by us with or without cause at any time, provided however, that we have fulfilled our monetary obligations described above. During the three months ended March 31, 2010, we accrued $30,000 of consulting expense for this former director and shareholder.

8. Commitments and Contingencies

In the ordinary course of business, we enter into agreements with third parties that include indemnification provisions which, in our judgment, are normal and customary for companies in our industry sector. These agreements are typically with business partners, clinical sites, and suppliers. Pursuant to these agreements, we generally agree to indemnify, hold harmless, and reimburse indemnified parties for losses suffered or incurred by the indemnified parties with respect to our product candidates, use of such product candidates, or other actions taken or omitted by us. The maximum potential amount of future payments we could be required to make under these indemnification provisions is unlimited. We have not incurred material costs to defend lawsuits or settle claims related to these indemnification provisions. As a result, the estimated fair value of liabilities relating to these provisions is minimal. Accordingly, we have no liabilities recorded for these provisions as of March 31, 2010.

In the normal course of business, we may be confronted with issues or events that may result in a contingent liability. These generally relate to lawsuits, claims, environmental actions or the action of various regulatory agencies. If necessary, management consults with counsel and other appropriate experts to assess any matters that arise. If, in management’s opinion, we have incurred a probable loss as set forth by accounting principles generally accepted in the United States, an estimate is made of the loss, and the appropriate accounting entries are reflected in our financial statements. After consultation with legal counsel, we do not anticipate that liabilities arising out of currently pending or threatened lawsuits and claims will have a material adverse effect on our financial position, results of operations or cash flows.

9. Per Share Data

The following table sets forth the information needed to compute basic and diluted earnings per share:

	Three Months Ended						Nine Months Ended
	March 31, 2010			March 31, 2009			March 31, 2010			March 31, 2009
Basic EPS

Net (loss) income attributable to common stockholders, basic	$	(952,214	)	$	(2,952,155	)	$	(2,239,173	)	$	1,722,575

Weighted average shares outstanding		30,843,873			30,843,873			30,843,873			30,843,873

Basic (loss) earnings per share	$	(0.03	)	$	(0.10	)	$	(0.07	)	$	0.06

Diluted EPS

Net (loss) income attributable to common stockholders, basic	$	(952,214	)	$	(2,952,155	)	$	(2,239,173	)	$	1,722,575

Preferred stock dividends		121,908			120,569			368,404			367,065

Interest on convertible notes		314,137			244,446			923,016			876,192

Net (loss) income attributable to common stockholders, diluted	$	(516,169	)	$	(2,587,140	)	$	(947,753	)	$	2,965,832

Weighted average shares outstanding		30,843,873			30,843,873			30,843,873			30,843,873

Dilutive effect of stock options		94,542			72,000			72,833			92,000

Dilutive effect of warrants		-			-			-			-

Dilutive effect of Series B preferred shares		4,593,091			4,593,091			4,593,091			4,593,091

Dilutive effect of convertible notes		6,514,398			6,263,045			6,464,010			6,211,653

Diluted weighted average shares outstanding		42,045,904			41,772,009			41,973,807			41,740,617
Diluted earnings (loss) per share	$	(0.01	)	$	(0.06	)	$	(0.02	)	$	0.04

10. Subsequent Events

Issuance of Promissory Notes, Common Stock and Warrants. Pursuant to a Subscription Agreement between Intellect Neurosciences, Inc. (the “Company”) and the signers thereto, on April 23, 2010 (the “Closing Date”), the Company issued and sold for an aggregate purchase price of $2,320,000: (i) Secured Convertible Promissory Notes (the “Notes”) with an aggregate principal amount of $580,000, (ii) 58,000,000 shares of the Company’s Common Stock at a per share price of $.03 and (iii) 77,333,334 Class A Warrants, 77,333,334 Class B Warrants and 77,333,334 Class C Warrants. Net proceeds from the sale of the securities of approximately $2,220,000 is being held in escrow and distributed to the Company on a monthly basis pursuant to the terms of an Escrow Agreement executed by the parties.

Each Note may be converted into shares of the Company’s common stock, $0.001 par value per share (“Common Stock”), at a conversion price per share of $0.03, subject to certain adjustments as provided in the terms of the Notes. The Notes bear interest at 14% annually and mature on April 22, 2013. The Notes are not entitled to dividends, distributions or other payments. The number of shares issuable upon conversion of the Notes is subject to adjustment for subdivision, combination, recapitalization, reclassification, exchange or substitution, as well as in the event of merger or sale of all or substantially all of the Company’s assets. The Notes also benefit from anti-dilution adjustments upon issuances of shares of Common Stock (or securities convertible into or exchangeable or exercisable for such stock). If the Company issues common stock at a price that is less than $0.03 (or if the Company issues rights, warrants or other securities having an exercise, conversion or exchange price that is less than $0.03), the conversion price of the Notes will be reduced to a price equal to the issuance, conversion, exchange or exercise price, as applicable, of any such securities so issued. Additional reductions of the conversion price of the Notes will be made if the Company issues securities at a price (or having an exercise, conversion or exchange price) less than the conversion price of the Notes at the time of such issuances.

Each Warrant entitles the holder to purchase 77,333,334 shares of Common Stock. The Series A Warrants and the Series C Warrants contain cashless exercise features. The exercise price of the Series B Warrants is payable in cash.

The Series A Warrants expire on the fifth anniversary of their issue date; the Series B Warrants expire on the nine monthly anniversary of their issue date; and the Series C Warrants expire on the sixty ninth monthly anniversary of their issue date. The Series C Warrants are exercisable only upon the prior or simultaneous exercise of the Series B Warrants issued by the Company to the original holder on the issue date.

The number of shares issuable upon exercise of the Warrants is subject to adjustment for subdivision, combination, recapitalization, reclassification, exchange or substitution, as well as in the event of merger or sale of all or substantially all of the Company’s assets. The Warrants also benefit from anti-dilution adjustments upon issuances of shares of Common Stock (or securities convertible into or exchangeable or exercisable for such stock). If the Company issues common stock at a price that is less than $0.03 (or if the Company issues rights, warrants or other securities having an exercise, conversion or exchange price that is less than $0.03), the exercise price of the Warrants will be reduced to a price equal to the issuance, conversion, exchange or exercise price, as applicable, of any such securities so issued. In addition, upon any reduction of the exercise price of the Warrants, the number of shares of Common Stock that the holder of the Warrant shall thereafter, on the exercise, be entitled to receive shall be adjusted to a number determined by multiplying the number of shares of Common Stock that would otherwise be issuable on such exercise by a fraction of which (a) the numerator is the exercise price that would otherwise be in effect, and (b) the denominator is the exercise price in effect on the date of such exercise. Additional reductions of the exercise price of the Warrants and adjustments to the number of shares of Common Stock issuable upon exercise will be made if the Company issues securities at a price (or having an exercise, conversion or exchange price) less than the exercise price of the Warrants at the time of such issuances..

In connection with the sale of the Notes, the Company, all the subsidiaries of the Company and the holders of the Notes entered into a Security Agreement (the “Security Agreement”). Pursuant to the Security Agreement, the Company granted the holders a security interest in all of the Company’s tangible and intangible assets, including its patent estate.

Repayment of Outstanding Promissory Notes. On April 23, 2010, the Company issued or agreed to issue to holders of all of its outstanding Convertible Promissory Notes and Senior Notes Payable (except as described below), a total of 342,351,768 shares of Common Stock in repayment of the full principal amount plus all accrued and unpaid interest on such Notes. Each holder is entitled to a number of shares of Common Stock equal to the sum of the full principal amount of the Notes, plus all accrued and unpaid interest on such holder’s Notes, divided by 0.05. Holders of Notes who purchased Common Stock and Notes for total consideration of at least $500,000 in the financing transactions described above that occurred on April 23, 2010 are entitled to a number of shares of Common Stock equal to the sum of the full principal amount of the Notes held by such Purchasers, plus all accrued and unpaid interest on such holders’ Notes, divided by 0.03.

In connection with the repayment of the Notes, each holder agreed to the cancellation of his or her existing warrants that were issued in connection with the original issuance of the Notes. In addition, each holder agreed not to sell, transfer or pledge any shares of Common Stock received upon repayment of the Notes for a period of one year. Holders of Notes who purchased Common Stock and Notes for total consideration of at least $500,000 in the financing transactions described above that occurred on April 23, 2010 are not subject to this “lockup”.

A holder of Convertible Promissory Notes issued during the fiscal year ended June 30, 2007 with an aggregate principal amount of $300,000 refused to accept repayment of his Notes by delivery of Common Stock and continues to hold his Notes, which remain outstanding and overdue.

Conversion of Series B Preferred Stock. On April 23, 2010, the Company accepted conversion notices from each of the holders of the Company’s outstanding Series B Convertible Preferred Stock (except as described below), and issued or agreed to issue a total of 195,105,502 shares of Common Stock in conversion of the Series B Preferred Stock plus all accrued and unpaid dividends on the Series B Preferred Stock. Each holder is entitled to a number of shares of Common Stock equal to the sum of the Stated Value of each share of Series B Preferred Stock ($17.50), plus all accrued and unpaid dividends, divided by 0.05. Holders of Series B Preferred Stock who purchased Common Stock and Notes for total consideration of at least $500,000 in the financing transactions described above that occurred on April 23, 2010 are entitled to a number of shares of Common Stock equal to the sum of the full Stated Value of the Series B Preferred Stock held by such Purchasers, plus all accrued and unpaid dividends on such holders’ Series B Preferred Stock, divided by 0.03.

In connection with the conversion of the Series B Preferred Stock, each holder agreed to the cancellation of his or her existing warrants that were issued in connection with the original issuance of the Series B Preferred Stock. In addition, each holder agreed not to sell, transfer or pledge any shares of Common Stock received upon conversion of the Series B Preferred Stock for a period of one year. Holders of Series B Preferred Stock who purchased Common Stock and Notes for total consideration of at least $500,000 in the financing transactions described above that occurred on April 23, 2010 are not subject to this “lockup”.

Holders of Series B Prefs with an aggregate Stated Value of $887,000 did not submit conversion notices and continue to hold their Series B Prefs and warrants.

ITEM 2. MANAGEMENTS’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations contains information that management believes is relevant to an assessment and understanding of our results of operations. You should read this discussion in conjunction with the Financial Statements and Notes included elsewhere in this report and with Management’s Discussion and Analysis of Financial Condition and Results of Operations for the period ended June 30, 2009 and Risk Factors contained in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on October 16, 2009. Certain statements set forth below constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. See “Special Note Regarding Forward-Looking Statements”. References to “Intellect,” the “Company,” “we,” “us” and “our” refer to Intellect Neurosciences, Inc. and its subsidiaries.

General

We are a biopharmaceutical company conducting research and developing our own proprietary drug candidates to treat Alzheimer’s disease (“AD”) and other diseases associated with oxidative stress. In addition, we have developed and are advancing a patent portfolio related to specific therapeutic approaches for treating AD. Since our inception in 2005, we have devoted substantially all of our efforts and resources to research and development activities and advancing our intellectual property portfolio. We have no product sales through September 30, 2009. We operate under a single segment. Our fiscal year end is June 30.

Our core business strategy is to leverage our intellectual property estate through license and other arrangements and to develop our proprietary compounds that we have purchased, developed internally or in-licensed from universities and others, through human proof of concept (Phase II) studies or earlier if appropriate and then seek to enter into collaboration agreements, licenses or sales to complete product development and commercialize the resulting drug products. Our objective is to obtain revenues from licensing fees, milestone payments, development fees and royalties related to the use of our intellectual property estate and the use of our proprietary compounds for specific therapeutic indications or applications.

In May, 2008, we entered into a License Agreement with AHP MANUFACTURING BV, acting through its Wyeth Medica Ireland Branch, (“Wyeth”) and ELAN PHARMA INTERNATIONAL LIMITED (“Elan”) to provide Wyeth and Elan (the “Licensees”) certain license rights under our ANTISENILIN patent estate, which relates to certain antibodies that may serve as potential therapeutic products for the treatment for Alzheimer’s Disease (the “Licensed Products”) and for the research, development, manufacture and commercialization of Licensed Products. In exchange for the licenses, the Licensees have agreed to collectively pay us an up-front payment, and we may be entitled to milestone and royalty payments in the future.

In October, 2008, we entered into an Option Agreement with a global pharmaceutical company regarding the right to obtain a license to our ANTISENILIN patent estate. Pursuant to the Option Agreement, we received a non-refundable option fee upon execution of the Agreement. In addition, upon exercise of the Option by the licensee, we will be entitled to fees, and we may be entitled to milestone payments and royalties from potential future drug sales. Effective as of December 19, 2008, the Option Holder became the Licensee of the Subject Patents by paying us $1,550,000, which is the Exercise Fee described in the Option Agreement as adjusted by subsequent discussions between the parties to the Option Agreement

Our most advanced drug candidate, OXIGON, is a chemically synthesized form of a small, potent, dual mode of action, naturally occurring molecule. We commenced human Phase I clinical trials for OXIGON on December 1, 2005 in the Netherlands and completed Phase I clinical trials on November 15, 2006. We have designed a Phase IIa clinical trial to test OXIGON in 80 to 100 mild to moderate AD patients and plan to initiate that trial during 2009 if we have sufficient financial resources. We plan to orally administer OXIGON to evaluate the drug’s activity in patients as measured by changes in certain biomarkers that correlate with the condition of AD.

Our pipeline includes drugs based on our immunotherapy platform technologies, ANTISENILIN and RECALL-VAX. These immunotherapy programs are based on monoclonal antibodies and therapeutic vaccines, respectively, to prevent the accumulation and toxicity of the amyloid beta toxin. Both are in pre-clinical development. Our lead product candidate in our immunotherapy programs is IN-N01, a monoclonal antibody that is undergoing the humanization process at MRCT in the UK.

OXIGON, RECALL-VAX and ANTISENILIN are our trademarks. Each trademark, trade name or service mark of any other company appearing in this Quarterly Report on Form 10-Q belongs to its respective holder.

Our current business is focused on granting licenses to our patent estate to large pharmaceutical companies and on research and development of proprietary therapies for the treatment of AD. We expect research and development, including patent related costs, to continue to be the most significant expense of our business for the foreseeable future. Our research and development activity is subject to change as we develop a better understanding of our projects and their prospects. Research and Development costs from inception through March 31, 2010 were $13,314,905, which exclude patent related expenses.

We have taken actions to reduce the rate of our cash burn and preserve our existing cash resources. We have sublet approximately 75% of our office space at our New York City office facility, closed our research laboratory in Israel and terminated employees both in Israel and New York. The lease is held by our wholly-owned subsidiary, Intellect Israel. On July 16, 2009, Intellect Israel entered into an agreement with the landlord of the Israeli facilities pursuant to which the lease was terminated in exchange for surrender of amounts available under certain lease guarantees and an agreement by Intellect Israel to pay the landlord certain costs related to rewiring the facilities, estimated at up to approximately $4,800. We will continue to conduct research through outsourced facilities and arrangements. Currently, we have a total of two employees.

We are seeking additional funding through various financing alternatives. If additional capital is raised through the sale of equity or convertible debt securities, the issuance of such securities will result in dilution to our existing stockholders. We cannot assure you that financing will be available on favorable terms or at all.

The previously disclosed engagement with HFP Capital Markets LLC to assist the Company to obtain equity funding terminated in accordance with its terms as of January 16, 2010.

Liquidity and Capital Resources

Since our inception in 2005, we have generated losses from operations and we anticipate that we will continue to generate significant losses from operations for the foreseeable future. As of March 31, 2010 and March 31, 2009, our accumulated deficit was approximately $44.4 million and $42.3 million, respectively. Our net loss before other income/ (expense) from operations for the three months ended March 31, 2010 and 2009 was approximately $232,702 and $931,775, respectively. Our capital shows a deficit of approximately $21.9 million and $19.8 million as of March 31, 2010 and March 31, 2009, respectively. We are eligible to receive certain milestones and royalties based on sales of Licensed Products as set forth in our Licensing Agreement with Elan Pharma International Limited and Wyeth and the Option Agreement with another top tier global pharmaceutical company, however, achievement of these milestones is uncertain.

We have limited capital resources and operations to date have been funded with the proceeds from equity and debt financings. As of March 31, 2010, we had cash and cash equivalents of approximately $3,627. As described more fully above in Note 10 to our financial statements, Subsequent Events, on April 23, 2010, we issued and sold (i) Secured Convertible Promissory Notes with an aggregate principal amount of $580,000, (ii) 58,000,000 shares of Common Stock at a per share price of $0.03 and (iii) 77,333,334 Class A Warrants, 77,333,334 Class B Warrants and 77,333,334 Class C Warrants for an aggregate purchase price of $2,320,000. Net proceeds from the sale of the securities was approximately $2,220,000 and is being held in escrow and distributed to us on a monthly basis pursuant to the terms of an Escrow Agreement. As a result of this financing transaction, we anticipate that our existing capital resources will enable us to continue operations for the next twelve months.

As described above in Note 4 to our financial statements, Convertible Promissory Notes, as of March 31, 2010, we were in default on convertible promissory notes with an aggregate carrying value of approximately $5.8 million. As described above in Note 10 to our financial statements, Subsequent Events, as of April 23, 2010, all but one of our note holders accepted common stock in repayment of their convertible promissory notes. In addition, we are in default with respect to certain payment obligations arising from various research agreements. We have entered into discussions with the counterparties to the research agreements and with remaining note holder to obtain their agreement to accept common stock in repayment of their debt.

The audit report prepared by our independent registered public accounting firm relating to our consolidated financial statements for the period ended June 30, 2009 includes an explanatory paragraph expressing the substantial doubt about our ability to continue as a going concern.

Our business will require substantial additional investment that we have yet to secure. We are uncertain as to how much we will need to spend in order to develop, manufacture and market new products and technologies in the future. We expect to continue to spend substantial amounts on research and development, including amounts that will be incurred to conduct clinical trials for our product candidates. Further, we will have insufficient resources to fully develop any new products or technologies unless we are able to raise substantial additional financing on acceptable terms or secure funds from new or existing partners. Our failure to raise capital when needed will adversely affect our business, financial condition and results of operations, and could force us to reduce or discontinue our operations at some time in the future, even if we obtain financing in the near term.

Results of Operations

Three Months Ended March 31, 2010 Compared to Three Months Ended March 31, 2009:

	Three Months Ended March 31, 2010
				(in thousands)
	2010			2009			Change
Net income/(loss) from operations		(232	)		(932	)		700
Net other income (expenses):		(720	)		(2,020	)		1,300

Net income/(loss)	$	(952	)	$	(2,952	)	$	2,000

Net operating costs decreased by approximately $0.7 million as a result of the following:

	(in thousands)

Decrease in salaries, benefits and Board compensation		(331	)
Decrease in clinical expenses and R&D fees and expenses		(74	)
Decrease in professional fees		(172	)
Decrease in other G&A expenses		(123	)
	$	(700	)

The decrease in compensation and benefit costs is related to a decrease in staff levels in our New York headquarters and Israeli research laboratory.

The decrease in clinical fees and expenses is related to the termination of research and clinical activity.

The decrease in professional fees is due to a decrease in accounting and legal costs.

The decrease in other G&A expenses is due to a decrease in overall office expenses plus a decrease in rent costs due to the subletting of a portion of the New York office.

Other income decreased by approximately $1.3 million as a result of the following:

This decrease is mainly due to changes in the fair value of derivative instruments and preferred stock liability of $1.4 million related to the valuation of the warrants associated with the Series B Preferred stock, Convertible Promissory Notes, and the New Series B Preferred Stock liability, offset by an increase in interest expense.

Nine Months Ended March 31, 2010 Compared to Nine Months Ended March 31, 2009:

	Nine Months Ended March 31, 2010,
				(in thousands)
	2010			2009		Change
Net income/(loss) from operations		(1,152	)		834		(1,986	)
Net other income (expenses):		(1,087	)		888		(1,975	)

Net income/(loss)	$	(2,239	)	$	1,722	$	(3,961	)

Net operating costs decreased by approximately $1.9 million as a result of the following:

	(in thousands)

Increase in license fee revenue	$	4,016
Decrease in clinical expenses and R&D fees and expenses		(110	)
Decrease in salaries, benefits and Board compensation		(1,089	)
Decrease in professional fees		(518	)
Decrease in other G&A expenses		(313	)
	$	1,986

The decrease in license fee revenue is related to certain research milestone payments that we received from Elan and Wyeth following grant of the European patent for our ANTISENILIN platform technology last year.

The decrease in compensation and benefit costs is related to a decrease in staff levels in our New York headquarters and Israeli research laboratory.

The decrease in clinical fees and expenses is related to the termination of research and clinical activity.

The decrease in professional fees is due to a decrease in accounting, consulting and legal costs.

The decrease in other G&A expenses is due to a decrease in overall office expenses plus a decrease in rent costs due to the subletting of a portion of the New York office.

Other income decreased by approximately $1.9 million as a result of the following:

This decrease is mainly due to changes in the fair value of derivative instruments and preferred stock liability related to the valuation of the warrants associated with the Series B Preferred stock, Convertible Promissory Notes, and the New Series B Preferred Stock liability offset by amortization and interest expenses.

Off-Balance Sheet Arrangements

As of March 31, 2010, we had no off-balance sheet arrangements, other than operating leases and obligations under various strategic agreements as set out below. There were no changes in significant contractual obligations during the six months ended March 31, 2010.

Under a License Agreement with New York University (“NYU”) and a similar License Agreement with University of South Alabama Medical Science Foundation (“SAMSF”) related to our OXIGON program, we are obligated to make future payments totaling approximately $1.5 million to each of NYU and SAMSF upon achievement of certain milestones based on phases of clinical development and approval of the FDA (or foreign equivalent) and also to pay each of NYU and SAMSF a royalty based on product sales by Intellect or royalty payments received by Intellect.

Pursuant to a Letter Agreement executed in January 2006 between Intellect USA and the Institute for the Study of Aging (the “ISOA”), we are obligated to pay a total of $225,500 of milestone payments contingent upon future clinical development of OXIGON.

Under a Research Agreement with MRCT as amended, we are obligated to make future research milestone payments totaling approximately $560,000 to MRCT related to the development of the 82E1 humanized antibody and to pay additional milestones related to the commercialization, and a royalty based on sales, of the resulting drug products. MRCT has achieved three of the research milestones and we have included $350,000 of the total $560,000 in accrued expenses at March 31, 2009.

Under the terms of a Beta-Amyloid Specific, Humanized Monoclonal Antibody Purchase and Sale Agreement with IBL we agreed to pay IBL a total of $2,125,000 upon the achievement of certain milestones plus a specified royalty based on sales of any pharmaceutical product derived from the 82E1or 1A10 antibodies. We have paid $40,000 to date.

Under the terms of our License Agreement with Wyeth and Elan, which we entered into in May, 2008, effectively we have an obligation to incur $50,000 in patent or program research related expenses during any six month period that the Agreement is in effect. Failure to incur these costs could be treated as an abandonment of the Licensed Patents, resulting in termination of the License Agreement and a discharge of the Licensees’ obligations to pay us any milestone or royalty payments. As described in Note 5 above, effective as of December 19, 2008, the Licensed Patents became the subject of a second non-exclusive license to another party and as a result, the Licensees’ option to receive ownership of all of our right, title and interest in and to the Licensed Patents and our corresponding obligation to incur $50,000 in patent or program research related expenses during any six month period that the Agreement is in effect has terminated as of December 19, 2008.

Under the terms of a Royalty Participation Agreement, which was approved by our Board of Directors as of May 2, 2008, but which became effective as of July 31, 2008, certain of our lenders are entitled to an aggregate share of 25% of future royalties that we receive from the license of our ANTISENILIN patent estate.

Critical Accounting Estimates and New Accounting Pronouncements

Critical Accounting Estimates

The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect reported amounts and related disclosures in the financial statements. Management considers an accounting estimate to be critical if it requires assumptions to be made that were uncertain at the time the estimate was made, and changes in the estimate or different estimates that could have been selected could have a material impact on our consolidated results of operations or financial condition.

Share-Based Payments - As of July 1, 2006, we adopted authoritative accounting guidance which establishes standards for share-based transactions in which an entity receives employee's services for equity instruments of the entity, such as stock options, or liabilities that are based on the fair value of the entity's equity instruments or that may be settled by the issuance of such equity instruments. These authoritative accounting standards require that companies expense the fair value of stock options and similar awards, as measured on the awards' grant date, date of adoption, and to awards modified, repurchased or cancelled after that date.

We estimate the value of stock option awards on the date of grant using the Black-Scholes-Merton option-pricing model (the “Black-Scholes model”). The determination of the fair value of share-based payment awards on the date of grant is affected by our stock price as well as assumptions regarding a number of complex and subjective variables. These variables include our expected stock price volatility over the term of the awards, expected term, risk-free interest rate, expected dividends and expected forfeiture rates.

If factors change and we employ different assumptions in the application of the relevant accounting guidance in future periods, the compensation expense that we record may differ significantly from what we have recorded in the current period. There is a high degree of subjectivity involved when using option pricing models to estimate share-based compensation under the relevant accounting guidance. Consequently, there is a risk that our estimates of the fair values of our share-based compensation awards on the grant dates may bear little resemblance to the actual values realized upon the exercise, expiration, early termination or forfeiture of those share-based payments in the future. Employee stock options may expire worthless or otherwise result in zero intrinsic value as compared to the fair values originally estimated on the grant date and reported in our financial statements. Alternatively, value may be realized from these instruments that are significantly in excess of the fair values originally estimated on the grant date and reported in our financial statements. During the three months ended March 31, 2010, we do not believe that reasonable changes in the projections would have had a material effect on share-based compensation expense.

Research and Development Costs and Clinical Trial Expenses - Research and development costs include costs directly attributable to the conduct of research and development programs, including the cost of salaries, payroll taxes, employee benefits, materials, supplies, maintenance of research equipment, costs related to research collaboration and licensing agreements, the cost of services provided by outside contractors, including services related to our clinical trials, clinical trial expenses, the full cost of manufacturing drugs for use in research, preclinical development, and clinical trials. All costs associated with research and development are expensed as incurred.

Warrants - Warrants issued in connection with our Series B Preferred Stock and Convertible Promissory Notes have been classified as liabilities due to certain provisions that may require cash settlement in certain circumstances. At each balance sheet date, we adjust the warrants to reflect their current fair value. We estimate the fair value of these instruments using the Black-Scholes option pricing model which takes into account a variety of factors, including historical stock price volatility, risk-free interest rates, remaining term and the closing price of our common stock. Changes in the assumptions used to estimate the fair value of these derivative instruments could result in a material change in the fair value of the instruments. We believe the assumptions used to estimate the fair values of the warrants are reasonable. See Item 3, Quantitative and Qualitative Disclosures about Market Risk, for additional information on the volatility in market value of derivative instruments.

Restructuring Related Assessments - During the fourth quarter of fiscal 2008, we effectively closed our Israeli laboratory and terminated all but three of the remaining employees. In accordance with authoritative accounting guidance, we have estimated the future sublease income from our Israeli laboratory through the end of the lease period, which ends in October 2011, and have recorded rent expense based on the present value of the excess of our rental commitment in Israel through October 2011 over the estimated future sublease income from the laboratory during that period. In addition, we have written down the cost basis of the remaining laboratory equipment to zero, which is our estimate of fair value for such equipment.

Revenue Recognition - We recognize revenue in accordance with authoritative accounting guidance, which provides that non-refundable upfront and research and development milestone payments and payments for services are recognized as revenue as the related services are performed over the term of the collaboration.

New Accounting Pronouncements

In December 2007, FASB issued guidance related to Business Combinations under ASC 805, Business Combinations, and guidance related to the accounting and reporting of non-controlling interest under ASC 810-10-65-1, Consolidation. This guidance significantly changes the accounting for and reporting of business combination transactions and non-controlling (minority) interests in consolidated financial statements. This guidance became effective January 1, 2009.

In March 2008, the FASB issued guidance related to the disclosures about derivative instruments and hedging activities under FASB ASC 815-10-50, Derivatives and Hedging. This guidance requires companies to provide enhanced disclosures about (a) how and why they use derivative instruments, (b) how derivative instruments and related hedged items are accounted for under applicable guidance, and (c) how derivative instruments and related hedged items affect a company's financial position, financial performance, and cash flows. These disclosure requirements are effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. Our adoption of ASC 815-10-50 on January 1, 2009 did not have a material impact on our consolidated condensed financial statements.

In June 2008, the FASB issued guidance to evaluate whether an instrument (or embedded feature) is indexed to an entity’s own stock under ASC 815-40-15, Derivatives and Hedging. The guidance requires entities to evaluate whether an equity-linked financial instrument (or embedded feature) is indexed to its own stock in order to determine if the instrument should be accounted for as a derivative under the scope of ASC 815-10-15. This guidance is effective for financial statements issued for fiscal years beginning after December 15, 2008 and interim periods within those fiscal years. We adopted ASC 815-40-15 beginning January 1, 2009. Our adoption of ASC 815-10-15 on January 1, 2009 did not have a material impact on our consolidated condensed financial statements.

In May 2009, the FASB issued guidance related to subsequent events under ASC 855-10, Subsequent Events. This guidance sets forth the period after the balance sheet date during which management or a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure, the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date, and the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. It requires disclosure of the date through which an entity has evaluated subsequent events and the basis for that date, whether that date represents the date the financial statements were issued or were available to be issued. This guidance is effective for interim and annual periods ending after June 15, 2009. We adopted ASC 855-10 beginning June 30, 2009 and have included the required disclosures in our consolidated condensed financial statements.

In June 2009, the FASB issued Accounting Standards Update No. 2009-01 which amends ASC 105, Generally Accepted Accounting Principles. This guidance states that the ASC will become the source of authoritative U.S. GAAP recognized by the FASB to be applied by nongovernmental entities. Once the Codification is effective, its content will carry the same level of authority. Thus, the U.S. GAAP hierarchy will be modified to include only two levels of U.S. GAAP: authoritative and non-authoritative. This is effective for financial statements issued for interim and annual periods ending after September 15, 2009. We adopted ASC 105 as of September 30, 2009 and thus have incorporated the new Codification citations in place of the corresponding references to legacy accounting pronouncements.

In August 2009, the FASB issued Accounting Standards Update No. 2009-05, Measuring Liabilities at Fair Value, which amends ASC 820, Fair Value Measurements and Disclosures. This Update provides clarification that in circumstances in which a quoted price in an active market for the identical liability is not available, a reporting entity is required to measure the fair value using one or more of the following techniques: a valuation technique that uses the quoted price of the identical liability or similar liabilities when traded as an asset, which would be considered a Level 1 input, or another valuation technique that is consistent with ASC 820. This Update is effective for the first reporting period (including interim periods) beginning after issuance. Thus, we adopted this guidance as of September 30, 2009, which did not have a material impact on our consolidated condensed financial statements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not Applicable

ITEM 4T. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We performed an evaluation under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of March 31, 2010. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that it will detect or uncover failures within our company to disclose material information otherwise required to be set forth in our periodic reports.

Following the evaluation described above, our management, including our chief executive and chief financial officer, concluded that based on the evaluation, our disclosure controls and procedures were effective as of the date of the period covered by this quarterly report.

Changes in Internal Controls Over Financial Reporting

There has been no change in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended March 31, 2010 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II

ITEM 6. EXHIBITS

31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)

31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and 15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)

32.1	Certification of Chief Executive Officer pursuant to Rule 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith)

32.2	Certification of Chief Financial Officer pursuant to Rule 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith)

SIGNATURES

Pursuant to the requirements of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

May 17, 2010	Intellect Neurosciences, Inc.

		/s/ Daniel Chain
		Daniel Chain
		Chief Executive Officer

		/s/ Elliot Maza
		Elliot Maza
		Chief Financial Officer

Attached files

Intellect Neurosciences, Inc. Reports

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