10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the Quarterly Period Ended: March 31, 2010

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

Commission File No: 000-51436

ADVANCED LIFE SCIENCES HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

DELAWARE	30-0296543
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification no.)

1440 Davey Road
Woodridge, IL 60517
(Address, including zip code of registrants principal executive offices)

Registrant’s telephone number: (630) 739-6744

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (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  o   No  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer.  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 o	Accelerated filer o
Non-accelerated filer o	Smaller reporting company x
(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 o   No x

As of  May 6, 2010, the registrant had 100,372,067 shares of common stock, $0.01 par value per share, outstanding.

ADVANCED LIFE SCIENCES HOLDINGS, INC.
(A DEVELOPMENT STAGE ENTITY)
INDEX

Form 10-Q

PART I — FINANCIAL INFORMATION (UNAUDITED)
Item 1.	Consolidated Financial Statements:
	Consolidated Balance Sheets as of March 31, 2010 and December 31, 2009
	Consolidated Statements of Operations for the three months ended March 31, 2010 and 2009 and for the period from inception (January 1, 1999) through March 31, 2010
	Consolidated Statements of Total Equity (Deficit) for period from inception (January 1, 1999) through March 31, 2010
	Consolidated Statements of Cash Flows for the three months ended March 31, 2010 and 2009 and for the period from inception (January 1, 1999) through March 31, 2010
	Notes to Consolidated Financial Statements
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3.	Quantitative and Qualitative Disclosures About Market Risk
Item 4.	Controls and Procedures
PART II — OTHER INFORMATION
Item 1A.	Risk Factors
Item 6.	Exhibits
Signatures
Exhibit Index

1

PART I — FINANCIAL INFORMATION

Item 1.    Consolidated Financial Statements (Unaudited)

ADVANCED LIFE SCIENCES HOLDINGS, INC. AND SUBSIDIARY

(A Development Stage Company)

CONSOLIDATED BALANCE SHEETS

(Unaudited)

	March 31,			December 31,
	2010			2009
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	2,787,456		$	2,841,801
Grant receivable	283,526			530,219
Prepaid insurance	122,233			111,761
Other prepaid expenses and deposits	133,520			88,535
Total current assets	3,326,735			3,572,316
PROPERTY AND EQUIPMENT:
Furniture and fixtures	214,380			244,072
Computer software and equipment	258,786			258,786
Leasehold improvements	177,253			177,253
Total property and equipment—at cost	650,419			680,111
Less accumulated depreciation	(606,019		)	(624,158		)
Property and equipment—net	44,400			55,953
OTHER ASSETS:
Commercial launch materials	2,760,936			2,760,936
Deferred offering and financing costs	10,174			13,566
Other long-term assets	25,000			25,000
Total other assets	2,796,110			2,799,502
TOTAL ASSETS	$	6,167,245		$	6,427,771
LIABILITIES AND EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable	$	549,023		$	604,334
Accrued payroll	416,896			664,436
Other accrued expenses	362,265			661,504
Accrued interest payable	73,194			73,194
Short-term lease payable	—			4,350
Line of credit	3,000,000			—
Short-term grant payable	500,000			—
Total current liabilities	4,901,378			2,007,818
Long-term grant payable	—			500,000
Long-term notes payable - related party	2,000,000			2,000,000
Line of credit	7,000,000			10,000,000
Total liabilities	13,901,378			14,507,818
COMMITMENTS AND CONTINGENCIES
EQUITY (DEFICIT):
Common stock, $0.01 par value—120,000,000 shares authorized; 100,372,067 issued and outstanding at March 31, 2010; 84,925,010 shares issued and outstanding at December 31, 2009	1,003,721			849,250
Additional paid-in capital	124,789,598			122,621,392
Deficit accumulated during the development stage	(133,527,452		)	(131,550,689		)
Noncontrolling interest in subsidiary	—			—
Total equity (deficit)	(7,734,133		)	(8,080,047		)
TOTAL LIABILITIES AND EQUITY (DEFICIT)	$	6,167,245		$	6,427,771

See notes to unaudited consolidated financial statements.

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ADVANCED LIFE SCIENCES HOLDINGS, INC. AND SUBSIDIARY

(A Development Stage Company)

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

							Period From
							Inception
							(January 1, 1999)
	Three months ended March 31,						Through
	2010			2009			March 31, 2010
Revenue:
Management fees	$	—		$	—		$	1,161,180
Grants	479,824			411,485			4,549,416
Royalty—related party	—			—			45,238
Total revenue	479,824			411,485			5,755,834
Expenses:
Research and development	864,204			934,769			95,906,886
Contracted research and development—related party	—			—			7,980,299
Selling, general and administrative	1,341,829			1,508,953			34,713,315
Total expenses	2,206,033			2,443,722			138,600,500
Loss from operations	(1,726,209		)	(2,032,237		)	(132,844,666		)
Net other (income) expense:
Interest income	(5,435		)	(1,732		)	(2,965,858		)
Interest expense	255,989			252,718			4,441,604
Other (income) expense, net	—			—			146,092
Gain on sale of interest in Sarawak Medichem Pharmaceuticals joint venture	—			—			(939,052		)
Net other (income) expense	250,554			250,986			682,786
Net loss	(1,976,763		)	(2,283,223		)	(133,527,452		)
Less net loss attributable to the noncontrolling interest in subsidiary	—			—			—
Net loss attributable to Advanced Life Sciences Holdings, Inc.	(1,976,763		)	(2,283,223		)	(133,527,452		)
Less accumulated preferred stock dividends of subsidiary for the period	43,750			43,750			1,888,542
Net loss available to common shareholders	$	(2,020,513	)	$	(2,326,973	)	$	(135,415,994	)
Net loss per share available to common shareholders - basic and diluted	$	(0.02	)	$	(0.06	)
Weighted average shares outstanding - basic and diluted	92,642,185			41,779,634

See notes to unaudited consolidated financial statements.

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ADVANCED LIFE SCIENCES HOLDINGS, INC. AND SUBSIDIARY

(A Development Stage Company)

CONSOLIDATED STATEMENTS OF TOTAL EQUITY (DEFICIT)

(Unaudited)

								Deficit
								Accumulated
						Additional		During the			Noncontrolling
	Common Stock					Paid-in		Development			Interest
	Shares		Amount			Capital		Stage			in Subsidiary		Total
BALANCE—January 1, 1999 (inception)	—		$	—		$	—	$	—		$	—	$	—
Issuance of stock (at inception)	1,588,000		250,000			—		—			—		250,000
Issuance of common stock, net of offering costs (August 2005)	6,721,814		67,218			29,210,558		—			—		29,277,776
Issuance of common stock, net of offering costs (March 2006)	10,233,464		102,335			33,266,653		—			—		33,368,988
Issuance of common stock, net of offering costs (December 2007)	10,191,083		101,911			17,700,186		—			—		17,802,097
Issuance of common stock, net of offering costs (September 2008)	1,888,606		18,886			1,634,193		—			—		1,653,079
Exchange of shares under recapitalization (December 2004)	(1,629,685	)	(256,563		)	—		—			—		(256,563		)
Issuance of shares under recapitalization (December 2004)	9,482,015		94,820			161,743		—			—		256,563
Capital contributions (December 2004)	—		—			12,711,330		—			—		12,711,330
Issuance of 14,887 warrants (December 2004)	—		—			11,898		—			—		11,898
Issuance of common stock in exchange for licenses (December 2004)	1,122,569		11,226			8,988,774		—			—		9,000,000
Issuance of common stock in exchange for reduction of milestones payable (August 2005)	600,000		6,000			3,000,000		—			—		3,006,000
Modification of 14,887 warrants (August 2005)	—		—			18,925		—			—		18,925
Issuance of common stock as payment for commitment fees (September 2008)	393,339		3,933			296,067		—			—		300,000
Issuance of 65,000 warrants (October 2008)	—		—			7,445		—			—		7,445
Issuance of common stock under standby equity distribution agreements, net of offering costs (2009)	43,986,137		439,862			12,475,173		—			—		12,915,035
Issuance of stock related to option exercises (since inception)	347,668		9,622			49,869		—			—		59,491
Compensation expense related to stock options (since inception)	—		—			3,088,578		—			—		3,088,578
Net loss (since inception)	—		—			—		(131,550,689		)	—		(131,550,689		)
BALANCE—December 31, 2009	84,925,010		849,250			122,621,392		(131,550,689		)	—		(8,080,047		)
Issuance of common stock under standby equity distribution agreements, net of offering costs	15,447,057		154,471			2,092,529		—			—		2,247,000
Compensation expense related to stock options	—		—			75,677		—			—		75,677
Net loss	—		—			—		(1,976,763		)	—		(1,976,763		)
BALANCE—March 31, 2010	100,372,067		$	1,003,721		$	124,789,598	$	(133,527,452	)	$	—	$	(7,734,133	)

See notes to unaudited consolidated financial statements.

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ADVANCED LIFE SCIENCES HOLDINGS, INC. AND SUBSIDIARY

(A Development Stage Company)

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

							Inception
							(January 1, 1999)
	Three months ended March 31,						Through
	2010			2009			March 31, 2010
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(1,976,763	)	$	(2,283,223	)	$	(133,527,452	)
Adjustments to reconcile net loss to net cash flows used in operating activities:
Depreciation and amortization	10,185			34,344			958,662
Non-cash interest expense	3,392			3,694			126,132
Stock compensation expense	75,677			168,855			3,164,255
Non-cash research and development	—			—			24,466,667
Non-cash settlement of milestone payment	—			—			6,000
Gain on sale of interest in Sarawak Medichem Pharmaceuticals (SMP)	—			—			(939,052		)
(Gain) loss on disposal	(1,435		)	10,493			256,553
Changes in operating assets and liabilities:
Clinical supplies	—			—			533,333
Accounts receivable	246,693			(71,445		)	(283,526		)
Prepaid expenses	(55,457		)	97,216			(264,301		)
Commercial launch materials	—			—			(2,760,936		)
Other assets	—			—			(16,452		)
Accounts payable	(55,311		)	483,080			549,023
Accrued expenses	(546,779		)	(103,661		)	779,163
Licenses payable	—			—			(11,000,000		)
Accrued interest on debt	—			26,198			651,257
Net cash flows from operating activities	(2,299,798		)	(1,634,449		)	(117,300,674		)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment	—			(5,466		)	(1,098,167		)
Proceeds from the sale of SMP	—			—			939,052
Proceeds from the sales of investments	—			—			31,557,158
Purchase of investments	—			—			(31,557,158		)
Net cash flows from investing activities	—			(5,466		)	(159,115		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock and capital contributions	2,247,000			554,471			104,798,549
Proceeds from issuance of note payable and line of credit	—			85,000			15,103,691
Proceeds from grants	—			—			500,000
Proceeds from stock options exercised	—			—			59,491
Payments for financing fees	—			(36,039		)	(53,039		)
Payments on capital leases	(1,547		)	(1,993		)	(161,447		)
Net cash flows from financing activities	2,245,453			601,439			120,247,245
NET (DECREASE) INCREASE IN CASH	(54,345		)	(1,038,476		)	2,787,456
CASH—Beginning of period	2,841,801			1,527,108			—
CASH—End of period	$	2,787,456		$	488,632		$	2,787,456
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash paid during the period for interest	$	252,598		$	224,179		$	3,666,769
SUPPLEMENTAL DISCLOSURE OF NONCASH TRANSACTIONS
Purchase of property and equipment under capital leases	—			—			164,249
Noncash financing activity:
Issuance of common shares for licenses	—			—			9,000,000
Issuance of common shares for reduction of milestone payment	—			—			3,000,000
Debt discount	—			—			30,823
SEDA and financing related costs	—			—			337,445

See notes to unaudited consolidated financial statements.

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ADVANCED LIFE SCIENCES HOLDINGS, INC.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2010

(UNAUDITED)

1.Summary of Significant Accounting Policies

Nature of Business- Advanced Life Sciences Holdings, Inc. and its subsidiary Advanced Life Sciences, Inc. (together, the “Company”) conduct new drug research and development in the fields of infectious disease, oncology and respiratory disease.  Since inception, the Company has devoted substantially all of its efforts to activities such as financial planning, capital raising and product development, and has not derived significant revenues from its primary business activity.  Accordingly, the Company is in the development stage, as defined by the accounting principles generally accepted in the United States of America (“GAAP”) for development stage enterprises.

The Company is subject to risks and uncertainties common to drug discovery companies, including technological change, potential infringement on intellectual property of third parties, new product development, regulatory approval and market acceptance of its products, activities of competitors and its limited operating history.

Basis of Presentation- The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with GAAP and with the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.  However, in the opinion of management, all adjustments, consisting only of normal recurring adjustments, unless otherwise noted herein, necessary to present fairly the results of operations, financial position and cash flows have been made.  Therefore, these consolidated financial statements should be read in conjunction with the Company’s most recent audited financial statements for the year ended December 31, 2009 and notes thereto. The consolidated financial statements include the accounts of the Advanced Life Sciences Holdings, Inc. and its wholly-owned subsidiary Advanced Life Sciences, Inc. (“ALS Inc.”)  All intercompany balances and transactions have been eliminated.  The results of operations for any interim period are not necessarily indicative of the results of operations expected for the full year.

The consolidated financial statements have been prepared on a going concern basis, which contemplates continuity of operations and the realization of assets and liquidation of liabilities in the ordinary course of business.  However, as a result of the Company’s continued losses and current cash and financing position, such realization of assets or liquidation of liabilities without substantial adjustments is uncertain.  Given this uncertainty, there is substantial doubt as to the Company’s ability to continue as a going concern.

Business and Credit Risks- The Company is subject to risks and uncertainties common to drug discovery companies, including technological change, potential infringement on intellectual property of third parties, new product development, regulatory approval and market acceptance of its products, activities of competitors and its limited operating history.

The Company has incurred losses since its incorporation in January 1999 and has funded its operations to date primarily from debt financings and capital contributions from its founder and Chief Executive Officer, proceeds from the initial public offering and subsequent private placements, including issuances of common stock under two Standby Equity Distribution Agreements.  In March 2010, the Company filed a Registration Statement on Form S-1 with the SEC relating to a proposed offering of common stock and warrants.  If the Company is successful with an offering and raises additional capital by issuing equity securities, its shareholders could experience substantial dilution. In addition, as a result of the Company’s continued losses and current cash and financing position, realization of assets or liquidation of liabilities without substantial adjustments is uncertain. The accompanying financial statements do not include any adjustments that might result from the outcome of these uncertainties. Given this uncertainty, there is substantial doubt as to the Company’s ability to continue as a going concern.

In order to continue its business activities during 2010, the Company intends to raise additional capital by issuing additional common shares and by licensing its lead compound, cethromycin (RestanzaTM), to commercial partners.  The Company believes, based upon current market conditions, additional commercial partnership agreements would include a

6

series of milestone payments, including up-front milestones that would fund the Company’s continued operations.  Although management believes the Company could secure additional commercial partnerships, there can be no assurances that such partnerships will be available at terms acceptable to the Company, if at all.

2.Private Placements

In March 2010, the Company and YA Global Master SPV Ltd. (“YA SPV”), an affiliate of Yorkville Advisors, agreed to terminate the Standby Equity Distribution Agreement dated June 19, 2009 (the “SEDA”).  The Company had sold to YA SPV 49,549,200 million shares of its common stock and raised approximately $11.7 million under the SEDA prior to its termination.  Shares of common stock sold under the SEDA in excess of $9.0 million were sold with the consent of the Company’s lender under the Company’s credit facility.

In June 2009, the Company and YA Global Investments, L.P. (“YA Global”), an affiliate of Yorkville Advisors,  terminated a prior Standby Equity Distribution Agreement dated September 29, 2008 (“Former SEDA”).  For the period of January 1, 2009 through the end of the Former SEDA, the Company issued 9,883,994 shares to YA Global and received approximately $3.9 million.  In addition, in September 2008, the Company paid YA Global a commitment fee of $300,000 by issuing 393,339 shares of the Company’s common stock.

3. Related Party Transactions

The Company’s Chief Executive Officer, Michael T. Flavin Ph.D., loaned $2.0 million to the Company in 2001 (see Note 4).  Interest expense of approximately $39,000 was recorded related to the loan for the three months ended March 31, 2010 and 2009.  In May 2010, Michael T. Flavin Ph.D. agreed to exchange this outstanding indebtedness for newly-issued units, at the same price per unit as those sold in the proposed offering of common stock and warrants. This exchange is contingent upon the Company receiving at least $10.0 million in gross proceeds from the public offering. The promissory note would be cancelled and retired upon effectiveness of the exchange.

In May 2010, the Company amended its loan agreement with a financial institution.  As part of the amendment, the Company’s Chief Executive Officer provided a $1.5 million personal guarantee to the loan facility and will be released of his guarantee upon receipt of a $1.5 million payment from the Company to the lender by July 1, 2010 (see Note 4).

The Company leases facilities from the BioStart Property Group (“BioStart”), a wholly-owned subsidiary of Flavin Ventures, which is owned by the Company’s Chief Executive Officer.  The lease, which commenced on October 1, 2009, is for a term of three years and provides the Company with 9,440 square feet of space at an annual rental rate of $10.50 per square foot.  The rental rate increases by 2.5% for the second year and by 3.0% in the final year of the lease term. The lease has a provision allowing the Company to negotiate an amendment to lease additional laboratory and office space should the need arise.  Lease obligations totaled approximately $40,000 and $84,000 for the three months ended March 31, 2010 and 2009, respectively.

4. Debt Obligations

In September 2001, the Company incurred indebtedness under a $2.0 million promissory note with the Chief Executive Officer of the Company, which bears interest at 7.75%.  On January 4, 2010, the note was extended to January 5, 2012 and is therefore classified as a long-term liability in the financial statements. All other terms remained unchanged and in effect.  As of March 31, 2010 and December 31, 2009, the Company had $2.0 million outstanding under the note.

The Company has a revolving line of credit with a financial institution under which the Company had $10.0 million outstanding as of March 31, 2010 and December 31, 2009. In May 2010, the Company received a commitment to extend the loan maturity by one year to January 1, 2012, under its loan facility with its lender in exchange for the Company taking the following steps.  The Company has reduced the outstanding loan balance to $8.5 million and will further reduce the balance by an additional $1.5 million by July 1, 2010.  The Company’s Chief Executive Officer, Michael T. Flavin, Ph.D., will provide a personal guarantee to the loan facility and will be released of his guarantee upon receipt of a $1.5 million payment from the Company to the lender by July 1, 2010.  Accordingly, $3.0 million of the outstanding loan balance is classified as a current liability and $7.0 million a long-term liability on the March 31, 2010 balance sheet.  The Company has also agreed to further reduce the loan balance by an additional $1.0 million no later than April 1, 2011.  In addition, the interest rate on the outstanding loan balance will increase from 8.5% to 10.0%. The Company will also issue 500,000 warrants priced upon closing of the loan documents and an additional 500,000 warrants will be issued and priced one year after the closing.  The Company also agreed that the line of credit is secured by substantially all of its assets.  All other terms of the loan remained unchanged.

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5.Fair Value of Financial Instruments

The carrying values of certain of the Company’s financial instruments, including cash equivalents and accounts payable, approximate fair value due to their short maturities.  The fair values of the Company’s long-term obligations (see Note 4) are based on assumptions concerning the amount and timing of estimated future cash flows and assumed discount rates reflecting varying degrees of risk.  As of March 31, 2010, the Company estimates that the fair value of its $10.0 million (carrying value) revolving line of credit is approximately $9.6 million and that the fair value of its $2.0 million (carrying value) promissory note is approximately $1.9 million.

6.Commitments

Vendor Contracts- The Company administers its cethromycin program largely under contracts with third parties.  Through March 31, 2010, contracts totaling $47.2 million have been executed related to the cethromycin program, which includes the development, commercialization, regulatory review and pre-launch activities associated with cethromycin as well as anthrax-related studies.  To date the Company has paid $46.9 million under these contracts and the remaining balance of $0.3 million is expected to be paid by the end of the year.  Subcontractor arrangements in connection with the Defense Threat Reduction Agency (“DTRA”) award grant are expected to be approximately $2.7 million over a two-year period which began in August 2008.  Through March 31, 2010 the Company has paid $2.4 million related to these agreements.  In addition, to date the Company has executed $1.2 million in contracts related to the ALS-357 program.  Through March 31, 2010 the Company has paid $0.3 million related to these contracts and the remaining balance of $0.9 million would be paid over the life of the program which the Company estimates to be two to three years.  The commencement of clinical trials to study ALS-357 as a topical treatment for patients with metastatic melanoma may be delayed due to insufficient patient enrollment, which is a function of many factors, including the size of the patient population, the nature of the protocol, the proximity of patients to clinical sites, the availability of effective treatments for the relevant disease, and the eligibility criteria for the clinical trial.

Grant Payable- In April 2005, the Company was awarded a $500,000 grant from the State of Illinois to fund expansion of its corporate headquarters in Woodridge, Illinois.  Under the terms of the grant, the Company is to create 100 full-time jobs at its corporate headquarters between January 31, 2005 and December 31, 2010 (“grant period”).  Under the current terms of the agreement, if the Company does not create the specified number of full-time jobs, it is required to repay the grant proceeds on a pro-rata basis of actual jobs created compared to the total defined in the grant within 45 days of the expiration or termination of the agreement.  The entire grant has been spent and therefore the $500,000 has been classified as a current liability as the Company must create and maintain positions created during the grant period through December 31, 2010.    Through March 31, 2010, four new jobs have been created and retained since the grant was awarded.

7.Stock Option Grants

The Company did not grant stock options during the three months ended March 31, 2010 and 2009.  The Company recognized compensation expense totaling approximately $76,000 and $169,000 for the three months ended March 31, 2010 and 2009, respectively.

8.Net Loss Per Share

Basic loss per share is computed by dividing net loss by the number of weighted average common shares outstanding during the reporting period.  Diluted loss per share is calculated to give effect to all potentially dilutive common shares that were outstanding during the reporting period.  The computation of diluted shares outstanding for the periods ended March 31, 2010 and 2009 excludes incremental shares of 13,560,550 and 13,356,138 respectively, related to outstanding employee stock options and warrants.  These shares are excluded due to their anti-dilutive effect as a result of the Company’s net losses for the periods ended March 31, 2010 and 2009.

9.Recent Accounting Pronouncements

In January 2010, the FASB issued updated accounting guidance related to the accounting for fair value measurements and disclosures, which are included in ASC Update No. 2010-06, “Improving Disclosures About Fair Value Measurements”.   The update requires new disclosures and clarifies existing disclosure requirements about fair value measurement as set forth in ASC 820. The objective is to improve these disclosures and, thus, increase the transparency in financial reporting. The statement is effective for interim and annual reporting periods beginning after December 15, 2009. The adoption of the provisions did not have a material impact on the Company’s statements of financial position, results of operations and cash flows.

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

You should read the following discussion of our financial condition and results of operations in conjunction with our consolidated financial statements and the related notes included elsewhere in this quarterly report. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements.

Overview

We are a biopharmaceutical company focused on the discovery, development and commercialization of novel drugs in the areas of infectious disease, oncology and respiratory disease. Using our internal discovery capabilities and our network of pharmaceutical and academic partners, we have assembled a promising pipeline of clinical and preclinical product candidates.  Our most advanced product candidate, cethromycin (RestanzaTM), is a novel once-a-day oral antibiotic that completed two pivotal Phase III clinical trials in community acquired bacterial pneumonia (“CABP”).  We have an exclusive worldwide license (excluding Japan) from Abbott Laboratories to develop and commercialize cethromycin. Cethromycin is also being developed as a bio-defense agent for use in the treatment of anthrax and other potential broad-spectrum medical countermeasures.  We also have product candidates in earlier stages of development for the treatment of indications including respiratory distress caused by inflammation-related tissue damage and malignant melanoma.

None of our product candidates have been approved by the U.S. Food and Drug Administration  (“FDA”) or any comparable foreign agencies, and we have not generated any significant revenues to date. Our ability to generate revenues in the future will depend on our ability to meet development or regulatory milestones under any license agreements that trigger payments to us, to enter into new license agreements for other products or territories and to receive regulatory approvals for, and successfully commercialize, our product candidates either directly or through commercial partners.

Development Update — Cethromycin CABP Program

In March 2010, we met with officials from the FDA’s Anti-Infectives Division to gain clarity on the registration pathway for cethromycin. This meeting followed the December 9, 2009 FDA Anti-Infective Drugs Advisory Committee (“AIDAC”) meeting which discussed clinical trial design issues for CABP relative to the earlier, March 2009, FDA CABP guidance document. In the meeting, the FDA guided that, to assess the approvability for cethromycin to treat CABP, we should establish a special protocol assessment (“SPA”) using a superiority clinical trial design comparing cethromycin to a marketed macrolide antibiotic in two clinical trials.

In light of this guidance, we are working with the FDA to finalize a SPA using a superiority design for the outpatient CABP indication. Clinical cure rate in a macrolide-resistant Streptococcus pneumoniae (“MRSP”) population will be the primary endpoint.

Background

We submitted the cethromycin NDA in September, 2008 based on the results of 53 clinical studies including 2 pivotal phase III studies wherein cethromycin demonstrated non-inferiority to Biaxin® in mild-to-moderate CABP.

On June 2, 2009, the FDA AIDAC reviewed the cethromycin NDA. The AIDAC voted that cethromycin demonstrated safety for the outpatient treatment of adults with mild-to-moderate CABP, but voted that cethromycin did not demonstrate efficacy in the treatment of CABP in light of the new FDA draft CABP guidance which was published in March of 2009.

On July 31, 2009 the FDA provided a complete response letter to us indicating that further clinical work would be required for the approval of cethromycin in CABP. Our pivotal phase III program was designed and conducted under prior FDA guidance and before the new draft guidance document was released.

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Over the past two years, the FDA has been conducting public workshops and advisory panels to discuss clinical trial design issues in CABP culminating in a draft guidance document published in March of 2009. Public comments were received in response to the draft guidance and an AIDAC meeting was held in December of 2009 to further discuss and resolve the CABP clinical design issues.

If cethromycin is approved for marketing by the FDA, we plan to sell cethromycin using commercial partners to access the primary care physician market and to build and utilize a focused internal sales force that will market directly to early adopters such as, but not limited to, pulmonary medicine and infectious disease physicians.  In September 2008, we entered into a development and commercialization agreement for cethromycin with Pfizer in the Asia Pacific region (excluding Japan). We will retain exclusive rights to cethromycin in the rest of the world (excluding Japan), including North America and Europe.  In addition to future royalty payments, we would receive milestone and regulatory payments based on successful achievement of clinical, regulatory and commercial objectives in specific markets. We will collaborate with Pfizer to develop additional clinical data in the Asia Pacific region to support regulatory filings in that region.   Discussions with other potential commercial partners focused on other geographical markets such as the European Union and the United States are ongoing.

Development Update — Cethromycin Biodefense Program

In March 2010, we announced that we received notice from the Biomedical Advanced Research and Development Authority (“BARDA”) of the U.S. Department of Health and Human Services that it has completed its initial technical evaluation of our $15.0 million funding proposal for advanced development of cethromycin as a biodefense countermeasure and identified it as a scientifically and technically sound proposal important to program goals and objectives that may require further development and may be recommended for acceptance subject to funds availability. We were invited to submit additional information to allow BARDA to make a final determination on the appropriateness of the proposal to enter into contract negotiations.

Related to this development, we also gained clarity from the FDA on the biodefense regulatory package required for submission in light of recent AIDAC meetings discussing the use of the FDA’s Animal Rule for approval of biodefense therapeutics. As anticipated, the FDA recommended that, in parallel with pivotal animal studies demonstrating efficacy under FDA’s Animal Rule, we should complete the CABP clinical program and submit a complete response to the CABP new drug application (“NDA”) prior to submitting an amended NDA for the biodefense indications.

Financial Update

Since our inception, we have incurred net losses each year. Our net loss for the three months ended March 31, 2010 was $2.0 million.  As of March 31, 2010, we had an accumulated deficit of $133.5 million. We have funded operations to date primarily from debt financings and capital contributions from our founder and Chief Executive Officer, proceeds from an initial public offering and subsequent private placements, including issuances of common stock under two Standby Equity Distribution Agreements.

In May 2010, we received a commitment to extend the loan maturity by one year to January 1, 2012, under our loan facility with our lender in exchange for us taking the following steps.  We have reduced the outstanding loan balance to $8.5 million and will further reduce the balance by an additional $1.5 million by July 1, 2010.  Our Chief Executive Officer, Michael T. Flavin, Ph.D., will provide a personal guarantee to the loan facility and will be released of his guarantee upon receipt of a $1.5 million payment from us to the lender by July 1, 2010.  Accordingly, $3.0 million of the outstanding loan balance is classified as a current liability and $7.0 million a long-term liability on the March 31, 2010 balance sheet.  We have also agreed to further reduce the loan balance by an additional $1.0 million no later than April 1, 2011.  In addition, the interest rate on the outstanding loan balance will increase from 8.5% to 10.0%. We will also issue 500,000 warrants priced upon closing of the loan documents and an additional 500,000 warrants will be issued and priced one year after the closing.  We have also agreed that the line of credit is secured by substantially all of our assets.  All other terms of the loan remained unchanged.

In May 2010, Michael T. Flavin Ph.D. agreed to exchange this outstanding indebtedness for newly-issued units, at the same price per unit as those sold in the proposed offering of common stock and warrants. This exchange is contingent upon the Company receiving at least $10.0 million in gross proceeds from the public offering. The promissory note would be cancelled and retired upon effectiveness of the exchange.

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In April 2010, our shareholders approved an amendment to our articles of incorporation to increase the number of authorized shares from 125,000,000 to 625,000,000 including an increase in the number of authorized shares of common stock from 120,000,000 to 620,000,000.  As of March 31, 2010, 100,372,067 shares of common stock were issued and outstanding and 16,556,577 shares are reserved for issuance under options and warrants.  Accordingly, out of the 620,000,000 shares of common stock authorized, 503,071,356 remain available for future issuance.

In March 2010, we filed a Registration Statement on Form S-1 with the SEC relating to a proposed offering of common stock and warrants.  A successful capital raise could provide us the required financing to complete the protocol design for the additional clinical data needed under a SPA with the FDA and initiate the clinical requirements for regulatory approval and commercialization of cethromycin for the treatment of CABP.  In addition to pursuing regulatory approval and commercialization of cethromycin for the treatment of CABP, we intend to evaluate opportunities for cethromycin in the treatment of other respiratory tract infections.

In March 2010, the Company and YA Global Master SPV Ltd. (“YA SPV”), an affiliate of Yorkville Advisors, agreed to terminate the Standby Equity Distribution Agreement dated as of June 19, 2009 (the “SEDA”).  We sold to YA SPV 49,549,200 million shares of our common stock and raised approximately $11.7 million under the SEDA prior to its termination.  Shares of common stock sold under the SEDA in excess of $9.0 million were sold with the consent of our lender under our credit facility.

In June 2009, the Company and YA Global Investments, L.P. (“YA Global”), an affiliate of Yorkville Advisors,  terminated a prior Standby Equity Distribution Agreement dated as of September 29, 2008 (“Former SEDA”).  For the period of January 1, 2009 through the end of the Former SEDA, we issued 9,883,994 shares to YA Global and received approximately $3.9 million.  In addition, in September 2008, we paid YA Global a commitment fee of $300,000 by issuing 393,339 shares of our common stock.

A discussion of our ability to continue as a going concern can be found in Note 1 to the consolidated financial statements and in the liquidity and capital resources section of this management discussion and analysis.

Results of Operations

Three months ended March 31, 2010 compared to three months ended March 31, 2009

Revenue. We reported revenue of $480,000 for the three months ended March 31, 2010 compared to $411,000 for the three months ended March 31, 2009.  Revenue was derived from a grant awarded by the Defense Threat Reduction Agency (“DTRA”) of the U.S. Department of Defense (“DoD”).  The contract award of $3.8 million is over a two year period which began in August 2008.  Since the beginning of the contract we reported revenue of approximately $3.5 million.  We estimate that the remaining $0.3 million of revenue will be recognized by the end of the contract.

Research and development expense. Research and development expense decreased $0.1 million to $0.9 million for the three months ended March 31, 2010.  In conjunction with work performed under the grant awarded by DTRA, costs incurred increased $0.1 million in the quarter ended March 31, 2010 and were offset by lower salary, benefit and incentive compensation costs of approximately $0.2 million.

General and administrative expense. General and administrative expenses were $1.3 million for the three months ended March 31, 2010, a decrease of $0.2 million compared to the first quarter last year.  This result reflects lower salary, benefit and incentive compensation costs of $0.1 million and decreased facility expenses of $0.1 million as a result of renewing our lease agreement at a lower rate per square foot and reduced amount of space.

Interest income. Interest income increased $4,000 to $5,000 for the three months ended March 31, 2010 as compared to the same period last year.

Interest expense.    Interest expense of $256,000 increased $3,000 in the three months ended March 31, 2010 as compared to the same period last year.

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Liquidity and Capital Resources

We have devoted substantially all of our cash resources to research and development and general and administrative expenses.  To date, we have not generated any revenues from the sale of products, and we do not expect to generate any such revenues in the near term, if at all.  As a result, we have incurred an accumulated deficit of $133.5 million as of March 31, 2010 and we expect to incur significant operating losses for the foreseeable future.  As of March 31, 2010 we had negative working capital of $1.6 million.  Cash and cash equivalents were $2.8 million as of March 31, 2010.  Since our inception in 1999 to August 2005, we financed our operations primarily through debt and capital contributions from our founder and controlling stockholder and borrowings under our bank line of credit.  In August 2005 we completed our initial public offering in which we raised $28.7 million, net of underwriters discount and offering costs.  Since that time, we have completed three private placements in which we raised $52.8 million, net of underwriters’ discounts and offering costs and raised additional debt financing through our $10.0 million bank line of credit.  Between January 2009 and March 2010 we raised $15.6 million under two Standby Equity Distribution Agreements.

In September 2001, we incurred indebtedness under a $2.0 million promissory note with the Chief Executive Officer of the Company, which bears interest at 7.75%.  On January 4, 2010, the note was extended to January 5, 2012, all other terms remained unchanged and in effect.  In May 2010, Michael T. Flavin Ph.D. agreed to exchange this outstanding indebtedness for newly-issued units, at the same price per unit as those sold in the proposed offering of common stock and warrants. This exchange is contingent upon the Company receiving at least $10.0 million in gross proceeds from the public offering. The promissory note would be cancelled and retired upon effectiveness of the exchange.

We have a revolving line of credit with a financial institution under which we had $10.0 million outstanding as of March 31, 2010 and December 31, 2009. In May 2010, we received a commitment to extend the loan maturity by one year to January 1, 2012, under our loan facility with our lender in exchange for us taking the following steps.  We have reduced the outstanding loan balance to $8.5 million and will further reduce the balance by an additional $1.5 million by July 1, 2010.  Our Chief Executive Officer, Michael T. Flavin, Ph.D., will provide a personal guarantee to the loan facility and will be released of his guarantee upon receipt of a $1.5 million payment from us to the lender by July 1, 2010.  Accordingly, $3.0 million of the outstanding loan balance is classified as a current liability and $7.0 million a long-term liability on the March 31, 2010 balance sheet.  We have also agreed to further reduce the loan balance by an additional $1.0 million no later than April 1, 2011.  In addition, the interest rate on the outstanding loan balance will increase from 8.5% to 10.0%. We will also issue 500,000 warrants priced upon closing of the loan documents and an additional 500,000 warrants will be issued and priced one year after the closing.  We have also agreed that the line of credit is secured by substantially all of our assets.  All other terms of the loan remained unchanged.

Net cash used in operating activities was $2.3 million for the three months ended March 31, 2010 compared to $1.6 million for the three months ended March 31, 2009.  Approximately $0.6 million of cash used in the three months ended March 31, 2010 and 2009 was used for in our cethromycin programs.  These amounts are net of DTRA grant award funds, which reimburse us for certain research and development expenses associated with the grant.  Cash used for general corporate purposes was $1.7 million in the three months ended March 31, 2010 compared to $1.0 million for the three months ended March 31, 2009.

Cash provided from financing activities was $2.2 million for three months ended March 31, 2010 compared to $0.6 million in 2009.  For three months ended March 31, 2010, we received approximately $2.2 million, net of offering expenses, for the sale of 15,447,057 shares under the SEDA facility compared to $0.6 million for the sale of 2,448,309 shares for the three months ended March 31, 2009.

Contractual Obligations

As of March 31, 2010, the annual amounts of future minimum payments under debt obligations, interest, lease obligations and other long term liabilities consisting of executed research and development, and license agreements are as follows:

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	Payments Due by December 31,
	2010		2011		2012		2013		2014		Total
Notes payable and bank line of credit	$	3,000,000	$	1,000,000	$	8,000,000	$	—	$	—	$	12,000,000
Interest	753,870		1,005,000		155,000		1,722		—		1,915,592
CABP program related costs	246,766		—		—		—		—		246,766
ALS-357 clinical program	237,299		422,550		207,494		—		—		867,343
Biodefense program related costs	285,877		—		—		—		—		285,877
Grant payable	—		500,000		—		—		—		500,000
Operating leases	82,070		111,840		87,965		9,480		2,370		293,725
Total	$	4,605,882	$	3,039,390	$	8,450,459	$	11,202	$	2,370	$	16,109,303

The above table does not include the potential $30.0 million product based milestone payment under our license agreement with Abbott which we will owe Abbott if cethromycin is approved for marketing by the FDA.  Under the terms of the amended license agreement, $20.0 million is payable within 20 business days after receipt of U.S. regulatory approval, $5.0 million is payable within 6 months of U.S. regulatory approval and $5.0 million is payable within 12 months of U.S. regulatory approval.   Thereafter, we would owe Abbott an additional $2.5 million upon reaching $200.0 million in aggregate net sales of cethromycin and $5.0 million upon reaching $400.0 million in aggregate net sales.  The periods in which milestone obligations become payable, if at all, are only estimates due to uncertainties associated with the completion or achievement of the milestone.

In the third quarter of 2008, we signed a letter of intent with DSM to procure raw materials to be used to produce commercial quantities of cethromycin.  The lead times for acquiring these raw materials needed to be used to complete production are lengthy.  As of March 31, 2010 the cost of raw materials actually purchased was approximately $2.8 million.  The agreement allows for us to purchase additional raw materials at a later time.

We executed a contract during the second quarter of 2008 to initiate a Phase I/II clinical trial of our anti-melanoma compound ALS-357.  This trial will assess the safety, tolerability, and preliminary efficacy of ALS-357 when administered topically to patients with cutaneous metastatic melanoma.  The contract totals approximately $0.9 million which represents the upper limit of cost if the maximum number of patients is enrolled.  To the extent fewer patients are required as determined by the protocol expenses related to the trial could be lower.  Enrollment will be based upon a number of factors which are difficult to forecast and therefore we cannot reasonably estimate the true cost of the trial beyond what is defined as the maximum limit per the contract.

In August 2008, the DTRA of the DoD awarded us a two-year contract worth up to $3.8 million to further study cethromycin as a potential broad-spectrum medical countermeasure. In conjunction with the grant awarded by the DTRA, we entered into subcontractor arrangements to further study cethromycin as a potential broad-spectrum medical countermeasure.  The subcontractors’ costs are expected to be approximately $2.7 million over a two-year period which began in August 2008.

Our commitments under operating leases consist of payments made to a related party relating to our facilities lease in Woodridge, Illinois, which expires on October 1, 2012.  Additionally, we rent certain office equipment under operating leases.

We will not be generating any product-based revenues or realizing cash flows from operations in the near term, if at all.  We may not have sufficient cash or other funding available to complete our anticipated business activities for the remainder of 2010.  In order to continue our business activities during 2010, we intend to raise additional capital through the issuance of equity securities, and by licensing our lead compound, cethromycin, to commercial partners.  We believe, based upon current market conditions, additional commercial partnership agreements would include a series of milestone payments, including up-front milestones that would fund our continued operations.  Although management believes we could secure additional commercial partnerships, there can be no assurances that such partnerships will be available at terms acceptable to us, if at all.  In March 2010, we filed a Registration Statement on Form S-1 with the SEC relating to a proposed offering of common stock and warrants.  If we are successful with an offering and raise additional capital by issuing equity securities, our shareholders could experience substantial dilution.  As a result of these uncertainties, there is substantial doubt about our ability to continue as a going concern.

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Our future capital uses and requirements depend on numerous forward-looking factors.  These factors include, but are not limited to, the following:

·progress in our clinical development programs, as well as the magnitude of these programs;

·the timing, receipt and amount of milestone and other payments, if any, from present and future collaborators;

·our ability to raise additional debt or equity financing or the receipt of milestone payments that would be paid to us as a result of our entering into a commercial partnership for cethromycin, or a combination of both;

·our ability to establish and maintain additional collaborative arrangements;

·the resources, time and costs required to successfully initiate and complete our preclinical and clinical trials, obtain regulatory approvals, protect our intellectual property and obtain and maintain licenses to third-party intellectual property;

·the cost of preparing, filing, prosecuting, maintaining and enforcing patent claims; and

·the timing, receipt and amount of sales and royalties, if any, from our potential products.

If, at any time, our prospects for financing our clinical development programs are limited, we may decide to reduce research and development expenses by delaying or discontinuing certain programs.

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Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America.  The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses and related disclosure of contingent assets and liabilities.  We review our estimates on an ongoing basis.  We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances.  Actual results may differ from these estimates under different assumptions or conditions.  While our significant accounting policies are described in more detail in the notes to our financial statements included in this quarterly report, we believe the following accounting policies to be critical to the judgments and estimates used in the preparation of our financial statements.

Stock-based Compensation

We account for stock-based awards to employees and non-employees using the fair value based method to determine compensation for all arrangements where shares of stock or equity instruments are issued for compensation.  We use a Black-Scholes-Merton options-pricing model to determine the fair value of each option grant as of the date of grant for expense incurred.  The Black-Scholes-Merton model requires inputs for risk-free interest rate, dividend yield, volatility and expected lives of the options.  Expected volatility is based on historical volatility of our stock since August 5, 2005, the date our stock began to trade publicly.  The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of the grant.  The expected lives for options granted represents the period of time that options granted are expected to be outstanding and is derived from the contractual terms of the options granted.  We estimate future forfeitures of options based upon historical forfeiture rates.

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Forward-Looking Statements and Risk Factors

This Quarterly Report on Form 10-Q, including Management’s Discussion and Analysis of Financial Condition and Results of Operations, contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.   Forward-looking statements often are proceeded by words such as “believes,” “expects,” “may,” “anticipates,” “plans,” “intends,” “assumes,” “will” or similar expressions.  Forward-looking statements reflect management’s current expectations, as of the date of this report, and involve certain risks and uncertainties.   Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors.   Some of the factors that could cause future results to materially differ from the recent results or those projected in forward-looking statements include the “Risk Factors” described in our Annual Report on Form 10-K.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Our exposure to market risk is currently confined to our cash, cash equivalents, line of credit and certain contract manufacturing agreements. We currently do not hedge interest rate exposure. We have not used derivative financial instruments for speculation or trading purposes. Because of the short-term maturities of our cash and cash equivalents, we do not believe that an increase in market rates would have any significant impact on their realized value.

We are subject to foreign currency exchange rate risk on certain contract manufacturing agreements.  For the three months ended March 31, 2010, we did not incur any exchange losses and have no outstanding obligations or commitments denominated in foreign currencies.  To date, we have not entered into any foreign currency forward exchange contracts or other derivative financial instruments to hedge the effects of fluctuations in foreign currency exchange rates.

Item 4. Controls and Procedures

Our management, under the supervision and with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), has evaluated 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 of the end of the period covered by this report.  Based on that evaluation, our CEO and CFO have concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this report.

Changes in Internal Control

During the period covered by this report, there have been no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II — OTHER INFORMATION

Item 1A. Risk Factors

Our business, financial condition, operating results and cash flows may be impacted by a number of factors, including those set forth in Item 1A of Part I of our Annual Report on Form 10-K for the fiscal year ended December 31, 2009.  Set forth below are material changes in our risk factors since the 2009 Form 10-K.  The information presented below updates, and should be read in conjunction with, the risk factors and other information disclosed in our 2009 Form 10-K and this Quarterly Report on Form 10-Q.

We may not be able to continue as a going concern or fund our existing capital needs.

Our independent registered public accounting firm included an explanatory paragraph in the report on our 2009 financial statements related to the uncertainty in our ability to continue as a going concern. The paragraph stated that we do not have sufficient cash on-hand or other funding available to meet our obligations and sustain our operations, which raises substantial doubt about our ability to continue as a going concern. We will not be generating any product-based revenues or realizing cash flows from operations in the near term, if at all. We may not have sufficient cash or other funding available to complete our anticipated business activities for the remainder of 2010. In order to address our working capital shortfall we intend to raise additional capital by accessing the capital markets and by licensing our lead product candidate, cethromycin, to commercial partners. There can be no assurances that we will be successful in accessing the capital markets on terms acceptable to us, if at all, or that such partnerships will be available on terms acceptable to us, if at all.

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Item 6. Exhibits

The following is a list of exhibits filed as part of this Form 10-Q:

Number	Description
3.1*	Third Amended and Restated Certificate of Incorporation of Advanced Life Sciences Holdings, Inc.
10.1	Amended 2005 Stock Incentive Plan of Advanced Life Sciences Holdings, Inc. (as filed in our Current Report on Form 8-K as exhibit 10.1 on April 13, 2010)
31.1*	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

*  Filed herewith.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Advanced Life Sciences Holdings, Inc.
By:	/s/ Michael T. Flavin, Ph.D.
	Michael T. Flavin, Ph.D.
	Chairman of the Board
	and Chief Executive Officer
By:	/s/ John L. Flavin
	John L. Flavin
	President and
	Chief Financial Officer

Dated: May 10, 2010

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EXHIBIT INDEX

Number	Description
3.1*	Third Amended and Restated Certificate of Incorporation of Advanced Life Sciences Holdings, Inc.
10.1	Amended 2005 Stock Incentive Plan of Advanced Life Sciences Holdings, Inc. (as filed in our Current Report on Form 8-K as exhibit 10.1 on April 13, 2010)
31.1*	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

*  Filed herewith.

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EX-3.1

Exhibit 3.1

THIRD AMENDED AND RESTATED

CERTIFICATE OF INCORPORATION

OF

ADVANCED LIFE SCIENCES HOLDINGS, INC.

ONE. Pursuant to Sections 242 and 245 of the General Corporation Law of the State of Delaware (the “DGCL”), this Third Amended and Restated Certificate of Incorporation restates and integrates and further amends the provisions of the Certificate of Incorporation of Advanced Life Sciences Holdings, Inc., originally incorporated December 10, 2004, as heretofore supplemented or amended.

TWO. The text of the Second Amended and Restated Certificate of Incorporation as heretofore amended or supplemented is hereby restated and further amended to read in its entirety as follows:

ARTICLE 1

Name

The name of the corporation is Advanced Life Sciences Holdings, Inc. (the “Corporation”).

ARTICLE 2

Registered Office and Registered Agent

The address of the Corporation’s registered office in the State of Delaware is 1209 Orange Street, Wilmington, DE 1980l, in the County of New Castle. The name of its registered agent at such address is The Corporation Trust Company.

ARTICLE 3

Purpose

The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the DGCL.

ARTICLE 4

Capital Stock

4.1Amount.  The Corporation has the authority to issue Six Hundred Twenty-Five Million (625,000,000) shares of capital stock (“Stock”).

4.2Preferred Stock.  The Corporation has the authority to issue up to Five Million (5,000,000) of the initial Six Hundred Twenty-Five Million (625,000,000) shares as a separate and single class of shares known as “Preferred Stock,” which may be issued in one or more series. The Preferred Stock may be issued from time to time in one or more series. The Board of Directors is hereby expressly authorized to provide for the issue of all or any of the shares of the Preferred Stock in one or more series, and to fix the number of shares and to determine or alter for each such series, such voting powers, full or limited, or no voting powers, and such designation, preferences, and relative, participating, optional, or other rights and such qualifications, limitations, or restrictions thereof, as shall be stated and expressed in the resolution or resolutions adopted by the Board of Directors providing for the issuance of such shares and as may be permitted by the DGCL. The Board of Directors is also expressly authorized to increase or decrease the number of shares of any series subsequent to the issuance of shares of that series, but not below the number of shares of such series then outstanding. In case the number of shares of any series shall be decreased in accordance with the foregoing sentence, the shares constituting such decrease shall resume the status that they had prior to the adoption of the resolution originally fixing the number of shares of such series. The number of authorized shares of Preferred Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the Common Stock, without a vote of the holders of the Preferred Stock, or of any series thereof, unless a vote of any

such holders is required pursuant to the terms of any certificate of designation filed with respect to any series of Preferred Stock.

4.3Common Stock.  Of the Six Hundred Twenty-Five Million (625,000,000) shares the Corporation has authority to issue, Six Hundred Twenty Million (620,000,000) shares will constitute a separate class of shares known as “Common Stock,” which shall have $0.01 par value per share.

4.4The following is a description of the relative powers, preferences and participating, optional or other special rights, and the qualifications, limitations or restrictions of the Common Stock.

(a)Voting.  At every meeting of the stockholders of the Corporation in connection with the election of directors and all other matters submitted to a vote of stockholders, every holder of Common Stock is entitled to one vote in person or by proxy for each share of Common Stock registered in the name of the holder on the transfer books of the Corporation. Except as otherwise required by law, the holders of Common Stock shall vote together as a single class, subject to any right that may be conferred upon holders of Preferred Stock to vote together with holders of Common Stock on all matters submitted to a vote of stockholders of the Corporation.

(b)Dividends and Other Distributions.  Subject to the rights of the holders of Preferred Stock, holders of Common Stock are entitled to receive such dividends and other distributions in cash, stock of any corporation (other than Common Stock) or property of the Corporation as may be declared thereon by the Board of Directors from time to time out of assets or funds of the Corporation legally available therefor, and shall share equally on a per share basis in all such dividends and other distributions.

(c)Liquidation, Dissolution and Winding Up.  In the event of any liquidation, dissolution or winding up of the affairs of the Corporation, whether voluntary or involuntary, after payment in full of the amounts required to be paid to the holders of Preferred Stock, the remaining assets and funds of the Corporation are distributed pro rata to the holders of shares of Common Stock. For purposes of this subsection (c), the voluntary sale, conveyance, lease, exchange or transfer (for cash, shares of stock, securities or other consideration) of all or substantially all of the assets of the Corporation or a consolidation or merger of the Corporation with one or more other corporations (whether or not the Corporation is the corporation surviving the consolidation or merger) shall not be deemed to be a liquidation, dissolution or winding up, voluntary or involuntary.

(d)Reorganizations and Consolidations.  In case of any reorganization or any consolidation of the Corporation with one or more other corporations or a merger of the Corporation with another corporation, each holder of a share of Common Stock is entitled to receive with respect to that share the same kind and amount of shares of stock and other securities and property (including cash) receivable upon the reorganization, consolidation or merger by any other holder of Common Stock.

4.5The number of authorized shares of Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the votes entitled to be cast by the holders of the Common Stock, irrespective of the provisions of Section 242(b)(2) of DGCL or any corresponding provision hereinafter enacted.

4.6No holder of Stock of the Corporation has any preemptive or preferential right of subscription to any shares of any class of Stock of the Corporation whether now or hereafter authorized, or to any obligation convertible into stock of the Corporation, or any right of subscription therefore, other than such rights, if any, as the Board of Directors in its discretion from time to time determines.

ARTICLE 5

Board of Directors

5.1The business and affairs of the Corporation are managed by or under the direction of a Board of Directors. The number of directors of the Corporation constituting the whole board are fixed in the manner provided in the by-laws. The election of directors need not be by ballot.

5.2The directors are divided into three classes, Class I, Class II and Class III. The initial term of office of the Class I, Class II and Class III directors expired at the annual meeting of stockholders in 2006, 2007, and 2008, respectively. The number of directors are apportioned among the classes by the Board of Directors so as to maintain the number of directors in each class as nearly equal as reasonably possible, and any additional director of any class elected to fill a vacancy resulting from an increase in such class shall hold office for a term that shall coincide with the remaining term of that class. At each annual meeting of stockholders, successors to the class of directors whose term expires at that annual meeting are elected for a three-year term. In no case will a decrease in the number of directors shorten the term of any incumbent director even though such decrease may result in an inequality of the classes until the expiration of such term. A director shall hold office until the annual meeting of the year in which his or her term expires and until his or her successor are elected and shall qualify, subject, however, to prior death, resignation, retirement or removal from office. Except as required by law or the provisions of this Third Amended and Restated Certificate of Incorporation, all vacancies on the Board of Directors and newly created directorships are filled by the Board of Directors. Any director elected to fill a vacancy not resulting from an increase in the number of directors shall have the same remaining term as that of his or her predecessor. Notwithstanding anything to the contrary contained in this Third Amended and Restated Certificate of Incorporation, the affirmative vote of the holders of a majority of the voting power of the shares entitled to vote generally in the election of directors are required to amend, alter or repeal, or to adopt any provision inconsistent with, this Article 5.

5.3Notwithstanding the foregoing, whenever the holders of any one or more classes or series of Preferred Stock issued by the Corporation have the right, voting separately by class or series, to elect directors at an annual or special meeting of stockholders, the election, term of office, filling of vacancies and other features of such directorship are governed by the terms of this Third Amended and Restated Certificate of Incorporation and any resolutions of the Board of Directors applicable thereto, and such directors so elected shall not be divided into classes pursuant to this Article 5.

5.4Subject to the rights of the holders of any classes or series of Preferred Stock, any director, or the entire Board of Directors, may be removed from office at any time, but only for cause and only by the affirmative vote of the holders of a majority of the voting power of all the shares of the Corporation entitled to vote for the election of directors.

ARTICLE 6

Amendment of By-laws

In furtherance and not in limitation of the powers conferred by the laws of the State of Delaware, the Board of Directors expressly is authorized to make, alter, amend and repeal the by-laws of the Corporation, in any manner not inconsistent with the laws of the State of Delaware or this Third Amended and Restated Certificate of Incorporation, subject to the power of the stockholders of the Corporation to amend, alter or repeal any by-laws made by the Board of Directors.

ARTICLE 7

Stockholder Meetings

Subject to the rights of the holders of Preferred Stock, any action required or permitted to be taken by the stockholders of the Corporation must be effected at a duly called annual or special meeting of such holders and may not be effected by any consent in writing by such holders. Subject to the rights of the holders of Preferred Stock, special meetings of stockholders of the Corporation may be called only by the

Chairman of the Board or by the Board of Directors pursuant to a resolution. Business transacted at any special meeting of stockholders are confined to the purpose or purposes of the meeting as stated in the notice of the meeting. Notwithstanding anything contained in this Third Amended and Restated Certificate of Incorporation to the contrary, any amendment to or deletion of this Article 7 shall require the affirmative vote of the holders of a majority of the voting power of all outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors.

ARTICLE 8

Limitation of Liability

A director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (a) for any breach of the director’s duty of loyalty to the Corporation or its stockholders, (b) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (c) under Section 174 of the DGCL or (d) for any transaction from which the director derived an improper personal benefit. If DGCL is amended after approval of this Article by the stockholders to authorize the further elimination or limitation of the liability of directors, then the liability of directors are eliminated or limited to the full extent authorized by the DGCL, as so amended.

ARTICLE 9

Amendment of Certificate

Subject to the provisions of this Third Amended and Restated Certificate of Incorporation, the Corporation reserves the right to amend, alter, change or repeal any provision contained in this Third Amended and Restated Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders in this Third Amended and Restated Certificate of Incorporation are granted subject to this reservation.

THREE. This Third Amended and Restated Certificate of Incorporation has been duly approved by the Board of the Corporation.

FOUR. This Third Amended and Restated Certificate of Incorporation was approved by the holders of the requisite number of shares of said corporation in accordance with Section 228 of the General Corporation Law. This Third Amended and Restated Certificate of Incorporation has been duly adopted in accordance with the provisions of Sections 242 and 245 of the DGCL by the stockholders of the Corporation.

IN WITNESS WHEREOF, the undersigned has executed this certificate as of the 8th day of April, 2010.

/s/ Michael T. Flavin

Michael T. Flavin

Chief Executive Officer

EX-31.1

EXHIBIT 31.1

CERTIFICATION

I, Michael T. Flavin, certify that:

1.I have reviewed this quarterly report on Form 10-Q of Advanced Life Sciences Holdings, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this  report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))  for the registrant and have:

a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP;

c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s first fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 10, 2010

/s/ Michael T. Flavin

Michael T. Flavin

Chief Executive Officer

Advanced Life Sciences Holdings, Inc.

EX-31.2

EXHIBIT 31.2

CERTIFICATION

I, John L. Flavin, certify that:

1.I have reviewed this quarterly report on Form 10-Q of Advanced Life Sciences Holdings, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this  report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP;

c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s first fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  May 10, 2010

/s/ John L. Flavin

John L. Flavin

Chief Financial Officer

Advanced Life Sciences Holdings, Inc.

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350

In connection with the quarterly report on Form 10-Q of Advanced Life Sciences Holdings, Inc. (the “Company”) for the fiscal quarter ending March 31, 2010 (the “Report”), I, Michael T. Flavin, Chairman and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

(1)           The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 to the extent applicable; and

(2)           The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: May 10, 2010

/s/ Michael T. Flavin

Michael T. Flavin

Chief Executive Officer

Advanced Life Sciences Holdings, Inc.

EX-32.2

EXHIBIT 32.2

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350

In connection with the quarterly report on Form 10-Q of Advanced Life Sciences Holdings, Inc. (the “Company”) for the fiscal quarter ending March 31, 2010 (the “Report”), I, John L. Flavin, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

(1)           The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 to the extent applicable; and

(2)           The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: May 10, 2010

/s/ John L. Flavin

John L. Flavin

Chief Financial Officer

Advanced Life Sciences Holdings, Inc