Other income (expense) during the third quarter of 2009 amounted to net income of $0.2 million, compared with net expense of $0.8 million in the third quarter of 2008. Other income, net in the third quarter of 2009 was primarily attributable to a $0.3 million foreign exchange gain. Other expense, net in the third quarter of 2008 was primarily attributable to a $0.6 million foreign exchange loss. Other expense, net for the nine months ended September 30, 2009 was $19.8 million, up $16.7 million, from $3.1 million for the nine months ended September 30, 2008. Other expense, net for the nine months ended September 30, 2009 consisted of $10.5 million in amortization of debt issuance costs and discount and $9.4 million in interest expense related to the conversions of the Company ™s February 2009 debt, and a $0.3 million decrease in the fair value of certain warrants and derivatives. Other expense, net for the nine months ended September 30, 2008 was primarily attributable to a $2.0 million loss on the extinguishment of debt ($1.7 million non-cash loss) and interest expense of $1.1 million.

Net Cash Used in Operating Activities

Net cash used in operating activities for the first nine months of 2009 was $25.7 million, compared with $11.9 million for the first nine months of 2008. For the first nine months of 2009, cash was used primarily to fund the Company ™s loss from operations, expenses related to our convertible debt financing and increased payments to vendors. Cash used for the first nine months of 2009 included interest expense of $9.4 million as a result of the conversion of $24.5 million of the Company ™s 7.5556% convertible subordinated notes due 2014 into approximately 27.2 million shares of EpiCept ™s common stock, which was paid from escrowed cash established from the proceeds of the financing to make interest payments. The Company also used $1.1 million to acquire inventory of Ceplene?® for use by IDIS and for commercial sale in Europe. The 2009 net loss was partially offset by non-cash charges of $10.5 million of amortization of deferred financing costs and discount on loans, $1.0 million of non-cash stock-based compensation and $0.3 million of depreciation and amortization expenses.

Net Cash Used in Investing Activities

Net cash used in investing activities for the first nine months of 2009 was $0.1 million, compared with net cash provided by investing activities of $0.3 million for the first nine months of 2008. During the first nine months of 2009, cash was used to establish restricted cash for a $9.4 million make-whole interest payment resulting from the issuance of $25.0 million principal aggregate amount of 7.5556% convertible senior subordinated notes. As the result of the conversion of $24.5 million in aggregate principal amount of the 7.5556% notes, the Company released $9.3 million from restricted cash to pay the interest on these notes.

Net Cash Provided by Financing Activities

Net cash provided by financing activities for the first nine months of 2009 was $34.5 million compared with $9.9 million for the first nine months of 2008. During the first nine months of 2009, the Company issued $25.0 million principal aggregate amount of 7.5556% convertible senior subordinated notes, netting the Company $14.0 million after $1.6 million in transaction costs and the establishment of an escrow account for $9.4 million in make-whole interest. In June 2009 the Company raised $9.6 million in gross proceeds, $8.9 million net of $0.7 million in transaction costs, in connection with the issuance of common stock and warrants. The Company also received proceeds of $3.8 million related to the exercise of approximately 10.1 million common stock warrants in the first nine months of 2009, of which $0.8 million was received during the third quarter.

Liquidity

EpiCept ™s management believes that existing cash and cash equivalents will be sufficient to meet projected operating and debt service requirements into the second quarter of 2010. Additional funding for the Company ™s operations is anticipated to be derived from sales of Ceplene?® in Europe, fees from the Company ™s strategic partners including a marketing partner for Ceplene?® in Europe, strategic relationships for other product candidates including NP-1 or other financing arrangements. See our Quarterly Report on Form 10-Q for the quarter ended September 30, 2009 for a further discussion of the Company ™s liquidity and cash position.

Conference Call

EpiCept will host a conference call to discuss these results today at 9:00 a.m. Eastern time. To participate in the live call, please dial from the U.S. or Canada (877) 809-8594 or from international locations (706) 758-9407 (please reference access code 39485985). The conference call will also be broadcast live on the Internet and can be accessed at www.epicept. The webcast will be archived for 90 days.

A telephone reply of the call will be available for seven days by dialing from the U.S. and Canada (800) 642-1687 or from international locations (706) 645-9291 (please reference reservation number 39485985).

Source: EpiCept Corporation