Unassociated Document

As filed with the Securities and Exchange Commission on August 31, 2010

Registration No. 333-164613

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

AMENDMENT NO. 2 TO FORM S-1

REGISTRATION STATEMENT

UNDER THE

SECURITIES ACT OF 1933

CNS RESPONSE, INC.

(Exact Name of Registrant as Specified in its Charter)

Delaware	8734	87-0419387
(State or other jurisdiction of	(Primary Standard Industrial	(I.R.S Employer
incorporation or organization)	Classification Code Number)	Identification No.)

85 Enterprise, Suite 410

Aliso Viejo, CA 92656

(714) 545-3288

(Address, including Zip Code, and Telephone Number, including Area Code, of Registrant’s Principal Executive Offices)

George Carpenter, Chief Executive Officer

CNS Response, Inc.

85 Enterprise, Suite 410

Aliso Viejo, CA 92656

(714) 545-3288

Copy to:

Scott Alderton, Esq.

Stubbs Alderton & Markiles, LLP

15260 Ventura Boulevard, 20th Floor

Sherman Oaks, California 91403

(818) 444-4500

Jeffrey A. Baumel, Esq.

Sonnenschein Nath & Rosenthal LLP

Two World Financial Center

New York, New York 10281

(212) 768-6700

(Name, Address, including Zip Code, and Telephone Number, including Area Code, of Agent for Service)

Approximate date of proposed sale to the public: From time to time after the effective date of this Registration Statement.

If any securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. þ

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨

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.

	Large Accelerated Filer ¨		Accelerated Filer ¨

	Non-Accelerated Filer ¨		Smaller Reporting Company þ
	(Do not check if a smaller reporting company)

REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.

Subject to Completion, Dated August 31, 2010

CNS RESPONSE, INC.

65,879,838 Shares Common Stock

This prospectus relates to the offer and sale from time to time of up to 65,879,838 shares of our common stock that are held by the stockholders named in the “Selling Stockholders” section of this prospectus. The prices at which the selling stockholders may sell the shares in this offering will be determined by the prevailing market price for the shares or in negotiated transactions. We will not receive any of the proceeds from the sale of the shares. We will bear all expenses of registration incurred in connection with this offering. The selling stockholders whose shares are being registered will bear all selling and other expenses.

Our common stock is quoted on the Over-The-Counter Bulletin Board under the symbol “CNSO.OB.” On August 30, 2010, the last reported sales price of the common stock on the Over-The-Counter Bulletin Board was $0.56 per share.

Investing in our common stock involves risks. See “Risk Factors” beginning on page 5.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.

The date of this prospectus is ______________

TABLE OF CONTENTS

		Page

Prospectus Summary		1
Risk Factors		5
Cautionary Note Regarding Forward- looking Statements		20
Use of Proceeds		21
Market for Common Equity and Related Stockholder Matters		21
Management’s Discussion and Analysis of Financial Condition and Results of Operations		22
Business		48
Management		62
Executive Compensation		67
Principal and Selling Stockholders		76
Related Party Transactions		90
Description of Capital Stock		100
Plan of Distribution		105
Legal Matters		108
Experts		108
Where You Can Find More Information		108
Index to Financial Statements		109

You should rely only on the information contained in this prospectus or any supplement. We have not authorized anyone to provide information that is different from that contained in this prospectus. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of our common stock.

Except as otherwise indicated, information in this prospectus reflects a one-for-fifty reverse stock split of our common stock which took effect on January 10, 2007.

PROSPECTUS SUMMARY

This summary highlights selected information contained in greater detail elsewhere in this prospectus. This summary does not contain all the information you should consider before investing in our common stock. You should read the entire prospectus carefully before making an investment decision, including “Risk Factors” and the consolidated financial statements and the related notes. References in this prospectus to “CNS Response, Inc.,” the “company,” “we,” “our” and “us” refer to CNS Response, Inc. and our consolidated subsidiaries.

Our History

Our Business

Overview

We are a life sciences company with two distinct business segments. Our Laboratory Information Services business operated by CNS California, which we consider our primary business, is focused on the commercialization of a patented system that guides psychiatrists and other physicians to determine a proper treatment for patients with behavioral (psychiatric and/or addictive) disorders. Our Clinical Services business operated by our wholly-owned subsidiary, Neuro-Therapy Clinic, Inc. (“NTC”), is a full service psychiatric clinic. The address of our principal executive office is 85 Enterprise, Suite 410, Aliso Viejo, CA 92656, and our telephone number is (714) 545-3288.

Laboratory Information Services

In connection with our Laboratory Information Services business, we have developed an extensive proprietary database (the “CNS Database”) consisting of over 17,000 clinical outcomes across more than 2,000 patients who had psychiatric or addictive problems. For each patient, we have compiled electroencephalographic (“EEG”) data, symptoms and outcomes, often across multiple treatments from multiple psychiatrists and physicians. Using this database, our technology compares a patient’s EEG to the outcomes in the database and ranks treatment options based on treatment success of patients having similar neurophysiology.

Trademarked as Referenced-EEG ® (“rEEG”), this patented technology allows us to create and provide simple reports (“rEEG Reports”) that specifically guide physicians to treatment strategies based on the patient’s own physiology. The vast majority of these patients were considered long-term “treatment-resistant”, the most challenging, high-risk and expensive category to treat.

rEEG identifies relevant neurophysiology that is variant from the norm and identifies medications that have successfully treated database patients having similar aberrant physiology. It does this by comparing a patient’s standard digital EEG to an external normative database, which identifies the presence of abnormalities. The rEEG process then identifies a set of patients having similar abnormalities as recorded in our CNS Database and reports on historical relative medication success for this stratified group. Upon completion, the physician is provided the analysis in a report detailing and ranking classes of agents (and specific agents within the class) by treatment success for patients having similar abnormal electrophysiology.

Our business is focused on increasing the demand for our rEEG services. We believe the key factors that will drive broader adoption of our rEEG services will be acceptance by healthcare providers of their clinical benefits, demonstration of the cost-effectiveness of using our test, reimbursement by third-party payers, expansion of our sales force and increased marketing efforts.

Clinical Services

In January 2008, we acquired our largest customer, the Neuro-Therapy Clinic, Inc. Upon the completion of the transaction, NTC became a wholly-owned subsidiary of ours. NTC operates one of the largest psychiatric medication management practices in the state of Colorado, with six full time and seven part time employees including psychiatrists and clinical nurse specialists with prescribing privileges. Daniel A. Hoffman, M.D. is the medical director at NTC, and, after the acquisition, became our Chief Medical Officer and more recently, our President.

NTC, having performed a significant number of rEEG’s, serves as an important resource in our product development, the expansion of our CNS Database, production system development and implementation, along with the integration of our rEEG services into a medical practice. Through NTC, we also expect to successfully develop marketing and patient acquisition strategies for our Laboratory Information Services business. Specifically, NTC is learning how to best communicate the advantages of rEEG to patients and referring physicians in the local market. We will share this knowledge and developed communication programs learned through NTC with other physicians using our services, which we believe will help drive market acceptance of our services. In addition, we plan to use NTC to train practitioners across the country in the uses of our rEEG technology.

We view our Clinical Services business as secondary to our Laboratory Information Services business, and we have no current plans to expand this business.

Financial Information

Since our inception, we have generated significant net losses. As of September 30, 2009, we had an accumulated deficit of $25.2 million and as of June 30, 2010 we had an accumulated deficit of $ 29.9 million. We incurred net losses of $8.5 million and $5.4 million for the fiscal years ended September 30, 2009 and 2008, respectively and we incurred net losses of $1.5 million and $4.8 million for the three and nine month periods ending June 30, 2010, respectively. We have not yet achieved profitability and anticipate that we will continue to incur net losses for the next few years. We anticipate that a substantial portion of our capital resources and efforts will be focused on research and development, scale up of our commercial organization, and other general corporate purposes, including the payment of legal fees associated with our litigation with Leonard Brandt, our former Chief Executive Officer and a former director of the company. Research and development projects include the completion of more clinical trials which are necessary to further validate the efficacy of our products and services relating to our rEEG technology across different type of behavioral disorders, the enhancement of the CNS Database and, to a lesser extent, the identification of new medication that are often combinations of approved drugs. As of September 30, 2009 we had approximately $0.99 million in cash and cash equivalents and a working capital deficit of approximately $1.1 million compared to approximately $2.0 million in cash and cash equivalents and a working capital balance of approximately $0.83 million at September 30, 2008. As of June 30, 2010 we had approximately $35,100 in cash and cash equivalents and a working capital deficit of approximately $1.8 million. On June 3, 2010, we raised $250,000 from the sale of a promissory note to John Pappajohn, a member of our Board of Directors and on July 5, 2010, we issued two promissory notes in the aggregate principal amount of $250,000 to Deerwood Partners LLC and Deerwood Holdings LLC. On July 25, 2010 we raised a further $250,000 from the sale of a promissory note to Mr. Pappajohn and on August 20, 2010 we raised an additional $250,000 from the sale of promissory notes to Deerwood Partners LLC and Deerwood Holdings LLC.

As of June 30, 2010, our current liabilities of approximately $2.0 million exceeded our current assets of approximately $0.2 million by approximately $1.8 million. Our continued operating losses and limited capital raise substantial doubt about our ability to continue as a going concern. We need additional funds immediately to continue our operations and will need substantial additional funds before we can increase demand for our rEEG services. We are currently exploring additional sources of capital; however, we do not know whether additional funding will be available on acceptable terms, or at all, especially given the economic conditions that currently prevail. In addition, any additional equity funding may result in significant dilution to existing stockholders, and, if we incur additional debt financing, a substantial portion of our operating cash flow may be dedicated to the payment of principal and interest on such indebtedness, thus limiting funds available for our business activities. If adequate funds are not available, it would have a material adverse effect on our business, financial condition and/or results of operations, and could ultimately cause us to have to cease operations.

The Offering

Common stock offered		Up to 65,879,838 shares by the selling stockholders

Common stock outstanding before this offering		56,023,921

Common stock to be outstanding after this offering		Up to 74,432,936 shares

Use of proceeds		We will not receive any of the proceeds from the sale of shares of our common stock by the selling stockholders. See “Use of Proceeds.”

Over-the-Counter Bulletin Board symbol		CNSO.OB

Risk Factors		See “Risk Factors” beginning on page 5 for a discussion of factors that you should consider carefully before deciding to purchase our common stock.

In the table above, the number of shares to be outstanding after this offering is based on 56,023,921 shares outstanding as of August 30, 2010, and assumes the issuance to the selling stockholders of the following additional shares which are being offered for sale under the prospectus:

18,409,015 shares issuable upon the exercise of outstanding warrants at a weighted average exercise price of $0.59 per share.

In the table above, the number of shares to be outstanding after this offering does not reflect the issuance of the following shares, which are not being offered for sale under this prospectus;

19,559,711 shares of common stock reserved for issuance upon exercise of convertible debt, warrants and options, as of August 30, 2010.

RISK FACTORS

Investing in CNS Response, Inc. involves a high degree of risk. You should carefully consider the following risk factors and all other information contained in this prospectus before purchasing our common stock. The risks and uncertainties described below are not the only ones facing us. Additional risks and uncertainties that we are unaware of, or that we currently deem immaterial, also may become important factors that affect us. If any of the following risks occur, our business, financial condition or results of operations could be materially and adversely affected. In that case, the trading price of our common stock could decline, and you may lose some or all of your investment.

Risks Related to Our Company

We need immediate additional funding to support our operations and capital expenditures, which may not be available to us and which lack of availability could have a material adverse effect our business.

We have not generated significant revenues or become profitable, may never do so, and may not generate sufficient working capital to cover costs of operations. Our continued operating losses and limited capital raise substantial doubt about our ability to continue as a going concern. Until we can generate a sufficient amount of revenues to finance our operations and capital expenditures, we have to finance our cash needs primarily through public or private equity offerings, debt financings, borrowings or strategic collaborations. As of June 30, 2010, we had approximately $35,100 in cash and cash equivalents at hand and we have since then raised $750,000 through the sale of promissory notes in July and August, 2010. We still need additional funds immediately to continue our operations and will need substantial additional funds before we can increase demand for our rEEG services. We are currently exploring additional sources of capital; however, we do not know whether additional funding will be available on acceptable terms, or at all, especially given the economic conditions that currently prevail. In addition, any additional equity funding may result in significant dilution to existing stockholders, and, if we incur additional debt financing, a substantial portion of our operating cash flow may be dedicated to the payment of principal and interest on such indebtedness, thus limiting funds available for our business activities. If adequate funds are not available, it would have a material adverse effect on our business, financial condition and/or results of operations, and could ultimately cause us to have to cease operations.

We have a history of operating losses.

We are a company with a limited operating history. Since our inception, we have incurred significant operating losses. As of June 30, 2010, our accumulated deficit was approximately $29.9 million. Our future capital requirements will depend on many factors, such as the risk factors described in this section, including our ability to maintain our existing cost structure and to execute our business and strategic plans as currently conceived. Even if we achieve profitability, we may be unable to maintain or increase profitability on a quarterly or annual basis.

If our rEEG reports do not gain widespread market acceptance, our stock price may be negatively impacted.

We have developed a methodology that aids psychiatrists and other physicians in selecting appropriate and effective medications for patients with certain behavioral or addictive disorders based on physiological traits of the patient’s brain and information contained in a proprietary database that has been developed over the last twenty years. We began selling reports, referred to as rEEG Reports, based on our methodology in 2000. To date, we have not received widespread market acceptance of the usefulness of our rEEG Reports in helping psychiatrists and physicians inform their treatment strategies for patients suffering from behavioral and/or addictive disorders and we currently rely on a limited number of employees to market and promote our rEEG Reports. To grow our business, we will need to develop and introduce new sales and marketing programs and clinical education programs to promote the use of our rEEG Reports by psychiatrists and physicians and hire additional employees for this purpose. If we do not implement these new sales and marketing and education programs in a timely and successful manner, we may not be able to achieve the level of market awareness and sales required to expand our business, which could also negatively impact our stock price.

Our rEEG Reports may not be as effective as we believe them to be, which could limit or prevent us from growing our revenues.

Our belief in the efficacy of our rEEG technology is based on a limited number of studies. Such results may not be statistically significant, and may not be indicative of the long-term future efficacy of the information we provide. Controlled scientific studies, including those that have been announced and that are planned for the future, may yield results that are unfavorable or demonstrate that our services, including our rEEG Reports, are not clinically useful. While we have not experienced such problems to date, if the initially indicated results cannot be successfully replicated or maintained over time, utilization of services based on our rEEG technology, including the delivery of our rEEG Reports, may not increase as we anticipate, which would harm our operating results and stock price. In addition, if we fail to upgrade our CNS Database to account for new medications that are now available on the market, psychiatrists and other physicians may be less inclined to utilize our services if they believe that our reports only provide information about older treatment options, which would further harm our operating results and stock price.

We have been in a dialogue with the United States Food & Drug Administration (FDA) regarding its position that our rEEG service constitutes a medical device which is subject to regulation by the FDA. If we continue to market our rEEG service, there is risk that the FDA will seek enforcement action against us based upon the FDA’s position that our rEEG service is a medical device. In addition, complying with regulatory requirements imposed by the FDA will further reduce our limited operating capital.

Since April of 2008, we have been in a dialogue with the FDA regarding its position that our rEEG service constitutes a medical device which is subject to regulation by the FDA. On April 10, 2008 we received correspondence from the FDA in which the FDA indicated it believed, based in part on the combination of certain marketing statements it read on our website, together with the delivery of our rEEG Reports, that we were selling a software product to aid in diagnosis, which constituted a “medical device” requiring pre-market approval or 510(k) clearance by the FDA pursuant to the Federal Food, Drug and Cosmetic Act (the “Act”). We responded to the FDA on April 24, 2008 indicating that we believed it had incorrectly understood our product offering, and clarified that our rEEG services are not diagnostic and thus for this as well as other reasons, do not constitute a medical device. On December 14, 2008, the FDA again contacted us and indicated that, based upon its review of our description of our intended use of the rEEG Reports on our website, it continued to maintain that our rEEG service met its definition of medical devices. In response to the FDA communications, we made a number of changes to our website and other marketing documents to reflect that rEEG is a service to aid in medication selection and is not an aid to diagnosis. On September 4, 2009, through our regulatory counsel, we responded to the December 14, 2008 FDA letter explaining our position in more detail.

During the intervening period of time, based upon conversations with FDA, we chose to submit an application to obtain 510(k) clearance for our rEEG service, without waiving our right to continue to take the position that our services do not constitute a medical device. We sought review of our rEEG service based upon its equivalence to predicate devices that already have FDA clearance which appeared to represent a sound mechanism to reduce regulatory risks.

On July 27, 2010 we received a letter (the “NSE Letter”) from the FDA stating that they determined that our rEEG service was not substantially equivalent to the predicate devices that had previously been granted 510(k) clearance and that among other options we could be required to file an approved premarket approval application (PMA) before it can be marketed legally, unless it is otherwise reclassified.

We currently plan to continue marketing as a non-device laboratory information service, while continuing to discuss alternative approaches with the FDA. Alternative approaches, which are not mutually exclusive, may consist of (1) filing a request for reconsideration of the NSE letter and/or (2) submitting a new 510(k) with revised claims for rEEG and/or additional information about the predicate devices. If we continue to market our rEEG service and the FDA determines that we should be subject to FDA regulation, it could seek enforcement action against the Company based upon its position that our rEEG service is a medical device.

If government and third-party payers fail to provide coverage and adequate payment rates for treatments that are guided by our rEEG Reports, our revenue and prospects for profitability will be harmed.

Our future revenue growth will depend in part upon the availability of reimbursement from third-party payers for psychiatrists and physicians who use our rEEG Reports to guide the treatment of their patients. Such third-party payers include government health programs such as Medicare and Medicaid, managed care providers, private health insurers and other organizations. These third-party payers are increasingly attempting to contain healthcare costs by demanding price discounts or rebates and limiting both coverage on which procedures they will pay for and the amounts that they will pay for new procedures. As a result, they may not cover or provide adequate payment for treatments that are guided by our rEEG Reports, which will discourage psychiatrists and physicians from utilizing the information services we provide. We may need to conduct studies in addition to those we have already announced to demonstrate the cost-effectiveness of treatments that are guided by our products and services to such payers’ satisfaction. Such studies might require us to commit a significant amount of management time and financial and other resources. Adequate third-party reimbursement might not be available to enable us to realize an appropriate return on investment in research and product development, and the lack of such reimbursement could have a material adverse effect on our operations and could adversely affect our revenues and earnings.

Regulations are constantly changing, and in the future our business may be subject to additional regulations that increase our compliance costs.

Federal, state and foreign laws and regulations relating to the sale of our rEEG Reports are subject to future changes, as are administrative interpretations of regulatory agencies. If we fail to comply with applicable federal, state or foreign laws or regulations, we could be subject to enforcement actions, including injunctions preventing us from conducting our business, withdrawal of clearances or approvals and civil and criminal penalties. In the event that federal, state, and foreign laws and regulations change, we may need to incur additional costs to seek government approvals, in addition to the clearance we are currently seeking from the FDA (discussed above), in order to sell market our rEEG service. There is no guarantee that we will be able to obtain such approvals in a timely manner or at all, and as a result, our business would be significantly harmed.

We have recently been in litigation with our former Chief Executive Officer and former director, Leonard Brandt, relating to his attempt to replace the Board of Directors with his own nominees.

Between June 2009 and July 2010, we were involved in litigation against Leonard J. Brandt, a stockholder, former director and our former Chief Executive Officer. This litigation took place in the Delaware Chancery Court, the Delaware Supreme Court and in the United States District Court for the Central District of California. We have expended substantial resources in connection with this litigation.

As further described in this prospectus in the “Business” section under the heading “Legal Proceedings,” on December 2, 2009, following a two day trial before the Delaware Court of Chancery, we prevailed in certain actions that were pending between the Company and Mr. Brandt, which were subsequently affirmed by the Delaware Supreme Court. The litigation in the United States District Court for the Central District of California was dismissed on July 13, 2010.

We do not know whether Mr. Brandt may institute new claims against us, and the defense of any such new claims could involve the expenditure of additional resources by the Company and make it more difficult for us to raise any additional funds needed to finance our corporate and working capital needs.

Our Clinical Services Business generates the majority of our revenue, and adverse developments in this business could negatively impact our operating results.

Our Clinical Services business, which we view as ancillary to our core Laboratory Information Services business, currently generates the majority of our revenue and is operated by our wholly-owned subsidiary, NTC. In the event that NTC is unable to sustain the current demand for its services because, for instance, the company is unable to maintain favorable and continuing relations with its clients and referring psychiatrists and physicians or Daniel Hoffman, the Medical Director at NTC and our Chief Medical Officer and President, is no longer associated with NTC, our revenues could significantly decline, which could adversely impact our operating results and our ability to implement our growth strategy.

Our operating results may fluctuate significantly and our stock price could decline or fluctuate if our results do not meet the expectation of analysts or investors.

Management expects that we will experience substantial variations in our operating results from quarter to quarter. We believe that the factors which influence this variability of quarterly results include:

the use of and demand for rEEG Reports and other products and/or services that we may offer in the future that are based on our patented methodology;

the effectiveness of new marketing and sales programs;

turnover among our employees;

changes in management;

the introduction of products or services that are viewed in the marketplace as substitutes for the services we provide;

communications published by industry organizations or other professional entities in the psychiatric and physician community that are unfavorable to our business;

the introduction of regulations which impose additional costs on or impede our business; and

the timing and amount of our expenses, particularly expenses associated with the marketing and promotion of our services, the training of physicians and psychiatrists in the use of our rEEG Reports, and research and development.

As a result of fluctuations in our revenue and operating expenses that may occur, management believes that period-to-period comparisons of our results of operations are not a good indication of our future performance. It is possible that in some future quarter or quarters, our operating results will be below the expectations of securities analysts or investors. In that case, our common stock price could fluctuate significantly or decline.

If we do not maintain and expand our relationships in the psychiatric and physician community, our growth will be limited and our business could be harmed. If psychiatrists and other physicians do not recommend and endorse our products and services, we may be unable to increase our sales, and in such instances our profitability would be harmed.

Our relationships with psychiatrists and physicians are critical to the growth of our Laboratory Information Services business. We believe that these relationships are based on the quality and ease of use of our rEEG Reports, our commitment to the behavioral health market, our marketing efforts, and our presence at tradeshows. Any actual or perceived diminution in our reputation or the quality of our rEEG Reports, or our failure or inability to maintain our commitment to the behavioral health market and our other marketing and product promotion efforts could damage our current relationships, or prevent us from forming new relationships, with psychiatrists and other physicians and cause our growth to be limited and our business to be harmed.

To sell our rEEG Reports, psychiatric professionals must recommend and endorse them. We may not obtain the necessary recommendations or endorsements from this community. Acceptance of our rEEG Reports depends on educating psychiatrists and physicians as to the benefits, clinical efficacy, ease of use, revenue opportunity, and cost-effectiveness of our rEEG Reports and on training the medical community to properly understand and utilize our rEEG Reports. If we are not successful in obtaining the recommendations or endorsements of psychiatrists and other physicians for our rEEG Reports, we may be unable to increase our sales and profitability.

Negative publicity or unfavorable media coverage could damage our reputation and harm our operations.

In the event that the marketplace perceives our rEEG Reports as not offering the benefits which we believe they offer, we may receive significant negative publicity. This publicity may result in litigation and increased regulation and governmental review. If we were to receive such negative publicity or unfavorable media attention, whether warranted or unwarranted, our ability to market our rEEG Reports would be adversely affected, pharmaceutical companies may be reluctant to pursue strategic initiatives with us relating to the development of new products and services based on our rEEG technology, we may be required to change our products and services and become subject to increased regulatory burdens, and we may be required to pay large judgments or fines and incur significant legal expenses. Any combination of these factors could further increase our cost of doing business and adversely affect our financial position, results of operations and cash flows.

If we do not successfully generate additional products and services from our patented methodology and proprietary database, or if such products and services are developed but not successfully commercialized, then we could lose revenue opportunities.

Our primary business is the sale of rEEG Reports to psychiatrists and physicians based on our rEEG methodology and proprietary database. In the future, we may utilize our patented methodology and proprietary database to produce pharmaceutical advancements and developments. For instance, we may use our patented methodology and proprietary database to identify new medications that are promising in the treatment of behavioral health disorders, identify new uses of medications which have been previously approved, and identify new patient populations that are responsive to medications in clinical trials that have previously failed to show efficacy in United States Food & Drug Administration (FDA) approved clinical trials. The development of new pharmaceutical applications that are based on our patented methodology and proprietary database will be costly, since we will be subject to additional regulations, including the need to conduct expensive and time consuming clinical trials.

In addition, to successfully monetize our pharmaceutical opportunity, we will need to enter into strategic alliances with biotechnology or pharmaceutical companies that have the ability to bring to market a medication, an ability which we currently do not have. We maintain no pharmaceutical manufacturing, marketing or sales organization, nor do we plan to build one in the foreseeable future. Therefore, we are reliant upon approaching and successfully negotiating attractive terms with a partner who has these capabilities. No guarantee can be made that we can do this on attractive terms or at all. If we are unable to find strategic partners for our pharmaceutical opportunity, our revenues may not grow as quickly as we desire, which could lower our stock price.

Our industry is highly competitive, and we may not be able to compete successfully, which could result in price reductions and decreased demand for our products.

The healthcare business in general, and the behavioral health treatment business in particular, are highly competitive. In the event that we are unable to convince physicians, psychiatrists and patients of the efficacy of our products and services, individuals seeking treatment for behavioral health disorders may seek alternative treatment methods, which could negatively impact our sales and profitability.

In the event that we pursue our pharmaceutical opportunities, we or any development partners that we partner with will likely need to conduct clinical trials. If such clinical trials are delayed or unsuccessful, it could have an adverse effect on our business.

We have no experience conducting clinical trials of psychiatric medications and in the event we conduct clinical trials, we will rely on outside parties, including academic investigators, outside consultants and contract research organizations to conduct these trials on our behalf. We will rely on these parties to assist in the recruitment of sites for participation in clinical trials, to maintain positive relations with these sites, and to ensure that these sites conduct the trials in accordance with the protocol and our instructions. If these parties renege on their obligations to us, our clinical trials may be delayed or unsuccessful.

In the event we conduct clinical trials, we cannot predict whether we will encounter problems that will cause us or regulatory authorities to delay or suspend our clinical trials or delay the analysis of data from our completed or ongoing clinical trials. In addition, we cannot assure you that we will be successful in reaching the endpoints in these trials, or if we do, that the FDA or other regulatory agencies will accept the results.

Any of the following could delay the completion of clinical trials, or result in a failure of these trials to support our business, which would have an adverse effect on our business:

delays or the inability to obtain required approvals from institutional review boards or other governing entities at clinical sites selected for participation in our clinical trials;

delays in enrolling patients and volunteers into clinical trials;

lower than anticipated retention rates of patients and volunteers in clinical trials;

negative results from clinical trials for any of our potential products; and

failure of our clinical trials to demonstrate the efficacy or clinical utility of our potential products.

If we determine that the costs associated with attaining regulatory approval of a product exceed the potential financial benefits or if the projected development timeline is inconsistent with our determination of when we need to get the product to market, we may chose to stop a clinical trial and/or development of a product.

We may fail to successfully manage and maintain the growth of our business, which could adversely affect our results of operations.

As we continue expanding our commercial operations, this expansion could place significant strain on our management, operational, and financial resources. To manage future growth, we will need to continue to hire, train, and manage additional employees, particularly a specially trained sales force to market our rEEG Reports.

In addition, we have maintained a small financial and accounting staff, and our reporting obligations as a public company, as well as our need to comply with the requirements of the Sarbanes-Oxley Act of 2002, and the rules and regulations of the SEC will continue to place significant demands on our financial and accounting staff, on our financial, accounting and information systems and on our internal controls. As we grow, we will need to add additional accounting staff and continue to improve our financial, accounting and information systems and internal controls in order to fulfill our reporting responsibilities and to support expected growth in our business. Our current and planned personnel, systems, procedures and controls may not be adequate to support our anticipated growth or management may not be able to effectively hire, train, retain, motivate and manage required personnel. Our failure to manage growth effectively could limit our ability to achieve our marketing and commercialization goals or to satisfy our reporting and other obligations as a public company.

We may not be able to adequately protect our intellectual property, which is the core of our business.

We consider the protection of our intellectual property to be important to our business prospects. We currently have four issued U.S. patents, as well as issued patents in Australia and Israel, and we have filed separate patent applications in multiple foreign jurisdictions.

In the future, if we fail to file patent applications in a timely manner, or in the event we elect not to file a patent application because of the costs associated with patent prosecution, we may lose patent protection that we may have otherwise obtained. The loss of any proprietary rights which are obtainable under patent laws may result in the loss of a competitive advantage over present or potential competitors, with a resulting decrease in revenues and profitability for us.

With respect to the applications we have filed, there is no guarantee that the applications will result in issued patents, and further, any patents that do issue may be too narrow in scope to adequately protect our intellectual property and provide us with a competitive advantage. Competitors and others may design around aspects of our technology, or alternatively may independently develop similar or more advanced technologies that fall outside the scope of our claimed subject matter but that can be used in the treatment of behavioral health disorders.

In addition, even if we are issued additional patents covering our products, we cannot predict with certainty whether or not we will be able to enforce our proprietary rights, and whether our patents will provide us with adequate protection against competitors. We may be forced to engage in costly and time consuming litigation or reexamination proceedings to protect our intellectual property rights, and our opponents in such proceedings may have and be willing to expend, substantially greater resources than we are able to. In addition, the results of such proceedings may result in our patents being invalidated or reduced in scope. These developments could cause a decrease in our operating income and reduce our available cash flow, which could harm our business and cause our stock price to decline.

We also utilize processes and technology that constitute trade secrets, such as our CNS Database, and we must implement appropriate levels of security for those trade secrets to secure the protection of applicable laws, which we may not do effectively. In addition, the laws of many foreign countries do not protect proprietary rights as fully as the laws of the United States.

While we have not had any significant issues to date, the loss of any of our trade secrets or proprietary rights which may be protected under the foregoing intellectual property safeguards may result in the loss of our competitive advantage over present and potential competitors.

Confidentiality agreements with employees, licensees and others may not adequately prevent disclosure of trade secrets and other proprietary information.

In order to protect our proprietary technology and processes, we rely in part on confidentiality provisions in our agreements with employees, licensees, treating physicians and psychiatrists and others. These agreements may not effectively prevent disclosure of confidential information and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. Moreover, policing compliance with our confidentiality agreements and non-disclosure agreements, and detecting unauthorized use of our technology is difficult, and we may be unable to determine whether piracy of our technology has occurred. In addition, others may independently discover our trade secrets and proprietary information. Costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights, and failure to obtain or maintain trade secret protection could adversely affect our competitive business position.

The liability of our directors and officers is limited.

The applicable provisions of the Delaware General Corporate Law and our Certificate of Incorporation limit the liability of our directors to the Company and our stockholders for monetary damages for breaches of their fiduciary duties, with certain exceptions, and for other specified acts or omissions of such persons. In addition, the applicable provisions of the Delaware General Corporate Law and of our Certificate of Incorporation and Bylaws, as well as indemnification agreements we have entered into with our directors, officers and certain other individuals, provide for indemnification of such persons under certain circumstances. In the event we are required to indemnify any of our directors or any other person, our financial strength may be harmed, which may in turn lower our stock price.

If we do not retain our senior management and other key employees, we may not be able to successfully implement our business strategy.

Our future success depends on the ability, experience and performance of our senior management and our key professional personnel. Our success therefore depends to a significant extent on retaining the services of George Carpenter, our Chief Executive Officer, our senior product development and clinical managers, and others. Because of their ability and experience, if we lose one or more of the members of our senior management or other key employees, our ability to successfully implement our business strategy could be seriously harmed. While we believe our relationships with our executives are good and do not anticipate any of them leaving in the near future, the loss of the services of any of our senior management could have a material adverse effect on our ability to manage our business. We do not carry key man life insurance on any of our key employees.

If we do not attract and retain skilled personnel, we may not be able to expand our business.

Our products and services are based on a complex database of information. Accordingly, we require skilled medical, scientific and administrative personnel to sell and support our products and services. Our future success will depend largely on our ability to continue to hire, train, retain and motivate additional skilled personnel, particularly sales representatives who are responsible for customer education and training and customer support. In the future, if we pursue our pharmaceutical opportunities, we will also likely need to hire personnel with experience in clinical testing and matters relating to obtaining regulatory approvals. If we are not able to attract and retain skilled personnel, we will not be able to continue our development and commercialization activities.

In the future we could be subject to personal injury claims, which could result in substantial liabilities that may exceed our insurance coverage.

All significant medical treatments and procedures, including treatment that is facilitated through the use of our rEEG Reports, involve the risk of serious injury or death. While we have not been the subject of any personal injury claims for patients treated by providers using our rEEG Reports, our business entails an inherent risk of claims for personal injuries, which are subject to the attendant risk of substantial damage awards. We cannot control whether individual physicians and psychiatrists will properly select patients, apply the appropriate standard of care, or conform to our procedures in determining how to treat their patients. A significant source of potential liability is negligence or alleged negligence by physicians treating patients with the aid of the rEEG Reports that we provide. There can be no assurance that a future claim or claims will not be successful or, including the cost of legal defense, will not exceed the limits of available insurance coverage.

We currently have general liability and medical professional liability insurance coverage for up to $5 million per year for personal injury claims. We may not be able to maintain adequate liability insurance, in accordance with standard industry practice, with appropriate coverage based on the nature and risks of our business, at acceptable costs and on favorable terms. Insurance carriers are often reluctant to provide liability insurance for new healthcare services companies and products due to the limited claims history for such companies and products. In addition, based on current insurance markets, we expect that liability insurance will be more difficult to obtain and that premiums will increase over time and as the volume of patients treated by physicians that are guided by our rEEG Reports increases. In the event of litigation, regardless of its merit or eventual outcome, or an award against us during a time when we have no available insurance or insufficient insurance, we may sustain significant losses of our operating capital which may substantially reduce stockholder equity in the company.

We are subject to evolving and expensive corporate governance regulations and requirements. Our failure to adequately adhere to these requirements or the failure or circumvention of our controls and procedures could seriously harm our business.

Because we are a publicly traded company we are subject to certain federal, state and other rules and regulations, including applicable requirements of the Sarbanes-Oxley Act of 2002. Compliance with these evolving regulations is costly and requires a significant diversion of management time and attention, particularly with regard to our disclosure controls and procedures and our internal control over financial reporting. Although we have reviewed our disclosure and internal controls and procedures in order to determine whether they are effective, our controls and procedures may not be able to prevent errors or frauds in the future. Faulty judgments, simple errors or mistakes, or the failure of our personnel to adhere to established controls and procedures may make it difficult for us to ensure that the objectives of the control system are met. A failure of our controls and procedures to detect other than inconsequential errors or fraud could seriously harm our business and results of operations.

Our senior management’s limited recent experience managing a publicly traded company may divert management’s attention from operations and harm our business.

Our management team has relatively limited recent experience managing a publicly traded company and complying with federal securities laws, including compliance with recently adopted disclosure requirements on a timely basis. Our management will be required to design and implement appropriate programs and policies in responding to increased legal, regulatory compliance and reporting requirements, and any failure to do so could lead to the imposition of fines and penalties and harm our business.

Risks Related To Our Industry

The healthcare industry in which we operate is subject to substantial regulation by state and federal authorities, which could hinder, delay or prevent us from commercializing our products and services.

Healthcare companies are subject to extensive and complex federal, state and local laws, regulations and judicial decisions governing various matters such as the licensing and certification of facilities and personnel, the conduct of operations, billing policies and practices, policies and practices with regard to patient privacy and confidentiality, and prohibitions on payments for the referral of business and self-referrals. There are federal and state laws, regulations and judicial decisions that govern patient referrals, physician financial relationships, submission of healthcare claims and inducement to beneficiaries of federal healthcare programs. Many states prohibit business corporations from practicing medicine, employing or maintaining control over physicians who practice medicine, or engaging in certain business practices, such as splitting fees with healthcare providers. Many healthcare laws and regulations applicable to our business are complex, applied broadly and subject to interpretation by courts and government agencies. Our failure, or the failure of physicians and psychiatrists to whom we sell our rEEG Reports, to comply with these healthcare laws and regulations could create liability for us and negatively impact our business.

In addition, the FDA regulates development, testing, labeling, manufacturing, marketing, promotion, distribution, record-keeping and reporting requirements for prescription drugs. Compliance with laws and regulations enforced by the FDA and other regulatory agencies may be required in relation to future products or services developed or used by us, in addition to the regulatory process and dialogue in which we are now engaged with the FDA (please see the risk factor above for further information). Failure to comply with applicable laws and regulations may result in various adverse consequences, including withdrawal of our products and services from the market, or the imposition of civil or criminal sanctions.

We believe that this industry will continue to be subject to increasing regulation, political and legal action and pricing pressures, the scope and effect of which we cannot predict. Legislation is continuously being proposed, enacted and interpreted at the federal, state and local levels to regulate healthcare delivery and relationships between and among participants in the healthcare industry. Any such changes could prevent us from marketing some or all of our products and services for a period of time or permanently.

We may be subject to regulatory and investigative proceedings, which may find that our policies and procedures do not fully comply with complex and changing healthcare regulations.

While we have established policies and procedures that we believe will be sufficient to ensure that we operate in substantial compliance with applicable laws, regulations and requirements, the criteria are often vague and subject to change and interpretation. We may become the subject of regulatory or other investigations or proceedings, and our interpretations of applicable laws and regulations may be challenged. The defense of any such challenge could result in substantial cost and a diversion of management’s time and attention. Thus, any such challenge could have a material adverse effect on our business, regardless of whether it ultimately is successful. If we fail to comply with any applicable laws, or a determination is made that we have failed to comply with these laws, our financial condition and results of operations could be adversely affected.

Failure to comply with the Federal Trade Commission Act or similar state laws could result in sanctions or limit the claims we can make.

The Company’s promotional activities and materials, including advertising to consumers and physicians, and materials provided to third parties for their use in promoting our products and services, are regulated by the Federal Trade Commission (FTC) under the FTC Act, which prohibits unfair and deceptive acts and practices, including claims which are false, misleading or inadequately substantiated. The FTC typically requires competent and reliable scientific tests or studies to substantiate express or implied claims that a product or service is effective. If the FTC were to interpret our promotional materials as making express or implied claims that our products and services are effective for the treatment of mental illness, it may find that we do not have adequate substantiation for such claims. Failure to comply with the FTC Act or similar laws enforced by state attorneys general and other state and local officials could result in administrative or judicial orders limiting or eliminating the claims we can make about our products and services, and other sanctions including fines.

Our business practices may be found to constitute illegal fee-splitting or corporate practice of medicine, which may lead to penalties and adversely affect our business.

Many states, including California, in which our principal executive offices are located, have laws that prohibit business corporations, such as us, from practicing medicine, exercising control over medical judgments or decisions of physicians, or engaging in certain arrangements, such as employment or fee-splitting, with physicians. Courts, regulatory authorities or other parties, including physicians, may assert that we are engaged in the unlawful corporate practice of medicine through our ownership of the Neuro-Therapy Clinic or by providing administrative and ancillary services in connection with our rEEG Reports. These parties may also assert that selling our rEEG Reports for a portion of the patient fees constitutes improper fee-splitting. If asserted, such claims could subject us to civil and criminal penalties and substantial legal costs, could result in our contracts being found legally invalid and unenforceable, in whole or in part, or could result in us being required to restructure our contractual arrangements, all with potentially adverse consequences to our business and our stockholders.

Our business practices may be found to violate anti-kickback, self-referral or false claims laws, which may lead to penalties and adversely affect our business.

The healthcare industry is subject to extensive federal and state regulation with respect to financial relationships and “kickbacks” involving healthcare providers, physician self-referral arrangements, filing of false claims and other fraud and abuse issues. Federal anti-kickback laws and regulations prohibit certain offers, payments or receipts of remuneration in return for (i) referring patients covered by Medicare, Medicaid or other federal health care program, or (ii) purchasing, leasing, ordering or arranging for or recommending any service, good, item or facility for which payment may be made by a federal health care program. In addition, federal physician self-referral legislation, commonly known as the Stark law, generally prohibits a physician from ordering certain services reimbursable by Medicare, Medicaid or other federal healthcare program from any entity with which the physician has a financial relationship. In addition, many states have similar laws, some of which are not limited to services reimbursed by federal healthcare programs. Other federal and state laws govern the submission of claims for reimbursement, or false claims laws. One of the most prominent of these laws is the federal False Claims Act, and violations of other laws, such as the anti-kickback laws or the FDA prohibitions against promotion of off-label uses of medications, may also be prosecuted as violations of the False Claims Act.

While we believe we have structured our relationships to comply with all applicable requirements, federal or state authorities may claim that our fee arrangements, agreements and relationships with contractors and physicians violate these anti-kickback, self-referral or false claims laws and regulations. These laws are broadly worded and have been broadly interpreted by courts. It is often difficult to predict how these laws will be applied, and they potentially subject many typical business arrangements to government investigation and prosecution, which can be costly and time consuming. Violations of these laws are punishable by monetary fines, civil and criminal penalties, exclusion from participation in government-sponsored health care programs and forfeiture of amounts collected in violation of such laws. Some states also have similar anti-kickback and self-referral laws, imposing substantial penalties for violations. If our business practices are found to violate any of these provisions, we may be unable to continue with our relationships or implement our business plans, which would have an adverse effect on our business and results of operations.

We may be subject to healthcare anti-fraud initiatives, which may lead to penalties and adversely affect our business.

State and federal governments are devoting increased attention and resources to anti-fraud initiatives against healthcare providers, taking an expansive definition of fraud that includes receiving fees in connection with a healthcare business that is found to violate any of the complex regulations described above. While to our knowledge we have not been the subject of any anti-fraud investigations, if such a claim were made defending our business practices could be time consuming and expensive, and an adverse finding could result in substantial penalties or require us to restructure our operations, which we may not be able to do successfully.

Our use and disclosure of patient information is subject to privacy and security regulations, which may result in increased costs.

In conducting research or providing administrative services to healthcare providers in connection with the use of our rEEG Reports, as well as in our Clinical Services business, we may collect, use, maintain and transmit patient information in ways that will be subject to many of the numerous state, federal and international laws and regulations governing the collection, dissemination, use and confidentiality of patient-identifiable health information, including the federal Health Insurance Portability and Accountability Act (HIPAA) and related rules. The three rules that were promulgated pursuant to HIPAA that could most significantly affect our business are the Standards for Electronic Transactions, or Transactions Rule; the Standards for Privacy of Individually Identifiable Health Information, or Privacy Rule; and the Health Insurance Reform: Security Standards, or Security Rule. HIPAA applies to covered entities, which include most healthcare facilities and health plans that may contract for the use of our services. The HIPAA rules require covered entities to bind contractors like us to compliance with certain burdensome HIPAA rule requirements.

The HIPAA Transactions Rule establishes format and data content standards for eight of the most common healthcare transactions. If we perform billing and collection services on behalf of psychiatrists and physicians, we may be engaging in one of more of these standard transactions and will be required to conduct those transactions in compliance with the required standards. The HIPAA Privacy Rule restricts the use and disclosure of patient information, requires entities to safeguard that information and to provide certain rights to individuals with respect to that information. The HIPAA Security Rule establishes elaborate requirements for safeguarding patient information transmitted or stored electronically. We may be required to make costly system purchases and modifications to comply with the HIPAA rule requirements that are imposed on us and our failure to comply may result in liability and adversely affect our business.

Numerous other federal and state laws protect the confidentiality of personal and patient information. These laws in many cases are not preempted by the HIPAA rules and may be subject to varying interpretations by courts and government agencies, creating complex compliance issues for us and the psychiatrists and physicians who purchase our services, and potentially exposing us to additional expense, adverse publicity and liability.

Risks Relating To Investment In Our Common Stock

We have a limited trading volume and shares eligible for future sale by our current stockholders may adversely affect our stock price.

Bid and ask prices for shares of our Common Stock are quoted on NASDAQ’s Over-the-Counter Bulletin Board under the symbol CNSO.OB. There is currently no broadly followed, established trading market for our Common Stock and an established trading market for our shares of Common Stock may never develop or be maintained. Active trading markets generally result in lower price volatility and more efficient execution of buy and sell orders. The absence of an active trading market increases price volatility and reduces the liquidity of our Common Stock. As long as this condition continues, the sale of a significant number of shares of Common Stock at any particular time could be difficult to achieve at the market prices prevailing immediately before such shares are offered. Also, as a result of this lack of trading activity, the quoted price for our Common Stock on the Over-the-Counter Bulletin Board is not necessarily a reliable indicator of its fair market value. If we cease to be quoted, holders would find it more difficult to dispose of, or to obtain accurate quotations as to the market value of, our Common Stock, and the market value of our Common Stock would likely decline.

If and when a larger trading market for our Common Stock develops, the market price of our Common Stock is likely to be highly volatile and subject to wide fluctuations, and you may be unable to resell your shares at or above the price at which you acquired them.

The market price of our Common Stock is likely to be highly volatile and could be subject to wide fluctuations in response to a number of factors that are beyond our control, including:

· quarterly variations in our revenues and operating expenses;

· developments in the financial markets and worldwide or regional economies;

· announcements of innovations or new products or services by us or our competitors;

· announcements by the government relating to regulations that govern our industry;

· significant sales of our Common Stock or other securities in the open market;

· variations in interest rates;

· changes in the market valuations of other comparable companies; and

· changes in accounting principles.

In the past, stockholders have often instituted securities class action litigation after periods of volatility in the market price of a company’s securities. If a stockholder were to file any such class action suit against us, we would incur substantial legal fees and our management’s attention and resources would be diverted from operating our business to respond to the litigation, which could harm our business.

Future sales of our Common Stock in the public market could cause our stock price to fall.

The sale of shares of our common stock which are registered for resale on this prospectus or other shares eligible for resale pursuant to Rule 144 of the Securities Act of 1933, as amended, or otherwise, could depress the market price of our Common Stock. A reduced market price for our Common Stock could make it more difficult to raise funds through future offering of Common Stock.

The sale of securities by us in any equity or debt financing could result in dilution to our existing stockholders and have a material adverse effect on our earnings.

Any sale of Common Stock by us in a future private placement or public offering could result in dilution to our existing stockholders as a direct result of our issuance of additional shares of our capital stock. In addition, our business strategy may include expansion through internal growth, by acquiring complementary businesses, by acquiring or licensing additional products and services, or by establishing strategic relationships with targeted customers and suppliers. In order to do so, or to finance the cost of our other activities, we may issue additional equity securities that could dilute our stockholders' stock ownership. We may also assume additional debt and incur impairment losses related to goodwill and other tangible assets if we acquire another company and this could negatively impact our earnings and results of operations.

The trading of our Common Stock on the Over-the-Counter Bulletin Board and the potential designation of our Common Stock as a “penny stock” could impact the trading market for our Common Stock.

Our securities, as traded on the Over-the-Counter Bulletin Board, may be subject to SEC rules that impose special sales practice requirements on broker-dealers who sell these securities to persons other than established customers or accredited investors. For the purposes of the rule, the phrase “accredited investors” means, in general terms, institutions with assets in excess of $5,000,000, or individuals having a net worth in excess of $1,000,000 or having an annual income that exceeds $200,000 (or that, when combined with a spouse’s income, exceeds $300,000). For transactions covered by the rule, the broker-dealer must make a special suitability determination for the purchaser and receive the purchaser’s written agreement to the transaction before the sale. Consequently, the rule may affect the ability of broker-dealers to sell our securities and also may affect the ability of purchasers to sell their securities in any market that might develop therefor.

In addition, the SEC has adopted a number of rules to regulate “penny stock” that restrict transactions involving these securities. Such rules include Rules 3a51-1, 15g-1, 15g-2, 15g-3, 15g-4, 15g-5, 15g-6, 15g-7, and 15g-9 under the Securities and Exchange Act of 1934, as amended. These rules may have the effect of reducing the liquidity of penny stocks. “Penny stocks” generally are equity securities with a price of less than $5.00 per share (other than securities registered on certain national securities exchanges or quoted on the NASDAQ Stock Market if current price and volume information with respect to transactions in such securities is provided by the exchange or system). Because our securities may constitute “penny stock” within the meaning of the rules, the rules would apply to us and to our securities. Our stockholders may therefore find it more difficult to sell their securities.

Stockholders should be aware that, according to SEC, the market for penny stocks has suffered in recent years from patterns of fraud and abuse. Such patterns include (i) control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer; (ii) manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases; (iii) “boiler room” practices involving high-pressure sales tactics and unrealistic price projections by inexperienced sales persons; (iv) excessive and undisclosed bid-ask differentials and markups by selling broker-dealers; and (v) the wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, resulting in investor losses. Our management is aware of the abuses that have occurred historically in the penny stock market. Although we do not expect to be in a position to dictate the behavior of the market or of broker-dealers who participate in the market, management will strive within the confines of practical limitations to prevent the described patterns from being established with respect to our securities.

We have not paid dividends in the past and do not expect to pay dividends for the foreseeable future, and any return on investment may be limited to potential future appreciation on the value of our Common Stock.

We currently intend to retain any future earnings to support the development and expansion of our business and do not anticipate paying cash dividends in the foreseeable future. Our payment of any future dividends will be at the discretion of our Board of Directors after taking into account various factors, including without limitation, our financial condition, operating results, cash needs, growth plans and the terms of any credit agreements that we may be a party to at the time. To the extent we do not pay dividends, our stock may be less valuable because a return on investment will only occur if and to the extent our stock price appreciates, which may never occur. In addition, investors must rely on sales of their Common Stock after price appreciation as the only way to realize their investment, and if the price of our stock does not appreciate, then there will be no return on investment. Investors seeking cash dividends should not purchase our Common Stock.

Our officers, directors and principal stockholders can exert significant influence over us and may make decisions that are not in the best interests of all stockholders.

Our officers, directors and principal stockholders (greater than 5% stockholders) collectively control approximately 44% of our issued and outstanding Common Stock. As a result, these stockholders are able to affect the outcome of, or exert significant influence over, all matters requiring stockholder approval, including the election and removal of directors and any change in control. In particular, this concentration of ownership of our Common Stock could have the effect of delaying or preventing a change of control of us or otherwise discouraging or preventing a potential acquirer from attempting to obtain control of us. This, in turn, could have a negative effect on the market price of our Common Stock. It could also prevent our stockholders from realizing a premium over the market prices for their shares of Common Stock. Moreover, the interests of this concentration of ownership may not always coincide with our interests or the interests of other stockholders, and accordingly, they could cause us to enter into transactions or agreements that we would not otherwise consider.

Transactions engaged in by our largest stockholders, our directors or executives involving our common stock may have an adverse effect on the price of our stock.

Our officers, directors and principal stockholders (greater than 5% stockholders) collectively control approximately 44% of our issued and outstanding Common Stock. Subsequent sales of our shares by these stockholders could have the effect of lowering our stock price. The perceived risk associated with the possible sale of a large number of shares by these stockholders, or the adoption of significant short positions by hedge funds or other significant investors, could cause some of our stockholders to sell their stock, thus causing the price of our stock to decline. In addition, actual or anticipated downward pressure on our stock price due to actual or anticipated sales of stock by our directors or officers could cause other institutions or individuals to engage in short sales of our Common Stock, which may further cause the price of our stock to decline.

From time to time our directors and executive officers may sell shares of our common stock on the open market. These sales will be publicly disclosed in filings made with the SEC. In the future, our directors and executive officers may sell a significant number of shares for a variety of reasons unrelated to the performance of our business. Our stockholders may perceive these sales as a reflection on management's view of the business and result in some stockholders selling their shares of our common stock. These sales could cause the price of our stock to drop.

Anti-takeover provisions may limit the ability of another party to acquire us, which could cause our stock price to decline.

Delaware law contains provisions that could discourage, delay or prevent a third party from acquiring us, even if doing so may be beneficial to our stockholders, which could cause our stock price to decline. In addition, these provisions could limit the price investors would be willing to pay in the future for shares of our Common Stock.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus, including the sections entitled “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business,” contains “forward-looking statements” that include information relating to future events, future financial performance, strategies, expectations, competitive environment, regulation and availability of resources. These forward-looking statements include, without limitation, statements regarding: proposed new products or services; our statements concerning litigation or other matters; statements concerning projections, predictions, expectations, estimates or forecasts for our business, financial and operating results and future economic performance; statements of management’s goals and objectives; trends affecting our financial condition, results of operations or future prospects; our financing plans or growth strategies; and other similar expressions concerning matters that are not historical facts. Words such as “may,” “will,” “should,” “could,” “would,” “predicts,” “potential,” “continue,” “expects,” “anticipates,” “future,” “intends,” “plans,” “believes” and “estimates,” and similar expressions, as well as statements in future tense, identify forward-looking statements.

Forward-looking statements should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications of the times at, or by which, that performance or those results will be achieved. Forward-looking statements are based on information available at the time they are made and/or management’s good faith belief as of that time with respect to future events, and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. Important factors that could cause these differences include, but are not limited to:

our inability to raise additional funds to support operations and capital expenditures;

our inability to achieve greater and broader market acceptance of our products and services in existing and new market segments;

our inability to successfully compete against existing and future competitors;

our inability to manage and maintain the growth of our business;

our inability to protect our intellectual property rights; and

other factors discussed under the headings “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business.”

Forward-looking statements speak only as of the date they are made. You should not put undue reliance on any forward-looking statements. We assume no obligation to update forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting forward-looking information, except to the extent required by applicable securities laws. If we do update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements.

USE OF PROCEEDS

We will not receive any proceeds from the sale of shares to be offered by the selling stockholders. The proceeds from the sale of each selling stockholder’s common stock will belong to that selling stockholder.

MARKET FOR COMMON EQUITY

AND RELATED STOCKHOLDER MATTERS

Common Stock

Our common stock is currently listed for trading on the OTC Bulletin Board under the symbol CNSO.OB. The following table sets forth, for the periods indicated, the high and low bid information for Common Stock as determined from sporadic quotations on the OTC Bulletin Board. The following quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions.

	High		Low

Year Ended September 30, 2008
First Quarter	$	0.90	$	0.75
Second Quarter	$	2.25	$	0.75
Third Quarter	$	3.00	$	0.55
Fourth Quarter	$	0.75	$	0.51

Year Ended September 30, 2009
First Quarter	$	1.01	$	0.10
Second Quarter	$	0.90	$	0.05
Third Quarter	$	0.69	$	0.15
Fourth Quarter	$	0.72	$	0.20

Year Ended September 30, 2010
First Quarter	$	1.20	$	0.50
Second Quarter	$	1.20	$	0.52
Third Quarter	$	1.15	$	0.40

On August 30, 2010, the closing sales price of our common stock as reported on the OTC Bulletin Board was $0.56 per share. As of July 15, 2010, there were 376 record holders of our common stock. The number of holders of record is based on the actual number of holders registered on the books of our transfer agent and does not reflect holders of shares in “street name” or persons, partnerships, associations, corporations or other entities identified in security position listings maintained by depository trust companies.

Dividends

We have not paid or declared cash distributions or dividends on our common stock. CNS California has never paid dividends on its common stock. We do not intend to pay cash dividends on our common stock in the foreseeable future. We currently intend to retain all earnings, if and when generated, to finance our operations. The declaration of cash dividends in the future will be determined by the board of directors based upon our earnings, financial condition, capital requirements and other relevant factors.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the consolidated financial statements and accompanying notes provided elsewhere in this prospectus. This discussion summarizes the significant factors affecting the condensed consolidated operating results, financial condition and liquidity and cash flows of CNS Response, Inc. for the fiscal years ended September 30, 2009 and 2008, and for the three and nine months ended June 30, 2010 and June 30, 2009. Except for historical information, the matters discussed in this Management’s Discussion and Analysis of Financial Condition and Results of Operations are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.

Overview

We are a life sciences company with two distinct business segments. Our Laboratory Information Services business operated by CNS California, which we consider our primary business, is focused on the commercialization of a patented system that guides psychiatrists and other physicians in determining a proper treatment for patients with behavioral (psychiatric and/or addictive) disorders. Our Clinical Services business operated by our wholly-owned subsidiary, Neuro-Therapy Clinic (“NTC”), is a full service psychiatric clinic.

Laboratory Information Services

Traditionally, prescription of medication for the treatment of behavioral disorders (such as depression, bipolar disorders, eating disorders, addiction, anxiety disorders, ADHD and schizophrenia) has been primarily based on symptomatic factors, while the underlying physiology and pathology of the disorder can rarely be analyzed, often resulting in multiple ineffective, costly, and often lengthy, courses of treatment before effective medications are identified. Some patients never find effective medications.

We believe that our technology offers an improvement upon traditional methods for determining a course of medication for patients suffering from non-psychotic behavioral disorders because our technology is designed to correlate the success of courses of medication with the neurophysiological characteristics of a particular patient. Our technology provides medical professionals with medication sensitivity data for a subject patient based upon the identification and correlation of treatment outcome information from other patients with similar neurophysiologic characteristics. This treatment outcome information is contained in a proprietary outcomes database that consists of over 17,000 medication trials for patients with psychiatric or addictive problems (the “CNS Database”). For each patient in the CNS Database, we have compiled electroencephalographic (“EEG”) scans, symptoms and outcomes often across multiple treatments from multiple psychiatrists and physicians. This patented technology, called “Referenced-EEG®” or “rEEG®”, represents an innovative approach to identifying effective medications for patients suffering from debilitating behavioral disorders.

With rEEG®, physicians order a digital EEG for a patient, which is then evaluated with reference to the CNS Database. By providing this reference correlation, an attending physician can choose a treatment strategy with the knowledge of how other patients having similar brain function have previously responded to a myriad of treatment alternatives. Analysis of this complete data set yielded a platform of 74 quantitative biomarkers that have shown utility in characterizing patient response to diverse medications. This platform then allows a new patient to be characterized, based on these 74 biomarkers, and the database to be queried to understand the statistical probability of how patients with similar brain patterns have previously responded to the medications currently in the database. This technology allows us to create and provide simple reports (“rEEG Reports”) to the prescriber that summarizes historical treatment success of specific medications for those patients with similar brain patterns. It provides neither a diagnosis nor specific treatment, but like all lab results, objective, evidenced-based information to help the prescriber in their decision-making.

Our Laboratory Information Services business is focused on increasing the demand for our rEEG Reports. We believe the key factors that will drive broader adoption of our rEEG Reports will be acceptance by healthcare providers and patients of their benefit, demonstration of the cost-effectiveness of using our technology, reimbursement by third-party payers, expansion of our sales force and increased marketing efforts.

In addition to its utility in providing psychiatrists and other physicians/prescribers with medication sensitivity guidance, rEEG provides us with significant opportunities in the area of pharmaceutical development. rEEG, in combination with the information contained in the CNS Database, has the potential to be able to identify novel uses for neuropsychiatric medications currently on the market and in late stages of clinical development, as well as aid in the identification of neurophysiologic characteristics of clinical subjects that may be successfully treated with neuropsychiatric medications in the clinical testing stage. We intend to enter into relationships with established drug and biotechnology companies to further explore these opportunities, although no relationships are currently contemplated. The development of biomarkers as the new method for identifying the correct patient population to research is being encouraged by both The National Institute of Mental Health (NIMH) and The Food and Drug Administration (FDA).

Clinical Services

In January 2008, we acquired our then largest customer, the Neuro-Therapy Clinic, Inc. Upon the completion of the transaction, NTC became a wholly-owned subsidiary of ours. NTC operates one of the largest psychiatric medication management practices in the state of Colorado, with six full time and seven part time employees including psychiatrists and clinical nurse specialists with prescribing privileges. Daniel A. Hoffman, M.D. is the medical director at NTC, and, after the acquisition, became our Chief Medical Officer and more recently, our President.

NTC, having performed a significant number of rEEG’s, serves as an important resource in our product development, the expansion of our CNS Database, production system development and implementation, along with the integration of our rEEG services into a medical practice. Through NTC, we also expect to develop marketing and patient acquisition strategies for our Laboratory Information Services business. Specifically, NTC is learning how to best communicate the advantages of rEEG to patients and referring physicians in the local market. We will share this knowledge and developed communication programs learned through NTC with other physicians using our services, which we believe will help drive market acceptance of our services. In addition, we plan to use NTC to train practitioners across the country in the uses of rEEG technology.

We view our Clinical Services business as secondary to our Laboratory Information Services business, and we have no current plans to expand this business.

Business operations

Since our inception, we have generated significant net losses. As of September 30, 2009, we had an accumulated deficit of $25.2 million. We incurred net losses of $8.5 million and $5.4 million for the fiscal years ended September 30, 2009 and 2008, respectively. As of June 30, 2010, we had an accumulated deficit of $29.9 million. We incurred net losses of $4.75 million and $4.50 million for the nine months ended June 30, 2010 and 2009, respectively. We expect our net losses to continue for at least the next couple of years. We anticipate that a substantial portion of our capital resources and efforts will be focused on research and development, scale up of our commercial organization, and other general corporate purposes, including the payment of legal fees associated with our litigation. Research and development projects include the completion of more clinical trials which are necessary to further validate the efficacy of our products and services relating to our rEEG technology across different types of behavioral disorders, the enhancement of the CNS Database and, to a lesser extent, the identification of new medications that are often combinations of approved drugs. We anticipate that future research and development projects will be funded by grants or third-party sponsorship.

As of June 30, 2010, our current liabilities of approximately $2.01 million exceeded our current assets of approximately $0.20 million by approximately $1.81 million and our net losses will continue for the foreseeable future. We will need additional funds immediately to continue our operations and substantial additional funds before we can increase demand for our rEEG services. We are currently exploring additional sources of capital; however, we do not know whether additional funding will be available on acceptable terms, or at all, especially given the economic conditions that currently prevail. In addition, any additional equity funding may result in significant dilution to existing stockholders, and, if we incur additional debt financing, a substantial portion of our operating cash flow may be dedicated to the payment of principal and interest on such indebtedness, thus limiting funds available for our business activities. If adequate funds are not available, we may be required to delay or curtail significantly our development and commercialization activities. This would have a material adverse effect on our business, financial condition and/or results of operations, and could ultimately cause us to have to cease operations.

Acquisition of Neuro-Therapy Clinic

On January 15, 2008, we acquired all of the outstanding common stock of NTC in exchange for a non-interest bearing $300,000 note payable in equal monthly installments over 36 months. The acquisition was accounted under the purchase method of accounting, and accordingly, the purchase price was allocated to NTC’s net tangible assets based on their estimated fair values as of January 15, 2008. The excess purchase price over the value of the net tangible assets was recorded as goodwill. The purchase price and the allocation thereof are as follows:

Fair value of note payable issued	$	265,900
Direct transaction costs		43,700
Purchase price		309,600
Allocated to net tangible liabilities, including cash of $32,100		(10,600	)
Allocated to goodwill	$	320,200

The acquisition was not material, and accordingly, no pro forma results are presented. As of September 30, 2009 the goodwill was determined to be fully impaired and was consequently written off.

The Private Placement Transactions

2009 Private Placement Transactions

On August 26, 2009, we received gross proceeds of approximately $2,043,000 in the first closing of our private placement transaction with six investors. Pursuant to Subscription Agreements entered into with the investors, we sold approximately 38 Investment Units at $54,000 per Investment Unit. Each “Investment Unit” consists of 180,000 shares of our common stock and a five year non-callable warrant to purchase 90,000 shares of our common stock at an exercise price of $0.30 per share. After commissions and expenses, we received net proceeds of approximately $1,792,300 upon the first closing of our private placement. On December 24, 2009, we had a second closing of our private placement in which we received additional gross proceeds of approximately $2,996,000 from 24 investors. At the second closing, we sold approximately 55 Investment Units on the same terms and conditions as the Investment Units sold at the first closing. After commissions and expenses, we received net proceeds of approximately $2,650,400 in connection with this second closing of our private placement. On December 31, 2009, we had a third closing of our private placement in which we received additional gross proceeds of approximately $432,000 from five investors. At the third closing, we sold 8 Investment Units on the same terms and conditions as the Investment Units sold at the first closing. After commissions and expenses, we received net proceeds of approximately $380,200 in connection with this third closing of our private placement. On January 4, 2010, the Company completed its fourth and final closing of its private placement, resulting in additional gross proceeds to the Company of $108,000 from two investors. At this fourth closing, we sold 2 Investment Units on the same terms and conditions as the Investment Units sold at the first closing. After commissions and expenses, we received net proceeds of approximately $95,000 in connection with this final closing of our private placement. These private placement transactions are described in further detail in “Liquidity and Capital Resources” below and Note 2 to the unaudited condensed consolidated financial statements.

Prior to our private placement, we raised aggregate proceeds of $1,700,000 in fiscal year 2009 through the issuance of secured convertible promissory notes on each of March 30, May 14, and June 12, 2009. Upon the first closing of our private placement on August 26, 2009, these notes were converted into shares of our common stock, as more fully described in Note 2 of the unaudited condensed consolidated financial statements.

2010 Private Placement Transactions

On June 3, 2010, we entered into a Bridge Note and Warrant Purchase Agreement with John Pappajohn to purchase two secured promissory notes (each, a “Bridge Note”) in the aggregate principal amount of $500,000, with each Bridge Note in the principal amount of $250,000 maturing on December 2, 2010. On June 3, 2010, Mr. Pappajohn loaned the Company $250,000 in exchange for the first Bridge Note (there were no warrants issued in connection with this first note) and on July 25, 2010, Mr. Pappajohn loaned us $250,000 in exchange for the second Bridge Note. In connection with his purchase of the second Bridge Note, Mr. Pappajohn received a warrant to purchase up to 250,000 shares of our common stock. The exercise price of the warrant (subject to customary anti-dilution adjustments) is $0.50 per share.

Pursuant to a separate agreement that we entered into with Mr. Pappajohn on July 25, 2010, we have granted him a right to convert his Bridge Notes into shares of our common stock at a conversion price of $0.50. The conversion price is subject to customary anti-dilution adjustments, but will never be less than $0.30. We have also agreed to enter into a registration rights agreement covering the securities issuable upon exercise of the warrant and conversion of the Bridge Notes. The Bridge Notes are described in further detail in Note 2 to the unaudited condensed consolidated financial statements.

On July 5, 2010 and August 20, 2010, we issued unsecured promissory notes (each, a “Deerwood Note”) in the aggregate principal amount of $500,000 to Deerwood Partners LLC and Deerwood Holdings LLC, with each investor purchasing two notes in the aggregate principal amount of $250,000. The Deerwood Notes mature on December 15, 2010. We received $250,000 in gross proceeds from the issuance of the first two notes on July 5, 2010 and another $250,000 in gross proceeds from the issuance of the second two notes on August 20, 2010. In connection with the August 20, 2010 transaction, each of the two investors also received a warrant to purchase up to 75,000 shares of our common stock at an exercise price (subject to customary anti-dilution adjustments) of $0.56 per share.

SAIL Venture Partners L.P. (“SAIL”), of which our director David Jones is a managing partner, issued unconditional guaranties to each of these investors, guaranteeing the prompt and complete payment when due of all principal, interest and other amounts under each Deerwood Note. The obligations under each guaranty are independent of our obligations under the Deerwood Notes and separate actions may be brought against the guarantor. We have agreed to indemnify SAIL and grant to SAIL a security interest in our assets in connection with the guaranties. In addition, on August 20, 2010, we granted SAIL warrants to purchase up to an aggregate of 100,000 shares of common stock at an exercise price (subject to customary anti-dilution adjustments) of $0.56 per share.

Each Deerwood Note is convertible into shares of our common stock at a conversion price of $0.50. The conversion price is subject to customary anti-dilution adjustments, but will never be less than $0.30. We have also agreed to enter into a registration rights agreement covering the securities issuable upon conversion of the Deerwood Notes and exercise of the related warrants issued to the investors and SAIL. The Deerwood Notes are described in further detail under “Liquidity and Capital Resources” below.

Matters Involving our Former Chief Executive Officer and Former Director, Leonard Brandt

On April 10, 2009, our Board of Directors voted to remove Len Brandt as the CEO of the Company and appointed George Carpenter as our CEO. On the same date, Mr. Brandt resigned as Chairman of the Board, but retained his seat on the Board of Directors. On June 19, 2009, Mr. Brandt informed us of his intention to call a special meeting of Company stockholders in lieu of an annual meeting, for the purpose of unseating the other members of the Board and replacing them with his nominees. Subsequently, Mr. Brandt made multiple mailings to stockholders purporting to give notice of a meeting, scheduled multiple dates for the meeting and attempted to call and adjourn meetings on at least six occasions. Mr. Brandt failed to convene a quorum or take any action at any of these meetings.

Mr. Brandt finally attempted to call a special meeting of stockholders to be held on September 4, 2009, and purportedly held a meeting on that date, at which he claimed to have elected his own slate of directors. Subsequent to this purported meeting, Mr. Brandt filed an action under Section 225 of the Delaware General Corporation Law (“DGCL”) seeking to validate the results of that purported meeting. Mr. Brandt also filed several other actions in the Delaware Chancery Court. He filed claims for breach of fiduciary duty in connection with the approval by our Board of the May 14, 2009 and June 18, 2009 bridge loans and the first closing of the private placement on August 26, 2009, and made a motion to preliminarily enjoin the voting of certain shares of our common stock and to prevent action by written consent by such stockholders. Mr. Brandt also sought a permanent injunction against the voting of these shares and to rescind their issuance. While these actions were pending, we were operating under what is commonly referred to as a “status quo” order, which maintained the Board of Directors in place immediately prior to the purported September 4 meeting (Messrs. Carpenter, Jones, Pappajohn, Thompson and Brandt, and Drs. Harbin and Vaccaro). The status quo order also placed certain restrictions on certain corporate actions during the pendency of the Section 225 action described above.

On December 2, 2009, following a two day trial, the Delaware Court of Chancery entered judgment for the Company and its incumbent directors in the Section 225 action and dismissed the action with prejudice. The entry of Judgment for the Company in the Section 225 action and dismissal of that action terminated the “status quo” order, including its restrictions on the Company’s ability to engage in certain corporate actions. The Chancery Court also denied Brandt’s motion for an injunction that sought to prevent the voting of shares issued by us in connection with our bridge financings in May and June of 2009 and the securities offering in August 2009, dismissed Mr. Brandt's counterclaims alleging breaches of duties in connection with those transactions, and dismissed with prejudice another action brought by Mr. Brandt that claimed he had not been provided information owed to him. Finally, the Court dismissed our claims against Mr. Brandt without prejudice.

On January 4, 2010, Mr. Brandt filed an appeal with the Supreme Court of the State of Delaware from the Chancery Court's ruling in the Section 225 action. Mr. Brandt also appealed the denial of his requested injunction and the dismissal of his claims regarding the financings and stock issuances, but he dismissed this appeal on February 25, 2010, and that ruling thereby became final and un-appealable. On April 20, 2010 the Delaware Supreme Court summarily affirmed the ruling of the Chancery Court dismissing the Section 225 action.

On September 29, 2009, the company held its first annual meeting of Stockholders at which each of George Carpenter, Henry Harbin, M.D., David Jones, John Pappajohn, Jerome Vaccaro, M.D. and Tommy Thompson were elected as directors. On April 27, 2010, the company held its 2010 annual meeting of Stockholders and five of the six directors were reelected. The sixth, Tommy Thompson, had resigned from the board.

We filed an action in the United States District Court for the Central District of California against Mr. Brandt and certain others in July 2009 and Mr. Brandt subsequently counterclaimed. On July 7, 2010 Mr. Brandt moved to dismiss his counterclaims against the Company and the Company consented to dismiss its complaint against Mr. Brandt and on July 13, 2010, all of the Company’s claims and Mr. Brandt’s counterclaims in such action were dismissed. This resolved all pending actions between the Company and its former CEO.

We have expended substantial resources to pursue the defense of legal proceedings initiated by Mr. Brandt. We do not know whether Mr. Brandt will institute new claims against us and the defense of any such claims could involve the expenditure of additional resources by the Company.

Publicly Announced Results of Clinical Trial

On November 2, 2009, we reported the results of a landmark study presented by Charles DeBattista, D.M.H, M.D., at the U.S. Psychiatric and Mental Health Congress. The poster presentation, titled Referenced-EEG® (rEEG) Efficacy Compared to STAR*D For Patients With Depression Treatment Failure: First Look At Final Results, highlighted a dramatic improvement in outcomes for patients with treatment resistant depression. In this study, our rEEG technology proved effective at predicting medication response for mostly treatment-resistant patients approximately 65 percent of the time.

The study included 114 patients at 12 medical sites, including Harvard, Stanford, Cornell, UCI and Rush. The 12-week study found that rEEG significantly outperformed the modified STAR*D treatment algorithm. The difference, or separation, between rEEG and the control group was 50 and 100 percent for the study’s two primary endpoints. Typically, separation between a new treatment and a control group is less than 10 percent in antidepressant studies.

The study, the largest in our history, was a randomized, single blinded, controlled, parallel group, multicenter study. The patients in the study experienced depression treatment failure of one or more SSRIs and/or had failure with at least two classes of antidepressants. The patients fell into two groups: 1) those treated with rEEG medication guidance, and 2) those treated with the modified STAR*D treatment algorithm.

A paper with the results of this study has been peer reviewed by the Journal of Psychiatric Research, has been published on-line at their website as of July 3, 2010 and is awaiting hard-copy publication.

Dialogue with FDA regarding its position that our rEEG service constitutes a medical device

2010 Annual Meeting

On April 27, 2010, the Company held its 2010 annual meeting of stockholders and five of the six directors originally elected in September 2009 were reelected; the sixth, Tommy Thompson, had previously resigned from the board. In addition, the 2006 Stock Incentive Plan was amended to increase the number of shares reserved for issuance under the plan from 10 million to 20 million shares of common stock and to increase the maximum number of shares of common stock subject to awards granted within a calendar year to any eligible employee or director from 3 million to 4 million shares.

Financial Operations Overview

Revenues

Our Laboratory Information Services revenues are derived from the sale of rEEG Reports to physicians. Physicians are generally billed upon delivery of a rEEG Report. The list prices of our rEEG Reports to physicians range from $200 to $800 with $400 being the most frequent charge.

Patient service revenue is generated as a result of providing services to patients on an outpatient basis. Patient service revenue is recorded at our established billing rates less contractual adjustments. Generally, collection in full is not expected on our established billing rates. Contractual adjustments are recorded to state our patient service revenue at the amount we expect to collect for the services provided based on amounts due from third-party payors at contractually determined rates.

Cost of Revenues

Cost of revenues are for Laboratory Information Services and represent the cost of direct labor, costs associated with external processing, analysis and consulting review necessary to render an individualized test result and miscellaneous support expenses. Costs associated with performing our tests are expensed as the tests are performed. We continually evaluate the feasibility of hiring our own personnel to perform most of the processing and analysis necessary to render a rEEG Report.

Cost of revenues for Clinical Services are not broken out separately but are included in general and administrative expenses.

Research and Development

Research and development expenses are associated with our Laboratory Information Services and primarily represent costs incurred to design and conduct clinical studies, to recruit patients into the studies, to improve rEEG processing, to add data to the CNS Database, to improve analytical techniques and advance application of the methodology to additional clinical diagnosis. We charge all research and development expenses to operations as they are incurred.

Sales and Marketing

For our Laboratory Information Services, our selling and marketing expenses consist primarily of personnel and media cost to inform consumers of our products and services. Additional marketing expenses are the costs of educating physicians, laboratory personnel, other healthcare professionals regarding our products and services.

For our Clinical Services, selling and marketing costs relate to advertising to attract patients to the clinic.

General and Administrative

Our general and administrative expenses consist primarily of personnel, occupancy, legal, consulting and administrative and support costs for both our Laboratory Information Services and Clinical Services businesses.

Critical Accounting Policies and Significant Judgments and Estimates

This discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as revenues and expenses during the reporting periods. We evaluate our estimates and judgments on an ongoing basis. We base our estimates on historical experience and on various other factors we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results could therefore differ materially from those estimates under different assumptions or conditions.

Our significant accounting policies are described in Note 3 to our consolidated financial statements included elsewhere in this prospectus. We believe the following critical accounting policies reflect our more significant estimates and assumptions used in the preparation of our consolidated financial statements.

Revenue Recognition

We have generated limited revenues since our inception. Revenues for our Laboratory Service product are recognized when an rEEG Report is delivered to a Client-Physician. For our Clinical Services, revenues are recognized when the services are performed.

Stock-based Compensation Expense

Stock-based compensation expense, which is a non-cash charge, results from stock option grants. Compensation cost is measured at the grant date based on the calculated fair value of the award. We recognize stock-based compensation expense on a straight-line basis over the vesting period of the underlying option. The amount of stock-based compensation expense expected to be amortized in future periods may decrease if unvested options are subsequently cancelled or may increase if future option grants are made.

Results of Operations for the Years Ended September 30, 2009 and 2008

As earlier described, we operate in two business segments: Laboratory Information Services and Clinical Services. Our Laboratory Information Services business focuses on the delivery of reports (“rEEG Reports”) that assist physicians with treatment strategies for patients with behavioral (psychiatric and/or addictive) disorders based on the patient's own physiology. Our Clinical Services business operated through NTC provides full service psychiatric services. For comparative purposes below, our Clinical Services business which represents the operations of Neuro-Therapy Clinic are only included since its acquisition on January 15, 2008.

The following table presents consolidated statement of operations data for each of the periods indicated as a percentage of revenues.

	Year Ended September 30, 2009			Year Ended September 30, 2008

Revenues		100	%		100	%
Cost of revenues		19			21
Gross profit		81			79
Research and development		305			271
Sales and marketing		131			114
General and administrative expenses		555			402
Goodwill impairment		46			-
Operating loss		(956	)		(708	)
Other income (expense), net		(261	)		13
Net income (loss)		(1,217	)%		(695	)%

Revenues

	Year Ended September 30, 2009		Year Ended September 30, 2008		Percent Change

Laboratory Service Revenues	$	120,400	$	178,500		(33	)%
Clinical Service Revenues		579,700		595,000		(3	)%
Total Revenues	$	700,100	$	773,500		(9	)%

With respect to our Laboratory Information Services business, the number of paid rEEG Reports delivered during the year ended September 30, 2009 decreased to 321 from 476 in 2008 while the price per report was approximately $375 in both 2009 and 2008. The reduction in revenues from the sale of our rEEG Reports is partly due to the acquisition of NTC, which was our largest customer prior to its acquisition in January 2008. Furthermore, the Company diverted its limited resources to focus on conducting and completing its clinical trial. The clinical trial was completed in September 2009 with top-line results announced in November 2009. The Company has entered into agreements with two payer groups to pilot the use of rEEG Reports. We expect to drive broader adoption of our rEEG technology and see our Laboratory Services Revenues increase once the results of our clinical trial are published. We are also starting to focus on contracts with insurance payers and the military, which should increase the number of reports processed. Furthermore, we will also start offering our services to pharmaceutical companies to assist them with their product development activities.

On July 27, 2010 we received a letter from the FDA division that was reviewing our 501(k) submission suggesting that the rEEG service, unless otherwise reclassified, is a class III device which, as standard procedure, would requires an approved premarket approval application (PMA) before it can be marketed legally. We are currently evaluating our alternatives in response to the FDA letter. We will continue to discuss alternative approaches with the FDA. During the pendency of these proceedings, we will be able to continue to market our service as a non-device laboratory information service. There is some risk that the FDA will seek to take enforcement action against rEEG based upon the Agency's position that rEEG is a medical device if we continue to market our service. For more detail on this please refer to the section above on Correspondence with FDA and Decision to Seek 510(k) Clearance.

Our Clinical Services Revenues are a result of patient billings for psychiatric services rendered. Revenues fell in 2009 compared to 2008 due to staff turnover and the focus by key staff members on the clinical trial. Currently, we anticipate that the Clinical Services business will become self-sustaining and profitable, however, we do not anticipate a significant increase in revenues generated by this business segment.

Cost of Revenues

	Year Ended September 30, 2009		Year Ended September 30, 2008		Percent Change

Cost of Laboratory Information Services revenues	$	131,600	$	163,200		(19	)%

Cost of Laboratory Information Services revenues consists of payroll, consulting, and other miscellaneous costs. Consulting costs primarily represent external costs associated with the processing and analysis of rEEG Reports and range between $75 and $100 per rEEG Report. For the year ended September 30, 2009, cost of revenues of $131,600 consist primarily of direct labor and benefit costs of $99,600, which includes stock-based compensation and consulting fees of $29,200. For the year ended September 30, 2008, cost of revenues of $163,200 consisted primarily of direct labor and benefit costs of $108,400, including stock-based compensation and consulting fees of $48,600. We expect costs of revenues will increase as an absolute number as more rEEG Reports are processed. However, we expect cost of revenues to decrease as a percentage of revenues as we improve our operating efficiency.

Research and Development

	Year Ended September 30, 2009		Year Ended September 30, 2008		Percent Change

Laboratory Information Services research and development	$	2,137,200	$	2,097,300		2	%

Research and development expenses consist of clinical study patient expenses, payroll and benefit costs (including stock-based compensation), patents costs, consulting fees, marketing and recruitment costs, database enhancements and maintenance, travel and conference and other miscellaneous costs. Research and development costs for the year ended September 30, 2009 totaled $2,137,200 and were largely comprised of the following: clinical study patient costs of $789,300, payroll and benefit costs of $792,100, patent costs of $213,100, consulting costs of $105,700, marketing and recruiting costs $161,100, database costs of $16,800 and travel and conference costs of $15,600. For the year ended September 30, 2008 research and development costs totaled $2,097,300 and were largely comprised of the following: clinical study patient costs of $579,100, payroll and benefit costs of $855,600, patent costs of $108,800, consulting costs of $285,000, marketing and recruiting costs $136,200, database costs of $36,400 and travel and conference costs of $50,200.

Clinical study patient costs increased by $210,200 in fiscal 2009 as our clinical trial was running for twelve months in fiscal 2009 compared to approximately nine months in fiscal 2008. Patent costs also increased in fiscal 2009 by $104,300 as a result of filing patent applications in Western Europe and marketing and recruitment expenses increased by $25,000 in fiscal 2009 as we accelerated patient enrollment in our clinical study. Conversely, payroll and benefit costs declined in fiscal 2009 by $63,500 due to changes in the staff-mix and reduced stock compensation and bonus expenses and consulting expenses declined by $179,300 as expertise was brought in-house and the clinical trial moved beyond the design stage which involved the use of consultants. In fiscal 2009, database costs fell by $19,600 compared to fiscal 2008 as the company reduced development efforts relating to the CNS Database.

The Company is applying for grants which, if obtained, will help the Company accelerate its research and development efforts, and improve the functionality of its CNS Database.

Sales and marketing

	Year Ended September 30, 2009		Year Ended September 30, 2008		Percent Change
Sales and Marketing
Laboratory Information Services	$	908,500	$	847,600		7	%
Clinical Services		7,300		33,800		(78	)%
Total Sales and Marketing	$	915,800	$	881,400		4	%

Sales and marketing expenses associated with our Laboratory Information Services business consist primarily of payroll and benefit costs, consulting fees, marketing costs, computer services, travel and conference costs and miscellaneous costs. Sales and marketing expenses for fiscal 2009 were comprised of the following: payroll and benefit costs of $596,200, consulting fees of $82,400, marketing costs of $147,600, computer services costs of $31,700, and travel and conference costs of $40,600. For fiscal 2008 the company incurred: payroll and benefit costs of $403,000, consulting fees of $221,100, marketing costs of $18,500, computer services costs of $25,000, and travel and conference costs of $110,900.

In fiscal 2009, payroll and benefits increased by $193,200 principally as a result of the hiring of a Vice President for commercial operations and additional sales and support staff. This increase was partially offset by a reduction in consulting fees of $138,900 as marketing expertise was brought in house. Marketing expenses increased in fiscal 2009 by $129,100 in an effort to advertise our rEEG technology to service providers and consumers. This was partly offset by a reduction in travel and conference costs of $70,300.

In fiscal 2010, we have reduced our sales and marketing expenditure for Laboratory Information Services pending receipt of our 510(k) clearance from the FDA, after which we plan to increase our Direct-to-Consumer marketing. Furthermore, with the successful completion of our clinical trial and publication of the results, we plan to introduce our rEEG technology to additional psychiatric providers and medical insurance payers later in fiscal 2010 and in 2011, which will increase our sales and marketing expenditures. Additionally, we will also start offering our services to pharmaceutical companies to assist them with their product development activities.

Clinical Services sales and marketing expenses consist of advertising in various media so as to attract patients to our clinic in Denver. We do not anticipate materially increasing sales and marketing expenses relating to our Clinical Services business.

General and administrative

	Year Ended September 30, 2009		Year Ended September 30, 2008		Percent Change
General and administrative
Laboratory Information Services		3,217,800	$	2,349,000		35	%
Clinical Services		669,600		756,700		(12	)%
Total General and administrative	$	3,887,400	$	3,105,700		25	%

General and administrative expenses for our Laboratory Information Services business are primarily related to salaries and benefits (including stock-based compensation), legal and other professional fees, consulting services, general administration and occupancy costs, dues and fees, marketing and investor relations, and travel and conferences. For the year ended September 30, 2009 these expenses were as follows: Salaries and benefits $792,700, legal fees $1,362,000, other professional fees $151,300, consulting costs $369,700, general administration and occupancy costs $183,000, dues and fees $80,000, marketing and investor relations $86,500, and travel and conference costs $69,800. For the year ended September 30, 2008 these expenses were: Salaries and benefits $1,420,900, legal fees $193,900, other professional fees $157,800, consulting costs $94,600, general administration and occupancy costs $189,300, dues and fees $46,300, marketing and investor relations $112,800, and travel and conference costs of $78,100.

Changes in general and administrative expenditures in 2009 were as follows: Salaries and benefit costs decreased by $628,200 as a result of staff reductions, including the termination of our former CEO Leonard Brandt in April 2009, a non-recurring bonus expense of $69,900 declared in 2008 that did not reoccur in 2009 and as a result of stock based compensation charges falling $214,900 in fiscal 2009 compared to the prior year period. Partly offsetting the reduction in salaries and benefits was an increase in consulting fees of $275,100 as a result of the hiring of consultants to perform functions previous undertaken by salaried employees. Legal fees increased by $1,168,100 in 2009 principally due to costs associated with defending against lawsuits brought by our former CEO and Chairman of the Board, Leonard Brandt, as well as our fund raising efforts. Dues and fees increased by $33,800 in 2009 as a result of the payment of Delaware Franchise taxes for 2009, Blue Sky filings necessitated by our private placement, and increased transfer agent fees associated with the holding of our annual stockholders’ meeting. Certain other costs categories decreased in 2009 including marketing and investor relations costs which decreased by $26,300.

The company incurred certain miscellaneous charges in 2009 which included Delaware Franchise Tax assessments for fiscal 2007 and 2008 totaling $74,400; additionally, the company accrued for a $34,800 payroll tax assessment which was related to 2006, and a write-off of $22,600 of doubtful debts. In 2008 the company wrote off $56,900 in costs associated with a financing effort that did not materialize.

General and administrative expenses for our Clinical Services business for the year ended September 30, 2009 were $669,600 which includes all costs associated with running the clinic, including all payroll costs, medical supply costs, occupancy costs and other general and administrative costs. These costs declined $87,100 from $756,700 in 2008 primarily due to lower patient volume.

Goodwill impairment charges

During the fiscal year 2009, we conducted a goodwill impairment test and determined that all of the goodwill related to the NTC acquisition was impaired. Accordingly, we recorded a goodwill impairment charge of $320,200 for the year ended September 30, 2009.

Other income (expense)

	Year Ended September 30, 2009			Year Ended September 30, 2008			Percent Change

Laboratory Information Services (Expense), net	$	(1,822,700	)	$	104,600			*
Clinical Services (Expense)		(200	)		(600	)		33	%
Total interest income (expense)	$	(1,822,900	)	$	104,000			*
* not meaningful

With respect to our Laboratory Information Services business, we incurred a $90,000 financing fee in connection with the bridge note issued to Mr. Pappajohn on June 12, 2009 and $20,900 in interest expenses on the bridge notes issued to Mr. Brandt and Sail Venture Partners. Additionally, $1,058,000 of expenses associated with the valuation of bridge warrants and $642,000 associated with the value of the beneficial conversion feature of the bridge notes were written off to interest expense upon conversion of the bridge notes. Furthermore, $13,300 of interest expense was incurred on long-term debt issued in connection with our acquisition of NTC. These expenses were offset by interest income of $9,500 for the fiscal year ended September 30, 2009 from interest bearing accounts. For the fiscal year ended September 30, 2008, interest income of $127,000 was earned on cash in interest bearing accounts. This was offset by $22,000 of interest expense on long term debt.

Net Loss

	Year Ended September 30, 2009			Year Ended September 30, 2008			Percent Change

Laboratory Information Services net loss	$	(8,451,300	)	$	(5,166,200	)		64	%
Clinical Services net loss		(70,900	)		(205,300	)		(35	)%
Total Net Loss	$	(8,522 ,200	)	$	(5,371,500	)		59	%

The increase in net loss for Laboratory Information Services of $3.28 million for the year ended September 30, 2009 is due primarily to charges associated with our bridge note financings of $1.83 million, including the discount on bridge notes and the value of the beneficial conversion features of the notes; and a $1.17 million increase in legal fees primarily relating to costs incurred in defending against lawsuits brought by our former CEO and Chairman of the Board, Leonard Brandt. The impairment write down of goodwill associated with our acquisition of NTC added a further $320,200 to the loss.

The decrease in the net loss for Clinical Services of $134,400 for the year ended September 30, 2009 is primarily due to reduced marketing expenses and reduced general and administrative expenses.

Results of Operations for the three months ended June 30, 2010 and 2009

The following table presents consolidated statement of operations data for each of the periods indicated as a percentage of revenues.

	Three Months Ended June 30,
	2010			2009
		100	%		100	%
Cost of revenues		21			19
Gross profit		78			81
Research and development		190			300
Sales and marketing		127			101
General and administrative expenses		679			541
Operating loss		(917	)		(860	)
Other income (expense), net		(26	)		(138	)
Net income (loss)		(942	)%		(998	)%

Revenues

	Three Months Ended June 30,
	2010		2009		Percent Change

Laboratory Information Service Revenues	$	39,900	$	26,700		49	%
Clinical Services Revenues		119,300		133,700		(11	)%
Total Revenues	$	159,200	$	160,400		(1	)%

With respect to our Laboratory Information Services business, the number of non-clinical study related paid rEEG Reports delivered increased from 69 for the quarter ended June 30, 2009 to 101 for the quarter ended June 30, 2010, while the average revenue per report increased from approximately $387 to $395 for each respective period. The total number of free rEEG reports, which were not associated with our clinical trial, increased from 49 for the quarter ended June 30, 2009 to 67 for the quarter ended June 30, 2010. These free reports are for training, database-enhancement and compassionate-use purposes. Now that our multi-site clinical study, which validates the efficacy of our service, has been published we do anticipate a modest increase in revenue given that there has, to date, only been limited marketing support for these revenues. We are also starting to focus on contracts with insurance payers and the military, which should increase the number of reports processed. Furthermore, we will also start offering our services to pharmaceutical companies to assist them with their product development activities.

On July 27, 2010 we received a letter from the FDA division that was reviewing our 510(k) submission suggesting that the rEEG service, unless otherwise reclassified, is a class III device which, as standard procedure, would requires an approved premarket approval application (PMA) before it can be marketed legally. We are currently evaluating our alternatives in response to the FDA letter. We will continue to discuss alternative approaches with the FDA. During the pendency of these proceedings, we will be able to continue to market our service as a non-device laboratory information service. There is some risk that the FDA will seek to take enforcement action against rEEG based upon the Agency's position that rEEG is a medical device if we continue to market our service. For more detail on this please refer to the section above on Correspondence with FDA and Decision to Seek 510(k) Clearance.

Our Clinical Services revenue declined by $14,400 for the quarter ended June 30, 2010, as compared to the corresponding prior year period, because of a reduction in the hours available by the prescribing staff to attend to new patients. To rectify this, we have recruited a new psychiatrist, who started working with our Clinical Services at the beginning of August, 2010. We anticipate that new patient volume, and therefore revenues, will start increasing in the fourth quarter of this calendar year. We do not plan to materially expand our Clinical Services business beyond its current potential, and therefore we do not anticipate a significant increase in revenues generated by this business segment beyond revenues that would permit this business to remain a self-sustaining, stand-alone clinic.

Cost of Revenues

	Three Months Ended June 30,
	2010		2009		Percent Change

Cost of Laboratory Information Services revenues	$	32,800	$	30,700		7	%

Cost of Laboratory Information Services revenues consists of payroll costs, consulting costs, and other miscellaneous charges. Consulting costs primarily represent external costs associated with the processing and analysis of rEEG Reports and range between $75 and $100 per rEEG Report. For the quarter ended June 30, 2010, cost of revenues consisted primarily of direct labor and benefit costs (including stock-based compensation costs) of $27,500, and consulting fees of $6,900. For the quarter ended June 30, 2009, cost of revenues included direct labor and benefit costs (including stock based compensation costs) of $24,600, and consulting fees of $5,900. Direct labor and benefits remained consistent for the two periods; the minor increase was due to stock-based compensation. Consulting fees increased in 2010 due to the higher number of rEEG Reports delivered. We ultimately expect cost of revenues to decrease as a percentage of revenues as operating efficiencies improve with the volume of reports processed.

Research and Development

	Three Months Ended June 30,
	2010		2009		Percent Change

Laboratory Information Services research and development	$	302,400	$	480,800		(37	)%

Research and development expenses consist of clinical studies, training of doctors in the use of our rEEG reports and research studies, consulting fees, payroll costs (including stock-based compensation costs), expenses related to database enhancements and maintenance, and other miscellaneous costs. Research and development costs for the quarter ended June 30, 2010, primarily consisted of the following: payroll and benefit costs (including stock based compensation) of $234,200, consultant costs of $42,600, database costs of $9,600 and other miscellaneous costs of $16,000. For the comparable period for 2009, research and development costs included: payroll and benefit costs (including stock based compensation) of $198,400, consultant costs of $33,200, database costs of $3,200 and other miscellaneous costs of $13,500. Additionally, as the clinical study was in progress for the 2009 quarter only, clinical study patient costs were $204,400 and patient marketing and recruitment costs were $28,100.

Comparing the three months ended June 30, 2010 with the corresponding period in 2009, clinical study patient costs and patient marketing and recruitment costs were eliminated in the 2010 quarter as the study was completed in September 2009. Consequently, the focus of the research and development department moved from the clinical study to data analysis, the preparation of scientific papers for publications and the generation of grant applications for research funding. Additionally, the focus was also moved to enhancing the rEEG production system and the application for 510(k) clearance with the FDA. With these shifts in focus, consulting fees increased slightly by $9,500 with $17,400 being spent on research and $25,500 being spent on product enhancements. Payroll and benefits increased by $35,800 in the 2010 quarter primarily due a reassignment of a staff member between departments and an increase in stock based compensation. The increase in database costs was as a result of credits to our network of rEEG users for patient outcome data to enhance our database.

Sales and marketing

	Three Months Ended June 30,
		2010		2009	Percent Change
Sales and Marketing
Laboratory Information Services	$	187,500	$	159,600	17	%
Clinical Services		14,100		1,700	728	%
Total Sales and Marketing	$	201,600	$	161,300	25	%

Sales and marketing expenses associated with our Laboratory Information Services business consist primarily of payroll and benefit costs, including stock-based compensation; advertising and marketing; consulting fees and conference and travel expenses. Sales and marketing expenses for the quarter ended June 30, 2010 primarily consisted of the following expenses: payroll and benefits $126,400 advertising and marketing $748, consulting $38,700 and conferences and travel $11,800. For the comparable period in 2009 expenses were as follows: payroll and benefits $136,900, advertising and marketing $8,400, consulting $6,600 and conferences and travel $3,400.

Comparing the three month period ended June 30, 2010 with the similar quarter in 2009, payroll and benefits decreased by $10,600 in the 2010 quarter as a result of the reassignment of staff to another department. Advertising and marketing expenses decreased by $7,700 as advertising was curtailed while the Company applied for its 510(k) clearance and marketing efforts were largely limited to planning and network development. Consulting expenses increased largely due to the use of a consulting resource to undertake network development activities. Conference and travel expenses increased by $8,300 in the 2010 quarter as a result of attendance at the American Psychiatric Association (APA) annual convention, where the Company first presented its prototype iPad application which interfaces with the rEEG system user portal.

The Clinical Services sales and marketing expenses consists of advertising to attract patients to the clinic. In the quarter ending June 30, 2010, Clinical Services also invested in re-launching its updated website and the development of a new marketing strategy. We anticipate a moderate increase in marketing expenditure to attract new patients to the clinic as the capacity to see patients has increased with the addition of a second psychiatrist.

General and administrative

	Three Months Ended June 30,
		2010		2009	Percent Change
General and administrative
Laboratory Information Services	$	899,600	$	683,100		32	%
Clinical Services		182,100		184,400		(1	)%
Total General and administrative	$	1,081,700	$	867,500		25	%

General and administrative expenses for our Laboratory Information Services business are largely comprised of payroll and benefit costs, including stock based compensation, legal, patent costs, other professional and consulting fees, general administrative and occupancy costs, conference and travel and miscellaneous costs. For the quarter ended June 30, 2010, General and Administrative costs consisted of salaries and benefit costs of $409,600; legal fees of $266,500; other professional and consulting fees of $96,600; general administrative and occupancy costs of $90,300; patent costs $18,200 and conference and travel costs of $18,200. For the corresponding period in 2009, General and Administrative costs consisted of the following: salaries and benefit costs of $171,400; legal fees of $258,900; other professional and consulting fees of $105,800; general administrative and occupancy costs of $102,900; patent costs of $23,600 and conference and travel expenses of $20,400.

With respect to our Laboratory Information Services business, payroll and benefit expenses increased by a net $238,200 for the quarter ended June 30, 2010 compared to the prior year quarter, due to a change in the staff mix, primarily because the Chief Financial Officer joined the Company in the 2010 quarter. Additionally stock compensation increased by $160,700 as the Company expensed the vested options which were granted in March 2010 (as disclosed in Note 3) to management, directors, advisors and consultants. Professional and consulting fees decreased by a net $9,200; part of the decrease was a due to the hiring the CFO, who was formerly a consultant; this reduction in fees was largely offset by consulting resources engaged to assist with the Company’s publicity and insurance payer strategies. Legal fees increased by a net $7,600, consisting of lower regular legal fees of $55,800, which were more than offset by litigation fees of $63,400 associated with the Brandt appeal and the wrap up of the litigation in the California Supreme Court (see Matters Involving our Former Chief Executive Officer and Former Director, Leonard Brandt). General and administrative costs decreased by a net $12,600 largely due to a reduction in bad debt write-downs. Patent expenses and conference and travel costs did not change substantially quarter over quarter.

General and administrative expenses for our Clinical Services business include all costs associated with operating NTC. This includes payroll costs, medical supplies, occupancy costs and other general and administrative costs. These costs remained constant for the quarter ended June 30, 2010 compared to the same period in 2009.

Interest income (expense)

	Three Months Ended June 30,
		2010			2009		Percent Change
Laboratory Information Services (Expense), net	$	(40,900	)	$	(216,300	)	(81	)%
Clinical Services (Expense)		-			-		*
Total interest income (expense)	$	(40,900	)	$	(216,300	)	(81	)%
* not meaningful

With respect to our Laboratory Information Services business, we earned interest income of $400 for the quarter ended June 30, 2010 from an interest bearing account. This was offset by $3,800 of interest expense on promissory notes. Additionally, the beneficial conversion discount amortization of the June 3, 2010 Bridge Note was $37,500 for the period and charged to interest. For the comparable period in 2009, net interest income was $400, while interest expenses on outstanding promissory notes were 19,200. Additionally, we incurred warrant discount charges of $107,500 associated with the bridge financings during the quarter ended June 30, 2009. Furthermore, a charge of $90,000 was incurred in the quarter ended June 30, 2009 as a financing premium in connection with the promissory note issued to Mr. Pappajohn.

Net Loss

	Three Months Ended June 30,
		2010			2009		Percent Change
Laboratory Information Services net loss	$	(1,417,900	)	$	(1,541,400	)	(9	)%
Clinical Services net loss		(82,300	)		(59,100	)	39	%
Total Net Loss	$	(1,500,200	)	$	(1,600,500	)	(7	)%

The decrease in net loss of $100,300 in the three months ended June 30, 2010 compared to the prior year period is due primarily to net decreases in research and development costs from the completion of the clinical trial and decreases in our interest and financing charges. These decreases were more than offset by increased Sales and Marketing expenditure and General and Administration expenditure, which includes litigation expenses incurred in defending the lawsuit brought by Mr. Brandt and by Interest expenses, which included a beneficial conversion charge on the June 3, 2010, Bridge Note.

Results of Operations for the nine months ended June 30, 2010 and 2009

The following table presents consolidated statement of operations data for each of the periods indicated as a percentage of revenues.

	Nine Months Ended June 30,
		2010		2009
Revenues		100	%	100	%
Cost of revenues		21		19
Gross profit		79		81
Research and development		175		308
Sales and marketing		126		134
General and administrative expenses		757		447
Operating loss		(979	)	(808	)
Other income (expense), net		(9	)	(43	)
Net income (loss)		(988	)%	(851	)%

Revenues

	Nine Months Ended June 30,
		2010		2009
Laboratory Information Service Revenues	$	96,700	$	86,300	12	%
Clinical Services Revenues		384,300		441,900	(13	)%
Total Revenues	$	481,000	$	528,200	(9	)%

With respect to our Laboratory Information Services business the number of paid rEEG Reports delivered increased from 222 for the nine months ended June 30, 2009, to 248 for the nine months ended June 30, 2010, while the average revenue per report remained constant at approximately $390. The total number of free rEEG reports, which were not associated with our clinical trial, increased from 123 for the nine months ended June 30, 2009, to 160 for the same period ended June 30, 2010. These free rEEG reports are for training, database-enhancement and compassionate-use purposes. Now that our multi-site clinical study, which validates the efficacy of our service, has been published, we do anticipate a modest increase in revenue given that there has only been limited marketing support for these revenues to date. We are also starting to focus on our contracts with insurance payers and the military, which should increase the number of rEEG reports processed. Furthermore, we will also start offering our services to pharmaceutical companies to assist them with their product development activities.

On July 27, 2010 we received a letter from the FDA division that was reviewing our 510(k) submission suggesting that the rEEG service, unless otherwise reclassified, is a class III device which, as standard procedure, would requires an approved premarket approval application (PMA) before it can be marketed legally. We are currently evaluating our alternatives in response to the FDA letter. We will continue to discuss alternative approaches with the FDA. During the pendency of these proceedings, we will be able to continue to market our service as a non-device laboratory information service. There is some risk that FDA will seek to take enforcement action against rEEG based upon the Agency's position that rEEG is a medical device if we continue to market our service. For more detail on this please refer to the section above on Correspondence with FDA and Decision to Seek 510(k) Clearance.

Our Clinical Services revenue declined by $57,600 for the nine months ended June 30, 2010, as compared to the corresponding prior year period; this was because of a reduction in the hours available by the prescribing staff to attend to new patients. To rectify this we have recruited a new psychiatrist, who started working with our Clinical Services at the beginning of August, 2010. We anticipate that new patient volume, and therefore revenues, will start increasing in the fourth quarter of calendar 2010. We do not plan to materially expand our Clinical Services business beyond its current potential, and therefore we do not anticipate a significant increase in revenues generated by this business segment beyond being a self-sustaining, stand-alone clinic.

Cost of Revenues

	Nine Months Ended June 30,
	2010		2009		Percent Change

Cost of Laboratory Information Services revenues	$	101,900	$	99,800		2	%

Cost of Laboratory Information Services revenues consists of payroll costs, consulting costs, and other miscellaneous charges. Consulting costs primarily represent external costs associated with the processing and analysis of rEEG Reports and range between $75 and $100 per rEEG Report. For the nine months ended June 30, 2010, cost of revenues were $101,900 consisting primarily of direct labor and benefit costs (including stock-based compensation costs) of $77,900 and consulting fees of $24,400. For the nine months ended June 30, 2009, cost of revenues were $99,800, which includes direct labor and benefit costs (including stock based compensation costs) of $75,500, and consulting fees of $22,300. There has been no material change in Cost of Laboratory Information Services revenues for the two nine-month periods ending June 30, 2010 and 2009.

We ultimately expect cost of revenues to decrease as a percentage of revenues as operating efficiencies improve with the volume of reports processed.

Research and Development

	Nine Months Ended June 30,
	2010		2009		Percent Change

Laboratory Information Services research and development	$	843,600	$	1,628,500		(48)	%

Research and development expenses consist of payroll costs (including stock-based compensation costs), consulting fees, clinical study costs, patient marketing and recruitment costs and other miscellaneous costs. Research and development costs for the nine months ended June 30, 2010, included the following: payroll and benefit costs (including stock based compensation) of $631,100, consultant costs of $157,400 and other miscellaneous costs of $55,100 which include travel, database and support costs. There were negligible clinical study patient costs or patient marketing and recruitment costs incurred for the nine months ended June 30 2010. For the comparable period for 2009, research and development costs included: payroll and benefit costs (including stock based compensation) of $594,600, consultant costs of $49,200 and other miscellaneous costs of $54,800 which included travel, database and support costs. Additionally, as the clinical study was in progress during the 2009 period, research and development costs included clinical study patient costs of $777,600 and patient marketing and recruitment costs of $152,400.

Comparing the nine months ended June 30, 2010 with the corresponding period in 2009, clinical study patient costs and patient marketing and recruitment costs were eliminated in the 2010 period as the study was completed in September 2009. Consequently, the focus of the research and development department moved from conducting the clinical study to analyzing the data and drafting scientific papers for publications; the department also generated several applications for research grants for future funding. Additionally, the focus moved to enhancing the rEEG production system and the preparation of the 510(k) application with the FDA. With this shift in focus, consulting fees increased by $108,100; in total $40,000 was spent on research and $157,400 was spent on product enhancements. Of the $157,400, $56,900 was spent on consulting resources assisting with the filing of our 510(k) application with the FDA, the balance, $100,500, was spent on programming resources to improve our database and the rEEG process. Payroll and benefits increased by $36,500 in the 2010 period primarily due to the reassignment of a staff member between departments and due to an increase in stock based compensation.

Sales and marketing

	Nine Months Ended June 30,
Sales and Marketing		2010		2009	Percent Change
Laboratory Information Services	$	587,800	$	702,500	(16)	%
Clinical Services		16,000		5,600	186	%
Total Sales and Marketing	$	603,800	$	708,100	(15)	%

Sales and marketing expenses associated with our Laboratory Information Services business consist primarily of payroll and benefit costs, including stock-based compensation; advertising and marketing; consulting fees and conference and travel expenses. Sales and marketing expenses for the nine-month period ended June 30, 2010 included the following expenses: payroll and benefits $363,500, advertising and marketing $58,700, consulting $89,100 and conferences and travel $45,600. For the comparable period in 2009 expenses were as follows: payroll and benefits $457,900, advertising and marketing $105,100, consulting $74,200 and conferences and travel $20,500.

Comparing the nine months ended June 30, 2010, with the same period in 2009; payroll and benefits decreased by $94,400 in the 2010 period as a result a reduction in staff and the reassignment of staff to another department. Advertising and marketing expenses decreased by $46,400 as advertising was curtailed while the Company awaited its 510(k) clearance and marketing efforts were largely limited to planning and network development, whereas for the 2009 period the Company was actively executing its advertising and marketing plans. Conference and travel expenses increased by $25,100 in the 2010 period as the Company conducted its first user-group conference in January 2010.

The Clinical Services sales and marketing expenses consists of advertising to attract patients to the clinic. In the nine months ending June 30, 2010, Clinical Services also invested in re-launching its updated website and the development of a new marketing strategy, which accounted for the increase in expenditure. We anticipate a moderate increase in marketing expenditure to attract new patients to the clinic as the capacity to treat patients has increased with the addition of a second psychiatrist.

General and administrative

	Nine Months Ended June 30,
General and administrative		2010		2009	Percent Change
Laboratory Information Services	$	3,117,600	$	1,858,300	68	%
Clinical Services	$	522,300		501,800	4	%
Total General and administrative	$	3,639,900	$	2,360,100	54	%

General and administrative expenses for our Laboratory Information Services business are largely comprised of payroll and benefit costs, including stock based compensation, legal, patent costs, other professional and consulting fees, general administrative and occupancy costs, conference and travel and miscellaneous costs. For the nine-months ended June 30, 2010, General and Administrative costs included the following: salaries and benefit costs of $774,300; legal fees of $1,484,900: other professional and consulting fees of $381,100; general administrative and occupancy costs of $333,200; patent costs $61,400 and conference and travel costs of $82,400. For the same period in 2009, General and Administrative costs included the following: salaries and benefit costs of $627,000; legal fees of $390,300; other professional and consulting fees of $336,800; general administrative and occupancy costs of $345,700; patent costs of $112,700 and conference and travel expenses of $45,700. Additionally other one-time miscellaneous charges of $99,700 were booked for the 2009 period.

With respect to our Laboratory Information Services business, in the nine months ended June 30, 2010 in comparison to the same period in 2009, payroll and benefit expenses increased by a net $147,300 of which $140,200 was due to an increase in stock based compensation primarily due to the accounting for vested option grants given to employees, directors, advisors and consultants in March 2010. The balance of the change was due to the staff mix as the former CEO, Mr. Brandt left the Company in April 2009 and the former President, Mr. Carpenter became the CEO. Additionally the Chief Financial Officer (CFO), who was previously engaged as a consultant, joined the staff in mid February, 2010. Professional and consulting fees increased by a net $44,300 which is partly due to the mix of consulting services used and increased frequency and complexity of our SEC filings requiring additional professional services. Additionally, consultants were hired in connection with the Brandt litigation and private placement financings. Legal fees increased by a net $1,094,500 which was due to $1,128,800 being incurred in defending against actions brought by Mr. Brandt (see page 27 Matters Involving our Former Chief Executive Officer and Former Director, Leonard Brandt). This was partially offset by a decrease of $34,200 on non-litigation related legal fees. General administrative and occupancy costs decreased by a $12,500. Patent costs declined by $51,200 as costs were largely associated with patent maintenance. Conference and travel costs increased by $36,600 as a result of increased travel associated with raising capital and litigation activities. Miscellaneous expenses incurred in the 2009 nine-month period of $99,700 were the result of a revised IRS assessment on 2006 payroll taxes and Delaware Franchise Tax assessments for calendar years 2007 and 2008.

General and administrative expenses for our Clinical Services business includes all costs associated with operating NTC. This includes payroll costs, medical supplies, occupancy costs and other general and administrative costs. These costs increased by $20,500 to $522,300 in the nine months ending June 30, 2010 from $501,300 for the comparable period in 2009. This increase is largely due to clinical services staff that had worked on the clinical trial who were no longer being reimbursed by the Laboratory Information Services for their time spent on the study.

Interest income (expense)

	Nine Months Ended June 30,
		2010			2009		Percent Change
Laboratory Information Services (Expense), net	$	(42,600	)	$	(219,800	)	(81	)%
Clinical Services (Expense)		(100	)		(100	)	0	%
Total interest income (expense)	$	(42,700	)	$	(219,900	)	(81	)%

With respect to our Laboratory Information Services business, we earned interest income of $3,100 for the nine months ended June 30, 2010 from an interest bearing account. This was offset by $8,100 of interest expense on promissory notes for the period. Additionally, the beneficial conversion discount amortization of the June 3, 2010 Bridge Note was $37,500 for the period and charged to interest. For the comparable period in 2009, net interest income was $8,600, while interest expenses on outstanding promissory notes were $30,900. Additionally, we incurred warrant discount charges of $107,500 associated with the bridge financings during this quarter ended June 30, 2009. Furthermore, a charge of $90,000 was incurred as a financing premium in connection with the promissory note issued to Mr. Pappajohn during the quarter ended June 30, 2009.

Net Loss

	Nine Months Ended June 30,
		2010			2009		Percent Change
Laboratory Information Services net loss	$	(4,617,000	)	$	(4,435,300	)	4	%
Clinical Services net loss		(136,200	)		(60,100	)	127	%
Total Net Loss	$	(4,753,200	)	$	(4,495,400	)	6	%

The increase in net loss of $257,800 in the nine months ended June 30, 2010 compared to the prior year period was primarily due to the $1.1 million that was incurred in defending against the lawsuit brought by Mr. Brandt, the Company’s former CEO. For Laboratory Services over this period ended June 30, 2010, all departments experienced a reduction in expenditures except for those expenses associated with the litigation. Our Clinical Services operation experienced an increased deficit due to $57,600 reduction in revenues and an $18,500 increase in expenditure over the period ended June 30, 2010 with a resultant $76,100 increase in net loss.

Liquidity and Capital Resources

Since our inception, we have incurred significant losses. As of September 30, 2009, we had an accumulated deficit of approximately $25.2 million and as of June 30, 2010, we had an accumulated deficit of approximately $29.9 million. We have not yet achieved profitability and anticipate that we will continue to incur net losses for the foreseeable future. We expect that our research and development, selling and marketing and general and administrative expenses will continue to grow and, as a result, we will need to generate significant product revenues to achieve profitability. We may never achieve profitability.

As of September 30, 2009 we had approximately $0.99 million in cash and cash equivalents and a working capital deficit of approximately $1.1 million compared to approximately $2.0 million in cash and cash equivalents and a working capital balance of approximately $0.83 million at September 30, 2008.

As of June 30, 2010 we had approximately $35,100 in cash and cash equivalents and a working capital deficit of approximately $1.8 million compared to approximately $0.99 million in cash and cash equivalents and a working capital deficit of approximately $1.1 million at September 30, 2009.

Operating Capital and Capital Expenditure Requirements

Our continued operating losses and limited capital raise substantial doubt about our ability to continue as a going concern, and we need to raise substantial additional funds in the next 12 months in order to continue to conduct our business. Until we can generate a sufficient amount of revenues to finance our cash requirements, which we may never do, we expect to finance future cash needs primarily through public or private equity offerings, debt financings, borrowings or strategic collaborations.

We need additional funds immediately to continue our operations and will need substantial additional funds before we can increase demand for our rEEG services. We are currently exploring additional sources of capital; however, we do not know whether additional funding will be available on acceptable terms, or at all, especially given the economic conditions that currently prevail. In addition, any additional equity funding may result in significant dilution to existing stockholders, and, if we incur additional debt financing, a substantial portion of our operating cash flow may be dedicated to the payment of principal and interest on such indebtedness, thus limiting funds available for our business activities. We expect to continue to incur operating losses in the future and to make capital expenditures to expand our research and development programs (including upgrading our CNS Database) and to scale up our commercial operations and marketing efforts. If adequate funds are not available, it would have a material adverse effect on our business, financial condition and/or results of operations, and could ultimately cause us to have to cease operations.

Sources of Liquidity

Since our inception substantially all of our operations have been financed primarily from equity and debt financings. Through June 30, 2010, we had received proceeds of approximately $13.7 million from the sale of stock, $5.0 million from the issuance of convertible promissory notes and $220,000 from the issuance of common stock to employees in connection with expenses paid by such employees on behalf of the Company.

SAIL Venture Partners L.P. (“SAIL”), of which our director David Jones is a managing partner, issued unconditional guaranties to each of these investors, guaranteeing the prompt and complete payment when due of all principal, interest and other amounts under each Deerwood Note. . The obligations under each guaranty are independent of our obligations under the Deerwood Notes and separate actions may be brought against the guarantor. We have agreed to indemnify SAIL and grant to SAIL a security interest in our assets in connection with the guaranties. In addition, on August 20, 2010, we granted SAIL warrants to purchase up to an aggregate of 100,000 shares of common stock at an exercise price (subject to customary anti-dilution adjustments) of $0.56 per share.

Each Deerwood Note accrues interest at a rate of 9% per annum which will be paid together with the repayment of the principal amount, unless earlier converted, at the earliest of (i) the maturity date; (ii) prepayment of the Deerwood Note at our option (iii) closing of a financing in which the aggregate proceeds to us are not less than $3,000,000 or (iv) the occurrence of an Event of Default (as defined in the Deerwood Note). Each Deerwood Note is convertible into shares of our common stock at a conversion price of $0.50. The conversion price is subject to customary anti-dilution adjustments, but will never be less than $0.30.

We have also agreed to enter into a registration rights agreement covering the securities issuable upon conversion of the Deerwood Notes and exercise of the related warrants issued to the investors and SAIL.

The managing members of each of Deerwood Partners LLC and Deerwood Holdings LLC are George J. Kallins, M.D., who joined the Company’s Board of Directors on July 5, 2010, and his spouse Bettina Kallins.

On June 3, 2010, we entered into a Bridge Note and Warrant Purchase Agreement with John Pappajohn, pursuant to which Mr. Pappajohn agreed to purchase two secured promissory notes (each, a “Bridge Note”) in the aggregate principal amount of $500,000, with each Bridge Note in the principal amount of $250,000 maturing on December 2, 2010. On June 3, 2010, Mr. Pappajohn loaned the Company $250,000 in exchange for the first Bridge Note (there were no warrants issued in connection with this first note) and on July 25, 2010, Mr. Pappajohn loaned us $250,000 in exchange for the second Bridge Note. In connection with his purchase of the second Bridge Note, Mr. Pappajohn received a warrant to purchase up to 250,000 shares of our common stock in accordance with the Bridge Note and Warrant Purchase Agreement. The exercise price of the warrant (subject to customary anti-dilution adjustments) is $0.50 per share.

Pursuant to a separate agreement that we entered into with Mr. Pappajohn, we have granted him a right to convert the Bridge Notes into shares of our common stock at a conversion price of $0.50, subject to customary anti-dilution adjustments. We have also agreed to enter into a registration rights agreement covering the securities issuable upon exercise of the warrant and conversion of the Bridge Note.

Each Bridge Note accrues interest at a rate of 9% per annum which will be paid together with the repayment of the principal amount, unless earlier converted, at the earliest of (i) the maturity date; (ii) prepayment of the Bridge Note at the option of the Company (iii) closing of a financing in which the aggregate proceeds to the Company are not less than $3,000,000 or (iv) the occurrence of an Event of Default (as defined in the Bridge Note). The Purchase Agreement and each Bridge Note grants the investor a senior security interest in and to all of the Company’s existing and future right, title and interest in its tangible and intangible property.

Cash Flows

Net cash used in operating activities was $4.6 million for the fiscal year ended September 30, 2009 compared to $3.7 million for fiscal year ended September 30, 2008. The increase in cash used of $0.9 million was primarily attributable to increased legal fees associated with the Brandt litigation, our private placement and bridge financings, investigation of FDA licensure issues and the filing of patent applications.

Net cash used in operating activities was $4.1 million for the nine months ended June 30, 2010 compared to $3.1 million for nine months ended June 30, 2009. The increase in cash used of $1.0 million was primarily attributable to increased legal fees associated with the Brandt litigation of $1.13 million.

For the fiscal year ended September 30, 2009, net cash used in investing activities was $2,000 for the purchase of office equipment as compared to $74,600 for the fiscal year ended September 30, 2008. Our 2008 investing activities related to the acquisition of the Neuro-Therapy Clinic and the purchase of furniture and equipment for our offices.

Investing activities consisted of an $8,900 purchase of office equipment during the nine months ended June 30, 2010. In the comparable period in 2009, $2,000 was used to purchase office equipment.

Net cash proceeds from financing activities for the fiscal year ended September 30, 2009 were $1.8 million, net of offering costs, raised on August 26, 2009 in connection with the first closing of our private placement transaction; $1.7 million raised in bridge financing transactions (which ultimately converted into equity as further described under Note 2 to our year-end Financial Statements included elsewhere in this prospectus), and $295,500 due to the exercise of options and warrants. These proceeds were partly offset by the repayment of a convertible promissory note, with accrued interest, totaling $92,600 and the repayment of $86,700 on a promissory note issued to Daniel Hoffman in connection with our acquisition of NTC. Net cash used by financing activities in 2008 primarily related to the payment of $60,600 on a promissory note in connection with our NTC acquisition.

Net cash proceeds from financing activities for the nine months ended June 30, 2010 were $3.2 million. Of this $2.99 million were raised, net of placement agent fees, legal fees and other offering costs, on December 24 and 31, 2009 and January 4, 2010, in connection with the second, third and fourth closings of our private placement transaction. Additionally, $250,000 was raised from the exchange of a secured, convertible promissory note. These proceeds were partly offset by the repayment of $71,300 on a promissory note issued to Daniel Hoffman M.D. in connection with our acquisition of NTC and on a capital lease. Net cash proceeds from financing activities in the period ended June 30, 2009 were $1.7 million raised in exchange of secured, convertible promissory notes. Additionally, $294,900 was raised as a result of the exercise of warrants and options by shareholders. These net cash proceeds were partially offset with the use of $50,000 to pay off a convertible promissory note and 65,800 used to pay down the promissory note issued in connection with our acquisition of NTC and on a capital lease.

Contractual Obligations and Commercial Commitments

Income Taxes

Since inception, we have incurred operating losses and, accordingly, have not recorded a provision for federal income taxes for any periods presented. As of September 30, 2009, we had net operating loss carryforwards for federal income tax purposes of $20.8 million. Utilization of net operating loss and credit carryforwards may be subject to a substantial annual limitation due to restrictions contained in the Internal Revenue Code that are applicable if we experience an “ownership change”. The annual limitation may result in the expiration of our net operating loss and tax credit carryforwards before they can be used.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements or financing activities with special purpose entities.

BUSINESS

With respect to this discussion, the terms “we” “us” “our” “CNS” and the “Company” refer to CNS Response, Inc., a Delaware corporation and its wholly-owned subsidiaries CNS Response, Inc., a California corporation (“CNS California”), Colorado CNS Response, Inc., a Colorado corporation (“CNS Colorado”) and Neuro-Therapy Clinic, Inc., a Colorado professional medical corporation and a wholly-owned subsidiary of CNS Colorado (“NTC”).

Background

CNS Response, Inc. was incorporated in Delaware on March 16, 1987, under the name Age Research, Inc. Prior to January 16, 2007, CNS Response, Inc. (then called Strativation, Inc.) existed as a “shell company” with nominal assets whose sole business was to identify, evaluate and investigate various companies to acquire or with which to merge. On January 16, 2007, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with CNS Response, Inc., a California corporation formed on January 11, 2000 (“CNS California”), and CNS Merger Corporation, a California corporation and our wholly-owned subsidiary (“MergerCo”) pursuant to which we agreed to acquire CNS California in a merger transaction wherein MergerCo would merge with and into CNS California, with CNS California being the surviving corporation (the “Merger”). On March 7, 2007, the Merger closed, CNS California became our wholly-owned subsidiary, and on the same date we changed our corporate name from Strativation, Inc. to CNS Response, Inc. Simultaneous with the closing of the Merger, we received gross proceeds of approximately $7.0 million from the first closing of a private placement transaction with institutional investors and other high net worth individuals. On May 16, 2007, we completed a second closing of the private placement which resulted in $797,300 of additional gross proceeds to us. After commissions and expenses, we received net proceeds of approximately $6.7 million in the private placement.

Overview

CNS Response is a life sciences company with two distinct business segments. Our Laboratory Information Services business operated by CNS California, which we consider our primary business, is focused on the research, development, and commercialization of a patented system that guides psychiatrists and other physicians/prescribers to determine a proper treatment for patients with behavioral (psychiatric and/or addictive) disorders. Our Clinical Services business operated by NTC is a full service psychiatric clinic.

Laboratory Information Services

Traditionally, prescription of medication for the treatment of behavioral disorders (such as depression, bipolar disorders, eating disorders, addiction, anxiety disorders, ADHD and schizophrenia) has been primarily based on symptomatic factors, while the underlying physiology and pathology of the disorder is rarely able to be analyzed, often resulting in multiple ineffective, costly, and often lengthy, courses of treatment before effective medications are identified. Some patients never find effective medications.

We believe that our technology offers an improvement upon traditional methods for determining a course of medication for patients suffering from nonpsychotic behavioral disorders because our technology is designed to correlate the success of courses of medication, with the neurophysiological characteristics of a particular patient. Our technology provides medical professionals with medication sensitivity data for a subject patient based upon the identification and correlation of treatment outcome information from other patients with similar neurophysiologic characteristics. This treatment outcome information is contained in a proprietary outcomes database that consists of over 17,000 medication trials for patients with psychiatric or addictive problems (the “CNS Database”). For each patient in the CNS Database, we have compiled electroencephalographic (“EEG”) scans, symptoms and outcomes often across multiple treatments from multiple psychiatrists and physicians. This patented technology, called “Referenced-EEG®” or “rEEG®” represents an innovative approach to identifying effective medications for patients suffering from debilitating behavioral disorders.

Clinical Services

In January 2008, we acquired our largest customer, NTC, located in Colorado. Upon the completion of the transaction, NTC became our wholly-owned subsidiary. At the time, NTC operated one of the largest psychiatric medication management practices in the state of Colorado, under contracts with national health plans. Daniel A. Hoffman, M.D. is the medical director at NTC, and, after the acquisition, became our Chief Medical Officer and more recently, our President.

NTC, having performed a significant number of rEEG’s, serves as an important resource in our product development, the expansion of our CNS Database, production system development and implementation, along with the integration of our rEEG services into a medical practice. Through NTC, we also expect to successfully develop marketing and patient acquisition strategies for our Laboratory Information Services business. Specifically, NTC is learning how to best communicate the advantages of rEEG to patients and referring physicians in the local market. We will share this knowledge and develop communication programs which can be generalized to physicians using our services throughout the country, which we believe will help drive market acceptance of our services. In addition, we plan to use NTC to train practitioners across the country in the uses of rEEG technology.

We view our Clinical Services business as secondary to our Laboratory Information Services business, and we have no current plans to significantly expand this business.

Laboratory Information Services

The Challenge and the Opportunity

The 1990’s were known as “the Decade of the Brain,” a period in which basic neuroscience yielded major advances in drug discovery and neurotherapy. Several trends have emerged which may propel significant adoption of these advances over the next decade:

Comparative Effectiveness Research is incorporated into the Obama health plan. The cost to treat Americans under care for depression and other mental illnesses rose by nearly two-thirds from $35 billion to $58 billion in the last 10 years, according to a recent report from the Agency for Healthcare Research and Quality. Finding more cost-effective treatment modalities in mental disorders will be critical to successful health care reform;

Mental Health Parity Act (Parity Act) requires payers, beginning in 2010, to pay for behavioral medications and treatments using the same standards for evidence and coverage as they currently use for medical/surgical treatments;

According to a recent RAND report, 275,000 returning military personnel from the Iraq and Afghanistan theatres suffer from Major Depression, Post Traumatic Stress Disorder (PTSD), traumatic brain injury; and

Consumers have emerged as active decision makers in behavioral treatment, driven by over $4.8 billion in annual Pharma direct-to-consumer advertising and the internet. At the same time, media costs for reaching those consumers are at historic lows.

Today, there are over 100 prescription drugs available to patients suffering from a behavioral disorder, representing one of the largest and fastest-growing drug classes. Unfortunately, psychotropic drugs often do not work, or lose their effect over time, and over 17 million Americans who have failed two or more medication treatments are now considered “treatment resistant”. For these patients, the conventional “trial and error” method of prescribing psychotropic drugs has resulted in low efficacy, high relapse and treatment discontinuation rates, significant patient suffering and billions in additional cost to payers.

We believe we are the ﬁrst company to create a biomarker database that correlates a patient’s response to major drug classes and speciﬁc medications with their individual brain physiology. We developed this tool to improve pharmacotherapy outcomes, particularly in treatment resistant patients, a particularly expensive patient population with profound unmet clinical needs. Our rEEG technology has been used by physicians to guide prescribing in behavioral disorders such as depression, anxiety, anorexia, OCD, bipolar, ADHD, addiction and others.

rEEG® was developed by a pathologist/psychiatrist who recognized that correlation of a patient’s unique brain patterns to known long-term medication outcomes in similar patients might significantly improve therapeutic performance. This approach — commonly referred to as Personalized Medicine, and exemplified by biomarker companies such as Genomic Health (GHDX) — is in the process of transforming both clinical practice and the pharmaceutical industry. CNS Response brings this science to behavioral medicine, where the unmet clinical need is well-documented, expensive, and growing.

The rEEG® Method

rEEG® Reports are offered as a service, much like a reference lab, in which standard electroencephalogram (EEG) readings are referenced to a biomarker database to suggest patient-specific probabilities of response to different medications. EEG recording devices are widely available, inexpensive to lease, and are available in most cities by independent mobile EEG providers.

The service works as follows:

Patients are directed to a national rEEG® provider, who performs a standard digital EEG.

EEG data is uploaded over the web to our central analytical laboratory.

We analyze the data against the CNS Database for patients with similar brain patterns.

We provide a report describing the probability of patient success with different medication options (much like an antibiotic sensitivity report commonly used in medicine).

The rEEG® Report is sent back to the doctor, typically the next day.

Treatment Decisions Made by Licensed Professionals

With the exception of our subsidiary, the Neuro-Therapy Clinic based in Denver, CO, we do not currently operate our own healthcare facilities, employ our own treating physicians or provide medical advice or treatment to patients. Physicians who contract for our rEEG Reports own their own facilities or professional licenses, and control and are responsible for the clinical activities provided on their premises. Patients receive medical care in accordance with orders from their attending physicians or providers. Physicians who contract for rEEG Reports are responsible for exercising their independent medical judgment in determining the specific application of the information contained in the rEEG Reports, and the appropriate course of care for each patient. Following the prescription of any medication, Physicians are presumed to administer and provide continuing care treatment.

Estimated Market for rEEG Reports

Currently, the wholesale (direct to physician) price for standard rEEG testing is $400 per test, and the retail (payer and consumer) price is approximately $800. Thus far, payments have typically been from psychiatrists whose patients pay privately for the rEEG® Report. The National Institute of Mental Health (NIMH) estimates that only 12.7% of patients get minimally effective treatment, with over 17 million Americans now classified as “treatment resistant”, meaning they’ve failed to find relief after trying two or more medications.

We therefore estimate the potential market for our rEEG Reports at $1.7 billion annually, based on an addressable market of 17 million Treatment Resistant patients, with only 12.5% of patients seeking care and complying with treatment.

Path to Adoption

Several biomarker firms have successfully commercialized products that predict medication response, including Genomic Health’s OncotypeDx which predicts response to chemotherapy, and Roche/Affymetrix Cytochrome P450 test which shows how each patient is likely to metabolize a given antidepressant. We are following the paths to adoption used by these successful biomarker firms by focusing on growth in three stages:

(1) Private pay market.

Consumers and private-pay psychiatrists drive over 33% of the market for psychiatric visits, and a significant proportion of all licensed psychiatrists now describe themselves as private pay only. We believe consumers who have experienced treatment failure will seek out our network of physicians once they become aware of the successful outcomes demonstrated in our clinical trial.

During 2008, the recruiting for our Depression Efficacy Trial (the Depression Efficacy Trial is further described under the heading Laboratory Services Accomplishments on page 54) generated many important lessons about integrated marketing for our rEEG® service. By using a media mix of web, radio and TV, interested patients were delivered into the trial at an average cost of $40-$68 per contact. We will continue to pursue integrated consumer marketing as a means to introduce interested patients to our rEEG® provider network.

To drive growth in private pay, consumer-driven rEEG testing, we plan to do the following:

	·	Grow our focused physician network: We currently have 51 active practicing physicians utilizing rEEG in their practices, defined as having paid for testing within the last 12 months. An additional 52 physicians are currently involved in training or clinical trials utilizing rEEG. Physicians who become “power users” (which we define as physicians who conduct several tests per month) report significantly better results than casual users of rEEG technology, and have certain economies of scale in using the test in their practices. Similar to the adoption of LASIK technology in consumer-driven opthalmology, successful practices using rEEG have reported that as their word-of-mouth referrals increase, their procedure billings increase, and their average patient visits decrease (as patients improve). Accordingly, their patient turnover may increase over time, requiring additional marketing efforts to grow their practice volume.

		We plan to focus on supporting these power users through direct marketing, clinical practice support (patient intake, scheduling, washout support and reporting), and technical support. This focused network approach has been successful in other specialties (for example, in organ transplant networks and in disease management) because it is easier to sell to payers, facilitates data collection, and is more cost-effective in delivering care even at higher provider margins.

Increase unit pricing: Currently, the wholesale (direct-to-physician) price for standard rEEG testing is $400 per test, and the retail (payer and consumer) is approximately $800. We anticipate that our pricing will be increased over time with greater acceptance of the test as a standard of care, rewarding power users for committed volume and affording improvement in test margins overall.

Utilize our product laboratory: In 2008, we purchased the psychiatric clinic in Denver, co-founded by our Chief Medical Officer, Daniel Hoffman, MD. The clinic currently serves as a platform for perfecting rEEG workflow, information systems, product development and research. We also test local marketing strategies in Denver which can then be generalized to other rEEG® network clinics. The Denver clinic may ultimately become a national Center of Excellence for neuropsychiatry, where insurers may direct certain treatment-resistant patients.

Scalable platform for delivery: During 2008 and 2009, significant development effort was focused on production systems and lab infrastructure to accommodate potential growth in the production volume of our rEEG Reports. Our current production application is able to accommodate up to 100 tests per week without additional manpower. In addition to providing scalable capacity, the production system provides for online delivery of tests and delivery of test data to physicians’ desktops. Currently, we are investing in projects to reduce or eliminate the remaining manual processes in test production: ”artifacting” of EEG data and Neurologist review of each case. It is estimated that these processes will, over time, be replaced with validated algorithms and/or post-facto sampling for quality assurance.

(2) Payer economic trials.

Health plans currently spend over $30 billion on psychotropic medications each year according to the Substance Abuse and Mental Health Services Administration (SAMHSA), and most are aware that these agents only work on about 30% of patients who take them. The lack of medication adherence and poor treatment outcomes in behavioral health have been longstanding issues for payers, but they’ve lacked a targeted, cost-efficient approach to solve the problem.

Presently, rEEG is not a reimbursable procedure for most health care payers. Initially, payer response to most new technologies is a reflexive denial of coverage, regardless of the superiority of evidence or economics. Over time, however, certain payers may adopt technologies which confer a clear marketing or underwriting advantage, or which protect them from legal claims for reimbursement under new legislation (e.g. Parity). Because of this, it is possible that with sufficient marketing efforts, we may shift payer “fear of adoption” to “fear of not adopting” and increase the number of payers that approve our rEEG Reports as a reimbursable expense.

We intend to prove that our rEEG Reports are a compelling value for payers through independent research, budget impact models, and payer pilots (economic trials):

Evidence for payers: We will share well-designed research on rEEG® efficacy, showing the weight of superior evidence in controlled and real-world clinical trials and case series.

Parity: In 2010, Mental Health Parity Act (Parity Act) will change all payers’ coverage criteria, requiring equal coverage for behavioral and medical therapies, using the same coverage criteria and evidence. Milliman Global Actuarial Services estimates a 1-3% increase in overall health costs resulting from a significant increase in behavioral health expenditures driven by the Parity Act. Of particular interest to us, however, is the specific language in the Parity Act which requires that coverage of a scope-of-service for one type of diagnosis (for example: a Neurologist performing a diagnostic EEG for Epilepsy) be applied equally as the use of an EEG by a Psychiatrist for medication management.

Budget Impact Model: A Budget Impact Model for rEEG® has been developed by Analysis Group Economics based on the published research of Kessler, Russell, and others covering the cost of treatment failure in mental disorders. Modeling the economic impact of rEEG® in a health plan with five million members, we estimate that full utilization of rEEG® in treatment-resistant depression, anxiety, bipolar and ADHD could save $8,500 per treatment resistant member for a savings of $45 million per year.

Economic Trials: Economic Trials are intended to demonstrate the comparative effectiveness of rEEG versus prevailing Trial & Error medication management through pilot programs within a payer’s own population. Although no payer is currently reimbursing physicians for the use of rEEG technology, we are currently negotiating pilot programs for reimbursement coverage with several of the nation’s largest payers, representing over 80 million covered lives.

(3) Full payer coverage.

Full reimbursement of referenced-EEG is likely to follow successful direct-to-consumer adoption of the rEEG test, along with continued release of confirmatory rEEG research in peer-reviewed publications. Following the example of the biomarker firms discussed above, it appears possible to accelerate the effect of these initiatives in the following ways:

	·	Patient Advocacy: we believe that some components of the rEEG test may be billable to payers under Mental Health Parity Act. Historically, patients of our physician network providers, and those in our own clinic in Colorado, have paid out of pocket for rEEG testing and then sought reimbursement from their insurance carrier. Although these providers frequently furnish information to support these claims, the success of their prosecution by patients is unclear.

		Accordingly, we intend to follow the example of biomarker firms such as Genomic Health, which developed Patient Advocacy services where patient claims were documented and tracked, and the company helped organize the advocacy of each claim with third party payers. Using this approach, Genomic Health was able to win a retrospective reversal of claim denials for its test from Medicare (the Centers for Medicare and Medicaid Services) in 2006.

Guideline development : we intend to continue internal and externally-sponsored clinical research to prove the efficacy of our technology to professional associations, such as the American Psychiatric Association. We believe that with strong clinical results, professional associations may endorse rEEG in their treatment guidelines, which may drive full payer coverage.

We also believe that the inclusion of historical and new rEEG research in Comparative Effectiveness studies conducted under the Agency for Healthcare Research and Quality (AHRQ) would be a significant milestone. As a consequence of this recent focus on cost-effective treatment, an unprecedented level of funding has been made available under the Economic Recovery Act, the budgets for NIH and AHRQ, and earmarked budgets for Defense and the Veterans Association (VA). We intend to pursue research opportunities with several external sponsors of research, including:

the National Institutes of Mental Health, focusing on the cost-effectiveness of rEEG as a more deployable version of brain imaging to guide prescribing;

the Department of Defense and the Veterans Administration, to address the potential for rEEG in treating returning soldiers with PTSD and Major Depression; and

the Centers for Medicare and Medicaid Services (CMS), as a mechanism for improving quality and cost performance in programs that spend billions on psychotropic medications.

Laboratory Services Accomplishments

Over the last few years, we have been primarily focused on proving the efficacy of rEEG-guided treatments through multiple clinical trials. The largest of these — the Depression Efficacy Trial — was a multi-center, randomized, parallel controlled trial completed in 2009 at 12 medical centers, including Harvard, Stanford, Cornell, UCI and Rush. The study began in late 2007 and was completed in September 2009, screening 465 potential subjects with Treatment Resistant Depression and ultimately randomizing 114 participants to a 12-week course of treatment utilizing rEEG in the experimental group, and a modified STAR*D algorithm in the control group (STAR*D, or Sequenced Alternatives to Relieve Depression, was a large, seven-year study sponsored by the National Institute of Mental Health and completed in 2006). Top-line results were consistent with previous clinical trials of rEEG:

The study found that rEEG significantly outperformed the modified STAR*D treatment algorithm from the beginning. The difference, or separation, between rEEG and the STAR*D control group was 50 and 100 percent for the study’s two primary endpoints. By contrast, separation between a new treatment and a control group often averages less than 10 percent in antidepressant studies. Interestingly, separation was achieved early (week 2) and durable, continuing to grow through week 12.

The control group in this case, STAR*D, was a particularly tough comparator, representing a level of evidence-based depression care that is available to only 10% of the US population, according to one of the study’s authors.

Statistical significance (p < .05) was achieved on all primary and most secondary endpoints.

In the course of undertaking the study, we also gained insights into marketing of the rEEG technology, highlighting aspects of marketing which proved to be more successful than others. Furthermore, we also developed a foundation for commercialization of the rEEG technology with insurance companies, and signed a payer group, Cal Optima (a Southern California health plan for Medicare/Medicaid enrollees), to run a pilot study with us. A second large insurer is in the process of negotiating a pilot study. Additionally, over the course of the last few years, much time has been spent securing sufficient financing to continue our operations and ensure that the clinical trial was completed.

Going forward, we plan to continue expanding the CNS Database with the addition of more pharmaceuticals and their respective outcomes. Additionally, we plan on improving the functionality and clinical utility of our rEEG Reports, in order to improve adoption and compress the training period necessary for physicians to become proficient with the report. Finally, we plan to increase and refine our marketing efforts to consumers and psychiatrists, and expand our effort to obtain regular insurance reimbursement for rEEG-guided therapies.

Use of rEEG Technology in Pharmaceutical Development

In addition to its utility in providing psychiatrists and other physicians with medication sensitivity guidance, rEEG provides us with significant opportunities in the area of pharmaceutical development. In the future, we aim to use our propriety data and processes to advance central nervous system (CNS) pharmaceutical development and economics, in one or more of the following ways:

Enrichment : selecting patients for clinical trial who not only have the symptoms of interest, but are shown by rEEG® screening to likely respond to the developer’s drug. An oft-cited example is the antidepressant Prozac, which failed several clinical trials before it achieved success in two separate trials. The ability to design trials in which exclusion criteria identify and exclude patients who are clearly resistant, as determined by rEEG, has the potential to sharpen patient focus and productivity in clinical trials of psychotropic medications.

Repositioning : rEEG® may suggest new applications/indications of existing medications. For example, Selective Serotonin Reuptake Inhibitors Antidepressants (SSRI’s) are now commonly given by primary care physicians for depression and other complaints, but often produce unwanted side effects or inadequate results. The ability to biomarker patients who respond better to tricyclics (TCA’s), or combinations of TCA’s and stimulants, offers the potential for new indications for existing compounds.

Salvage : resuscitation of medications that failed phase II or III studies. One example of this opportunity is Sanofi-Aventis’ unsuccessful PMA filing for Rimonabant, a promising anti-obesity/cardiometabolic compound which was denied approval in the U.S. due to CNS side-effects in their clinical trial populations. Being able to screen out trial participants with resistance to a certain medication is an application for rEEG, and could create “theranostic” products (where an indication for use is combined with rEEG) for compounds which have failed to receive broader approval.

New Combinations : unwanted adverse effects occur with medications in fields from cancer to hepatitis. The ability to improve these medications, in combination with psychotropics, may improve safety, compliance, and, sometimes, patient outcomes.

Decision Support : improved understanding supports improved decision making at all levels of pharmaceutical development.

Competition

Comparable Biomarker Companies

Although there are no companies offering a service directly comparable to rEEG, the following companies might be noted as pursuing similar strategies:

GENOMIC HEALTH (Nasdaq: GHDX) Genomic Health, Inc. is a life science company focused on the development and commercialization of genomic-based clinical laboratory services for cancer that allow physicians and patients to make individualized treatment decisions. The company was founded in 2000 and is based in Redwood City, California. In 2004, the company launched the Oncotype DX breast cancer test, which has been shown to predict the likelihood of chemotherapy benefit, as well as recurrence in early-stage breast cancer. By the end of 2008, the company reported that over 90% of health plans were reimbursing use of this test. In addition to its adopted Oncotype DX breast cancer test, Genomic Health launched its Oncotype DX colon cancer test in early 2010.

	·	ASPECT MEDICAL SYSTEMS, INC. (Nasdaq: ASPM), an EEG anesthesia monitoring company, is developing a specific EEG measurement system that indicates a patient's likely response to some antidepressant medications. Its biomarker, based on research from the UCLA Neuropsychiatric Institute, is called Cordance.

		A 375-subject multi-site clinical trial on the efficacy of this biomarker in guiding treatment of treatment resistant depression — the BRITE trial — demonstrated positive predictive outcomes for a single antidepressant, escitalopram (Lexapro). Patients in the trial were measured prior to and after taking medication. Publicly available data suggests that the technology may validate a patient's treatment but does not guide specific treatment. Initial trials have shown efficacy in correlating a patient's ultimate response to antidepressants. The revenue model may involve sale of equipment and a per-patient charge, but the company does not currently appear to be close to a commercial release of its product.

BRAIN RESOURCE COMPANY (Aust: BRRZF) (www.brainresource.com), is an Australian Clinical Research Organization (CRO) and biomarker company focused on personalized medicine solutions for patients, clinicians, pharmaceutical trials and discovery research. As a CRO, its main focus has been iSPOT, an $18 million international biomarker study with a private biotechnology company. Their revenue model includes physician services and sale of systems and services to pharmaceutical development companies in the CNS discovery field. As a biomarker provider, it signed a $6 million agreement in 2008 with Optum (United Healthcare) to provide screening for plan members.

We believe that we have a competitive advantage with respect to the behavioral biomarker firms such as Aspect Medical or Brain Resource Company as we offer more comprehensive testing (e.g. to cover the full range of CNS medications, not just certain antidepressants in the case of Aspect Medical) and have conducted studies to validate the efficacy of our service. We also believe that we offer greater clinical utility (ease of use, rapid results) in day-to-day clinical practice than our competitors.

Emerging Medical Device Technologies

The field of neuropsychiatry is undergoing dramatic change as a result of the introduction of new technologies. Many of these technologies are focused on the same treatment-resistant patient populations which are the focus of rEEG, and are priced from $10,000 to over $50,000 for a full course of treatment. Two of the three examples presented here are invasive, implantable devices.

CYBERONICS, INC. (Nasdaq: CYBX) is a neuromodulation company, engages in the design, development, manufacture, and marketing of implantable medical devices that provide vagus nerve stimulation (VNS) therapy for the treatment of epilepsy and treatment-resistant depression. The VNS therapy system consists of an implantable generator that delivers an electrical signal to an implantable lead attached to the left vagus nerve, as well as a bipolar lead, a programming wand and software, and a tunneling tool.

Cyberonics has developed an implantable Vagus Nerve Stimulation device approved for treatment-resistant depression. This device has received pre-market approval from the Food and Drug Agency for patients and is believed to be under reimbursement review by insurance payers.

MEDTRONIC, INC. (NYSE: MDT). Medtronic has an implantable deep brain stimulation device (DBS) in development which is similar to their device approved for Parkinson's treatment. Deep brain stimulation uses an implanted electrode – essentially a pacemaker for the brain — to deliver electrical stimulation to specific structures within the brain. The Food and Drug Administration (FDA) approved DBS as a treatment for essential tremor in 1997, for Parkinson's disease in 2002, and dystonia in 2003. DBS is also routinely used to treat chronic pain and has been used to treat various affective disorders, including major depression. While DBS has proven helpful for some patients, there is potential for serious complications and side effects.

NEURONETICS (Privately held) (www.neuronetics.com). Neuronetics has pioneered and refined the NeuroStar TMS Therapy system for non-invasive, non-systemic treatment for depression using a focused, pulsed magnetic field to stimulate function in targeted brain regions. NeuroStar TMS Therapy stimulates nerve cells in an area of the brain that is linked to depression by delivering highly focused MRI-strength magnetic field pulses.

TMS is performed in a physician's office with each treatment lasting about 40 minutes daily for four to six weeks. In an open-label clinical trial, which is most like real world clinical practice, approximately one in two patients experienced significant improvement in symptoms, and one in three experienced complete symptom resolution. NeuroStar TMS Therapy was cleared by the FDA in October 2008 for patients who have not adequately benefited from prior antidepressant medication.

From a competitive standpoint, we view these emerging treatment options as expensive augmentations to existing therapies for treatment-resistant patients, and as competitive therapeutic options to medications. To the best of our knowledge, rEEG-guided therapy provides a higher probability of treatment success at a significantly lower cost than device-based solutions, which gives us a competitive advantage in the marketplace.

Intellectual Property

rEEG Patents

We have four issued U.S. Patents which we believe provide us with the right to exclude others from using our rEEG technology. In addition, we believe these patents cover the analytical methodology we use with any form of neurophysiology measurement including SPECT (Single Photon Emission Computed Tomography), fMRI (Functional Magnetic Resonance Imaging), PET (Positron Emission Tomography), CAT (Computerized Axial Tomography), and MEG (Magnetoencephalography)). We do not currently have data on the utility of such alternate measurements, but we believe they may, in the future, prove to be useful to guide therapy in a manner similar to rEEG. We have also filed patent applications for our technology in various foreign jurisdictions, and have issued patents in Australia and Israel.

rEEG Trademarks

“Referenced-EEG” and “rEEG” are registered trademarks of CNS California in the United States. We will continue to expand our brand names and our proprietary trademarks worldwide as our operations expand.

CNS Database

The CNS Database consists of over 17,000 medication trials across over 2,000 patients who had psychiatric or addictive problems. The CNS Database is maintained in two parts:

1. The QEEG Database

The QEEG Database includes EEG recordings and neurometric data derived from analysis of these recordings. This data is collectively known as the QEEG Data. QEEG or “Quantitative EEG” is a standard measure that adds modern computer and statistical analyses to traditional EEG studies. The Company utilizes two separate, FDA-approved external QEEG databases which provide statistical and normative information in the rEEG process.

2. The Clinical Outcomes Database

The Clinical Outcomes Database consists of physician provided assessments of the clinical long-term outcomes (average of 405 days) of patients and their associated medications. The clinical outcomes of patients are recorded using an industry-standard outcome rating scale, the Clinical Global Impression Global Improvement scale (“CGI-I”). The CGI-I requires a clinician to rate how much the patient's illness has improved or worsened relative to a baseline state. A patient's illness is compared to change over time and rated as: very much improved, much improved, minimally improved, no change, minimally worse, much worse, or very much worse.

The format of the data is standardized and that standard is enforced at the time of capture by a software application. Outcome data is input into the database by the treating physician or in some cases, their office staff. Each Physician has access to his/her own patient data through the software tool that captures clinical outcome data.

We consider the information contained in the CNS Database to be a valuable trade secret and are diligent about protecting such information. The CNS Database is stored on a secure server and only a limited number of employees have access to it.

Research and Development

In the remainder of 2010, we plan to continue to enhance, refine and improve the accuracy of our CNS Database and rEEG through expansion of the number of medications covered by our rEEG Reports, expansion of our biomarkers, refinement of our biomarker system, and by reducing the time to turnaround a report to the physician.

Government Regulation

In addition to the foregoing, federal and state laws and regulations relating to the sale of our Laboratory Information Services are subject to future changes, as are administrative interpretations of regulatory agencies. In the event that federal and state laws and regulations change, we may need to incur additional costs to seek government approvals for the sale of our Laboratory Information Services.

In the future, we may seek approval for medications or combinations of medications for new indications, either with corporate partners, or potentially, on our own. The development and commercialization of medications for new indications is subject to extensive regulation by the U.S. Federal government, principally through the FDA and other federal, state and governmental authorities elsewhere. Prior to marketing any central nervous system medication, and in many cases prior to being able to successfully partner a central nervous system medication, we will have to conduct extensive clinical trials at our own expense to determine safety and efficacy of the indication that we are pursuing.

Description of Property

On January 22, 2010, we moved to our new leased facility for our headquarters and Laboratory Information Services business, located at 85 Enterprise, Suite 410, Aliso Viejo, California 92656. We entered into a 36 month lease for the 2,023 square foot facility, which expires on January 31, 2013. The average cost of the lease for the period is $3,642 per month.

With respect to our Clinical Services operations, on April 1, 2010, we negotiated a 37 month extension to the original lease for our clinical services space, which expired in February 2010. The new lease for our 3,542 square foot facility will expire on April 30, 2013, and has an average cost for the lease term of $5,100 per month.

We believe that our current space is adequate for our needs and that suitable additional or substitute space will be available to accommodate the foreseeable expansion of our operations.

Employees

As of August 25, 2010, we had approximately 15 full-time and 7 part-time employees, and 3 independent contractors. We offer all full-time employees medical insurance, dental insurance and paid vacation. We believe that our relations with our employees are good. None of our employees belong to a union.

Legal Proceedings

From time to time, we may be involved in litigation relating to claims arising out of our operations in the ordinary course of business. Other than as set forth below, we are not currently party to any legal proceedings, the adverse outcome of which, in our management’s opinion, individually or in the aggregate, would have a material adverse effect on our results of operations or financial position.

Between June 2009 and July 2010, we were involved in litigation against Leonard J. Brandt, a stockholder, former director and our former Chief Executive Officer (“Brandt”) in the Delaware Chancery Court and the United States District Court for the Central District of California. At the conclusion of a two-day trial that commenced December 1, the Chancery Court entered judgment for the Company and dismissed with prejudice Brandt's action brought pursuant to Section 225 of the Delaware General Corporation Law, which sought to oust the incumbent directors other than Brandt. The Chancery Court thereby found that the purported special meeting of stockholders convened by Brandt on September 4, 2009 was not valid and that the directors purportedly elected at that meeting are not entitled to be seated. On January 4, 2010, Brandt filed an appeal with the Supreme Court of the State of Delaware in relation to the case. On April 20, 2010, the Delaware Supreme Court summarily affirmed the ruling of the Chancery Court dismissing the 225 action.

The Chancery Court also denied an injunction sought by Mr. Brandt to prevent the voting of shares issued by the Company in connection with our bridge financing in June 2009 and securities offering in August 2009, and dismissed Brandt's claims regarding those financings and stock issuances. On January 4, 2010, Brandt also filed an appeal in relation to this ruling with the Delaware Supreme Court. On February 25, 2010, Mr. Brandt voluntarily dismissed this appeal, and the ruling of the Chancery Court thereby became final and non-appealable.

On July 7, 2010, Mr. Brandt moved to dismiss his counterclaims against the Company that were pending before the United States District Court for the Central District of California and the Company consented to dismiss its complaint against Mr. Brandt, and on July 13, 2010, all of the Company’s claims and Mr. Brandt’s counterclaims in such action were dismissed. This resolved all pending actions between the Company and Mr. Brandt.

Website

We maintain a website at www.CNSResponse.com. The reference to our web address does not constitute incorporation by reference of the information contained at this site.

MANAGEMENT

The following table sets forth the name, age and position of each of our executive officers and directors as of July 15, 2010.

Name	Age	Position
George Carpenter	53	Chairman of the Board, Chief Executive Officer and Secretary
Paul Buck	54	Chief Financial Officer
Daniel Hoffman	62	President, Chief Medical Officer
Michael Darkoch	66	Executive Vice President and Chief Marketing Officer
John Pappajohn	81	Director
David B. Jones	66	Director
Jerome Vaccaro, M.D.	54	Director
Dr. Henry T. Harbin	63	Director
Dr. George J. Kallins	49	Director

George Carpenter, Chairman of the Board, Chief Executive Officer, Secretary

George Carpenter joined our board of directors as Chairman on April 10, 2009. Mr. Carpenter has been serving as our Chief Executive Officer since April 10, 2009 and prior to that date served as our President since October 1, 2007. As President, Mr. Carpenter’s primary responsibility involved developing strategy and commercializing our rEEG technology. From 2002 until he joined CNS, Mr. Carpenter was the President & CEO of WorkWell Systems, Inc., a national physical medicine firm that manages occupational health programs for Fortune 500 employers. Prior to his position at WorkWell Systems, Mr. Carpenter founded and served as Chairman and CEO of Core, Inc., a company focused on integrated disability management and work-force analytics. He served in those positions from 1990 until Core was acquired by Assurant, Inc. in 2001. From 1984 to 1990, Mr. Carpenter was a Vice President of Operations with Baxter Healthcare, served as a Director of Business Development and as a strategic partner for Baxter’s alternate site businesses. Mr. Carpenter began his career at Inland Steel where he served as a Senior Systems Consultant in manufacturing process control. Mr. Carpenter holds an MBA in Finance from the University of Chicago and a BA with Distinction in International Policy & Law from Dartmouth College. The Board selected Mr. Carpenter to serve as a director because of his extensive experience as chief executive officer for several companies and his service in a variety of leadership positions in the areas of fund raising, business development and building a management team. Mr. Carpenter provides critical insight into the areas of organizational and operational management.

Paul Buck, Chief Financial Officer

Effective February 18, 2010, we appointed Paul Buck, 54, to the position of Chief Financial Officer. Mr. Buck has been working with the Company as an independent consultant since December 2008, assisting management with finance and accounting matters as well as the Company’s filings with the Securities and Exchange Commission. Mr. Buck has worked as an independent consultant since 2004 and has broad experience with a wide variety of public companies. His projects have included forensic accounting, restatements, acquisitions, interim management and system implementations. Mr. Buck, a Swiss National, was raised in Southern Africa and holds a Bachelor of Science degree in Chemistry and a Bachelor of Commerce degree both from the University of Cape Town, South Africa. He started his career with Touche Ross & Co. in Cape Town and qualified as a Chartered Accountant. In 1985, Mr. Buck joined the Los Angeles office of Touche Ross & Co. where he was an audit manager. In 1991 he joined the American Red Cross Biomedical Services as the CFO of the Southern Californian Region. After five years with the organization, he returned to Deloitte & Touche as a manager in the Solutions Consulting Group. In 1998, Mr. Buck was recruited back to the American Red Cross Biomedical Services as CFO and became the Director of Operations for the Southern California Region until 2003.

Daniel Hoffman, Chief Medical Officer and President

Dr. Hoffman, 61, became our President on April 10, 2009 and our Chief Medical Officer on January 15, 2008 upon our acquisition of Neuro-Therapy Clinic, Inc., which at the time of the acquisition was our largest customer and which was owned by Dr. Hoffman. He had served as the Medical Director of Neuro-Therapy Clinic, Inc. since 1993. Dr. Hoffman is a Neuropsychiatrist with over 25 years experience treating general psychiatric conditions such as depression, bipolar disorder and anxiety. He provides the newest advances in diagnosing and treating attentional and learning problems in children and adults. Dr. Hoffman has authored over 40 professional articles, textbook chapters, poster presentations and letters to the editors on various aspects of neuropsychiatry, Quantitative EEG, LORETA, Referenced EEG, advances in medication management, national position papers and standards, Mild Traumatic Brain Injury, neurocognitive effects of Silicone Toxicity, sexual dysfunction and other various topics. Dr. Hoffman has given over 58 major presentations and seminars, including Grand Rounds at Universities and Hospitals, workshops and presentations at national society meetings (such as American Psychiatric Association and American Neuropsychiatric Association), national CME conferences, insurance companies, national professional associations, panel member discussant, and presenter of poster sessions. He has also lectured internationally as part of a consortium advancing Quantitative EEG in Psychiatry and done research with the major national academic institutions on the use of Referenced EEG to help guide treatment choices and as a Biomarker. Dr. Hoffman has a Bachelor of Science in Psychology from the University of Michigan, an MD from Wayne State University School of Medicine and conducted his Residency in Psychiatry at the University of Colorado Health Sciences Center. During the past five years, Dr. Hoffman has served as the President of Neuro-Therapy Clinic, Inc., a wholly-owned subsidiary of the company that is focused on discovering ways to integrate technology into the creation of better business practices.

Michael Darkoch, Executive Vice Presiden and Chief Marketing Officer

Michael Darkoch, 66, became our Executive Vice President and Chief Marketing Officer on July 6, 2010. Mr. Darkoch is responsible for managing and implementing various business activities associated with the launch and the commericalization of rEEG. This includes responsibility for business development, revenue generation, marketing, network management and performance and patient management. He is also responsible for managing sales and product placement across the various market channels we address including commercial payers, government agencies, employers and direct to consumer. Mr. Darkoch’s experience in healthcare spans over 30 years. He has significant business development and executive management in the pharmaceutical distribution field. Mr. Darkoch holds a Bachelor of Science of Industrial Engineering degree from Lehigh University and Master of Science in Business from Southern Methodist University. He started his engineering and management career with Texas Instruments and Mobil Chemical Company. He moved into healthcare in 1974 and joined Baxter International. He progressed through product development, logistics and distribution, business development and general manager over several business units. He pioneered business initiatives into home infusion, hospital systems, and alternate site delivery systems. He was responsible for client acquisition and renewal on the original Baxter team that developed Mail Order prescription fulfillment. This business unit was eventually spun-off and became Caremark Rx. Mr. Darkoch managed Caremark Rx sales and client growth from $100 million to $ 2.1 billion in a five year time frame. He left Caremark Rx in the late 1990’s and managed business development and client management for two disability management companies— CORE, Inc. and WorkWell Health Systems. In 2004, he reentered the PBM industry by joining MedImpact Health Systems in San Diego. He managed new business development for self insured clients achieving 25% growth per year; product development releasing 2 major products in one year; and Specialty Pharmacy, a value added product generating $20 million in year one.

John Pappajohn, Director

John Pappajohn joined our board of directors on August 26, 2009. Since 1969, Mr. Pappajohn has been the President and sole owner of Pappajohn Capital Resources, a venture capital firm, and President and sole owner of Equity Dynamics, Inc., a financial consulting firm, both located in Des Moines, Iowa. He serves as a director on the boards of the following public companies: American CareSource Holdings, Inc., Dallas, TX since 1994; PharmAthene, Inc., Annapolis, MD, since 2007; Spectrascience, Inc., San Diego, CA, since 2007, and ConMed Healthcare Management, Inc., Hanover, MD, since 2005. Mr. Pappajohn also serves as director of CareGuide, Inc., Florida (formerly Patient Infosystems, Inc.) since 1996, which was a public company through January 2009. Mr. Pappajohn was chosen to serve as a director of the Company because of his unparalleled experience serving as a director of more than 40 companies and the substantial insight he has gained into the life sciences and healthcare industries by actively investing in the industries for more than 40 years, and by founding and supporting several public healthcare companies.

David B. Jones, Director

David B. Jones has been a director of CNS California since August 2006, and became a director of the company upon the completion of our merger with CNS California on March 7, 2007. Mr. Jones currently serves as a partner of SAIL Venture Partners, L.P., a position which he has held since 2003. Mr. Jones served as Chairman and Chief Executive Officer of Dartron, Inc., a computer accessories manufacturer. From 1985 to 1997, Mr. Jones was a general partner of InterVen Partners, a venture capital firm with offices in Southern California and Portland, Oregon. From 1979 to 1985, Mr. Jones was President and Chief Executive Officer of First Interstate Capital, Inc., the venture capital affiliate of First Interstate Bancorp. Mr. Jones is a graduate of Dartmouth College and holds Masters of Business Administration and law degrees from the University of Southern California. Mr. Jones is the longest-serving member on our board and adds substantial expertise from his venture capital finance background and his executive experience. His experience provides the Company with valuable insight with respect to financing and operational strategies and corporate governance issues.

Jerome Vaccaro, M.D., Director

Jerome Vaccaro, M.D., joined the board of directors of CNS California in 2006 and became a director of the Company upon the completion of our merger with CNS California on March 7, 2007. Dr. Vaccaro is President and Chief Operating Officer of APS Healthcare, Inc. (APS), a privately held specialty healthcare company, which he joined in June 2007. From February 2001 until its acquisition by United Health Group in 2005, Dr. Vaccaro served as President and Chief Executive Officer of PacifiCare Behavioral Health (“PBH”), and then served as Senior Vice President with United Health Group’s Specialized Care Services until he joined APS. Dr. Vaccaro has also served as Medical Director of PBH (1996-2001), Chief Executive Officer of PacifiCare Dental and Vision (2002-2004), and Senior Vice President for the PacifiCare Specialty Health Division (2002-2004). Dr. Vaccaro has an extensive background in community mental health and public sector work, including editing the textbook, “Practicing Psychiatry in the Community,” which is hailed as the definitive community psychiatry text. Dr. Vaccaro completed medical school and a Psychiatry Residency at the Albert Einstein College of Medicine in New York City. After his training, Dr. Vaccaro served on the full-time faculty of the University of Hawaii (1985-1989) and UCLA (1989-1996) Departments of Psychiatry. Dr. Vaccaro was chosen to serve on the Company’s board because of his experience in senior executive positions in a diverse set of mental healthcare companies, his extensive background in community mental health and public sector work and his valuable experience in medical academia.

Henry T. Harbin, M.D., Director

Henry Harbin, M.D. joined our board of directors on October 17, 2007. Since 2004, Dr. Harbin has worked as an independent consultant providing health care consulting services to a number of private and public organizations. Dr. Harbin is a psychiatrist with over 30 years of experience in the behavioral health field. He has held a number of senior positions in both public and private health care organizations. He worked for 10 years in the public mental health system in Maryland serving as director of the state mental health authority for three of those years. He has been CEO of two national behavioral healthcare companies — Greenspring Health Services and Magellan Health Services. At the time he was CEO of Magellan, it was the largest managed behavioral healthcare company managing the mental health and substance abuse benefits of approximately 70 million Americans including persons who were insured by private employers, Medicaid and Medicare. In 2002 and 2003, he served on the President’s New Freedom Commission on Mental Health. As a part of the Commission he was chair of the subcommittee for the Interface between Mental Health and General Medicine. In 2005, he served as co-chair of the National Business Group on Health’s work group that produced the Employer’s Guide to Behavioral Health Services in December 2005. The Board selected Dr. Harbin to serve as a director because of his over 30 years of experience in the behavioral health field, which includes an impressive service record in the area of public sector health. His experience provides significant vision to a company in the mental healthcare industry.

George J. Kallins, M.D., Director

George Kallins, M.D. joined our board of directors on July 5, 2010. Dr. Kallins has an illustrious business and medical career to date. He has served as President and CEO of ACP Management, his family’s property management, development and real estate investment firm since 2004; however, he also continues to practice medicine in his specialty field of Obstetrics and Gynecology. He founded and was the CEO and President of Mission Obstetrics and Gynecology which was a 14 physician strong medical group and was also the founder and CEO of Medical Management Resources, a medical management and billing company. Dr Kallins served as the Medical Director of the USC Center for Women’s Mood Disorders while on the faculty at the University of Southern California School of Medicine in 1999 through 2000. During this time he also authored a book titled, Five Steps to a PMS Free Life, which includes issues dealing with mood disorders impacting some women. He published this book through The Village Healer Press which he founded. Dr. Kallins received his B.Sc majoring in Psychobiology from the University of Southern California and his medical degree from the Rush School of Medicine in Chicago, IL. He returned to the University of Southern California to do his residency in Obstetrics and Gynecology. Dr. Kallins also has an MBA from Pepperdine University. The Board selected Dr. Kallins to serve as a director because of his 20 plus years of experience in primary medicine, specifically in the field of mood disorders, and his business accomplishments. His experience provides the Company insight into the field of primary medical care and its relationship to the prescribing of psychotropic drugs. We believe the prescription of psychotropic drugs is an area of medicine which could benefit from our rEEG technology.

Board Composition and Committees and Director Independence

Our board of directors currently consists of six members: George Carpenter, Henry Harbin, David Jones, Jerome Vaccaro, John Pappajohn and George Kallins. With the exception of George Kallins, who was appointed to our board on July 5, 2010, each director was elected at our annual meeting of shareholders held on April 27, 2010. Each of our directors will serve until our next annual meeting and until his successor is duly elected and qualified.

We are not a “listed company” under SEC rules and are therefore not required to have separate committees comprised of independent directors. Our board of directors has, however, determined that David Jones, Jerome Vaccaro, Henry Harbin, John Pappajohn and George Kallins are “independent” as that term is defined in Section 5600 of the Nasdaq Listing Rules as required by the NASDAQ Stock Market (the “Nasdaq Listing Rules”). Our board of directors established an audit committee and a compensation committee at a board meeting held on March 3, 2010, and each committee has its own charter. The primary functions of these two committees are described below.

Audit Committee. The primary functions of the Audit Committee are to: assist the board of directors in its oversight responsibilities regarding (1) the integrity of the Company’s financial statements, (2) the Company’s compliance with legal and regulatory requirements, (3) the independent accountant’s qualifications and independence and (4) the Company’s internal and disclosure controls; prepare the report of the Audit Committee required by the SEC for inclusion in the Company’s annual proxy statement; retain and terminate the Company’s independent accountant; approve audit and non-audit services to be performed by the independent accountant; and perform such other functions as the board of directors may from time to time assign to the committee.

The Audit Committee is composed of three members, all of whom are “independent” as such term is defined in the rules and regulations of the SEC and the Nasdaq Listing Rules. Our board has also determined that David Jones qualifies as an “audit committee financial expert” within the meaning of the rules and regulations of the SEC and that each of our other committee members is able to read and understand fundamental financial statements and has substantial business experience that results in that member’s financial sophistication.

Compensation Committee. The Company’s executive compensation program is administered by the Compensation Committee. The Compensation Committee is composed of three directors, each of whom qualifies as an outside director within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended. The committee reports to the full board of directors on all matters within the committee’s responsibilities.

The Compensation Committee’s primary functions are to: discharge the oversight responsibilities of the board of directors with respect to compensation of the Company’s executives; if required, prepare the report of the Compensation Committee pursuant to SEC rules for inclusion in the Company’s annual proxy statement; and administer designated executive compensation plans of the Company. The Chief Executive Officer is not present during voting or deliberations on his or her compensation.

The following table below sets forth the membership of each Committee:

Name of Director	Audit Committee	Compensation Committee

John Pappajohn	Member	Chair

David B. Jones	Chair	Member

Jerome Vaccaro	Member

Henry T. Harbin		Member

Dr. Kallins has not been assigned to any board committee at this time.

We do not have a nominating and corporate governance committee and the function customarily delegated to such committee is performed by our full board of directors. In addition, we do not have any charter that relates to the functions traditionally performed by such committee.

EXECUTIVE COMPENSATION

Compensation Structure

Compensation Philosophy

Generally, we compensate our executive officers with a compensation package that is designed to drive company performance to maximize shareholder value while meeting our needs and the needs of our executives. The following are objectives we consider:

Alignment - to align the interests of executives and shareholders through equity-based compensation awards;

Retention - to attract, retain and motivate highly qualified, high performing executives to lead our growth and success; and

Performance - to provide, when appropriate, compensation that is dependent upon the executive's achievements and the company’s performance.

In order to achieve the above objectives, our executive compensation philosophy is guided by the following principles:

Rewards under incentive plans are based upon our short-term and longer-term financial results and increasing shareholder value;

Executive pay is set at sufficiently competitive levels to attract, retain and motivate highly talented individuals who are necessary for us to strive to achieve our goals, objectives and overall financial success;

Compensation of an executive is based on such individual's role, responsibilities, performance and experience; and

Annual performance of our company and the executive are taken into account in determining annual bonuses with the goal of fostering a pay-for-performance culture.

Compensation Elements

We compensate our executives through a variety of components, which may include a base salary, annual performance based incentive bonuses, equity incentives, and benefits and perquisites, in order to provide our executives with a competitive overall compensation package. The mix and value of these components are impacted by a variety of factors, such as responsibility level, individual negotiations and performance and market practice. The purpose and key characteristics for each component are described below.

Base Salary

Base salary provides executives with a steady income stream and is based upon the executive’s level of responsibility, experience, individual performance and contributions to our overall success, as well as negotiations between the company and such executive officer. Competitive base salaries, in conjunction with other pay components, enable us to attract and retain talented executives. The Board typically sets base salaries for our executives at levels that it deems to be competitive, with input from our Chief Executive Officer.

Annual Incentive Bonuses

Annual incentive bonuses are a variable performance-based component of compensation. The primary objective of an annual incentive bonus is to reward executives for achieving corporate and individual goals and to align a portion of total pay opportunities for executives to the attainment of our company’s performance goals. Annual incentive awards, when provided, act as a means to recognize the contribution of our executive officers to our overall financial, operational and strategic success.

Equity Incentives

Equity incentives are intended to align executive and shareholder interests by linking a portion of executive pay to long-term shareholder value creation and financial success over a multi-year period. Equity incentives may also be provided to our executives to attract and enhance the retention of executives and to facilitate stock ownership by our executives. The Board considers individual and company performance when determining long-term incentive opportunities.

Health & Welfare Benefits

The executive officers participate in health and welfare, and paid time-off benefits which we believe are competitive in the marketplace. Health and welfare and paid time-off benefits help ensure that we have a productive and focused workforce.

Severance and Change of Control Arrangements

We do not have a formal plan for severance or separation pay for our employees, but we typically include a severance provision in the employment agreements of our executive officers that have written employment agreements with us. Generally, such provisions are triggered in the event of involuntary termination of the executive without cause or in the event of a change in control. Please see the description of our employment agreements with each of George Carpenter, Daniel Hoffman and Paul Buck below for further information.

Other Benefits

In order to attract and retain highly qualified executives, we may provide our executive officers with automobile allowances, consistent with current market practices.

Accounting and Tax Considerations

We consider the accounting implications of all aspects of our executive compensation strategy and, so long as doing so does not conflict with our general performance objectives described above, we strive to achieve the most favorable accounting (and tax) treatment possible to the company and our executive officers.

Process for Setting Executive Compensation; Factors Considered

When making pay determinations for named executive officers, the Board considers a variety of factors including, among others: (1) actual company performance as compared to pre-established goals, (2) individual executive performance and expected contribution to our future success, (3) changes in economic conditions and the external marketplace, (4) prior years’ bonuses and long-term incentive awards, and (5) in the case of executive officers, other than Chief Executive Officer, the recommendation of our Chief Executive Officer, and in the case of our Chief Executive Officer, his negotiations with our Board. No specific weighing is assigned to these factors nor are particular targets set for any particular factor. Ultimately, the Board uses its judgment and discretion when determining how much to pay our executive officers and sets the pay for such executives by element (including cash versus non-cash compensation) and in the aggregate, at levels that it believes are competitive and necessary to attract and retain talented executives capable of achieving the Company’s long-term objectives.

Summary Compensation Table

The following table provides disclosure concerning all compensation paid for services to us in all capacities for our fiscal years ending September 30, 2009 and 2008 (i) as to each person serving as our principal executive officer (“PEO”) or acting in a similar capacity during our fiscal year ended September 30, 2009, and (ii) as to our most highly compensated executive officer other than our PEO who was serving as an executive officer at the end of our fiscal year ended September 30, 2009, whose compensation exceeded $100,000; and (iii) one additional individual for whom disclosure would have been provided under (ii) but for the fact that he was not serving as an executive officer as of September 30, 2009. The people listed in the table below are referred to as our “named executive officers”.

Name and Principal Position	Fiscal Year Ended September 30,	Salary ($)		Bonus ($)		Option Awards ($)			All Other Compensation ($)			Total ($)
George Carpenter (Chief Executive Officer,	2009		180,000		0		0			20,500	(2)		200,500
Principal Executive Officer, Director)	2008		180,000		0		680,700	(1)		16,300	(2)		877,000

Daniel Hoffman (President, Chief Medical Officer)	2009		150,000		0		0	(4)		33,400	(3)		183,400
	2008		108,100		0		0			39,200	(3)		147,300

Leonard Brandt (Former Chief Executive Officer,	2009		119,800		0		0	(5)		20,500			140,300
Former Principal Executive Officer, Former Director)	2008		175,000		0		0			19,000	(2)		194,000

(1) These options were granted on October 1, 2007. The amount reflected in the table represents the aggregate grant date fair value of options computed in accordance with FASB ASC Topic 718 (formerly FAS 123R). The fair value was estimated using the assumptions detailed in Note 4 to our yearend Financial Statements. The aggregate number of option awards outstanding for Mr. Carpenter at September 30, 2009 was 968,875.

(2) Relates to healthcare insurance premiums paid on behalf of executive officers by the company.

(3) Relates to healthcare insurance premiums for the year ended September 30, 2009 of $28,300 and automobile expenses of $4,400 paid on behalf of Dr. Hoffman by the company. For the year ended September 30, 2008, healthcare insurance premiums were $15,300 and automobile expenses were $8,900. Additionally Dr. Hoffman was paid $15,000 in consulting fees for services rendered to the company prior to his employment.

(4) The aggregate number of option awards outstanding for Dr. Hoffman at September 30, 2009 was 933,075.

(5) The aggregate number of option awards outstanding for Mr. Brandt at September 30, 2009 was 1,302,500.

Grant of Plan Based Awards in the Fiscal Year Ending September 30, 2009

No option grants to executive officers occurred during fiscal year ending September 30, 2009 under our 2006 Stock Incentive Plan, which is the only plan pursuant to which awards can be granted, as the Board was focused on management changes, securing funding and defending against a lawsuit brought by a dissident shareholder and fellow director.

Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards Table

Since we had $0.99 million in cash and cash equivalents and a working capital deficit of approximately $1.1 million as of September 30, 2009, we elected to preserve our cash and did not pay any bonuses to our executive officers during our fiscal year ended September 30, 2009.

The following is a summary of each employment agreement that we have entered into with respect to our named executive officers, which summary includes, where applicable, a description of all payments the company is required to make to such named executive officers at, following or in connection with the resignation, retirement or other termination of such named executive officers, or a change in control of our company or a change in the responsibilities of such named executive officers following a change in control.

Employment Agreements

George Carpenter

On October 1, 2007, after our 2007 fiscal year end, we entered into an employment agreement with George Carpenter pursuant to which Mr. Carpenter served as our President. During the period of his employment, Mr. Carpenter will receive a base salary of no less than $180,000 per annum, which is subject to upward adjustment at the discretion of the Chief Executive Officer or our Board of Directors. On March 3, 2010, the Board of Directors resolved to increase the annual base salary of Mr. Carpenter to $270,000, with the increase in salary having retroactive effect to January 1, 2010. In addition, pursuant to the terms of the employment agreement, on October 1, 2007, Mr. Carpenter was granted an option to purchase 968,875 shares of our common stock at an exercise price of $0.89 per share pursuant to our 2006 Stock Incentive Plan. These options vest as follows: 121,109 shares vested immediately with the remaining 847,766 shares vesting equally over 42 months commencing April 30, 2008. In the event of a change of control transaction, a portion of Mr. Carpenter’s unvested options equal to the number of unvested options at the date of the corporate transaction multiplied by the ratio of the time elapsed between October 1, 2008 and the date of corporate transaction over the vesting period (48 months) will automatically accelerate, and become fully vested. Mr. Carpenter will be entitled to four weeks vacation per annum, health and dental insurance coverage for himself and his dependents, and other fringe benefits that we may offer our employees from time to time.

Mr. Carpenter’s employment is on an “at-will” basis, and Mr. Carpenter may terminate his employment with us for any reason or for no reason. Similarly, we may terminate Mr. Carpenter’s employment with or without cause. If we terminate Mr. Carpenter’s employment without cause or Mr. Carpenter involuntarily terminates his employment with us (an involuntary termination includes changes, without Mr. Carpenter’s consent or pursuant to a corporate transaction, in Mr. Carpenter’s title or responsibilities so that he is no longer the President of the company), Mr. Carpenter shall be eligible to receive as severance his salary and benefits for a period equal to six months payable in one lump sum upon termination. If Mr. Carpenter is terminated by us for cause, or if Mr. Carpenter voluntarily terminates his employment, he will not be entitled to any severance.

As of April 10, 2009, Mr. Carpenter was named Chief Executive Officer and a Director of the company and Daniel Hoffman became our President. Other than Mr. Carpenter’s 2010 salary increase described above, his option grant on March 3, 2010 described below and his change in title, there have been no changes in the terms of Mr. Carpenter’s employment with us.

Daniel Hoffman

On January 11, 2008, we entered into an employment agreement with Daniel Hoffman pursuant to which Dr. Hoffman began serving as our Chief Medical Officer effective January 15, 2008. During the period of his employment, Dr. Hoffman will receive a base salary of $150,000 per annum, which is subject to upward adjustment. Dr. Hoffman will also have the opportunity to receive bonus compensation, if and when approved by our Board of Directors. Dr. Hoffman’s employment is on an “at-will” basis, and Dr. Hoffman may terminate his employment with us for any reason or for no reason. Similarly, we may terminate Dr. Hoffman’s employment with or without cause. If we terminate Dr. Hoffman’s employment without cause or Dr. Hoffman involuntarily terminates his employment with us (an involuntary termination includes changes, without Dr. Hoffman’s consent or pursuant to a corporate transaction, in Dr. Hoffman’s title or responsibilities so that he is no longer the Chief Medical Officer of the company), Dr. Hoffman will be eligible to receive as severance his salary and benefits for a period equal to six months payable in one lump sum upon termination. If Dr. Hoffman is terminated by us for cause, or if Dr. Hoffman voluntarily terminates his employment, he will not be entitled to any severance. Dr. Hoffman will be entitled to four weeks vacation per annum, health and dental insurance coverage for himself and his dependents, and other fringe benefits that we may offer our employees from time to time.

Prior to his employment, from October 1, 2007 to January 15, 2008 Dr. Hoffman earned $15,000 for consulting services rendered to the company. In addition, as compensation for his services to us as a consultant, Dr. Hoffman was granted options to purchase an aggregate of 814,062 shares of our common stock at an exercise price of $1.09 on August 7, 2007. In accordance with the terms of his employment agreement, the terms of Dr. Hoffman’s option grant were amended to provide that in the event of a change of control transaction, a portion of Dr. Hoffman’s unvested options equal to the number of unvested options at the date of the corporate transaction multiplied by the ratio of the time elapsed between August 7, 2007 and the date of corporate transaction over the vesting period (42 months), will automatically accelerate, and become fully vested.

In addition to being the Chief Medical Officer, Dr. Hoffman was named President of the Company on April 10, 2009.

Paul Buck

On February 18, 2010, we entered into an employment agreement with Paul Buck pursuant to which Mr. Buck began serving as our Chief Financial Officer on an “at will” basis and will be paid a salary of no less than $208,000 per annum, which is subject to upward adjustment at the discretion of the Chief Executive Officer or the Board of Directors of the Company. Pursuant to his employment agreement, Mr. Buck also received an option to purchase 450,000 shares of the company’s common stock on March 3, 2010, which options vest in 48 equal installments commencing on March 3, 2010. Mr. Buck will be entitled to four weeks vacation per annum, health and dental insurance coverage for himself and his dependents, and other fringe benefits that the Company may offer its employees from time to time. As Mr. Buck’s employment is on an “at-will” basis, he may terminate his employment with the Company for any reason or for no reason. Similarly, the Company may terminate Mr. Buck’s employment with or without cause. If the Company terminates Mr. Buck’s employment without cause or Mr. Buck involuntarily terminates his employment with the Company, Mr. Buck shall be eligible to receive as severance his salary and benefits for a period equal to six months payable in one lump sum upon termination. If Mr. Buck is terminated by the Company for cause, or if Mr. Buck voluntarily terminates his employment, he will not be entitled to any severance.

The Company has no other employment agreements with its executive officers.

2006 Stock Incentive Plan

On August 3, 2006, CNS California adopted the CNS California 2006 Stock Incentive Plan (the “2006 Plan”). On March 7, 2007, in connection with the closing of the merger transaction with CNS California, we assumed the CNS California stock option plan and all of the options granted under the plan at the same price and terms. Subsequently, we amended the 2006 Plan on March 3, 2010 to increase the number of shares of common stock reserved for issuance under the 2006 Plan from 10 million to 20 million shares and increased the limit on shares underlying awards granted within a calendar year to any eligible employee or director from 3 million to 4 million shares of common stock. The amendment was approved by shareholders at the annual meeting held on April 27, 2010. The following is a summary of the 2006 Plan, as amended, which we use to provide equity compensation to employees, directors and consultants to the company.

The 2006 Plan provides for the issuance of awards in the form of restricted shares, stock options (which may constitute incentive stock options (ISO) or nonstatutory stock options (NSO)), stock appreciation rights and stock unit grants and is administered by the board of directors. As of September 30, 2009, 2,124,740 options were exercised and there were 6,662,014 options and 183,937 restricted shares outstanding under the 2006 Plan and 1,029,309 shares available for issuance of awards. The option price for each share of stock subject to an option shall be (i) no less than the fair market value of a share of stock on the date the option is granted, if the option is an ISO, or (ii) no less than 85% of the fair market value of the stock on the date the option is granted, if the option is a NSO; provided, however, if the option is an ISO granted to an eligible employee who is a 10% shareholder, the option price for each share of stock subject to such ISO shall be no less than 110% of the fair market value of a share of stock on the date such ISO is granted. Stock options have a maximum term of ten years from the date of grant, except for ISOs granted to an eligible employee who is a 10% shareholder, in which case the maximum term is five years from the date of grant. ISOs may be granted only to eligible employees.

Outstanding Equity Awards at Fiscal Year-End 2009

The following table presents information regarding outstanding options held by our named executive officers as of the end of our fiscal year ended September 30, 2009. During the fiscal year ended September 30, 2009, Leonard Brandt exercised 2,124,740 options at an exercise price of $0.132 per share which were granted on August 11, 2006.

Name	Number of Securities Underlying Unexercised Options (#)				Option Exercise Price ($)		Option Expiration Date
	Exercisable		Unexercisable
George Carpenter (1)		484,454		484,421		0.89	October 1, 2017
Daniel Hoffman (2)		508,796		305,796		1.09	August 8, 2017
		119,013		0		0.12	August 11, 2016
Leonard Brandt (3)		229,353		104,258		1.20	August 8, 2012
		827,930		140,959		1.09	August 8, 2017

(1) Please see the summary of Mr. Carpenter’s employment agreement above, which describes the vesting terms of the options granted to Mr. Carpenter.

(2) On August 8, 2007, Dr. Hoffman was granted options to purchase 814,062 shares of our common stock. The options are exercisable at $1.09 per share and vest as follows: options to purchase 203,516 shares vested on March 8, 2008; options to purchase 593,600 shares vest in equal monthly installments of 16,960 shares over 35 months commencing on April 30, 2008; the remaining options to purchase 16,946 shares vest on March 31, 2011. On August 11, 2006, Dr. Hoffman was granted an option to purchase 119,013 shares of common stock at an exercise price of $0.12 per share, which is now fully exercisable.

(3) On August 8, 2007, Mr. Brandt was granted options to purchase 1,302,500 shares of our common stock. The options were exercisable at $1.20 per share as to 333,611 shares and $1.09 per share as to 968,889 shares. The option to purchase 333,611 of our shares was scheduled to vest as follows: options to purchase 83,403 shares vested on August 8, 2007, the date of grant; options to purchase 243,250 shares were scheduled to vest in equal monthly installments of 6,950 shares over 35 months commencing on January 31, 2008 and the remaining options to purchase 6,958 shares were scheduled to vest on December 31, 2010. The option to purchase 968,889 of our shares was scheduled to vest as follows: options to purchase 269,357 shares vested on August 8, 2007, the date of grant; options to purchase 135,675 shares vested in equal monthly installments of 27,135 shares over 5 months beginning on August 31 2007; options to purchase 543,726 shares were scheduled to vest in equal monthly installments of 20,138 shares over 27 months beginning on January 31, 2008 and the remaining options to purchase 20,131 shares were scheduled to vest on April 30, 2010. Upon Mr. Brandt’s termination as a Director on December 2, 2009, Mr. Brandt forfeited 90,358 options having an exercise price of $1.20 per share and 100,683 options having an exercise price of $1.09 per share.

Director Compensation

During our fiscal year ended September 30, 2009, our non-employee directors did not receive compensation for their services on our board. We do not pay management directors for board service in addition to their regular employee compensation. The full Board of Directors has the primary responsibility for reviewing and considering any revisions to director compensation. Going forward, we intend to compensate our non-employee directors for their service on our Board with a combination of cash payments and option grants (please see the description of option grants to our non-employee directors on March 3, 2010 described below). As described below, Dr. Harbin received compensation for consulting services he provided to the company during our fiscal year ending September 30, 2009.

Non-Employee Director Compensation

Name	All Other Compensation ($)		Total ($)
Jerome Vaccaro (1)		0		0
Henry Harbin (2)		46,400		46,400
John Pappajohn (3)		0		0
Tommy Thompson (3)(4)		0		0
David Jones (3)		0		0

(1) The aggregate number of option awards outstanding for Dr. Vaccaro at September 30, 2009 was 20,000. On August 28, 2006, Dr. Vaccaro was granted 20,000 options having an exercise price of $0.12 for his service as a Director. The options vested semiannually in four equal amounts over a period of two years commencing February 28, 2007 through August 31, 2008. These options expire on August 28, 2016 and are fully vested.

(2) The amount reflected in the table represents the aggregate grant date fair value of options granted under the March 17, 2009 Consulting Agreement (as defined below) computed in accordance with FASB ASC Topic 718 (formerly FAS 123R). The fair value was estimated using the assumptions detailed in Note 4 to our year end Financial Statements. The aggregate number of option awards outstanding for Dr. Harbin at September 30, 2009 was 156,000.

On August 8, 2007, we entered into an agreement with Dr. Harbin for consulting services. Pursuant to the agreement, we granted, on August 8, 2007, options to purchase 24,000 shares of our common stock at an exercise price of $1.09 per share pursuant to our 2006 Stock Incentive Plan. The options expire on August 8, 2017 and are now fully vested.

As compensation for his service as a Director of the company, on December 19, 2007, we granted Dr. Harbin options to purchase 20,000 shares of our common stock at an exercise price of $0.80 per share under our 2006 Stock Incentive Plan. The options expire on December 19, 2017 and are now fully vested.

On April 15, 2008, we entered into a consulting agreement with Dr. Harbin which expired on December 31, 2008. Pursuant to the agreement, we paid Dr. Harbin a consulting fee of $24,000 in cash of which $8,000 was paid during the fiscal year ended September 30, 2009. Additionally Dr. Harbin was granted options to purchase 56,000 shares of our common stock at an exercise price of $0.96 per share under our 2006 Stock Incentive Plan. The options expire on April 15, 2018 and are now fully vested.

On March 17, 2009, we entered into a consulting agreement with Dr. Harbin (the “March 17, 2009 Consulting Agreement), which expired on December 31, 2009 pursuant to which Dr. Harbin was to be paid an aggregate of $24,000 as compensation for his consulting services. Dr. Harbin was paid the $24,000 due to him in January 2010. In addition, as further compensation, we granted Dr. Harbin options to purchase 56,000 shares of our common stock at an exercise price of $0.40 per share, with the options vesting in equal monthly installments over a twelve month period commencing on January 1, 2009. The options expire on March 17, 2019.

On March 26, 2010, we entered into a consulting agreement with Dr. Harbin (the “March 26, 2010 Consulting Agreement”), pursuant to which Dr. Harbin is to be paid an aggregate of $36,000 as compensation for his consulting services. The agreement expires on December 31, 2010, but is renewable for two one year terms on January 1, 2011 and 2012.

(3) No options were granted to Mr. Pappajohn, Mr. Thompson or Mr. Jones as of September 30, 2009.

(4) Mr. Thompson resigned from the Board effective March 12, 2010.

2010 Option Grants to Officers and Directors

After adopting the amendment to the Company’s 2006 Stock Incentive Plan, on March 3, 2010, the Company’s Board of Directors granted options to the directors and officers as listed in the table below (except that Mr. Kallins’ options were granted on July 5, 2010 in connection with his appointment to the Board). Each of the options granted on March 3, 2010 has an exercise price of $0.55 per share and a term of 10 years from the date of grant. The options vest evenly over a 48 month period for officers and over a 36 month period for non-employee directors starting on March 3, 2010. Mr. Kallins’ option has an exercise price of $0.40 per share, a term of 10 years from the date of grant, and vests in 36 equal installments over a 36 month period.

Executive Officers and Directors:	Number of Options Granted on March 3, 2010		Vesting Period: Number of months starting March 3, 2010
George Carpenter Chief Executive Officer, Secretary		4,000,000	48 months
Paul Buck Chief Financial Officer		450,000	48 months
Dr. Daniel Hoffman President and Chief Medical Officer		500,000	48 months
David B. Jones (3) Director		250,000	36 months
Dr. Jerome Vaccaro Director		250,000	36 months
Dr. Henry Harbin (1) Director		650,000	36 months
John Pappajohn (3) Director		250,000	36 months
Tommy Thompson (2) Director		400,000	36 months

		Number of Options Granted on July 5, 2010			Vesting Period: Number of months starting July 5, 2010
Dr. George Kallins (3) Director			250,000		36 months

(1)

Dr. Harbin was granted options by purchase 250,000 shares of common stock for his work as a Director and options to purchase 400,000 shares of common stock as part of a consulting agreement.

(2)

Mr. Thompson was granted options by purchase 250,000 shares of common stock for his work as a Director and options to purchase 150,000 shares of common stock for his special advisory work with the Company. Shortly after being granted the options Mr. Thompson resigned from the Board of Directors and forfeited the 250,000 options to purchase common stock that were provided as director compensation.

(3)

Non-employee directors were granted options by purchase 250,000 shares of common stock for their board service.

Changes in Control

We do not have any arrangements which may at a subsequent date result in a change in control.

PRINCIPAL AND SELLING STOCKHOLDERS

The selling security holders may offer and sell, from time to time, any or all of the shares of common stock held by them. Because the selling security holders may offer all or only some portion of the 65,879,838 shares of common stock to be registered, we cannot estimate how many shares of common stock the selling security holders may hold upon termination of the offering, nor can we express, as a percentage, how this number of shares will relate to the total number of shares that we will have outstanding at that time.

The following table presents information regarding the beneficial ownership of our common stock as of July 15, 2010 (unless information therein specifically references an alternative date), and the number of shares of common stock covered by this prospectus. The number of shares in the table represents an estimate of the number of shares of common stock to be offered by:

each of the executive officers;

each of our directors;

all of our directors and executive officers as a group;

each stockholder known by us to be the beneficial owner of more than 5% of our common stock; and

each of the selling stockholders.

Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. Unless otherwise indicated below, to our knowledge, the persons and entities named in the table have sole voting and sole investment power with respect to all shares beneficially owned, subject to community property laws where applicable. Shares of our common stock subject to options and warrants from the company that are currently exercisable or exercisable within sixty days of July 15, 2010 are deemed to be outstanding and to be beneficially owned by the person holding the options for the purpose of computing the percentage ownership of that person but are not treated as outstanding for the purpose of computing the percentage ownership of any other person.

The information presented in this table is based on 56,023,921 shares of our common stock outstanding on July 15, 2010. Unless otherwise indicated, the address of each of the executive officers and directors and 5% or more stockholders named below is c/o CNS Response, Inc., 85 Enterprise, Suite 410, Aliso Viejo, CA 92656.

	Number of Shares Beneficially Owned Prior to Offering					Number of		Number of Shares Beneficially Owned After Offering
Name of Beneficial Owner	Number		Percentage of Shares Outstanding			Shares Being Offered		Number		Percentage of Shares Outstanding

Executive Officers and Directors:
George Carpenter (1) Chief Executive Officer, Secretary		1,829,792		3.2	%		540,000		1,289,792		2.2	%
Paul Buck (2) Chief Financial Officer		335,625		*			270,000		65,625		*
Dr. Daniel Hoffman (3) President and Chief Medical Officer		998,333		1.8	%		110,545		887,788		1.6	%

	Number of Shares							Number of Shares
	Beneficially Owned							Beneficially Owned
	Prior to Offering					Number of		After Offering
			Percentage			Shares				Percentage
			of Shares			Being				of Shares
Name of Beneficial Owner	Number		Outstanding			Offered		Number		Outstanding
Michael Darkoch (4)		9,375		*			-		9,375		*
David B. Jones(5) Director		8,744,679		15.0	%		8,696,055		48,624		*
Dr. Jerome Vaccaro (6) Director		68,624		*			-		68,624		*
Dr. Henry Harbin (7) Director		293,239		*			10,834		282,405		*
John Pappajohn (8) Director		11,769,536		19.8	%		11,720,912		48,624		*
Dr. George Kallins (9) Director		558,848		1.0	%		-		558,848		1.0	%
Directors and officers as a group (9 persons) (10)		24,598,676		37.8	%		21,348,346		3,250,330		5.0	%

Non-Director 5%+ Stockholders:
Leonard Brandt (11)		11,081,982		19.0	%		9,970,523		1,111,459		1.9	%
SAIL Venture Partners LP (5)..		8,696,055		15.0	%		8,696,055		-		-

Other Selling Stockholders:									-		-
Argyris Vassiliou (12)		500,001		*			500,001		-		-
James Howard Desnick, M.D. (13)		1,620,000		2.9	%		1,620,000		-		-
Peter Unanue (14)		974,990		1.7	%		974,990		-		-
Ann Vassiliou Children’s Trust P2587 (15)		500,001		*			500,001		-		-
AC Care, LLC (16)		100,000		*			100,000		-		-
AJWC Ltd. (17)		540,000		1.0	%		540,000		-		-
Andy’s Liquor, Inc. (18)		750,000		1.3	%		750,000		-		-
Theodore Chafoulias (19)		150,000		*			150,000		-		-
Dennis James Colbert and Patti J. Colbert, as joint tenants with right of survivorship (20)		540,000		1.0	%		540,000		-		-
Ronald I. Dozoretz, M.D. (21)		540,000		1.0	%		540,000		-		-
Richard L. Hexum, Jr. (22)		770,000		1.4	%		770,000		-		-
Larry Hopfenspirger (23)		600,000		1.1	%		600,000		-		-
William and Joanne Jellison (24)		500,000		*			500,000		-		-
Jeffrey P. Knightly (25)		540,000		1.0	%		540,000		-		-
Meyer Leon Proler (26)		1,853,274		3.3	%		1,853,274		6,000		*
Dale Ragan (27)		645,000		1.1	%		645,000		-		-
Richard Lee Roehl (28)		1,080,000		1.9	%		1,080,000		-		-
Lindsay A. Rosenwald, M.D. (29)		1,080,000		1.9	%		1,080,000		-		-
Gene Salkind, M.D. (30)		540,000		1.0	%		540,000		-		-
Starr F. Schlobohm Rev. Trust U/D/A 12/09/04 (31)		540,000		1.0	%		540,000		-		-

	Number of Shares							Number of Shares
	Beneficially Owned							Beneficially Owned
	Prior to Offering					Number of		After Offering
			Percentage			Shares				Percentage
			of Shares			Being				of Shares
Name of Beneficial Owner	Number		Outstanding			Offered		Number		Outstanding
Myron F. Steves, Jr. (32)		540,000		1.0	%		540,000		-		-
David S. Strutt (33)		540,000		1.0	%		540,000		-		-
Brian J. Thompson (34)		720,000		1.3	%		270,000		450,000		*
Mark C. Thompson & Bonita S. Thompson Revocable Living Trust Dated 1/14/04 (35)		1,620,000		2.9	%		1,620,000		-		-
John Francis Wheeler (36)		270,000		*			270,000		-		-
White Sand Investor Group, L.P. (37)		1,350,000		2.4	%		1,350,000		-		-
B + D Associates (38)		500,000		*			500,000		-		-
Adolfo and Donna Carmona, as joint tenants with right of survivorship (39)		540,000		1.0	%		540,000		-		-
The Carnahan Trust (40)		540,000		1.0	%		540,000		-		-
Jordan Family LLC (41)		330,000		*			330,000		-		-
John V. BiVona (42)		250,000		*			250,000		-		-
Maxim Group LLC (43)		965,134		1.7	%		965,134		-		-
Monarch Capital Group (44)		65,340		*			65,340		-		-
Robert Nathan (45)		152,460		*			152,460		-		-
Felix Investments, LLC (46)		292,200		*			292,200		-		-
George C. Foulkes (47)		30,102		*			30,102		-		-
Max A. Schneider, Inc. (48)		128,617		*			128,617		-		-
Kenneth Leonard (49)		150,513		*			150,513		-		-
Anthony Morgenthau (50)		7,415		*			7,415		-		-
Mao Holdings (Cayman) Limited (51)		400,000		*			400,000		-		-
Glenn Baron (52)		90,308		*			90,308		-		-
Moty Yekutiel (53)		208,553		*			34,607		173,946		*
Pike Family Trust (54)		107,834		*			107,834		-		-
Carl Cadwell (55)		642,336		1.1	%		144,136		498,200		*
Brian MacDonald (56)		2,383,583		4.2	%		1,015,459		1,368,124		2.4	%
W. Hamlin Emory (57)		1,346,268		2.4	%		117,170		1,229,098		2.2	%
Heartland Value Fund (58)		2,340,000		4.1	%		2,340,000		-		-
EAC Investment Limited Partnership (59)		1,766,279		3.1	%		1,766,279		-		-
Partner Healthcare Offshore Fund, Ltd. Partner Healthcare Fund, L.P. (60)		1,333,657		2.4	%		1,333,657		-		-
David J. Zwiebel (61)		24,486		*			12,501		11,985		*
Craig B. Swanson (62)		29,250		*			29,250		-		-
David J. Galey (63)		56,122		*			15,231		40,891		*
Bill and Kim Woodworth (64)		58,500		*			58,500		-		-
Bradley N. Rotter Self Employed Pension Plan & trust (65)		142,751		*			33,751		109,000		*
Bradley Rotter (66)		532,333		*			100,000		432,333		*
Paul E. von Kuster (67)		109,688		*			109,688		-		-

	Number of Shares							Number of Shares
	Beneficially Owned							Beneficially Owned
	Prior to Offering					Number of		After Offering
			Percentage			Shares				Percentage
			of Shares			Being				of Shares
Name of Beneficial Owner	Number		Outstanding			Offered		Number		Outstanding
Paul E. von Kuster, Trustee, Credit trust under will of Thomas W. von Kuster (68)		55,575		*			55,575		-		-
David R. Holbrooke (69)		58,500		*			58,500		-		-
Max A Schneider, M.D. Trust (70)		18,625		*			14,625		4,000		*
Frederick E. Kahn, MD (71)		29,250		*			29,250		-		-
Dr. Jim Greenblatt (72)		198,402		*			187,528		10,874		*
Lawrence M. Baill (73)		44,727		*			44,727		-		-
Jospeh A. Bailey (74)		29,250		*			29,250		-		-
Daniel E. Greenblatt (75)		58,500		*			58,500		-		-
Fred Ehrman (76)		325,000		*			75,000		250,000		*
Michael T. Cullen, M.D. (77)		54,182		*			26,000		28,182		*
Crown Jewel Ventures, LLC (78)		181,226		*			49,419		131,807		*
Itasca Capital Partners, LLC (79)		58,500		*			58,500		-		-
Kerry Judd and Susan Stillman (80)		10,970		*			10,970		-		-
H. R. Swanson Revocable Trust (81)		58,500		*			58,500		-		-
Robert James Blinken Jr. (82)		29,250		*			29,250		-		-
Brean Murray Carret & Co. (83)		1,278,657		2.3	%		1,257,650		21,007		*
Hal F. Lewis (84)		32,500		*			32,500		-		-
G&A Consulting Retirement Trust (85)		58,500		*			58,500		-		-
Scott Alderton (86)		50,894		*			50,894		-		-
Murray Markiles (87)		50,894		*			50,894		-		-
V. Joseph Stubbs (88)		50,894		*			50,894		-		-
Jonathan Hodes (89)		25,535		*			25,535		-		-
John McIlvery (90)		25,804		*			25,804		-		-
Greg Akselrud (91)		21,272		*			21,272		-		-
Scott Galer (92)		17,877		*			17,877		-		-
Kevin DeBre (93)		22,558		*			22,558		-		-
Ryan Azlein (94)		9,430		*			9,430		-		-
AJ Investors # 1 (95)		359,506		*			50,001		309,505		*
John Pagnucco (96)		650,699		1.2	%		560,807		89,892		*
Tanya Ragan (97)		125,000		*			125,000		-		-
Ann & RJ Vassiliou (98)		367,608		*			367,608		-		-
NICALE Partners (99)		367,608		*			367,608		-		-
Thomas W. Von Kuster Jr. (100)		17,625		*			14,625		3,000		*
Thomas E. Brust & Susan Brust JT TEN (101)		58,500		*			58,500		-		-

*	Less than 1%

(1)

Consists of (a) 360,000 shares of common stock (b) 180,000 shares of common stock issuable upon the exercise of vested and exercisable warrants to purchase common stock having an exercise price of $0.30 per share and (c) options to acquire 1,289,792 shares of common stock issuable upon the exercise of vested and exercisable options. 360,000 shares of common stock and 180,000 shares of common stock issuable upon exercise of warrants are being registered for resale on this prospectus. These warrants to purchase common stock do not have a cashless exercise feature. The securities being registered were acquired by the investor by participating in the 2009 private placement.

(2)

Consists of (a) 180,000 shares of common stock (b) 90,000 shares reserved for issuance upon exercise of warrants to purchase common stock having an exercise price of $0.30 per share and (c) options to acquire 65,625 shares of common stock issuable upon the exercise of vested and exercisable options. 180,000 shares of common stock and 90,000 shares of common stock issuable upon exercise of warrants are being registered for resale on this prospectus. These warrants to purchase common stock do not have a cashless exercise feature. The securities being registered were acquired by the investor by participating in the 2009 private placement. Prior to becoming an employee of the company, Mr. Buck was a financial consultant to CNS Response.

(3)

Consists of (a) 98,544 shares of common stock, which includes 500 shares held by Dr. Hoffman’s daughter (b) 12,501 shares of common stock issuable upon the exercise of vested and exercisable warrants to purchase common stock and (c) options to acquire 887,788 shares of common stock issuable upon the exercise of vested and exercisable options. 98,044 shares of common stock and 12,501 shares of common stock issuable upon exercise of warrants are being registered for resale on this prospectus. The securities being registered were acquired by the investor by participating in the 2007 private placement and in connection with the completion of the reverse merger pursuant to which the investor’s securities in CNS California were exchanged for securities in the company. The shares of common stock issuable upon exercise of warrants that are being registered for resale on this prospectus have an exercise price of $1.80 per share. These warrants to purchase common stock have a cashless exercise feature.

(4)

Consists of options to acquire 9,375 shares of common stock issuable upon the exercise of vested and exercisable options.

(5)

(6)

Consists of options to acquire 68,624 shares of common stock issuable upon the exercise of vested and exercisable options.

(7)

Consists of (a) 8,333 shares of common stock, (b) 2,501 shares of common stock issuable upon the exercise of warrants to purchase common stock and (c) options to acquire 282,405 shares of common stock issuable upon the exercise of vested and exercisable options. 8,333 shares of common stock and 2,501 shares of common stock issuable upon exercise of warrants having an exercise price of $1.80 per share are being registered for resale on this prospectus by the selling stockholder. These warrants to purchase common stock have a cashless exercise feature. The securities being registered were acquired by the investor by participating in the 2007 private placement.

(8)

Consists of (a) 8,387,578 shares of common stock, (b) 3,333,334 shares of common stock issuable upon the exercise of warrants to purchase common stock having an exercise price of $0.30 per share, and (c) 48,624 shares of common stock issuable upon the exercise of vested and exercisable options. These warrants to purchase common stock do not have a cashless exercise feature. On July 25, 2010 (subsequent to the date of the information provided above), Mr. Pappajohn became the beneficial owner of an additional 1,000,000 shares of common stock which are issuable upon the conversion of two bridge notes acquired by John Pappajohn on June 3, 2010 and July 25, 2010, respectively, and an additional 250,000 shares of common stock which are issuable upon the exercise of warrants issued to Mr. Pappajohn on July 25, 2010. 8,387,578 shares of common stock and 3,333,334 shares of common stock issuable upon exercise of warrants are being registered for resale on this prospectus by the selling stockholder. The securities being registered for resale were acquired by the investor pursuant to the transactions described below under the heading “Related Party Transactions-Transactions with John Pappajohn.” The address of John Pappajohn is 2116 Financial Center, Des Moines, IA 50309.

(9)

Consists of (a) 38,000 shares of common stock, (b) 500,000 shares of common stock issuable upon the conversion of the Deerwood Notes and (c) options to acquire 20,848 shares of common stock issuable upon the exercise of vested and exercisable options. On August 20, 2010 (subsequent to the date of the information provided above), Deerwood Partners LLC and Deerwood Holdings LLC, of which the stockholder is the co-managing member along with his spouse, became the beneficial owner of an additional 500,000 shares of common stock which are issuable upon the conversion of the two Deerwood Notes issued on August 20, 2010, and an additional 150,000 shares of common stock which are issuable upon the exercise of the related warrants.

(10)

Consists of (a) 15,543,522 shares of common stock (b) 5,843,324 shares of common stock issuable upon the exercise of vested and exercisable warrants and (c) 2,711,830 shares of common stock issuable upon the exercise of vested and exercisable options.

(11)

Consists of (a) 8,890,795 shares of common stock (including 540,000 shares owned by Mr. Brandt's children and 956,164 shares held by Brandt Ventures), (b) 1,079,728 shares reserved for issuance upon exercise of warrants to purchase common stock (including warrants to purchase 478,082 shares of common stock held by Brandt Ventures) and (c) 1,111,459 shares reserved for issuance upon exercise of options to purchase common stock held by Mr. Brandt. Of these holdings, 8,890,795 shares of common stock and 1,079,728 shares of common stock reserved for issuance upon exercise of certain warrants to purchase common stock having an exercise price of $0.30 per share with respect to 478,082 shares and $0.59 per share with respect to 601,646 shares are being registered for resale. The $0.59 per share warrants to purchase common stock have a cashless exercise feature; the $0.30 per share warrants to purchase common stock do not have a cashless exercise feature. The securities being registered for resale were acquired by the investor pursuant to the transactions described below under the heading “Related Party Transactions- Transaction with Leonard Brandt.” The address of Leonard Brandt is 28911 Via Hacienda San Juan Capistrano CA 92675. Leonard Brandt became our Chairman of the Board, Chief Executive Officer and Secretary upon completion of our merger with CNS California and served in these positions until April 10, 2009. Mr. Brandt is a founder of CNS California, and previously served as its President and Chief Executive Officer, and as a member of its Board of Directors.

(12)

(13)

Consists of 1,080,000 shares of common stock and 540,000 shares reserved for issuance upon exercise of warrants to purchase common stock having an exercise price of $0.30 per share. These warrants to purchase common stock do not have a cashless exercise feature. The securities being registered for resale were acquired by the investor by participating in the 2009 private placement.

(14)

Consists of 650,000 shares of common stock and 324,990 shares reserved for issuance upon exercise of warrants to purchase common stock having an exercise price of $0.30 per share. These warrants to purchase common stock do not have a cashless exercise feature. The securities being registered for resale were acquired by the investor by participating in the 2009 private placement.

(15)

Consists of 333,334 shares of common stock and 166,667 shares reserved for issuance upon exercise of warrants to purchase common stock having an exercise price of $0.30 per share. These warrants to purchase common stock do not have a cashless exercise feature. The securities being registered for resale were acquired by the investor by participating in the 2009 private placement. Argyris Vassiliou, as trustee of the Ann Vassiliou Children’s Trust P2587, exercises voting and investment authority over the shares held by this selling stockholder.

(16)

Consists of 66,667 shares of common stock and 33,333 shares reserved for issuance upon exercise of warrants to purchase common stock having an exercise price of $0.30 per share. These warrants to purchase common stock do not have a cashless exercise feature. The securities being registered for resale were acquired by the investor by participating in the 2009 private placement. Andrew Chafoulias, as Chief Manager, exercises voting and investment authority over the shares held by this selling stockholder.

(17)

Consists of 360,000 shares of common stock and 180,000 shares reserved for issuance upon exercise of warrants to purchase common stock having an exercise price of $0.30 per share. These warrants to purchase common stock do not have a cashless exercise feature. The securities being registered for resale were acquired by the investor by participating in the 2009 private placement. William Wu, as President, exercises voting and investment authority over the shares held by this selling stockholder.

(18)

Consists of 500,000 shares of common stock and 250,000 shares reserved for issuance upon exercise of warrants to purchase common stock having an exercise price of $0.30 per share. These warrants to purchase common stock do not have a cashless exercise feature. The securities being registered for resale were acquired by the investor by participating in the 2009 private placement. Gus Chafoulias, as President, exercises voting and investment authority over the shares held by this selling stockholder.

(19)

Consists of 100,000 shares of common stock and 50,000 shares reserved for issuance upon exercise of warrants to purchase common stock having an exercise price of $0.30 per share. These warrants to purchase common stock do not have a cashless exercise feature. The securities being registered for resale were acquired by the investor by participating in the 2009 private placement.

(20)

(21)

(22)

Consists of 513,333 shares of common stock and 256,667 shares reserved for issuance upon exercise of warrants to purchase common stock having an exercise price of $0.30 per share. These warrants to purchase common stock do not have a cashless exercise feature. The securities being registered for resale were acquired by the investor by participating in the 2009 private placement.

(23)

Consists of 400,000 shares of common stock and 200,000 shares reserved for issuance upon exercise of warrants to purchase common stock having an exercise price of $0.30 per share. These warrants to purchase common stock do not have a cashless exercise feature. The securities being registered for resale were acquired by the investor by participating in the 2009 private placement.

(24)

Consists of 333,333 shares of common stock and 166,667 shares reserved for issuance upon exercise of warrants to purchase common stock having an exercise price of $0.30 per share. These warrants to purchase common stock do not have a cashless exercise feature. The securities being registered for resale were acquired by the investor by participating in the 2009 private placement.

(25)

(26)

Consists of 1,460,351 shares of common stock, 386,923 shares reserved for issuance upon exercise of warrants to purchase common stock and options to acquire 6,000 shares of common stock issuable upon the exercise of vested and exercisable options. 1,460,351 shares of common stock and 386,923 shares of common stock issuable upon exercise of warrants having an exercise price of $0.59 per share with respect to 26,923 shares and $0.30 per share with respect to 360,000 shares are being registered for resale on this prospectus by the selling stockholder. The $0.59 per share warrants to purchase common stock have a cashless exercise feature; the $0.30 per share warrants to purchase common stock do not have a cashless exercise feature. Dr. Proler acquired securities in the company being registered for resale upon the completion of the reverse merger pursuant to which CNS California became a subsidiary of the company on March 7, 2007. In addition, Dr. Proler acquired shares being registered for resale through his participation in the 2009 private placement. Dr. Proler provides medical consulting services to the company.

(27)

Consists of 430,000 shares of common stock and 215,000 shares reserved for issuance upon exercise of warrants to purchase common stock having an exercise price of $0.30 per share. These warrants to purchase common stock do not have a cashless exercise feature. The securities being registered for resale were acquired by the investor by participating in the 2009 private placement.

(28)

(29)

Consists of 720,000 shares of common stock and 360,000 shares reserved for issuance upon exercise of warrants to purchase common stock having an exercise price of $0.30 per share. These warrants to purchase common stock do not have a cashless exercise feature. The securities being registered for resale were acquired by the investor by participating in the 2009 private placement. The selling stockholder is an affiliate of a broker dealer but has certified to the company that she bought the securities being registered for resale in the ordinary course of business, and at the time of the purchase of such securities, had no agreements or understandings, directly or indirectly, with any person to distribute such securities.

(30)

(31)

Consists of 360,000 shares of common stock and 180,000 shares reserved for issuance upon exercise of warrants to purchase common stock having an exercise price of $0.30 per share. These warrants to purchase common stock do not have a cashless exercise feature. The securities being registered for resale were acquired by the investor by participating in the 2009 private placement. Starr F. Schlobohm, as trustee of the selling stockholder, exercises voting and investment authority over the shares held by this selling stockholder.

(32)

(33)

(34)

Consists of 180,000 shares of common stock and 540,000 shares reserved for issuance upon exercise of warrants to purchase common stock having an exercise price of $0.30 per share. These warrants to purchase common stock do not have a cashless exercise feature. Mr. Thompson is an employee of Equity Dynamics, Inc., which has provided advisory services to the company. 180,000 shares of common stock and 90,000 shares reserved for issuance upon exercise of warrants to purchase common stock are being registered for re-sale by the selling shareholder on this prospectus. The securities being registered for resale were acquired by the investor by participating in the 2009 private placement.

(35)

(36)

Consists of 180,000 shares of common stock and 90,000 shares reserved for issuance upon exercise of warrants to purchase common stock having an exercise price of $0.30 per share. These warrants to purchase common stock do not have a cashless exercise feature. The securities being registered for resale were acquired by the investor by participating in the 2009 private placement.

(37)

Consists of 900,000 shares of common stock and 450,000 shares reserved for issuance upon exercise of warrants to purchase common stock having an exercise price of $0.30 per share. These warrants to purchase common stock do not have a cashless exercise feature. The securities being registered for resale were acquired by the investor by participating in the 2009 private placement. Elliott Donnelley, as President, Corporate G.P., exercises voting and investment authority over the shares held by this selling stockholder.

(38)

(39)

(40)

Consists of 360,000 shares of common stock and 180,000 shares reserved for issuance upon exercise of warrants to purchase common stock having an exercise price of $0.30 per share. These warrants to purchase common stock do not have a cashless exercise feature. The securities being registered for resale were acquired by the investor by participating in the 2009 private placement. Kevin and Laurie Carnahan, as trustees, exercise voting and investment authority over the shares held by this selling stockholder.

(41)

Consists of 220,000 shares of common stock and 110,000 shares reserved for issuance upon exercise of warrants to purchase common stock having an exercise price of $0.30 per share. These warrants to purchase common stock do not have a cashless exercise feature. The securities being registered for resale were acquired by the investor by participating in the 2009 private placement. Patricia J. Jordan, as Chief Manager, exercises voting and investment authority over the shares held by this selling stockholder.

(42)

Consists of 166,667 shares of common stock and 83,333 shares reserved for issuance upon exercise of warrants to purchase common stock having an exercise price of $0.30 per share. These warrants to purchase common stock do not have a cashless exercise feature. The securities being registered for resale were acquired by the investor by participating in the 2009 private placement.

(43)

Consists of 965,134 shares reserved for issuance upon exercise of warrants to purchase common stock having an exercise price of $0.33 per share. These warrants to purchase common stock do not have a cashless exercise feature. The selling stockholder is a broker-dealer, and has represented to the company that it received its warrants to purchase common stock as compensation for investment banking services provided to the company in connection with the 2009 private placement. Michael Rabinowitz exercises voting and investment authority over the shares held by this selling stockholder.

(44)

Consists of 65,340 shares reserved for issuance upon exercise of warrants to purchase common stock having an exercise price of $0.33 per share. These warrants to purchase common stock do not have a cashless exercise feature. The selling stockholder is a broker-dealer, and has represented to the company that it received its warrants to purchase common stock as compensation for investment banking services provided to the company in connection with the 2009 private placement. Michael Potter, as Chairman, exercises voting and investment authority over the shares held by this selling stockholder.

(45)

Consists of 152,460 shares reserved for issuance upon exercise of warrants to purchase common stock having an exercise price of $0.33 per share. These warrants to purchase common stock do not have a cashless exercise feature. The selling stockholder is a broker-dealer, and has represented to the company that it received its warrants to purchase common stock as compensation for investment banking services provided to the company in connection with the 2009 private placement. The selling shareholder is also an affiliate of a broker-dealer. The selling stockholder has represented that it purchased or otherwise acquired the warrants in the ordinary course of business and, at the time of such purchase/acquisition, had no agreements or understandings, directly or indirectly, with any person, to distribute the securities to be resold.

(46)

Consists of 292,200 shares reserved for issuance upon exercise of warrants to purchase common stock having an exercise price of $0.33 per share. These warrants to purchase common stock do not have a cashless exercise feature. The selling stockholder is a broker-dealer and has represented to the company that it received its warrants to purchase common stock as compensation for investment banking services provided to the company in connection with the 2009 private placement. Frank Mazzola exercises voting and investment authority over the shares held by this selling stockholder.

(47)

Consists of 21,636 shares of common stock and 8,466 shares reserved for issuance upon exercise of warrants to purchase common stock having an exercise price of $0.59 per share. These warrants to purchase common stock have a cashless exercise feature. The investor acquired his securities in the company being registered for resale upon the completion of the reverse merger pursuant to which CNS California became a subsidiary of the company on March 7, 2007.

(48)

Consists of 125,242 shares of common stock and 3,375 shares of common stock issuable upon the exercise of vested and exercisable warrants having an exercise price of $1.80 per share. These warrants to purchase common stock have a cashless exercise feature. The securities being registered for resale were acquired by the investor by participating in the 2007 private placement. The investor also acquired its securities in the company being registered for resale upon the completion of the reverse merger pursuant to which CNS California became a subsidiary of the company on March 7, 2007. Max A. Schneider exercises voting and investment authority over the shares held by this selling stockholder.

(49)

Consists of 108,182 shares of common stock and 42,331 shares of common stock issuable upon the exercise of vested and exercisable warrants to purchase common stock having an exercise price of $0.59 per share. These warrants to purchase common stock have a cashless exercise feature. The investor acquired his securities in the company being registered for resale upon the completion of the reverse merger pursuant to which CNS California became a subsidiary of the company on March 7, 2007.

(50)

Consists of 7,415 shares of common stock issuable upon the exercise of vested and exercisable warrants to purchase common stock having an exercise price of $0.01 per share. These warrants to purchase common stock have a cashless exercise feature. The investor acquired his securities in the company being registered for resale upon the completion of the reverse merger pursuant to which CNS California became a subsidiary of the company on March 7, 2007.

(51)

Consists of 250,000 shares of common stock and 150,000 shares of common stock issuable upon the exercise of vested and exercisable warrants to purchase common stock having an exercise price of $1.51 per share. These warrants to purchase common stock have a cashless exercise feature. The investor acquired its securities in the company being registered for resale upon the completion of the reverse merger pursuant to which CNS California became a subsidiary of the company on March 7, 2007. Michel Clemence, Dominique Warluzel and Mansour Ojjeh, as directors of the selling stockholder, each exercise voting and dispositive power over the shares held by this selling stockholder.

(52)

Consists of 64,910 shares of common stock and 25,398 shares of common stock issuable upon the exercise of vested and exercisable warrants to purchase common stock having an exercise price of $0.59 per share. These warrants to purchase common stock have a cashless exercise feature. The investor acquired his securities in the company being registered for resale upon the completion of the reverse merger pursuant to which CNS California became a subsidiary of the company on March 7, 2007.

(53)

Consists of 198,394 shares of common stock and 10,159 shares of common stock issuable upon the exercise of vested and exercisable warrants to purchase common stock. 24,448 shares of common stock and 10,159 shares reserved for issuance upon exercise of warrants to purchase common stock having an exercise price of $0.59 per share are being registered for re-sale by the selling shareholder on this prospectus. These warrants to purchase common stock have a cashless exercise feature. The investor acquired his securities in the company being registered for resale upon the completion of the reverse merger pursuant to which CNS California became a subsidiary of the company on March 7, 2007.

(54)

Consists of 107,834 shares of common stock. John Pike, as trustee of the selling stockholder, exercises voting and investment authority over the shares held by this selling stockholder. The investor acquired his securities in the company being registered for resale upon the completion of the reverse merger pursuant to which CNS California became a subsidiary of the company on March 7, 2007.

(55)

Consists of 600,006 shares of common stock and 42,330 shares of common stock issuable upon the exercise of vested and exercisable warrants to purchase common stock. 101,806 shares of common stock and 42,330 shares reserved for issuance upon exercise of warrants to purchase common stock having an exercise price of $0.59 per share are being registered for re-sale by the selling shareholder on this prospectus. These warrants to purchase common stock have a cashless exercise feature. The investor acquired his securities in the company being registered for resale upon the completion of the reverse merger pursuant to which CNS California became a subsidiary of the company on March 7, 2007.

(56)

Consists of 1,242,375 shares of common stock and 1,368,124 shares of common stock issuable upon the exercise of vested and exercisable options to purchase common stock. Brian MacDonald is the Chief Engineer of the Company. 1,015,459 shares of common stock are being registered for re-sale by the selling shareholder on this prospectus. The investor acquired his securities in the company being registered for resale upon the completion of the reverse merger pursuant to which CNS California became a subsidiary of the company on March 7, 2007.

(57)

Consists of 1,015,334 shares of common stock, 4,233 shares of common stock issuable upon the exercise of vested and exercisable warrants to purchase common stock and 326,701 shares of common stock issuable upon the exercise of vested and exercisable options to purchase common stock. 117,170 shares of common stock are being registered for re-sale by the selling shareholder on this prospectus. The investor acquired his securities in the company being registered for resale upon the completion of the reverse merger pursuant to which CNS California became a subsidiary of the company on March 7, 2007.

(58)

Consists of 1,800,000 shares of common stock and 540,000 shares reserved for issuance upon exercise of warrants to purchase common stock having an exercise price of $1.80 per share. These warrants to purchase common stock have a cashless exercise feature. The securities being registered for resale were acquired by the investor by participating in the 2007 private placement. The selling stockholder is affiliated with Alps Distributors, Inc. a registered broker/dealer and member of FINRA. The selling stockholder purchased or otherwise acquired these shares in the ordinary course of business and, at the time of such purchase/acquisition, had no agreements or understandings, directly or indirectly, with any person, to distribute the securities to be resold. Mr.Paul T. Beste, Vice President & Secretary of Heartland Group Inc., exercises voting and investment authority over the shares held by this selling stockholder.

(59)

Consists of 1,292,177 shares of common stock and 474,102 shares of common stock issuable upon the exercise of warrants to purchase common stock having an exercise price of $0.59 per share. These warrants to purchase common stock have a cashless exercise feature. The investor acquired its securities in the company being registered for resale upon the completion of the reverse merger pursuant to which CNS California became a subsidiary of the company on March 7, 2007. Elizabeth Morgentheau, as President of the selling stockholder, exercises voting and investment authority over the shares held by this selling stockholder.

(60)

Consists of 651,090 shares of common stock and 195,327 shares reserved for issuance upon exercise of certain warrants to purchase common stock having an exercise price of $1.80 per share held by Partner Healthcare Fund, LP, and 374,800 shares of common stock and 112,440 shares reserved for issuance upon exercise of warrants to purchase common stock having an exercise price of $1.80 per share held by Partner Healthcare Offshore Fund, Ltd. These warrants to purchase common stock have a cashless exercise feature. The securities being registered for resale were acquired by the investor by participating in the 2007 private placement. Brian Grossman, as the Portfolio Manager of Partner Healthcare Offshore Fund, Ltd., exercises voting and investment authority over the shares held by Partner Healthcare Offshore Fund, Ltd. Brian Grossman, as the Portfolio Manager of Partner Healthcare Fund, L.P., exercises voting and investment authority over the shares held by Partner Healthcare Fund, L.P.

(61)

Consists of 11,985 shares of common stock and 12,501 shares reserved for issuance upon exercise of warrants to purchase common stock. 12,501 warrants to purchase shares of common stock having an exercise price of $1.80 per share are being registered for re-sale by the selling shareholder on this prospectus. These warrants to purchase common stock have a cashless exercise feature. The securities being registered for resale were acquired by the investor by participating in the 2007 private placement.

(62)

(63)

Consists of 40,891 shares of common stock and 15,231 shares reserved for issuance upon exercise of warrants to purchase common stock having an exercise price of $1.80 per share with respect to 2,532 shares and $0.59 per share with respect to 12,699 shares. These warrants to purchase common stock have cashless exercise features. The securities being registered were acquired by the investor by participating in the 2007 PIPE. The investor also acquired his securities in the company being registered for resale upon the completion of the reverse merger pursuant to which CNS California became a subsidiary of the company on March 7, 2007.

(64)

Consists of 45,000 shares of common stock and 13,500 shares reserved for issuance upon exercise of warrants to purchase common stock having an exercise price of $1.80 per share. These warrants to purchase common stock have a cashless exercise feature. The securities being registered for resale were acquired by the investor by participating in the 2007 private placement. Kimberly Craig-Woodworth and William N. Woodworth are affiliated with Brean Murray, Carret & Co. a registered broker/dealer and member of FINRA. Kimberly Craig-Woodworth and William N. Woodworth purchased or otherwise acquired these shares in the ordinary course of business and, at the time of such purchase/acquisition, had no agreements or understandings, directly or indirectly, with any person, to distribute the securities to be resold.

(65)

Consists of 109,000 shares of common stock and 33,751 shares reserved for issuance upon exercise of warrants to purchase common stock. Bradley Rotter, Trustee of the Bradley N. Rotter Self Employed Pension Plan & Trust, exercises voting and investment authority over the shares held by this selling stockholder. 33,751 shares reserved for issuance upon exercise of warrants to purchase common stock having an exercise price of $1.80 per share are being registered for re-sale by the selling shareholder on this prospectus. These warrants to purchase common stock have a cashless exercise feature. The securities being registered for resale were acquired by the investor by participating in the 2007 private placement.

(66)

Consists of 432,333 shares of common stock and 100,000 shares reserved for issuance upon exercise of warrants to purchase common stock. 100,000 shares reserved for issuance upon exercise of warrants to purchase common stock having an exercise price of $1.80 per share are being registered for re-sale by the selling shareholder on this prospectus. These warrants to purchase common stock have a cashless exercise feature. The securities being registered for resale were acquired by the investor by participating in the 2007 private placement.

(67)

Consists of 84,375 shares of common stock and 25,313 shares reserved for issuance upon exercise of warrants to purchase common stock having an exercise price of $1.80 per share. These warrants to purchase common stock have a cashless exercise feature. The securities being registered for resale were acquired by the investor by participating in the 2007 private placement.

(68)

Consists of 42,750 shares of common stock and 12,825 shares reserved for issuance upon exercise of warrants to purchase common stock having an exercise price of $1.80 per share. These warrants to purchase common stock have a cashless exercise feature. The securities being registered for resale were acquired by the investor by participating in the 2007 private placement. Paul E. von Kuster, Trustee, Credit trust under will of Thomas W. von Kuster, exercises voting and investment authority over the shares held by this selling stockholder.

(69)

(70)

Consists of (a)11,250 shares of common stock (b) 3,375 shares reserved for issuance upon exercise of warrants to purchase common stock and (c) 4,000 shares reserved for issuance upon exercise of options to purchase common stock. 11,250 shares of common stock and 3,375 shares reserved for issuance upon exercise of warrants to purchase common stock having an exercise price of $1.80 per share are being registered for re-sale by the selling shareholder on this prospectus. These warrants to purchase common stock have a cashless exercise feature. The securities being registered for resale were acquired by the investor by participating in the 2007 private placement. Max Schneider, Trustee of the Max A Schneider, M.D. Trust, exercises voting and investment authority over the shares held by this selling stockholder.

(71)

(72)

Consists of (a) 129,028 shares of common stock (b) 58,500 shares reserved for issuance upon exercise of warrants to purchase common stock and (c) 10,874 shares reserved for issuance upon exercise of options to purchase common stock. 129,028 shares of common stock and 58,500 shares reserved for issuance upon exercise of warrants to purchase common stock having an exercise price of $1.80 per share with respect to 13,500 shares and $0.59 per share with respect to 45,000 shares are being registered for re-sale by the selling shareholder on this prospectus. These warrants to purchase common stock have cashless exercise features. The securities being registered were acquired by the investor by participating in the 2007 PIPE. The investor also acquired his securities in the company being registered for resale upon the completion of the reverse merger pursuant to which CNS California became a subsidiary of the company on March 7, 2007. Dr. Greenblatt is a contractor who acts as one of CNS Response, Inc.’s Regional Medical Directors and in this capacity, among other things, trains physicians in the use of rEEG.

(73)

Consists of 32,886 shares of common stock and 11,841 shares reserved for issuance upon exercise of warrants to purchase common stock having an exercise price of $1.80 per share with respect to 3,375 shares and $0.59 per share with respect to 8,466 shares. These warrants to purchase common stock have cashless exercise features. The securities being registered were acquired by the investor by participating in the 2007 private placement. The investor also acquired his securities in the company being registered for resale upon the completion of the reverse merger pursuant to which CNS California became a subsidiary of the company on March 7, 2007.

(74)

Consists of 22,500 shares of common stock and 6,750 shares reserved for issuance upon exercise of warrants to purchase common stock having an exercise price of $1.80 per share. These warrants to purchase common stock have a cashless exercise feature. The securities being registered for resale were acquired by the investor by participating in the 2007 private placement. Mr. Bailey is affiliated with Brean Murray, Carret & Co., LLC, a registered broker/dealer and member of FINRA, as he is an employee of Brean Murray, Carret & Co., LLC. Mr. Bailey purchased or otherwise acquired his shares in the ordinary course of business and, at the time of such purchase/acquisition, had no agreements or understandings, directly or indirectly, with any person, to distribute the securities to be resold.

(75)

(76)

Consists of 250,000 shares of common stock and 75,000 shares reserved for issuance upon exercise of warrants to purchase common stock. 75,000 shares reserved for issuance upon exercise of warrants to purchase common stock having an exercise price of $1.80 per share are being registered for re-sale by the selling shareholder on this prospectus. These warrants to purchase common stock have a cashless exercise feature. The securities being registered for resale were acquired by the investor by participating in the 2007 private placement. Mr. Ehrman is affiliated with Brean Murray, Carret & Co. a registered broker/dealer and member of FINRA. Mr. Ehrman purchased or otherwise acquired his shares in the ordinary course of business and, at the time of such purchase/acquisition, had no agreements or understandings, directly or indirectly, with any person, to distribute the securities to be resold.

(77)

Consists of 48,182 shares of common stock and 6,000 shares reserved for issuance upon exercise of warrants to purchase common stock having an exercise price of $1.80 per share. These warrants to purchase common stock have a cashless exercise feature. 20,000 shares of common stock and 6,000 shares reserved for issuance upon exercise of warrants to purchase common stock are being registered for re-sale by the selling shareholder on this prospectus. The securities being registered for resale were acquired by the investor by participating in the 2007 private placement.

(78)

Consists of 131,807 shares of common stock and 49,419 shares reserved for issuance upon exercise of warrants to purchase common stock. 49,419 shares reserved for issuance upon exercise of warrants to purchase common stock having an exercise price of $1.80 per share with respect to 7,088 shares and $0.59 per share with respect to 42,331 shares are being registered for re-sale by the selling shareholder on this prospectus. These warrants to purchase common stock have cashless exercise features. The securities being registered were acquired by the investor by participating in the 2007 private placement. The investor also acquired its securities in the company being registered for resale upon the completion of the reverse merger pursuant to which CNS California became a subsidiary of the company on March 7, 2007. Sharon Keene exercises voting and investment authority over the shares held by this selling stockholder.

(79)

(80)

Consists of 8,438 shares of common stock and 2,532 shares reserved for issuance upon exercise of warrants to purchase common stock having an exercise price of $1.80 per share. These warrants to purchase common stock have a cashless exercise feature. The securities being registered for resale were acquired by the investor by participating in the 2007 private placement.

(81)

(82)

(83)

Consists of 641,472 shares of common stock and 637,185 shares reserved for issuance upon exercise of warrants to purchase common stock. Brean Murray, Carret & Co., LLC is a FINRA member firm. Brean Murray, Carret & Co., LLC purchased or otherwise acquired its shares in the ordinary course of business and, at the time of such purchase/acquisition, had no agreements or understandings, directly or indirectly, with any person, to distribute the securities to be resold. William McCluskey, President and Chief Executive Officer of Brean Murray, Carret & Co., LLC, exercises voting and investment authority over the shares held by this selling stockholder. 633,138 shares of common stock and 624,512 shares reserved for issuance upon exercise of warrants to purchase common stock having an exercise price of $1.44 per share with respect to 440,199 shares, $1.51 per share with respect to 4,752 shares and $1.80 per share with respect to179,561 shares are being registered for re-sale by the selling shareholder on this prospectus. Brean Murray acted as placement agent in connection with the company’s 2007 private placement, and received the securities being registered for resale as compensation for its investment banking services. These warrants to purchase common stock have cashless exercise features. The investor also acquired its securities in the company being registered for resale upon the completion of the reverse merger pursuant to which CNS California became a subsidiary of the company on March 7, 2007. Michael Rabinowitz exercises voting and investment authority over the shares held by this selling stockholder.

(84)

Consists of 25,000 shares of common stock and 7,500 shares reserved for issuance upon exercise of warrants to purchase common stock having an exercise price of $1.80 per share. These warrants to purchase common stock have a cashless exercise feature. The securities being registered for resale were acquired by the investor by participating in the 2007 private placement. Mr. Lewis is affiliated with a registered broker/dealer and member of FINRA. Mr. Lewis purchased or otherwise acquired his shares in the ordinary course of business and, at the time of such purchase/acquisition, had no agreements or understandings, directly or indirectly, with any person, to distribute the securities to be resold.

(85)

(86)

Consists of 36,096 shares of common stock and 14,798 shares reserved for issuance upon exercise of warrants to purchase common stock having an exercise price of $1.80 per share with respect to 6,860 shares and $1.51 per share with respect to 7,938 shares. These warrants to purchase common stock have cashless exercise features. The securities being registered were acquired by the investor by participating in the 2007 private placement. The investor also acquired his securities in the company being registered for resale upon the completion of the reverse merger pursuant to which CNS California became a subsidiary of the company on March 7, 2007.

(87)

(88)

(89)

Consists of 18,456 shares of common stock and 7,079 shares reserved for issuance upon exercise of warrants to purchase common stock having an exercise price of $1.80 per share with respect to 3,994 shares and $1.51 per share with respect to 3,085 shares. These warrants to purchase common stock have cashless exercise features. The securities being registered were acquired by the investor by participating in the 2007 private placement. The investor also acquired his securities in the company being registered for resale upon the completion of the reverse merger pursuant to which CNS California became a subsidiary of the company on March 7, 2007.

(90)

Consists of 18,624 shares of common stock and 7,180 shares reserved for issuance upon exercise of warrants to purchase common stock having an exercise price of $1.80 per share with respect to 3,994 shares and $1.51 per share with respect to 3,186 shares. These warrants to purchase common stock have cashless exercise features. The securities being registered were acquired by the investor by participating in the 2007 private placement. The investor also acquired his securities in the company being registered for resale upon the completion of the reverse merger pursuant to which CNS California became a subsidiary of the company on March 7, 2007.

(91)

Consists of 15,518 shares of common stock and 5,754 shares reserved for issuance upon exercise of warrants to purchase common stock having an exercise price of $1.80 per share with respect to 3,556 shares and $1.51 per share with respect to 2,198 shares. These warrants to purchase common stock have cashless exercise features. The securities being registered were acquired by the investor by participating in the 2007 private placement. The investor also acquired his securities in the company being registered for resale upon the completion of the reverse merger pursuant to which CNS California became a subsidiary of the company on March 7, 2007.

(92)

Consists of 12,869 shares of common stock and 5,008 shares reserved for issuance upon exercise of warrants to purchase common stock having an exercise price of $1.80 per share with respect to 2,714 shares and $1.51 per share with respect to 2,294 shares. These warrants to purchase common stock have cashless exercise features. The securities being registered were acquired by the investor by participating in the 2007 private placement. The investor also acquired his securities in the company being registered for resale upon the completion of the reverse merger pursuant to which CNS California became a subsidiary of the company on March 7, 2007.

(93)

Consists of 16,371 shares of common stock and 6,187 shares reserved for issuance upon exercise of warrants to purchase common stock having an exercise price of $1.80 per share with respect to 3,636 shares and $1.51 per share with respect to 2,551 shares. These warrants to purchase common stock have cashless exercise features. The securities being registered were acquired by the investor by participating in the 2007 private placement. The investor also acquired his securities in the company being registered for resale upon the completion of the reverse merger pursuant to which CNS California became a subsidiary of the company on March 7, 2007.

(94)

Consists of 7,254 shares of common stock and 2,176 shares reserved for issuance upon exercise of warrants to purchase common stock having an exercise price of $1.80 per share. These warrants to purchase common stock have a cashless exercise feature. The securities being registered for resale were acquired by the investor by participating in the 2007 private placement.

(95)

Consists of 309,505 shares of common stock and 50,001 shares reserved for issuance upon exercise of warrants to purchase common stock. 50,001 shares reserved for issuance upon exercise of warrants to purchase common stock having an exercise price of $1.80 per share are being registered for re-sale by the selling shareholder on this prospectus. These warrants to purchase common stock have a cashless exercise feature. The securities being registered for resale were acquired by the investor by participating in the 2007 private placement. Adam Katz, as Partner of AJ Investors #1, exercises voting and investment authority over the shares held by this selling stockholder.

(96)

Consists of 306,748 shares of common stock and 214,951 shares reserved for issuance upon exercise of warrants to purchase common stock held by John Pagnucco; 75,000 shares of common stock and 45,000 shares reserved for issuance upon exercise of warrants to purchase common stock held by John W. Pagnucco 1998 Rollover Roth IRA RBC Dain; and 9,000 shares of common stock held by John Pagnucco as custodian for his grandchildren over which John Pagnucco exercises voting and dispositive control. Of these holdings, 225,856 shares of common stock and 214,951 shares of common stock reserved for issuance upon exercise of warrants to purchase common stock having an exercise price of $0.01 per share with respect to 84,661 shares, $0.59 per share with respect to 21,165 shares, $1.44 per share with respect to 49,327 shares, $1.51 per share with respect to 45,000 shares and $1.80 per share with respect to14,798 shares held by John Pagnucco and 75,000 shares of common stock and 45,000 shares of common stock reserved for issuance upon exercise of warrants to purchase common stock having an exercise price of $1.51 per share held by John W Pagnucco 1998 Rollover Roth IRA RBC Dain are being registered for resale sale on this prospectus. These warrants to purchase common stock have cashless exercise features. The securities being registered for resale by John Pagnucco were acquired by the investor by participating in the 2007 private placement. Mr. Pagnucco also acquired his securities in the company being registered for resale upon the completion of the reverse merger pursuant to which CNS California became a subsidiary of the company on March 7, 2007. The securities being registered for resale by John W. Pagnucco 1998 Rollover Roth IRA RBC Dain were acquired by the investor upon the completion of the reverse merger.

(97)

Consists of 83,333 shares of common stock and 41,667 shares reserved for issuance upon exercise of warrants to purchase common stock having an exercise price of $0.30 per share. These warrants to purchase common stock do not have a cashless exercise feature. The securities being registered for resale were gifted to the holder by Mr. Dale Ragan who acquired the securities in the 2009 private placement.

(98)

Consists of 367,608 shares of common stock. The securities being registered for resale were gifted to the holder by Mr. Pappajohn who acquired the securities in connection with a bridge financing in 2009.

(99)

Consists of 367,608 shares of common stock. The securities being registered were gifted to the holder by Mr. Pappajohn who acquired them in connection with a bridge financing in 2009. Argyris Vassiliou, as general partner of the NICALE Partners, exercises voting and investment authority over the shares held by this selling stockholder.

(100)

Consists of 14,250 shares of common stock, (including 1,000 shares owned by his minor child) and 3,375 shares reserved for issuance upon exercise of warrants to purchase common stock. 11,250 shares of common stock and 3,375 shares reserved for issuance upon exercise of warrants to purchase common stock having an exercise price of $1.80 per share are being registered for re-sale by the selling shareholder on this prospectus. These warrants to purchase common stock have a cashless exercise feature. The securities being registered for resale were acquired by the investor by participating in the 2007 private placement.

(101)

For a description of the reverse merger pursuant to which CNS California became a subsidiary of the Company on March 7, 2007, the 2007 private placement and the 2009 private placement, please see the disclosure under the heading “Related Party Transactions” under the sub-headings “Merger Agreement” and “Transactions with Selling Stockholders.”

RELATED PARTY TRANSACTIONS

Certain Relationships and Related Transactions

Except as follows, since October 1, 2007, there has not been, nor is there currently proposed, any transaction or series of similar transactions to which we are or will be a party:

in which the amount involved exceeds the lesser of $120,000 or 1% of the average of our total assets at year-end for the last two completed fiscal years; and

in which any director, executive officer, other stockholders of more than 5% of our common stock or any member of their immediate family had or will have a direct or indirect material interest.

Transactions with George Carpenter

On December 24, 2009, the Company completed a second closing of its private placement in which it received gross proceeds of approximately $3 million, which included $108,000 invested by Mr. Carpenter. In exchange for his investment, the Company issued to Mr. Carpenter 360,000 shares of its common stock and a five year non-callable warrant to purchase 180,000 shares of its common stock at an exercise price of $0.30 per share. The registration statement of which this prospectus forms a part, covers the resale of the common stock and the common stock underlying the warrants sold in the private placement to Mr. Carpenter. This investment was completed with the identical terms as received by all other investors in the Company’s private placement closings that took place on August 26, 2009, December 24, 2009, December 31, 2009 and January 4, 2010.

On January 4, 2010 a family member of Mr. Carpenter’s was paid $36,000 for data discovery consulting services in support of the Company’s litigation with Mr. Brandt. This transaction was done with knowledge of certain board members and was subsequently ratified by the Board.

On March 3, 2010, the Board granted options to purchase 4,000,000 shares to George Carpenter, the Company’s Chief Executive Officer. The options have an exercise price of $0.55 per share, vest in equal monthly installments over a period of four years and have a term of 10 years from the date of grant.

Transactions with SAIL Venture Partners LP

On March 7, 2007, Odyssey Venture Partners II, L.P. (now called SAIL Venture Partners LP), invested an aggregate of $447,000 in our Private Placement and in exchange were issued 372,500 shares of our Common Stock and a warrant to purchase 111,750 shares of our common stock at an exercise price of $1.80 per share. Mr. Jones, a director of the company, is a partner of SAIL Venture Partners, L.P. The registration statement of which this prospectus forms a part, covers the resale of the common stock and the common stock underlying the warrants sold in the 2007 private placement to SAIL Venture Partners LP.

On March 30, 2009, we executed two senior secured convertible promissory notes each in the principal amount of $250,000 with SAIL Venture Partners, LP (“SAIL”) and Brandt Ventures, GP (“Brandt”). David Jones, a member of our board of directors, is one of four managing members of SAIL Venture Partners, LLC, which is the general partner of SAIL. Leonard Brandt, also a member of our board of directors until December 3, 2009 and our former Chief Executive Officer, is the general partner of Brandt.

These notes accrue interest at the rate of 8% per annum and are due and payable upon a declaration by the note holder(s) requesting repayment, unless sooner converted into shares of our common stock (as described below), upon the earlier to occur of: (i) June 30, 2009 or (ii) an Event of Default (as defined in the notes), which includes the default that occurred as a result of Mr. Brandt no longer serving as our Chief Executive Officer effective as of April 10, 2009. The notes are secured by a lien on substantially all of our assets (including all intellectual property). In the event of a liquidation, dissolution or winding up of the company, unless Brandt and/or SAIL informs us otherwise, we shall pay such investor an amount equal to the product of 250% multiplied by the principal and all accrued but unpaid interest outstanding on the note.

In concert with an equity financing transaction of at least $1,500,000 (excluding any and all other debt that is converted), the principal and all accrued, but unpaid interest outstanding under the notes shall be automatically converted into the securities issued in the equity financing by dividing such amount by 90% of the per share price paid by the investors in such financing.

On May 14, 2009, we entered into a Bridge Note and Warrant Purchase Agreement with SAIL.

Pursuant to the Purchase Agreement, on May 14, 2009, SAIL purchased a Secured Promissory Note in the principal amount of $200,000 from us. In order to induce SAIL to purchase the note, we issued to SAIL a warrant to purchase up to 100,000 shares of our common stock at a purchase price equal to $0.25 per share. The warrant expires on the earlier to occur of May 31, 2016 or a change of control of the company. The registration statement of which this prospectus forms a part, covers the resale of the common stock underlying the aforementioned warrant.

The Purchase Agreement also provides that, at any time on or after June 30, 2009, and provided that certain conditions are satisfied by us, SAIL will purchase from us a second Secured Convertible Promissory Note in the principal sum of $200,000 and will be issued a second warrant identical in terms to the warrant described above. The aforementioned conditions include our entry into a term sheet in which investors commit to participate in an equity financing by us of not less than $2,000,000 (excluding any and all other debt that are to be converted).

The notes issued or issuable pursuant to the Purchase Agreement accrue interest at the rate of 8% per annum and are due and payable, unless sooner converted into shares of our common stock (as described below), upon the earlier to occur of: (i) a declaration by SAIL on or after June 30, 2009 or (ii) an Event of Default as defined in the notes. The note(s) are secured by a lien on substantially all of our assets (including all intellectual property). In the event of a liquidation, dissolution or winding up of the company, unless SAIL informs us otherwise, we shall pay SAIL an amount equal to the product of 250% multiplied by the principal and all accrued but unpaid interest outstanding on the note(s).

In the event we consummate an equity financing transaction of at least $1,500,000 (excluding any and all other debt that is converted), then the principal and all accrued, but unpaid interest outstanding under the note(s) shall be automatically converted into the securities issued in the equity financing by dividing such amount by 85% of the per share price paid by the investors in such financing.

In addition, in the event we issue preferred stock that is not part of an equity financing described above, SAIL may, at its option, convert the principal and all accrued, but unpaid interest outstanding under the note(s) into preferred stock by dividing such amount by 85% of the per share price paid by the purchasers’ of our preferred stock.

On August 26, 2009, the Company completed an equity financing transaction of approximately $2 million. As a result of the financing, each of the notes described above that were held by SAIL and Brandt automatically converted into common stock, with SAIL receiving 1,758,356 shares and Brandt receiving 956,164 shares. In addition, pursuant to the terms of the notes, SAIL was issued a non-callable five year warrant to purchase 879,178 shares of common stock at an exercise price of $0.30 per share and Brandt was issued a non-callable five year warrant to purchase 478,082 shares of common stock at an exercise price of $0.30 per share. The registration statement of which this prospectus forms a part, covers the resale of the aforementioned common stock and common stock underlying the warrants.

In connection with the equity financing referred to above, on August 26, 2009, SAIL purchased 6 Units for $324,000. Each Unit consists of 180,000 shares of common stock and a five year non-callable warrant to purchase an additional 90,000 shares of common stock at an exercise price of $0.30 per share. The shares of common stock and warrants comprising the Units are immediately separable and were issued separately. This investment was completed with the identical terms as received by all other investors in the Company’s private placement closings that took place on August 26, 2009, December 24, 2009, December 31, 2009 and January 4, 2010. The registration statement of which this prospectus forms a part, covers the resale of the common stock and the common stock underlying the warrants sold in the 2009 private placement to SAIL.

On July 5, 2010 and August 20, 2010, we issued unsecured promissory notes (each, a “Deerwood Note”) in the aggregate principal amount of $500,000 to Deerwood Partners LLC and Deerwood Holdings LLC, with each investor purchasing two notes in the aggregate principal amount of $250,000. The Deerwood Notes mature on December 15, 2010. SAIL issued unconditional guaranties to each of these investors, guaranteeing the prompt and complete payment when due of all principal, interest and other amounts under each Deerwood Note. In addition, on August 20, 2010, we granted SAIL warrants to purchase up to an aggregate of 100,000 shares of common stock at an exercise price (subject to customary anti-dilution adjustments) of $0.56 per share. We have agreed to indemnify SAIL and grant to SAIL a security interest in our assets in connection with the guaranties and to enter into a registration rights agreement covering the registration of the shares issuable upon exercise of the warrants.

Transactions with Leonard Brandt

Please see the discussion above under the heading “Transaction with Sail Venture Partners LP” for a summary of a bridge financing transaction which closed on March 30, 2009, in which Mr. Brandt participated.

Transactions with Henry Harbin, M.D.

Prior to his appointment as a Director, Dr. Harbin was party to several transactions with us. On March 7, 2007, Dr. Harbin participated in the first closing of our private placement transaction pursuant to which we received gross proceeds of approximately $7.0 million from institutional investors and other high net worth individuals. In the first closing of the private placement, we sold 5,840,374 “Investment Units” at $1.20 per Investment Unit. Each Investment Unit consists of one share of our common stock, and a five year non-callable warrant to purchase three-tenths of one share of our common stock, at an exercise price of $1.80 per share. Mr. Harbin received 8,334 shares of our common stock and a warrant to purchase 2,501 shares of our common stock as a result of his investment in the company. The registration statement of which this prospectus forms a part, covers the resale of the common stock and the common stock underlying the warrants sold in the 2007 private placement to Dr. Harbin.

In addition, since June 2007, Dr. Harbin has acted as a strategic advisor to the company, and has advised us on our marketing initiatives. As compensation for his services as an advisor, on August 8, 2007, we granted Dr. Harbin a non-qualified option to purchase 24,000 shares of our common stock at an exercise price of $1.09 per share. Options to purchase 6,000 shares vested on the date of grant, and the remaining 18,000 shares vested in equal installments of 2,000 shares on each monthly anniversary of the grant date for a period of nine months.

Subsequently, on April 15, 2008, we entered into a consulting agreement which expired on December 31, 2008 pursuant to which Dr. Harbin was paid an aggregate of $24,000 and was granted options to purchase 56,000 shares of our common stock at an exercise price of $0.96 per share, with options to purchase 14,000 shares vesting on the date of grant, options to purchase 37,328 shares vesting in eight equal monthly installments of 4,666 options commencing on April 30, 2008, and the remaining options to purchase 4,672 shares vesting on December 31, 2008.

On March 17, 2009, we entered into a consulting agreement with Dr. Harbin which expired on December 31, 2009 pursuant to which Dr. Harbin was paid an aggregate of $24,000 as compensation for his consulting services. Dr. Harbin was paid the $24,000 due to him in January 2010. In addition, as further compensation, we granted Dr. Harbin options to purchase 56,000 shares of our common stock at an exercise price of $0.40 per share, with the option vesting in equal monthly installments over a twelve month period commencing on January 1, 2009.

On March 26, 2010, we entered into a new Consulting Agreement with Dr. Harbin, pursuant to which Dr. Harbin is to be paid an aggregate of $36,000 as compensation for his consulting services. The agreement expires on December 31, 2010, but is renewable for two one year terms on January 1, 2011 and 2012. In addition to his cash compensation, on March 3, 2010 we granted Dr. Harbin options to purchase 400,000 shares of our common stock at an exercise price of $0.55 per share as further compensation for such services, with the options vesting in equal monthly installments over a 36 month period commencing on March 3, 2010. The options expire on March 3, 2020.

Transactions with Daniel Hoffman, M.D.

On January 11, 2008, we, through our wholly owned subsidiary, Colorado CNS Response, Inc. and pursuant to the terms of a Stock Purchase Agreement, acquired all of the outstanding common stock of Neuro-Therapy Clinic, PC, a Colorado professional medical corporation wholly owned by Dr. Hoffman (“NTC”) in exchange for a non-interest bearing note of $300,000 payable in equal monthly installments over 36 months. At the time of the transaction, NTC was our largest customer. Upon the completion of the acquisition, Dr. Hoffman was appointed our Chief Medical Officer. The Stock Purchase Agreement provides that upon the occurrence of certain events, as defined in the purchase agreement, Dr. Hoffman has a repurchase option for a period of three years subsequent to the closing, as well as certain rights of first refusal, in relation to the assets and liabilities we acquired.

On March 3, 2010, the Board granted options to purchase 500,000 shares to Daniel Hoffman. Each of the options have an exercise price of $0.55 per share, vest in equal monthly installments over a period of four years and have a term of 10 years from the date of grant.

Prior to his employment, from October 1, 2007 to January 15, 2008, Dr. Hoffman earned $15,000 for consulting services rendered to the Company. In addition, as compensation for his services to us as a consultant, Dr. Hoffman was granted options to purchase an aggregate of 814,062 shares of our common stock at an exercise price of $1.09 on August 7, 2007. In accordance with the terms of his employment agreement, the terms of Dr. Hoffman’s option grant were amended to provide that in the event of a change of control transaction, a portion of Dr. Hoffman’s unvested options equal to the number of unvested options at the date of the corporate transaction multiplied by the ratio of the time elapsed between August 7, 2007 and the date of corporate transaction over the vesting period (42 months), will automatically accelerate, and become fully vested.

Prior to his employment with us, Dr. Hoffman participated in our private placement transaction which closed on May 16, 2007. In the private placement, we received gross proceeds of approximately $7.8 million from institutional investors and other high net worth individuals, including $50,000 from Dr. Hoffman. In exchange for his investment, Dr. Hoffman was issued 41,667 shares of our common stock, and a fully-vested five year non-callable warrant to purchase 12,501 shares of our common stock at an exercise price of $1.80 per share. The registration statement of which this prospectus forms a part, covers the resale of the common stock and the common stock underlying the warrants sold in the 2007 private placement to Dr. Hoffman.

Transactions with John Pappajohn

In conjunction with the closing of the Company’s private placement on August 26, 2009, Mr. Pappajohn joined the Company’s Board of Directors.

On June 12, 2009, we entered into a Bridge Note and Warrant Purchase Agreement with Mr. John Pappajohn (“Pappajohn”).

Pursuant to the Purchase Agreement, on June 12, 2009, Pappajohn purchased a Secured Convertible Promissory Note in the principal amount of $1,000,000 from us. In order to induce Pappajohn to purchase the note, we issued to Pappajohn a warrant to purchase up to 2,333,333 shares of our common stock and issued to relatives of Pappajohn warrants to purchase up to a total of 1,000,000 shares, all at a purchase price equal to $0.30 per share. These warrants were exercised for shares of common stock in cashless exercises on February 23, 2010 and February 24, 2010, and such shares are being registered for resale on this registration statement of which this prospectus forms a part.

The note issued pursuant to the Purchase Agreement provided that the principal amount of $1,000,000 together with a single Premium Payment of $90,000 which is due and payable, unless sooner converted into shares of our common stock (as described below), upon the earlier to occur of: (i) a declaration by Pappajohn on or after June 30, 2010 or (ii) an Event of Default as defined in the note. The note was secured by a lien on substantially all of our assets (including all intellectual property). In the event of a liquidation, dissolution or winding up of the company, unless Pappajohn informs us otherwise, we were required to pay Pappajohn an amount equal to the product of 250% multiplied by the then outstanding principal amount of the note and the Premium Payment.

The note also contained a provision that, in the event we consummated an equity financing transaction of at least $1,500,000 (excluding any and all other debt that is converted), the then outstanding principal amount of the note (but excluding the Premium Payment, which will be repaid in cash at the time of such equity financing) shall be automatically converted into the securities issued in the equity financing by dividing such amount by the per share price paid by the investors in such financing.

On August 26, 2009, the Company completed an equity financing transaction of approximately $2 million. As a result of the financing, the note described above held by Mr. Pappajohn automatically converted into common stock, with Mr. Pappajohn receiving 3,333,334 shares. In addition, pursuant to the terms of the note, Mr. Pappajohn received a five year non-callable warrant to purchase 1,666,667 shares of common stock at an exercise price of $0.30 per share. The registration statement of which this prospectus forms a part, covers the resale of the aforementioned common stock and the common stock underlying the warrants issued to Mr. Pappajohn.

In connection with the equity financing referred to above, on August 26, 2009, Mr. Pappajohn invested an additional $1,000,000 in the Company. In exchange for his investment, the Company issued an additional 3,333,333 shares of common stock to Mr. Pappajohn and a five year non-callable warrant to purchase 1,666,667 shares of common stock at an exercise price of $0.30 per share. The terms of this investment were identical to the terms received by all other investors in the Company’s private placement closings that took place on August 26, 2009, December 24, 2009, December 31, 2009 and January 4, 2010. The registration statement of which this prospectus forms a part, covers the resale of the common stock and the common stock underlying the warrants sold in the 2009 private placement to Mr. Pappajohn.

The Company intends to reimburse Equity Dynamics, Inc., a company solely owned by Mr. Pappajohn, for expenses which Equity Dynamics incurred between May and December, 2009 on behalf of CNS Response, Inc. These expenses include $34,700 incurred in connection with the Company’s private placement financing and other activities.

On February 23, 2010 Mr. Pappajohn exercised 2,333,333 warrants and was issued 1,720,910 shares of common stock in a net exercise of warrants in lieu of cash transaction.

Each Bridge Note accrues interest at a rate of 9% per annum which will be paid together with the repayment of the principal amount at the earliest of (i) the maturity date; (ii) prepayment of the Bridge Note at the option of the Company (iii) closing of a financing in which the aggregate proceeds to the Company are not less than $3,000,000 or (iv) the occurrence of an Event of Default (as defined in the Bridge Note). The Purchase Agreement and each Bridge Note grants the investor a senior security interest in and to all of the Company’s existing and future right, title and interest in its tangible and intangible property.

Transactions with George Kallins M.D

On July 5, 2010, our Board of Directors appointed George J. Kallins, M.D. to serve as a member of the Board. In connection with his appointment, Dr. Kallins was granted a stock option to purchase 250,000 shares of our common stock at an exercise price of $0.40. The stock option vests in 36 equal monthly installments over a three year period commencing on July 5, 2010.

SAIL Venture Partners L.P. (“SAIL”), of which our director David Jones is a managing partner, issued unconditional guaranties to each of these investors, guaranteeing the prompt and complete payment when due of all principal, interest and other amounts under each Deerwood Note. . The obligations under each guaranty are independent of our obligations under the Deerwood Notes and separate actions may be brought against the guarantor. We have agreed to indemnify SAIL and grant to SAIL a security interest in our assets in connection with the guaranties. In addition, on August 20, 2010, we granted SAIL warrants to purchase up to an aggregate of 100,000 shares of common stock at an exercise price (subject to customary anti-dilution adjustments) of $0.56 per share.

Transactions with Paul Buck

On March 3, 2010, the Board granted options to purchase 450,000 shares to Paul Buck. Each of the options have an exercise price of $0.55 per share, vest in equal monthly installments over a period of four years and have a term of 10 years from the date of grant.

Prior to his employment by the Company, Mr. Buck had been working with the Company as an independent consultant since December 2008, assisting management with finance and accounting matters as well as the Company’s filings with the Securities and Exchange Commission. Mr. Buck earned $260,800 in consulting services rendered to the Company.

On December 24, 2009, the Company completed a second closing of its private placement in which it received gross proceeds of approximately $3 million, which included $54,000 invested by Mr. Buck. In exchange for his investment, the Company issued to Mr. Buck 180,000 shares of its common stock and a five year non-callable warrant to purchase 90,000 shares of its common stock at an exercise price of $0.30 per share. This investment was completed with the identical terms as received by all other investors in the Company’s private placement closings that took place on August 26, 2009, December 24, 2009, December 31, 2009 and January 4, 2010. The registration statement, of which this prospectus forms a part, covers the resale of the common stock and the common stock underlying the warrants sold in the 2009 private placement to Mr. Buck.

Transactions with Non-Executive Directors

On March 3, 2010, the Board granted options to purchase 250,000 shares to each non-executive Director (Dr. Harbin, Mr. Jones, Mr. Pappajohn, Mr. Thompson, and Dr. Vaccaro) for their board service. Each of the options have an exercise price of $0.55 per share, vest in equal monthly installments over a period of three years and have a term of 10 years from the date of grant.

As Mr. Thompson has subsequently resigned from the board, he has forfeited the option to purchase the 250,000 shares granted to him. However, on March 3, 2010, the Board also granted options to Mr. Thompson to purchase 150,000 shares for his services as an advisor to the Company. Each of the options have an exercise price of $0.55 per share, vest in equal monthly installments over a period of three years and have a term of 10 years from the date of grant.

Transaction with a Staff Member of Equity Dynamics, Inc.

On July 5, 2010 the Board granted warrants to purchase 500,000 shares of common stock to Mr. Brian Thompson for consulting services he had rendered to the Company, advising on and assisting with fund raising activities. Mr. Thompson is an employee of Equity Dynamics, Inc, a company owned by Mr. Pappajohn. These warrants have an exercise price of $0.30 cents per share, are exercisable from the date of grant and have a term of 10 years from the date of grant.

Transactions with Promoters and Control Persons

Prior to our merger with CNS California, which closed on March 7, 2007, Strativation, Inc. (now called CNS Response, Inc.) existed as a “shell company” with nominal assets whose sole business was to identify, evaluate and investigate various companies to acquire or with which to merge.

Shares for Debt Agreement

Prior to our merger with CNS California, on January 11, 2007, we entered into a Shares For Debt Agreement with Richardson & Patel LLP (“R&P”), our former legal counsel, pursuant to which we agreed to issue and R&P agreed to accept 645,846 restricted shares of our common stock (the “Shares”) as full and complete settlement of a portion of the total outstanding debt in the amount of $261,202 that we owed to R&P for legal services (the “Partial Debt”). On January 15, 2007, the company and R&P agreed to amend and restate the Shares for Debt Agreement to increase the number of Shares to be issued in settlement of such Partial Debt to 656,103 restricted shares of our common stock, which then represented 75.5% of our issued and outstanding common stock.

Registration Rights Agreement

On January 11, 2007, we entered into a Registration Rights Agreement in connection with the above referenced Shares For Debt Agreement with R&P and various other stockholders of the Company signatory thereto (“Majority Stockholders”) in connection with the shares of the company acquired pursuant to the Shares For Debt Agreement and certain other transactions that took place on or around July 18, 2006. On January 15, 2007, the company and the Majority Stockholders agreed to amend and restate the Registration Rights Agreement to provide registration rights to the Majority Stockholders for up to 767,101 shares of our common stock held or to be acquired by them.

Merger Agreement

On January 16, 2007, we entered into an Agreement and Plan of Merger with CNS Response, Inc., a California corporation (or CNS California), and CNS Merger Corporation, a California corporation and our wholly-owned subsidiary that was formed to facilitate the acquisition of CNS California (the “Merger Agreement”). On March 7, 2007, the merger with CNS California closed, CNS California became our wholly-owned subsidiary, and we changed our name from Strativation, Inc. to CNS Response, Inc.. At the Effective Time of the Merger (as defined in the Merger Agreement, as amended on February 23, 2007), MergerCo was merged with and into CNS California, the separate existence of MergerCo ceased, and CNS California continued as the surviving corporation at the subsidiary level. We issued an aggregate of 17,744,625 shares of our common stock to the stockholders of CNS California in exchange for 100% ownership of CNS California. Additionally, we assumed an aggregate of 8,407,517 options to purchase shares of common stock and warrants to purchase shares of common stock on the same terms and conditions as previously issued by CNS California. Pursuant to the Merger Agreement, our former sole director and executive officer, Silas Phillips, resigned as a director and executive officer of our company effective as of the closing of the merger, and the directors and officers of CNS California were appointed to serve as directors and officer of our company. Except for the Merger Agreement, as amended, and the transactions contemplated by that agreement, neither CNS California, nor the directors and officers of CNS California serving prior to the consummation of the Merger, nor any of their associates, had any material relationship with us, or any of our directors and officers, or any of our associates prior to the merger. Following the merger, the business conducted by the company is the business conducted by CNS California.

Pursuant to the terms of the Merger Agreement, we paid an advisory fee of $475,000 to Richardson & Patel, LLP, our former legal counsel and a principal shareholder, immediately upon the closing of the merger.

Transactions with Selling Stockholders

2007 Private Placement

On March 7, 2007, simultaneous with the closing of the Merger, we received gross proceeds of approximately $7,008,450 in the first closing of a private placement transaction with institutional investors and other high net worth individuals (“Investors”). Pursuant to Subscription Agreements entered into with these Investors, we sold 5,840,368 Investment Units, at $1.20 per Investment Unit. Each “Investment Unit” consists of one share of our common stock, and a five year non-callable warrant to purchase three-tenths of one share of our common Stock, at an exercise price of $1.80 per share (the “Investor Warrant”). On May 16, 2007, we completed a second closing of the private placement for an additional 664,390 Investment Units. The additional gross proceeds to us amounted to $797,300.

Brean Murray Carret & Co. (“Brean Murray”) acted as placement agent and corporate finance advisor in connection with the private placement. For their services as placement agent and financial advisor, pursuant to the terms of an Engagement Agreement between CNS California and Brean Murray, Brean Murray received a retainer in the form of 83,333 shares of our common stock (having a deemed value of $100,000) upon the closing of the private placement. We also paid Brean Murray a fee equal to 8% of the funds raised in the private placement, or approximately $624,500 of the gross proceeds from the financing. In addition, Brean Murray received warrants (the “Placement Agent Warrants”) to purchase shares of our common stock in amounts equal to (i) 8% of the shares of common stock sold by Brean Murray in the private placement (520,380 warrants at an exercise price of $1.44 per share), and (ii) 8% of the shares underlying the Investor Warrants sold by Brean Murray in the private placement (156,114 warrants at an exercise price of $1.80 per share). The Placement Agent Warrants are fully vested and have a term of 5 years. We also paid $87,700 in costs, fees and expenses incurred by Brean Murray in connection with the private placement. After payment of commissions and expenses associated with the offering, we received net proceeds of approximately $6.9 million in the private placement financing.

The holders of the shares (i) sold in our 2007 private placement, (ii) issuable upon exercise of the Investor Warrants sold in the 2007 private placement, (iii) issuable upon exercise of the Placement Agent Warrants or otherwise under the engagement agreement with Brean Murray, and (iv) issued upon conversion of CNS California Series A Preferred Stock, CNS California Series B Preferred Stock and certain shares of CNS California Common Stock under the terms of the Merger Agreement, each have piggy-back registration rights with respect to such shares. For holders who have elected to participate, we are including for resale on this registration statement of which this prospectus forms a part the shares of common stock and/or shares of common stock purchasable under warrants issued in the above mentioned transactions that are held by such holders.

2009 Private Placement

On August 26, December 24 and December 31, 2009 and January 4, 2010, the Company completed a first, second, third and fourth and final closing of its private placement, resulting in gross proceeds to the Company of $2,000,000, $2,996,000, $432,000 and $108,000 respectively from accredited investors. Pursuant to Subscription Agreements entered into with the investors, we sold approximately 103 Investment Units at $54,000 per Investment Unit. Each “Investment Unit” consists of 180,000 shares of our Common Stock and a five year non-callable warrant to purchase 90,000 shares of our Common Stock at an exercise price of $0.30 per share. After commissions and expenses, we received net proceeds of approximately $4,920,000 in the private placement.

Pursuant to a Registration Rights Agreements entered into with each investor and the placement agent, we agreed to file a registration statement covering the resale of the Common Stock and the Common Stock underlying the warrants sold in the 2009 private placement, as well as the Common Stock underlying the warrants issued to the placement agent (as further described below) by the later of October 26, 2009 or the 20th calendar day after the termination of the offering. The Registration Rights agreement with the investors was subsequently amended to allow the filing of the registration statement by the later of 10 business days following the Company’s filing of its Annual Report on Form 10-K for its September 30, 2009 year end or the 20th calendar day after termination of the offering. The initial registration statement was filed on February 1, 2010. In addition, the Company agreed to use its best efforts to have the registration statement declared effective no later than 180 days following the final closing of the offering and maintain such effectiveness until the earlier of the second anniversary of the date of such effectiveness or the date that all of the securities covered by the registration statement may be sold without restriction. The registration statement of which this prospectus forms a part, covers the resale of the Common Stock and the Common Stock underlying the warrants sold in the private placement.

Pursuant to a Placement Agent Agreement entered into with Maxim Group LLC dated as of August 3, 2009 and as amended on July 21, 2010, Maxim Group LLC served as lead placement agent in our recently completed private placement offering, and received, in addition to cash commissions and a non-accountable expense allowance (see pages F-29 to F-32 for further details), warrants to purchase an aggregate of 965,134 shares of our Common Stock with an exercise price of $0.33 per share. Monarch Capital Group, Robert Nathan and Felix Investments, LLC also acted as placement agents in our recently completed private placement. In addition to cash commissions and a non-accountable expense allowance, each placement agent received warrants to purchase shares of our Common Stock at an exercise price of $0.33 per share, with Monarch Capital Group receiving 65,340 warrants, Robert Nathan receiving 152,460 warrants and Felix Investments, LLC receiving 292,200 warrants. The registration statement of which this prospectus forms a part includes the shares underlying the warrants held by Maxim Group LLC, Monarch Capital Group, Robert Nathan and Felix Investments, LLC.

The warrants held by each placement agent expire between August 26, 2014 and January 4, 2015, corresponding to five years after the closing of each tranche of the private placement in compliance with FINRA Rule 5110(f)(2)(H). All shares of Common Stock issued or issuable upon conversion of placement agent warrants received by each placement agent are restricted from sale, transfer, assignment, pledge or hypothecation or from being the subject of any hedging, short sale, derivative, put, or call transaction that would result in the effective economic disposition of the securities by any person for a period of 180 days immediately following the effective date of the registration statement of which this prospectus forms a part, except transfers of the warrants to officers or partners each respective placement agent as allowed under FINRA Rule 5110 (g)(1) and (2).

The Form of Subscription Agreement, Form of Warrant issued to investors, the Registration Rights Agreement with the investors, Amendment No. 1 to the Registration Rights Agreement with the investors, the Placement Agent Agreement, a Form of Warrant issued to the Placement Agent, a Form of Registration Rights Agreement with the Placement Agent, Amendment No.1 to the Placement Agent Agreement, and Amendment No.1 to the Form of Warrant issued to the Placement Agent associated with our 2009 private placement are referenced at Exhibits 10.18, 10.19, 10.20, 10.21, 10.28,10.29, 10.30,10.31 and 10.32 to this registration statement of which this prospectus forms a part.

DESCRIPTION OF CAPITAL STOCK

The information set forth below is a general summary of our capital stock structure. As a summary, this Section is qualified by, and not a substitute for, the provisions of our Certificate of Incorporation, as amended, and Bylaws, as amended.

Authorized Capital Stock

Our authorized capital stock consists of 750,000,000 shares of Common Stock, par value $0.001 per share.

Common Stock

As of August 30, 2010, we had 56,023,921 shares of Common Stock issued and outstanding. In addition, we have reserved 15,670,973 shares of Common Stock for issuance in respect of options to purchase common stock and 20,297,753 shares of Common Stock were reserved for issuance pursuant to issued and outstanding warrants to purchase our Common Stock. Furthermore, 2,000,000 shares of Common Stock were reserved for $1,000,000 worth of promissory notes that are convertible at $0.50 per share.

Dividend Rights

The holders of outstanding shares of Common Stock are entitled to receive dividends out of funds legally available at the times and in the amounts that our Board may determine.

Voting Rights

Each holder of Common Stock is entitled to one vote for each share of Common Stock held on all matters submitted to a vote of stockholders.

No Preemptive or Similar Rights

Holders of Common Stock do not have preemptive rights, and Common Stock is not convertible or redeemable.

Right to Receive Liquidation Distributions

Upon our dissolution, liquidation or winding-up, the assets legally available for distribution to our stockholders are distributable ratably among the holders of Common Stock.

Warrants

At August 30, 2010, the following warrants were outstanding:

warrants that will expire at various times through 2012 to purchase an aggregate of 189,146 shares of our common stock at an exercise price per share of $0.01, which were granted in connection with the issuance of convertible promissory notes;

warrants that will expire at various times through 2015 to purchase an aggregate of 1,427,022 shares of our common stock at an exercise price per share of $0.59 which were granted in connection with the issuance of convertible promissory notes;

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warrants that will expire at various times through 2011 to purchase an aggregate of 1,143,587 shares of our common stock at an exercise price per share of $1.51 which were issued to investors in connection with the private placement completed in November 2006;

warrants that will expire in 2011 to purchase 7,921 shares of our common stock at an exercise price per share of $1.01 which were granted to the placement agent in connection with the private placement completed in November 2006;

warrants that will expire in 2011 to purchase an aggregate of 4,752 shares of our common stock at an exercise price per share of $1.812 which were granted to the placement agent in connection with the private placement completed in November 2006;

warrants that will expire in 2012 to purchase 1,951,445 shares of our common stock at an exercise price per share of $1.80 which were issued to investors in connection with the private placement which was completed concurrently with the Merger on March 7, 2007;

warrants that will expire in 2012 to purchase 520,380 shares of our common stock at an exercise price per share of $1.44 which were issued to the placement agent in connection with the private placement which was completed concurrently with the Merger on March 7, 2007;

warrants that will expire in 2012 to purchase 156,114 shares of our common stock at an exercise price per share of $1.80 which were issued to the placement agent in connection with the private placement which was completed concurrently with the Merger on March 7, 2007.

warrants that will expire in 2016 to purchase 100,000 shares of our common stock at an exercise price per share of $0.25 which were issued to SAIL Venture Partners, LLC in connection with the a bridge note of $200,000 which was executed on May 14, 2009.

warrants that will expire in 2014 through January 2015 to purchase 12,322,252 shares of our common stock at an exercise price per share of $0.30 which were issued to investors who participated in our private placement in which we raised gross proceeds of $5,579,000 between August, 2009 and January 2010.

warrants that will expire in 2014 through January 2015 to purchase 1,475,134 shares of our common stock at an exercise price per share of $0.33 which were issued to the placement agents in connection with the private placement in which we raised gross proceeds of $5,579,000 between August 2009 and January 2010.

warrants that will expire on July 2, 2017 to purchase 500,000 shares of our common stock at an exercise price per share of $0.30, which were issued to Mr. Brian Thompson, who provided consulting work associated with the Company’s financing activities. Mr. Thompson is an employee of Equity Dynamics, Inc., a Company owned by Mr. Pappajohn.

warrants that will expire on July 24, 2017 to purchase 250,000 shares of our common stock at an exercise price per share of $0.50, which were issued to Mr. John Pappajohn.

warrants that will expire on August 19, 2017 to purchase an aggregate of 250,000 shares of our common stock at an exercise price per share of $0.56, which were issued to Deerwood Holdings, LLC, Deerwood Partners, LLC and SAIL.

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Options

On August 3, 2006, CNS California adopted the CNS California 2006 Stock Incentive Plan (the “Stock Option Plan”). The Stock Option Plan provides for the issuance of awards in the form of restricted shares, stock options (which may constitute incentive stock options (ISO) or non-statutory stock options (NSO)), stock appreciation rights and stock unit grants to eligible employees, directors and consultants and is administered by the board of directors.

The option price for each share of stock subject to an option shall be (i) no less than the fair market value of a share of stock on the date the option is granted, if the option is an ISO, or (ii) no less than 85% of the fair market value of the stock on the date the option is granted, if the option is a NSO; provided, however, if the option is an ISO granted to an eligible employee who is a 10% shareholder, the option price for each share of stock subject to such ISO shall be no less than 110% of the fair market value of a share of stock on the date such ISO is granted. Stock options have a maximum term of ten years from the date of grant, except for ISOs granted to an eligible employee who is a 10% shareholder, in which case the maximum term is five years from the date of grant. ISOs may be granted only to eligible employees. The Company has adopted ASC 718-20 (formerly, SFAS No. 123R - revised 2004, “Share-Based Payment”), and related interpretations. Under ASC 718-20, share-based compensation cost is measured at the grant date based on the calculated fair value of the award. The Company estimates the fair value of each option on the grant date using the Black-Scholes model. Stock-based compensation expense is recognized over the employees’ or service provider’s requisite service period, generally the vesting period of the award.

Originally, a total of 10 million shares of common stock were reserved for issuance under the 2006 Plan. The 2006 Plan also originally provided that in any calendar year, no eligible employee or director shall be granted an award to purchase more than 3 million shares of stock. On March 3, 2010, the Board of Directors approved an amendment to the 2006 Plan which increased the number of shares of common stock reserved for issuance under the 2006 Plan from 10 million to 20 million shares and increased the limit on shares underlying awards granted within a calendar year to any eligible employee or director from 3 million to 4 million shares of common stock. The amendment was approved by shareholders at the annual meeting held on April 27, 2010.

On March 3, 2010, the Board of Directors also approved the grant of 9,450,000 options to staff members, directors, advisors and consultants. For staff members the options will vest equally over a 48 month period while for directors, advisors and consultants the options will vest equally over a 36 month period.

On July 5, 2010, the Board of Directors further approved the grant of 800,000 options to staff members, directors and advisors with similar vesting periods as the March 3, 2010 options mentioned above.

As of June 30, 2010, 2,124,740 options were exercised and there were 14,870,973 options and 183,937 restricted shares outstanding under the amended 2006 Plan, leaving 2,820,350 shares available for issuance pursuant to future awards.

The following is a summary of the status of options outstanding at June 30, 2010:

Exercise Price		Number of Shares		Weighted Average Contractual Life	Weighted Average Exercise Price
$	0.12		859,270	10 years	$	0.12
$	0.132		987,805	7 years	$	0.132
$	0.30		135,700	10 years	$	0.30
$	0.59		28,588	10 years	$	0.59
$	0.80		140,000	10 years	$	0.80
$	0.89		968,875	10 years	$	0.89
$	0.96		496,746	10 years	$	0.96
$	1.09		2,513,549	10 years	$	1.09
$	1.20		243,253	5 years	$	1.20
$	0.51		41,187	10 years	$	0.51
$	0.40		56,000	10 years	$	0.40
$	0.55		8,400,000	10 years	$	0.55
Total			14,870,973		$	0.63

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Anti-Takeover Provisions

Delaware has enacted the following legislation that may deter or frustrate takeovers of Delaware corporations, such as CNS Response:

Authorized but Unissued Stock. The authorized but unissued shares of our common stock are available for future issuance without shareholder approval. These additional shares may be used for a variety of corporate purposes, including future public offering to raise additional capital, corporate acquisitions and employee benefit plans. The existence of authorized but unissued shares of common stock may enable our Board to issue shares of stock to persons friendly to existing management, which may deter or frustrate a takeover of the company.

Transfer Agent and Registrar

The transfer agent and registrar for our common stock is American Stock Transfer & Trust Company. The address of American Stock Transfer & Trust Company is 59 Maiden Lane, New York, New York, and the phone number is (718) 921-8201.

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Market Price of and Dividends on the Registrant’s Common Equity and Related Stockholder Matters.

The Company’s shares trade on the Nasdaq Over-the-Counter bulletin board market (OTC BB) under the symbol CNSO.OB. These shares are very thinly traded, with an average daily volume for the twelve months ended September 30, 2009 of 350 shares per day with no trades occurring on 215 out of 252 trading days. Consequently, management believes that the prices quoted on the OTC BB may not accurately reflect the value of the Company’s common shares. In addition, certain members of management have made open market purchases of the Company’s shares, including approximately 500 shares as recently as February 20, 2009.

We have never paid dividends on our common stock. CNS California has never paid dividends on its common stock. We intend to retain any future earnings for use in our business.

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PLAN OF DISTRIBUTION

We are registering the shares of common stock on behalf of the selling security holders. The shares covered by this prospectus may be offered and sold from time to time by the selling stockholders. The term “selling stockholder” includes pledgees, donees, transferees or other successors in interest selling shares received after the date of this prospectus from each selling stockholder as a pledge, gift, partnership distribution or other non-sale related transfer. The number of shares beneficially owned by a selling stockholder will decrease as and when it effects any such transfers. The plan of distribution for the selling stockholders’ shares sold hereunder will otherwise remain unchanged, except that the transferees, pledgees, donees or other successors will be selling stockholders hereunder. To the extent required, we may amend and supplement this prospectus from time to time to describe a specific plan of distribution.

The selling stockholders will act independently of us in making decisions with respect to the timing, manner and size of each sale. The selling stockholders may make these sales at prices and under terms then prevailing or at prices related to the then current market price. The selling stockholders may also make sales in negotiated transactions. The selling stockholders may offer their shares from time to time pursuant to one or more of the following methods:

ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;

one or more block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction;

purchases by a broker-dealer as principal and resale by the broker-dealer for its account;

an exchange distribution in accordance with the rules of the applicable exchange;

publicly or privately negotiated transactions;

through underwriters, brokers or dealers (who may act as agents or principals) or directly to one or more purchasers;

a combination of any such methods of sale; and

any other method permitted pursuant to applicable law.

In connection with distributions of the shares or otherwise, the selling stockholders may:

enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of the shares in the course of hedging the positions they assume;

sell the shares short and redeliver the shares to close out such short positions;

enter into option or other transactions with broker-dealers or other financial institutions which require the delivery to them of shares offered by this prospectus, which they may in turn resell; and

pledge shares to a broker-dealer or other financial institution, which, upon a default, they may in turn resell.

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The selling stockholders may also sell their shares pursuant to Rule 144 under the Securities Act, which permits limited resale of shares purchased in a private placement subject to the satisfaction of certain conditions.

Sales through brokers may be made by any method of trading authorized by any stock exchange or market on which the shares may be listed or quoted, including block trading in negotiated transactions. Without limiting the foregoing, such brokers may act as dealers by purchasing any or all of the shares covered by this prospectus, either as agents for others or as principals for their own accounts, and reselling such shares pursuant to this prospectus. The selling stockholders may effect such transactions directly, or indirectly through underwriters, broker-dealers or agents acting on their behalf. In effecting sales, broker-dealers or agents engaged by the selling stockholders may arrange for other broker-dealers to participate. Broker-dealers or agents may receive commissions, discounts or concessions from the selling stockholders, in amounts to be negotiated immediately prior to the sale (which compensation as to a particular broker-dealer might be in excess of customary commissions for routine market transactions).

In offering the shares covered by this prospectus, the selling stockholders, and any broker-dealers and any other participating broker-dealers who execute sales for the selling stockholders, may be deemed to be “underwriters” within the meaning of the Securities Act in connection with these sales. Any profits realized by the selling stockholders and the compensation of such broker-dealers may be deemed to be underwriting discounts and commissions.

The Company is required to pay all fees and expenses incident to the registration of the shares.

The Company has agreed to indemnify the selling stockholders against certain losses, claims, damages and liabilities, including liabilities under the Securities Act.

Each of Maxim Group LLC, Monarch Capital Group, Robert Nathan, and Felix Investments, LLC are registered broker dealers and FINRA members and are listed as selling shareholders in this prospectus. Maxim Group LLC served as lead placement agent in our recently completed private placement offering, and received, in addition to cash commissions and a non-accountable expense allowance, warrants to purchase an aggregate of 965,134 shares of our Common Stock with an exercise price of $0.33 per share. Monarch Capital Group, Robert Nathan and Felix Investments, LLC also acted as placement agents in our recently completed private placement. In addition to cash commissions and a non-accountable expense allowance, each placement agent received warrants to purchase shares of our Common Stock at an exercise price of $0.33 per share, with Monarch Capital Group receiving 65,340 warrants, Robert Nathan receiving 152,460 warrants and Felix Investments, LLC receiving 292,200 warrants. The registration statement of which this prospectus forms a part includes the shares underlying the warrants held by Maxim Group LLC, Monarch Capital Group, Robert Nathan and Felix Investments, LLC.

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Maxim Group LLC has indicated to us its willingness to act as selling agent on behalf of certain of the selling shareholders named in the prospectus under the section titled “Principal and Selling Stockholders” that purchased our privately placed securities. All shares sold, if any, on behalf of selling shareholders by Maxim Group LLC would be in transactions executed by Maxim Group LLC on an agency basis and commissions charged to its customers in connection with each transaction shall not exceed a maximum of 5% of the gross proceeds. Maxim Group LLC does not have an underwriting agreement with us and/or the selling shareholders and no selling shareholders are required to execute transactions through Maxim Group LLC. Further, other than any existing brokerage relationship as customers with Maxim Group LLC, no selling shareholder has any pre-arranged agreement, written or otherwise, with Maxim Group LLC to sell their securities through Maxim Group LLC.

FINRA Rule 5110 requires members firms (unless an exemption applies) to satisfy the filing requirements of Rule 5110 in connection with the resale, on behalf of selling shareholders, of the securities on a principal or agency basis. NASD Notice to Members 88-101 states that in the event a selling shareholder intends to sell any of the shares registered for resale in this prospectus through a member of FINRA participating in a distribution of our securities, such member is responsible for insuring that a timely filing, if required, is first made with the Corporate Finance Department of FINRA and disclosing to FINRA the following:

it intends to take possession of the registered securities or to facilitate the transfer of such certificates;

the complete details of how the selling shareholders' shares are and will be held, including location of the particular accounts;

whether the member firm or any direct or indirect affiliates thereof have entered into, will facilitate or otherwise participate in any type of payment transaction with the selling shareholders, including details regarding any such transactions; and

in the event any of the securities offered by the selling shareholders are sold, transferred, assigned or hypothecated by any selling shareholder in a transaction that directly or indirectly involves a member firm of FINRA or any affiliates thereof, that prior to or at the time of said transaction the member firm will timely file all relevant documents with respect to such transaction(s) with the Corporate Finance Department of FINRA for review.

No FINRA member firm may receive compensation in excess of that allowable under FINRA rules, including Rule 5110, in connection with the resale of the securities by the selling shareholders, which total compensation may not exceed 8%.

107

LEGAL MATTERS

Stubbs Alderton & Markiles, LLP (“SAM LLP”), has rendered a legal opinion, attached hereto as Exhibit 5.1, as to the validity of the shares of the common stock to be registered hereby. SAM LLP was the holder of 61,880 shares of common stock and warrants to purchase 37,128 shares of common stock at an exercise price of $1.51 of CNS Response, Inc., a California corporation, which converted into 61,880 shares of our common stock and warrants to purchase 37,128 shares of our common stock at an exercise price of $1.51 upon the closing of the merger on March 7, 2007. In addition, SAM Venture Partners invested $162,600 in the Private Placement that closed on March 7, 2007, and in exchange received 135,500 shares of our common stock, and warrants to purchase 40,652 shares of our common stock at an exercise price of $1.80 per share. Subsequent to the Private Placement, SAM Venture Partners distributed the aforementioned shares and warrants to its partners, each of whom is a partner in SAM LLP.

EXPERTS

The consolidated financial statements included in this prospectus have been audited by Cacciamatta Accountancy Corporation, independent certified public accountants, to the extent and for the periods set forth in their reports appearing elsewhere herein, and are included in reliance on such reports given upon the authority of said firm as experts in auditing and accounting.

WHERE YOU CAN FIND MORE INFORMATION

We file annual, quarterly and current reports, proxy statements and other information with the SEC. We have also filed with the SEC under the Securities Act a registration statement on Form S-1 with respect to the common stock offered by this prospectus. This prospectus, which constitutes part of the registration statement, does not contain all the information set forth in the registration statement or the exhibits and schedules which are part of the registration statement, portions of which are omitted as permitted by the rules and regulations of the SEC. Statements made in this prospectus regarding the contents of any contract or other document are summaries of the material terms of the contract or document. With respect to each contract or document filed as an exhibit to the registration statement, reference is made to the corresponding exhibit. For further information pertaining to us and the common stock offered by this prospectus, reference is made to the registration statement, including the exhibits and schedules thereto, copies of which may be inspected without charge at the Public Reference Room of the SEC at 100 F Street, N.E., Washington, D.C. 20549 on official business days during the hours of 10 a.m. to 3 p.m.. Copies of all or any portion of the registration statement may be obtained from the SEC at prescribed rates. Information on the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an Internet site that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. The web site can be accessed at http://www.sec.gov. The internet address of CNS Response is http://www.cnsresponse.com.

108

INDEX TO FINANCIAL STATEMENTS

		Page

Report of Independent Registered Public Accounting Firm		F-1

Consolidated Balance Sheets as of September 30, 2009 and 2008		F-2

Consolidated Statements of Operations for the Years Ended September 30, 2009 and 2008		F-3

Consolidated Statements of Changes in Stockholders’ Equity (Deficit) for the Years Ended September 30, 2009 and 2008		F-4

Consolidated Statements of Cash Flows for the Years Ended September 30, 2009 and 2008		F-5

Notes to Consolidated Financial Statements for the Years Ended September 30, 2009 and 2008		F-6

Unaudited Condensed Consolidated Statements of Operations for the three and nine months ended June 30, 2010 and 2009		F-23

Condensed Consolidated Balance Sheets as of June 30, 2010 (unaudited) and September 30, 2009		F-24

Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended June 30, 2010 and 2009		F-25

Unaudited Condensed Consolidated Statements of Stockholders’ Equity (Deficit) for the nine months ended June 30, 2010 and 2009		F-26

Notes to Unaudited Condensed Consolidated Financial Statements		F-27

109

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors

CNS Response, Inc.

2755 Bristol St., Suite 285

Costa Mesa, CA 92626

We have audited the accompanying consolidated balance sheets of CNS Response, Inc. (the “Company”) and its subsidiaries as of September 30, 2009 and 2008, and the related consolidated statements of operations, changes in stockholders’ equity (deficit), and cash flows for each of the years in the two-year period ended September 30, 2009. CNS Response, Inc.’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of September 30, 2009 and 2008, and the results of its operations and its cash flows for each of the years in the two-year period ended September 30, 2009 in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company’s continued operating losses and limited capital raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to this matter are also described in Note 1. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ Cacciamatta Accountancy Corporation

Santa Ana, California

December 29, 2009

F-1

CNS RESPONSE, INC.

CONSOLIDATED BALANCE SHEETS AT SEPTEMBER 30, 2009 and 2008

	As at September 30,
	2009			2008
ASSETS
CURRENT ASSETS:
Cash	$	988,100		$	1,997,000
Accounts receivable (net of allowance for doubtful accounts of $11,700 and $17,200 in 2009 and 2008 respectively)		61,700			98,200
Prepaids and other		89,500			189,400
Total current assets		1,139,300			2,284,600
Other Assets		21,600			28,700
Goodwill		-			320,200
TOTAL ASSETS	$	1,160,900		$	2,633,500

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
Accounts payable (including $7,000 and $6,800 to related parties in 2009 and 2008 respectively)	$	1,285,600		$	335,700
Accrued liabilities		261,400			207,500
Deferred compensation (including $81,200 and $107,000 to related parties in 2009 and 2008 respectively)		220,100			264,900
Accrued patient costs		305,500			397,500
Accrued consulting fees (including $18,000 and $0 to related parties in 2009 and 2008, respectively)		72,100			67,600
Accrued interest		-			42,600
Convertible promissory notes		-			50,000
Current portion of long-term debt		95,900			88,500
Total current liabilities		2,240,600			1,454,300

LONG-TERM LIABILITIES
Note payable to officer		24,800			118,600
Capital lease		5,600			7,700
Total long-term liabilities		30,400			126,300
TOTAL LIABILITIES		2,271,000			1,580,600
COMMITMENTS AND CONTINGENCIES		-			-

STOCKHOLDERS' EQUITY:
Common stock, $0.001 par value; authorized 750,000,000 shares; 41,781,129 and 25,299,547 shares outstanding as of September 30, 2009 and 2008		41,800			25,300
Additional paid-in capital		24,044,000			17,701,300
Accumulated deficit		(25,195,900	)		(16,673,700	)
Total stockholders' equity		(1,110,100	)		1,052,900
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	1,160,900		$	2,633,500

See accompanying Notes to Consolidated Financial Statements

F-2

CNS RESPONSE, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED

SEPTEMBER 30, 2009 AND 2008

	YEARS ENDED SEPTEMBER 30,
	2009			2008
REVENUES
Laboratory Information Services		120,400			178,500
Clinical Services		579,700			595,000
	$	700,100		$	773,500
OPERATING EXPENSES:
Cost of Laboratory Service revenues		131,600			163,200
Research and development		2,137,200			2,097,300
Sales and marketing		915,800			881,400
General and administrative		3,887,400			3,105,700
Goodwill impairment charges		320,200			-

Total operating expenses		7,392,200			6,247,600

OPERATING LOSS		(6,692,100	)		(5,474,100	)

OTHER INCOME (EXPENSE):
Interest income (expense), net		(1,732,900	)		104,000
Financing premium		(90,000	)		-
Total other income (expense)		(1,822,900	)		104,000

LOSS BEFORE PROVISION FOR INCOME TAXES		(8,515,000	)		(5,370,100	)

PROVISION FOR INCOME TAXES		7,200			1,400

NET LOSS	$	(8,522,200	)	$	(5,371,500	)

BASIC NET LOSS PER SHARE	$	(0.31	)	$	(0.21	)

DILUTED NET LOSS PER SHARE	$	(0.31	)	$	(0.21	)

WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic		27,778,171			25,299,547
Diluted		27,778,171			25,299, 547

See accompanying Notes to Consolidated Financial Statements

F-3

CNS RESPONSE, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT) FOR THE YEARS ENDED SEPTEMBER 30, 2009 AND 2008

					Additional
	Common Stock				Paid-in			Accumulated
	Shares		Amount		Capital			Deficit			Total
Balance at October 1, 2007		25,299,547	$	25,300	$	16,630,000		$	(11,302,200	)	$	5,353,100
Stock- based compensation		-		-		1,071,300			-			1,071,300
Net loss for the year ended September 30, 2008		-		-		-			(5,371,500	)		(5,371,500	)
Balance at September 30, 2008		25,299,547	$	25,300	$	17,701,300		$	(16,673,700	)	$	1,052,900

Stock- based compensation		-		-		850,500			-			850,500
Issuance of 3,433,333 bridge warrants		-		-		1,058,000			-			1,058,000
Exercise of 1,498,986 $0.01 warrants		1,498,986		1,500		13,500			-			15,000
Exercise of 2,124,740 $0.132 options		2,124,740		2,100		278,400			-			280,500
Issuance of stock in connection with the Maxim PIPE net of offering costs of $250,700		6,810,002		6,800		1,785,500			-			1,792,300
Value of beneficial conversion feature of bridge notes		-		-		642,000			-			642,000
Issuance of stock on conversion $1,720,900 of bridge notes and accrued interest		6,047,854		6,100		1,714,800			-			1,720,900
Warrants issued in association with the Maxim PIPE		-		-		1,607,000			-			1,607,000
Offering cost pertaining to the Maxim PIPE		-		-		(1,607,000	)		-			(1,607,000	)
Net loss for the year ended September 30, 2009		-		-					(8,522,200	)		(8,522,200	)

Balance at September 30, 2009		41,781,129	$	41,800	$	24,044,000		$	(25,195,900	)	$	(1,110,100	)

See accompanying Notes to Consolidated Financial Statements

F-4

CNS RESPONSE, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS FOR YEARS ENDED

SEPTEMBER 30, 2009 AND 2008

	YEAR ENDED SEPTEMBER 30,
	2009			2008
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(8,522,200	)	$	(5,371,500	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation & amortization		9,100			6,300
Discount on bridge notes issued		1,058,000			-
Value of beneficial conversion feature of bridge notes		642,000			-
Stock based compensation		850,500			1,071,300
Non-cash interest expense		20,900			-
Goodwill impairment		320,200			-
Write-off of doubtful accounts		22,700			-
Changes in operating assets and liabilities:
Accounts receivable		13,800			(39,000	)
Prepaids and other		99,900			(30,400	)
Accounts payable and accrued liabilities		1,003,800			116,300
Deferred compensation and others		(40,300	)		192,600
Accrued patient costs		(92,000	)		397,500
Net cash used in operating activities		(4,613,600	)		(3,656,900	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Deferred offering relating to acquisition		-			(43,700	)
Furniture & Fixtures		(2,000	)		(30,900	)
Net cash used in investing activities		(2,000	)		(74,600	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of convertible debt with accrued interest		(92,600	)		-
Repayment of debt		(86,700	)		(60,600	)
Repayment of lease payable		(1,800	)		(1,000	)
Proceeds from the sale of common stock, net of offering costs		1,792,300			-
Proceeds from bridge notes		1,700,000			-
Proceeds from exercise of warrants and options		295,500			-
Net cash provided (used) by financing activities		3,606,700			(61,600	)
NET INCREASE (DECREASE) IN CASH		(1,008,900	)		(3,793,100	)
CASH- BEGINNING OF YEAR		1,997,000			5,790,100
CASH- END OF YEAR	$	988,100		$	1,997,000

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest	$	64,100		$	22,440
Income taxes	$	7,200		$	5,972
Fair value of note payable to officer issued for acquisition	$	118,600		$	265,900
Fair value of equipment acquired through lease	$	7,600		$	10,500
Conversion of bridge notes and related accrued interest into common stock	$	1,720,900		$	-

See accompanying Notes to Consolidated Financial Statements

F-5

CNS RESPONSE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED

SEPTEMBER 30, 2009 AND 2008

1.	NATURE OF OPERATIONS

Organization and Nature of Operations

CNS Response, Inc. (the “Company”) was incorporated in Delaware on July 10, 1984. The Company utilizes a patented system that guides psychiatrists and other physicians to determine a proper treatment for patients with mental, behavioral and/or addictive disorders. The Company also intends to identify, develop and commercialize new indications of approved drugs and drug candidates for this patient population.

In addition, as a result of its acquisition of Neuro-Therapy Clinic, Inc. (“NTC”) on January 15, 2008, the Company provides behavioral health care services. NTC is a center for highly-advanced testing and treatment of neuropsychiatric problems, including learning, attentional and behavioral challenges, mild head injuries, as well as depression, anxiety, bipolar and all other common psychiatric disorders. Through this acquisition, the Company expects to advance neurophysiology data collection, beta-test planned technological advances in rEEG, advance physician training in rEEG and investigate practice development strategies associated with rEEG.

Going Concern Uncertainty

The Company has a limited operating history and its operations are subject to certain problems, expenses, difficulties, delays, complications, risks and uncertainties frequently encountered in the operation of a new business. These risks include the failure to develop or supply technology or services to meet the demands of the marketplace, the ability to obtain adequate financing on a timely basis, the failure to attract and retain qualified personnel, competition within the industry, government regulation and the general strength of regional and national economies.

To date, the Company has financed its cash requirements primarily from debt and equity financings. It will be necessary for the Company to raise additional funds. The Company’s liquidity and capital requirements depend on several factors, including the rate of market acceptance of its services, the future profitability of the Company, the rate of growth of the Company’s business and other factors described elsewhere in this Annual Report. The Company is currently exploring additional sources of capital but there can be no assurances that any financing arrangement will be available in amounts and terms acceptable to the Company.

2.	CONVERTIBLE DEBT AND EQUITY FINANCINGS

Prior to September 30, 2006, CNS California issued convertible promissory notes with detachable warrants from time to time to fund its operations. The notes bear interest at 8% per year, compounded annually, and are payable on demand. The terms of the notes provide for the (i) conversion of principal and accrued interest into the same type of securities issued by CNS California upon a qualified institutional financing, the amount of which financing varies between notes and ranges from $1 to $4 million, and (ii) conversion price to be equal to the same price as the shares sold in the financing. The notes provide for an aggregate of $2,196,000 in principal to convert automatically and $920,700 to convert at the note holders’ options based upon certain financing requirements (as defined).

In October 2006, CNS California and the note holders of certain convertible promissory notes converted notes with an aggregate outstanding balance of $3,061,700 and related accrued and unpaid interest of $1,005,300 at September 30, 2006 into 5,993,515 shares of CNS California Series A Preferred Stock. In addition, the exercise price of warrants to purchase 1,062,116 shares of the CNS California common stock issued to such note holders was changed to $0.59 per share. Upon completion of the reverse merger pursuant to which CNS California became a subsidiary of the Company, the preferred shares were converted into 5,993,515 shares of the Company’s common stock and the warrants were converted into warrants to purchase 1,062,116 shares of the Company’s common stock at an exercise price of $0.59 per share. The consolidated financial statements of the Company presented reflect the issuance of these shares as common stock.

F-6

CNS RESPONSE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED

SEPTEMBER 30, 2009 AND 2008

As of September 30, 2008, one note issued by CNS California with a principal balance of $49,950 was outstanding. In May 2009, the Company entered into a settlement and release agreement with this note holder and fully repaid the promissory note with accrued interest on June 30, 2009.

Between March 30 and June 12, 2009 the Company entered into three rounds of bridge financings in the form of secured convertible promissory notes. These three rounds are referred to as:

(a)

the March 30, 2009 SAIL/Brandt Notes

(b)

the May 14, 2009 SAIL Note

(c)

the June 12, 2009 Pappajohn Note

All these notes were converted to equity as a result of the private placement transaction that closed on August 26, 2009 and are fully described in the section below.

The Private Placement Transaction

On August 26, 2009, CNS Response, Inc. (the “Company”) received gross proceeds of approximately $2,043,000 in a private placement transaction (the “Private Placement”) with six investors. Pursuant to Subscription Agreements entered into with the investors, the Company sold approximately 38 Investment Units at $54,000 per Investment Unit. Each “Investment Unit” consists of 180,000 shares of the Company’s common stock and a five year non-callable warrant to purchase 90,000 shares of the Company’s common stock at an exercise price of $0.30 per share. After commissions and expenses, the Company received net proceeds of approximately $1,792,300 in the Private Placement. These funds were used to repay outstanding liabilities, fund the Company’s recent clinical trial and for general working capital purposes.

Pursuant to a Registration Rights agreement entered into with each investor, the Company agreed to file a registration statement covering the resale of the common stock and the common stock underlying the warrants sold in the Private Placement, as well as the common stock underlying the warrants issued to Maxim Group by the later of October 26, 2009 or the 20th calendar day after the termination of the offering. The Registration Rights agreement was subsequently amended to permit the filing of the registration statement no later than 10 business days following the Company’s filing of its Annual Report on Form 10-K for its September 30, 2009 year end, or the 20th calendar day after termination of the private offering.

In addition, the Company agreed to use its best efforts to have the registration statement declared effective no later than 180 days following the final closing of the offering and maintain such effectiveness until the earlier of the second anniversary of the date of such effectiveness or the date that all of the securities covered by the registration statement may be sold without restriction.

F-7

CNS RESPONSE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED

SEPTEMBER 30, 2009 AND 2008

Events Relating to Private Placement Transaction

(a)

Conversion of the March 30, 2009 SAIL/Brandt Notes

On March 30, 2009, the Company entered into two Senior Secured Convertible Promissory Notes, each in the principal amount of $250,000 (each a “March Note” and, collectively, the “March Notes”), with Brandt Ventures, GP (“Brandt”) and SAIL Venture Partners, LP (“SAIL”). Leonard Brandt, a former member of the Company’s board of directors, is the general partner of Brandt and David B. Jones, a current member of the Company’s board of directors, is a managing member of Sail Venture Partners, LLC, which is the general partner of SAIL. The terms of the March Notes provided that in the event the Company consummates an equity financing transaction of at least $1,500,000 (excluding any and all other debt that is converted), then the principal and all accrued, but unpaid interest outstanding under the notes shall be automatically converted into the securities issued in the equity financing by dividing such amount by 90% of the per share price paid by the investors in such financing. In accordance with the terms of the March Notes, at the closing of the Private Placement, the Company issued to each of Brandt and SAIL 956,164 shares of common stock and a five year non-callable warrant to purchase 478,082 shares of its common stock at an exercise price of $0.30 per share.

(b)

Conversion of the May 14, 2009 SAIL Note

On May 14, 2009, the Company entered into a Bridge Note and Warrant Purchase Agreement (the “SAIL Purchase Agreement”) with SAIL. Pursuant to the SAIL Purchase Agreement, on May 14, 2009 SAIL purchased a Secured Promissory Note in the principal amount of $200,000 from the Company (the “May SAIL Note”). In order to induce SAIL to purchase the note, the Company issued to SAIL a warrant to purchase up to 100,000 shares of the Company’s common stock at a purchase price equal to $0.25 per share. The warrant expires on May 31, 2016.

The terms of the May SAIL Note provided that in the event the Company consummates an equity financing transaction of at least $1,500,000 (excluding any and all other debt that is converted), then the principal and all accrued, but unpaid interest outstanding under the note shall be automatically converted into the securities issued in the equity financing by dividing such amount by 85% of the per share price paid by the investors in such financing. In accordance with the terms of the May SAIL Note, at the first closing of the Private Placement on August 26, 2009, the Company issued to SAIL 802,192 shares of its common stock and a five year non-callable warrant to purchase 401,096 shares of its common stock at an exercise price of $0.30 per share.

(c)

Conversion of the June 12, 2009 Pappajohn Note

On June 12, 2009, John Pappajohn entered into a Bridge Note and Warrant Purchase Agreement (the “Pappajohn Purchase Agreement”) with the Company. Pursuant to the Pappajohn Purchase Agreement, Mr. Pappajohn purchased a Secured Convertible Promissory Note in the principal amount of $1,000,000 from the Company. In order to induce Mr. Pappajohn to purchase the note, the Company issued to Mr. Pappajohn a warrant to purchase up to 3,333,333 shares of the Company’s common stock at a purchase price equal to $0.30 per share. The warrant expires on June 30, 2016.

The note issued pursuant to the Pappajohn Purchase Agreement provided that the principal amount of $1,000,000 together with a single payment of $90,000 (the “Premium Payment”) would be due and payable, unless sooner converted into shares of the Company’s common stock (as described below), upon the earlier to occur of: (i) a declaration by Mr. Pappajohn on or after June 30, 2010 or (ii) an Event of Default (as defined in the note). The note was secured by a lien on substantially all of the assets (including all intellectual property) of the Company. In the event of a liquidation, dissolution or winding up of the Company, unless Mr. Pappajohn informed the Company otherwise, the Company was required to pay Mr. Pappajohn an amount equal to the product of 250% multiplied by the then outstanding principal amount of the note and the Premium Payment.

F-8

CNS RESPONSE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED

SEPTEMBER 30, 2009 AND 2008

The Pappajohn Purchase Agreement also provided that in the event the Company consummated an equity financing transaction of at least $1,500,000 (excluding any and all other debt that is converted), the then outstanding principal amount of the note (but excluding the Premium Payment, which would be repaid in cash at the time of such equity financing) would be automatically converted into the securities issued in the equity financing by dividing such amount by the per share price paid by the investors in such financing. The note also provided that the securities issued upon conversion of the note would be otherwise issued on the same terms as such shares are issued to the lead investor that purchases shares of the Company in the qualified financing.

On August 26, 2009, at the closing of the Private Placement, the Company paid the Premium Payment to Mr. Pappajohn, and the outstanding principal amount of Mr. Pappajohn’s note ($1,000,000 as of August 26, 2009) converted into 3,333,334 shares of the Company’s common stock. In addition, in accordance with the terms of his note, Mr. Pappajohn was issued a five year non-callable warrant to purchase 1,666,667 shares of the Company’s common stock at an exercise price of $0.30 per share.

Upon the abovementioned conversions, the Company evaluated the terms and calculated the fair value of the common stocks (by using the close market price at the respective original issuance date of the convertible notes) and warrants (by running the Black-Scholes Model) issued upon the conversions and so determined that the notes were converted with a beneficial conversion feature amounting to $642,000. As a result, for the year ended September 30, 2009, the Company recorded $642,000 as interest expense.

3.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Consolidation

The consolidated financial statements include the accounts of CNS Response, Inc., an inactive parent company, and its wholly owned subsidiaries CNS California and NTC. All significant intercompany transactions have been eliminated in consolidation.

Use of Estimates

The preparation of the consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expense, and related disclosure of contingent assets and liabilities. On an ongoing basis, the Company evaluates its estimates, including those related to revenue recognition, doubtful accounts, intangible assets, income taxes, valuation of equity instruments, contingencies and litigation. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from these estimates.

Cash

The Company deposits its cash with major financial institutions and may at times exceed federally insured limit of $250,000. At September 30, 2009 cash exceeded the federally insured limit by $819,600. The Company believes that the risk of loss is minimal. To date, the Company has not experienced any losses related to cash deposits with financial institutions.

F-9

CNS RESPONSE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED

SEPTEMBER 30, 2009 AND 2008

Fair Value of Financial Instruments

ASC 825-10 (formerly SFAS 107, “Disclosures about Fair Value of Financial Instruments”) defines financial instruments and requires disclosure of the fair value of financial instruments held by the Company. The Company considers the carrying amount of cash, accounts receivable, other receivables, accounts payable and accrued liabilities, to approximate their fair values because of the short period of time between the origination of such instruments and their expected realization.

The Company also analyzes all financial instruments with features of both liabilities and equity under ASC 480-10 (formerly SFAS 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity”), ASC 815-10 (formerly SFAS No 133, “Accounting for Derivative Instruments and Hedging Activities”) and ASC 815-40 (formerly EITF 00-19, “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock”).

The Company adopted ASC 820-10 (formerly SFAS 157, “Fair Value Measurements”) on January 1, 2008. ASC 820-10 defines fair value, establishes a three-level valuation hierarchy for disclosures of fair value measurement and enhances disclosure requirements for fair value measures. The three levels are defined as follow:

Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the assets or liability, either directly or indirectly, for substantially the full term of the financial instruments.

Level 3 inputs to the valuation methodology are unobservable and significant to the fair value.

As of September 30, 2009 the Company did not identify any assets or liabilities that are required to be presented on the balance sheet at fair value in accordance with ASC 820-10.

Accounts Receivable

The Company estimates the collectability of customer receivables on an ongoing basis by reviewing past-due invoices and assessing the current creditworthiness of each customer. Allowances are provided for specific receivables deemed to be at risk for collection.

Fixed Assets

Fixed assets, which are recorded at cost, consist of office furniture and equipment and are depreciated over their estimated useful life on a straight-line basis. The useful life of these assets is estimated to be from 3 to 5 years. Depreciation and accumulated depreciation for the years ended September 2009 and 2008 is $9,100 and $6,300 respectively.

Goodwill

In accordance with ASC 350-20 (formerly Statement of Financial Accounting Standards (“SFAS” ) No. 142, Goodwill and Other Intangible Assets ) (“ASC 350-10”) , goodwill is not amortized but instead is measured for impairment at least annually, or more frequently if certain indicators are present.

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CNS RESPONSE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED

SEPTEMBER 30, 2009 AND 2008

The Company measures for impairment by applying fair value-based tests at the reporting unit level. If the fair value of the reporting unit exceeds the carrying value of the net assets assigned to that unit, then goodwill is not impaired and no further testing is performed. The Company, if necessary, measures the amount of impairment by applying fair value-based tests to individual assets and liabilities within each reporting unit. If the carrying value of a reporting unit’s goodwill exceeds its implied fair value, the Company records an impairment loss equal to the difference.

To determine the reporting unit’s fair values, the Company uses the income approach. The income approach provides an estimate of fair value based on discounted expected future cash flows (“DCF”). Estimates and assumptions with respect to the determination of the fair value of the Company’s reporting units using the income approach include the Company’s operating forecasts, revenue growth rates and risk-commensurate discount rates.

The Company’s estimates of revenues and costs are based on historical data, various internal estimates and a variety of external sources, and are developed by the Company’s regular long-range planning process.

During the fourth quarter of fiscal year 2009, the Company conducted a goodwill impairment test and determined that the amount of the recorded goodwill related to the NTC acquisition was fully impaired. Accordingly, the Company recorded a goodwill impairment charge of $320,200 for the year ended September 30, 2009.

Long-Lived Assets

As required by ASC 350-30 (formerly SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets ) (“ASC 350-30”), the Company reviews the carrying value of its long-lived assets whenever events or changes in circumstances indicate that the historical cost-carrying value of an asset may no longer be appropriate. The Company assesses recoverability of the carrying value of the asset by estimating the future net cash flows expected to result from the asset, including eventual disposition. If the future net cash flows are less than the carrying value of the asset, an impairment loss is recorded equal to the difference between the asset’s carrying value and fair value. No impairment loss, apart from the abovementioned goodwill impairment, was recorded for the years ended September 30, 2009 and 2008.

Revenues

The Company recognizes revenue as the related services are delivered.

Research and Development Expenses

The Company charges all research and development expenses to operations as incurred.

Advertising Expenses

The Company charges all advertising expenses to operations as incurred.

Stock-Based Compensation

The Company has adopted ASC 718-20 (formerly SFAS No. 123R, Share-Based Payment -revised 2004) (“ASC718-20”) and related interpretations which establish the accounting for equity instruments exchanged for employee services. Under ASC 718-20, share-based compensation cost is measured at the grant date based on the calculated fair value of the award. The expense is recognized over the employees’ requisite service period, generally the vesting period of the award.

F-11

CNS RESPONSE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED

SEPTEMBER 30, 2009 AND 2008

Income Taxes

The Company accounts for income taxes to conform to the requirements of ASC 740-20 (formerly SFAS No. 109, Accounting for Income Taxes ) (“ASC 740-20”). Under the provisions of ASC_740-20, an entity recognizes deferred tax assets and liabilities for future tax consequences of events that have already been recognized in the Company's financial statements or tax returns. The measurement of deferred tax assets and liabilities is based on provisions of the enacted tax law. The effects of future changes in tax laws or rates are not anticipated. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.

Comprehensive Income (Loss)

ASC 220-10 (formerly, SFAS No. 130, Reporting Comprehensive Income ) (“ASC 220-10”), requires disclosure of all components of comprehensive income (loss) on an annual and interim basis. Comprehensive income (loss) is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. The Company’s comprehensive income (loss) is the same as its reported net income (loss) for the years ended September 30, 2009 and 2008.

Income (Loss) per Share

Basic and diluted net income (loss) per share has been computed using the weighted average number of shares of common stock outstanding during the period.

Segment Information

The Company uses the management approach for determining which, if any, of its products and services, locations, customers or management structures constitute a reportable business segment. The management approach designates the internal organization that is used by management for making operating decisions and assessing performance as the source of any reportable segments. Management uses two measurements of profitability and does disaggregate its business for internal reporting and therefore operates two business segments which are comprised of a reference laboratory and a clinic. The Reference Laboratory provides reports (“rEEG Reports”) that assist physicians with treatment strategies for patients with behavioral (psychiatric and/or addictive) disorders based on the patient’s own physiology. The Clinic operates NTC, a full service psychiatric practice.

Reclassifications

Certain amounts in prior years have been reclassified to conform to current year presentation. These reclassifications had no effect on previously reported operating loss or net income.

Recent Accounting Pronouncements

In April 2009, the FASB issued ASC 825-10 (formerly FASB Staff Position No. FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments) (“ASC 825”) , which requires that the fair value disclosures required for all financial instruments within the scope of SFAS 107, “Disclosures about Fair Value of Financial Instruments”, be included in interim financial statements. This FSP also requires entities to disclose the method and significant assumptions used to estimate the fair value of financial instruments on an interim and annual basis and to highlight any changes from prior periods. FSP 107-1 was effective for interim periods ending after June 15, 2009, with early adoption permitted. The adoption of FSP 107-1 did not have a material impact on the Company’s consolidated financial statements.

F-12

CNS RESPONSE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED

SEPTEMBER 30, 2009 AND 2008

In May 2009, the FASB issued ASC 855-10 (formerly Statement No. 165, Subsequent Events) (“ASC 855”). ASC 855 establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. In accordance with this Statement, entities should apply the requirements to interim or annual financial periods ending after June 15, 2009. The adoption of this statement did not have a material impact on the Company’s consolidated financial statements.

In June 2009, the FASB approved its Accounting Standards Codification, or Codification, as the single source of authoritative United States accounting and reporting standards applicable for all non-governmental entities, with the exception of the SEC and its staff. The Codification, which changes the referencing of financial standards, is effective for interim or annual financial periods ending after September 15, 2009. Therefore, starting from fiscal year end 2009, all references made to US GAAP will use the new Codification numbering system prescribed by the FASB. As the Codification is not intended to change or alter existing US GAAP, it did not have any impact on the Company’s consolidated financial statements.

As a result of the Company’s implementation of the Codification during the year ended September 30, 2009, previous references to new accounting standards and literature are no longer applicable. In the current annual financial statements, the Company will provide reference to both new and old guidance to assist in understanding the impact of recently adopted accounting literature, particularly for guidance adopted since the beginning of the current fiscal year but prior to the Codification.

In August 2009, the FASB issued Accounting Standards Update No. 2009-05 (ASU 2009-05), “Fair Value Measurements and Disclosures (Topic 820) – Measuring Liabilities at Fair Value.” ASU 2009-05 amends Subtopic 820-10, “Fair Value Measurements and Disclosures – Overall,” and provides clarification for the fair value measurement of liabilities. ASU 2009-05 is effective for the first reporting period including interim period beginning after issuance. The Company does not expect the adoption of ASU 2009-05 to have a material impact on its consolidated financial statements.

4.	STOCKHOLDERS’ EQUITY

Common and Preferred Stock

As of September 30, 2009 the Company is authorized to issue 750,000,000 shares of common stock.

As of September 30, 2009, CNS California is authorized to issue 100,000,000 shares of two classes of stock, 80,000,000 of which was designated as common shares and 20,000,000 of which was designated as preferred shares.

As of September 30, 2009, Colorado CNS Response, Inc. is authorized to issue 1,000,000 shares of common stock.

As of September 30, 2009, Neuro-Therapy Clinic, Inc., a wholly-owned subsidiary of Colorado CNS Response, Inc., is authorized to issue ten thousand (10,000) shares of common stock, no par value per share.

F-13

CNS RESPONSE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED

SEPTEMBER 30, 2009 AND 2008

Stock-Option Plan

On August 3, 2006, CNS California adopted the CNS California 2006 Stock Incentive Plan (the “2006 Plan”). The 2006 Plan provides for the issuance of awards in the form of restricted shares, stock options (which may constitute incentive stock options(ISO) or non-statutory stock options (NSO)), stock appreciation rights and stock unit grants to eligible employees, directors and consultants and is administered by the board of directors. A total of 10 million shares of stock are reserved for issuance under the 2006 Plan. As of September 30, 2009, 2,124,740 options were exercised and there were 6,662,014 options and 183,937 restricted shares outstanding under the 2006 Plan and 1,029,309 shares available for issuance of awards.

The 2006 Plan provides that in any calendar year, no eligible employee or director shall be granted an award to purchase more than 3 million shares of stock. The option price for each share of stock subject to an option shall be (i) no less than the fair market value of a share of stock on the date the option is granted, if the option is an ISO, or (ii) no less than 85% of the fair market value of the stock on the date the option is granted, if the option is a NSO; provided, however, if the option is an ISO granted to an eligible employee who is a 10% shareholder, the option price for each share of stock subject to such ISO shall be no less than 110% of the fair market value of a share of stock on the date such ISO is granted. Stock options have a maximum term of ten years from the date of grant, except for ISOs granted to an eligible employee who is a 10% shareholder, in which case the maximum term is five years from the date of grant. ISOs may be granted only to eligible employees. The Company has adopted ASC 718-20 (formerly, SFAS No. 123R -revised 2004, “Share-Based Payment”), and related interpretations. Under ASC 718-20, share-based compensation cost is measured at the grant date based on the calculated fair value of the award. The Company estimates the fair value of each option on the grant date using the Black-Scholes model. The following assumptions were made in estimating the fair value:

Options granted in:	Dividend Yield			Risk-free interest rate			Expected volatility			Expected life
Fiscal 2006		0	%		5.46	%		100	%	5 years
November 2006		0	%		5.00	%		100	%	10 years
August 2007		0	%		4.72	%		91	%	5 years
October 2007		0	%		4.60	%		105	%	5 years
December 2007		0	%		4.00	%		113	%	5 years
April 2008		0	%		3.78	%		172	%	5 years
September 2008		0	%		3.41	%		211	%	5 years
October 2008		0	%		3.77	%		211	%	5 years
March 2009		0	%		3.00	%		385	%	5 years

The expense is recognized over the employees’ requisite service period, generally the vesting period of the award. Stock-based compensation expense included in the accompanying statements of operations for the years ended September 30, 2009 and 2008 is as follows:

	For the fiscal year ended September 30,
	2009		2008
Operations	$	16,100	$	16,100
Research and development		260,800		321,100
Sales and marketing		137,500		83,100
General and administrative		436,100		651,000

Total	$	850,500	$	1,071,300

Total unrecognized compensation as of September 30, 2009 amounted to $1,094,100.

F-14

CNS RESPONSE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED

SEPTEMBER 30, 2009 AND 2008

A summary of stock option activity is as follows:

	Number of Shares			Weighted Average Exercise Price
Outstanding at September 30, 2007		7,436,703		$	0.57

Granted		1,880,621		$	0.85
Exercised		-			-
Forfeited		(352,757	)	$	1.09
Outstanding at September 30, 2008		8,964,567		$	0.60

Granted		80,000		$	0.43
Exercised		(2,124,740	)	$	0.132
Forfeited		(257,813	)	$	0.51

Outstanding at September 30, 2009		6,662,014		$	0.76

Weighted average fair value of options granted during:
Year ended September 30, 2008				$	0.73
Year ended September 30, 2009				$	0.43

Following is a summary of the status of options outstanding at September 30, 2009:

Exercise Price		Number of Shares		Weighted Average Contractual Life	Weighted Average Exercise Price
$	0.12		859,270	10 years	$	0.12
$	0.132		987,805	7 years	$	0.132
$	0.30		135,700	10 years	$	0.30
$	0.59		28,588	10 years	$	0.59
$	0.80		140,000	10 years	$	0.80
$	0.89		968,875	10 years	$	0.89
$	0.96		496,746	10 years	$	0.96
$	1.09		2,614,232	10 years	$	1.09
$	1.20		333,611	5 years	$	1.20
$	0.51		275,000	10 years	$	0.51
$	0.40		56,000	10 years	$	0.40
Total			6,662,014		$	0.76

Warrants to Purchase Common Stock

At September 30, 2007, there were warrants outstanding to purchase 6,899,353 shares of the Company’s common stock at exercise prices ranging from $0.01 to $1.812 with a weighted average exercise price of $1.04. The warrants expire at various times through 2017. No warrants were issued or exercised during the 12 months ended September 30, 2008.

During the year ended September 30, 2009, 1,498,986 warrants with an exercise price of $0.01 were exercised.

During the year ended September 30, 2009, the following additional 10,137,118 warrants were granted and are outstanding as of September 30, 2009:

F-15

CNS RESPONSE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED

SEPTEMBER 30, 2009 AND 2008

Warrants to Purchase	Exercise Price		Issued in Connection With:

100,000 shares	$	0.25	A $200,000 bridge note with SAIL on May 14, 2009 as described in Note 2

3,333,333 shares	$	0.30	A $1,000,000 bridge note with Pappajohn on June 12, 2009 as described in Note 2

3,404,991 shares	$	0.30	Associated with the private placement transaction of 6,810,002 shares at $0.30 with 50% warrant coverage as described in Note 2

956,164 shares	$	0.27	Associated with the automatic conversion of
401,096 shares	$	0.255	$1,700,000 of convertible promissory notes and
1,666,667 shares	$	0.30	$20,900 accrued interest upon completion an equity
			financing in excess of $1,500,000 as described in Note 2

274,867 shares	$	0.33	The placement agent for private placement as described in Note 2

At September 30, 2009, there were warrants outstanding to purchase 15,537,485 shares of the Company’s common stock at exercise prices ranging from $0.01 to $1.812 with a weighted average exercise price of $0.65. The warrants expire at various times through 2017.

5.	INCOME TAXES

The Company accounts for income taxes under the liability method. Deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities, and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. We provide a valuation allowance to reduce our deferred tax assets to their estimated realizable value.

Reconciliations of the provision (benefit) for income taxes to the amount compiled by applying the statutory federal income tax rate to profit (loss) before income taxes is as follows for each of the years ended September 30:

	2009			2008
Federal income tax (benefit) at statutory rates		(34	)%		(34	)%
Stock-based compensation		0	%		20	%
Non deductible interest expense		0	%		0	%
Change in valuation allowance		37	%		14	%
Goodwill write off		(3	)%		0	%

F-16

CNS RESPONSE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED

SEPTEMBER 30, 2009 AND 2008

Temporary differences between the financial statement carrying amounts and tax bases of assets and liabilities that give rise to significant portions of deferred taxes relate to the following at September 30, 2009 and 2008:

	2009			2008
Deferred income tax assets:
Net operating loss carryforward	$	8,765,900		$	4,953,000
Deferred interest, consulting and compensation liabilities		987,500			17,000
Amortization		(24,300	)		223,300
Deferred income tax assets - other		7,800			-
		9,736,900			5,193,300
Deferred income tax liabilities—other		-			(12 ,300	)
Deferred income tax asset—net before valuation allowance		9,736,900			5,181,000
Valuation allowance		(9,736,900	)		(5,181,000	)
Deferred income tax asset—net	$	-		$	-

Current and non-current deferred taxes have been recorded on a net basis in the accompanying balance sheet. As of September 30, 2009, the Company has net operating loss carryforwards of approximately $20.8 million. The net operating loss carryforwards expire by 2028. Utilization of net operating losses and capital loss carryforwards may be subject to the limitations imposed by Section 382 of the Internal Revenue Code. The Company has placed a valuation allowance against the deferred tax assets in excess of deferred tax liabilities due to the uncertainty surrounding the realization of such excess tax assets. Management periodically evaluates the recoverability of the deferred tax assets and the level of the valuation allowance. At such time as it is determined that it is more likely than not that the deferred tax assets are realizable, the valuation allowance will be reduced accordingly.

6. ACQUISITION OF NEURO THERAPY CLINIC, PC

On January 15, 2008, the Company, through its wholly owned subsidiary, Colorado CNS Response, Inc., acquired all of the outstanding common stock of Neuro-Therapy Clinic, PC (“NTC”) in exchange for a non-interest bearing note payable of $300,000 payable in equal monthly installments over 36 months. Upon the completion of the acquisition, the sole shareholder of NTC was appointed Chief Medical Officer of the Company. Prior to the acquisition, NTC was the Company’s largest customer.

The acquisition was accounted under the purchase method of accounting, and accordingly, the purchase price was allocated to NTC’s net tangible assets based on their estimated fair values as of January 15, 2008. The excess purchase price over the value of the net tangible assets was recorded as goodwill. The purchase price and the allocation thereof are as follows:


Fair value of note payable issued	$	265,900
Direct transaction costs		43,700
Purchase price		309,600
Allocated to net tangible liabilities, including cash of $32,100		(10,600	)
Allocated to goodwill	$	320,200

The acquisition was not material, and accordingly, no pro forma results are presented. As of September 30, 2009, goodwill was measured and determined to be fully impaired and consequently written off.

F-17

CNS RESPONSE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED

SEPTEMBER 30, 2009 AND 2008

7.	LONG-TERM DEBT

As described in Note 6 above, during the year ended September 30, 2008 the Company issued a note payable to an officer in connection with the acquisition of NTC. The note is non-interest bearing and the Company determined its fair value by imputing interest at an annual rate of 8%. As of September 30, 2009 the note has an outstanding principal balance in the amount of $118,600, of which $93,800 is current.

8.	REPORTABLE SEGMENTS

The Company operates in two business segments: reference laboratory and clinic. Reference laboratory provide reports (“rEEG Reports”) that assist physicians with treatment strategies for patients with behavioral (psychiatric and/or addictive) disorders based on the patient’s own physiology. Clinic operates NTC, a full service psychiatric practice.

The following tables show operating results for our reportable segments, along with reconciliation from segment gross profit to (loss) from operations, the most directly comparable measure in accordance with generally accepted accounting principles in the United States, or GAAP:

	Year ended September 30,2009
	Reference Laboratory			Clinic			Eliminations			Total
Revenues		138,900			628,200			(67,000	)		700,100

Operating expenses:
Cost of revenues		131,600			18,500			(18,500	)		131,600
Research and development		2,137,200			-			-			2,137,200
Sales and marketing		908,500			7,300			-			915,800
General and administrative		3,266,300			669,600			(48,500	)		3,887,400
Goodwill impairment charges		320,000			-			-			320,000
Total operating expenses		6,763,800			695,400			(67,000	)		7,392,200

Loss from operations	$	(6,624,900	)	$	(67,200	)	$	0		$	(6,692,100	)

The following table includes selected segment financial information as of September 30, 2009, related to goodwill and total assets:

	Reference Laboratory		Clinic		Total

Goodwill	$	-	$	-	$	-

Total assets	$	1,118,000	$	42,900	$	1,160,900

9.	EARNINGS PER SHARE

In accordance with ASC 260-10 (formerly SFAS 128, “Computation of Earnings Per Share”), basic net income (loss) per share is computed by dividing the net income (loss) to common stockholders for the period by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share is computed by dividing the net income (loss) for the period by the weighted average number of common and dilutive common equivalent shares outstanding during the period. For the years ended September 30, 2009 and 2008, the Company has excluded all common equivalent shares from the calculation of diluted net loss per share as such securities are anti-dilutive.

F-18

CNS RESPONSE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED

SEPTEMBER 30, 2009 AND 2008

A summary of the net income (loss) and shares used to compute net income (loss) per share for the years ended September 30, 2009 and 2008 is as follows:

	2009			2008
Net loss for computation of basic net income (loss) per share	$	(8,522,200	)	$	(5,371,500	)
Net income (loss) for computation of dilutive net income (loss) per share	$	(8,522,200	)	$	(5,371,500	)

Basic net income (loss) per share	$	(0.31	)	$	(0.21	)

Diluted net income (loss) per share	$	(0.31	)	$	(0.21	)

Basic weighted average shares outstanding		27,778,171			25,299,547
Dilutive common equivalent shares		-			-
Diluted weighted average common shares		27,778,171			25,299,547

Anti-dilutive common equivalent shares not included in the computation of dilutive net loss per share:
Convertible debt		-			4,995,000
Warrants		8,318,310			6,899,353
Options		8,548,206			8,767,212

10.	COMMITMENTS AND CONTINGENT LIABILITIES

Litigation

From time to time, we may be involved in litigation relating to claims arising out of our operations in the ordinary course of business. Other than as set forth above, we are not currently party to any legal proceedings, the adverse outcome of which, in our management’s opinion, individually or in the aggregate, would have a material adverse effect on our results of operations or financial position.

Since June of 2009, the Company has been involved in litigation against Leonard J. Brandt, a stockholder, former director and the Company’s former Chief Executive Officer (“Brandt”) in both the Delaware Chancery Court and the United States District Court for the Central District of California. For a full description of the events associated with the Brandt Litigation please refer to the section called “Business” under the heading “Legal Proceedings” contained elsewhere in this prospectus which is incorporated herein by reference.

Lease Commitments

The Company’s lease for its headquarters and Laboratory Information Services business, located at 2755 Bristol St., Suite 285, Costa Mesa, California, expired in November 2009. The Company continues to lease this space on a month to month basis at a cost of $4,410 per month.

The Company leases space for its Clinical Services operations under an operating lease. The base rental as of September 2009 is $6,021 per month. This lease terminates on February 28, 2010.

F-19

CNS RESPONSE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED

SEPTEMBER 30, 2009 AND 2008

The Company also sub-leases space for its Clinical Services operations on a month-to-month basis for $1,075 per month.

The Company leases a copier for $216 per month which it accounts for as a capital lease with an interest rate of 9% per year. The lease terminates in February 2013 at which time the copier can be purchased at fair value.

Future Minimum Lease Payment and Debt Maturities

At September 30, 2009, the estimated future minimum lease payment under non-cancelable operating and capital leases and debt maturities were as follows:

Year ending September 30,	Operating Leases			Capital Lease			Debt Maturities			Total
2010		36,000			2,600			100,000			138,600
2011		-			2,600			25,000			27,600
2012		-			2,600						2,600
2013		-			1,100						1,100
Total	$	36,000		$	8,900		$	125,000		$	169,900
Less interest		(700	)		(1,200	)		(6,400	)		(8,300	)
Net present value		35,300			7,700			118,600			161,600
Less current portion		(35,300	)		(2,100	)		(93,800	)		(131,200	)
Long-term debt and lease obligation	$	-		$	5,600		$	24,800		$	30,400

11.	SIGNIFICANT CUSTOMERS

For the year ended September 30, 2009, three customers accounted for 39% of Laboratory Information Services revenue and 45% of accounts receivable at September 30, 2009.

For the year ended September 30, 2008, two customers accounted for 29% of Laboratory Information Services revenue and 24% of accounts receivable at September 30, 2008.

12.	SUBSEQUENT EVENTS

The following key events occurred after the end of the fiscal year dated September 30, 2009:

Results of Clinical Trial Announced

On November 2, 2009, the Company reported the results of its landmark study presented by Charles DeBattista, D.M.H, M.D., at the U.S. Psychiatric and Mental Health Congress. The poster presentation, titled Referenced-EEG® (rEEG) Efficacy Compared to STAR*D For Patients With Depression Treatment Failure: First Look At Final Results, highlighted a dramatic improvement in personalized medicine technology for use in treatment of patients with depression. In this study, rEEG proved effective at predicting medication response for treatment-resistant patients approximately 65 percent of the time.

The study included 114 patients in 12 medical centers, including Harvard, Stanford, Cornell, UCI and Rush. The 12-week study found that rEEG significantly outperformed the modified STAR*D treatment algorithm. The difference, or separation, between rEEG and the control group was 50 and 100 percent for the study’s two primary endpoints. Typically, separation between a new treatment and a control group is less than 10 percent in antidepressant studies.

F-20

CNS RESPONSE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED

SEPTEMBER 30, 2009 AND 2008

The study, the largest in the Company’s history, was a randomized, blinded, controlled, parallel group, multicenter study. The patients in the study experienced depression treatment failure of one or more SSRIs and/or had failure with at least two classes of antidepressants. The patients fell into two groups: 1) those treated with rEEG medication guidance, and 2) those treated with the modified STAR*D treatment algorithm.

Ruling from Delaware Chancery Court in Relation to Company’s Litigation with Leonard Brandt

On December 2, 2009, the Delaware Chancery Court dismissed complaints brought against the Company by Brandt. At the conclusion of a two-day trial that commenced December 1, the Chancery Court entered judgment for the Company and dismissed with prejudice Brandt's action brought pursuant to Section 225 of the Delaware General Corporation Law. The Chancery Court thereby found that the purported special meeting of stockholders convened by Brandt on September 4, 2009 was not valid and that the directors purportedly elected at that meeting will not be seated. On January 4, 2010, Brandt filed an appeal with the Supreme Court of the State of Delaware in relation to the case, which the Company believes is without merit and intends to vigorously defend. For a full description of the events associated with the Brandt Litigation please refer to the heading “Legal Proceedings” on page 48 of this prospectus.

Completion of Second Closing of Private Placement Transaction

On December 24, 2009, the Company completed a second closing of its private placement (the first closing having occurred on August 26, 2009), resulting in additional gross proceeds to the Company of approximately $3.0 million from accredited investors.

Pursuant to Subscription Agreements entered into with the investors, the Company sold approximately 55 Investment Units at $54,000 per Investment Unit. Each “Investment Unit” consists of 180,000 shares of the Company’s common stock and a five year non-callable warrant to purchase 90,000 shares of the Company’s common stock at an exercise price of $0.30 per share.

After commissions and expenses, the Company received net proceeds of approximately $2.65 million at the second closing. The Company intends to use the proceeds from the second closing of its private placement for general corporate purposes, including clinical trial expenses, research and development expenses, and general and administrative expenses, including the payment of accrued legal expenses incurred in connection with the Company’s litigation with Leonard Brandt.

A FINRA member firm acted as lead placement agent (the “Placement Agent”) in connection with the second closing of the private placement. For its services in connection with the second closing, the Placement Agent received (i) a cash fee of $195,200, (ii) a cash expense allowance of $59,920, and (iii) a five year non-callable warrant to purchase 672,267 shares of the Company’s common stock at an exercise price of $ 0.33 per share, first exercisable no earlier than June 24, 2010.

In connection with the second closing of the Company’s private placement, each investor who participated in the financing became party to the Registration Rights agreement described above under Note 2 and will receive the same rights and benefits as the investors in the first closing of the Company’s Private Placement on August 26, 2009.

Completion of Third and Fourth Closings of Private Placement Transcation

The Company completed a third and fourth closing of its private placement, on December 31, 2009 and January 4, 2010, respectively, resulting in gross proceeds to the Company of approximately $540,000, thereby completing its Private Placement.

F-21

CNS RESPONSE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED

SEPTEMBER 30, 2009 AND 2008

Pursuant to Subscription Agreements entered into with the investors, the Company sold 10 Investment Units at $54,000 per Investment Unit. Each “Investment Unit” consists of 180,000 shares of the Company’s common stock and a five year non-callable warrant to purchase 90,000 shares of the Company’s common stock at an exercise price of $0.30 per share.

After commissions and expenses, the Company received net proceeds of approximately $480,000 in the Private Placement. The Company intends to use the net proceeds from the Private Placement for general corporate purposes, including clinical trial expenses, research and development expenses, and general and administrative expenses, including the payment of accrued legal expenses incurred in connection with the Company’s litigation with Leonard Brandt.

A FINRA member firm acted as lead placement agent (the “Placement Agent”) in connection with the Private Placement. For its services in connection with the December 31, 2009 closing of the Private Placement, the Placement Agent received (i) a cash fee of $4,320, (ii) a cash expense allowance of $8,640, and (iii) a five year non-callable warrant to purchase 14,400 shares of the Company’s common stock at an exercise price of $.33 per share.

For its services in connection with the January 4, 2010 closing of the Private Placement, the lead Placement Agent received (i) a cash fee of $1,080, (ii) a cash expense allowance of $2,160, and (iii) a five year non-callable warrant to purchase 3,600 shares of the Company’s common stock at an exercise price of $.33 per share.

In connection with the third and fourth closings of the Company’s Private Placement, each investor who participated in the financing became party to the Registration Rights agreement described above under Note 2 and will receive the same rights and benefits as the investors in the earlier closings of the Company’s Private Placement.

Receipt of letter from Food and Drug Administration

On December 28, 2009, the Company's regulatory counsel received a letter (“the Letter”) from the FDA in response to its prior correspondence relating to the possible classification of the Company's rEEG, as a medical device. The Company will continue its ongoing dialogue with the FDA regarding its rEEG (which may be subject to pre-market review). If pre-market review is required the Company’s revenue could be negatively impacted until such review is completed and clearance to market or approval is obtained. The Letter does not have any impact on the consolidated financial statements as of and for the years ended September 30, 2009 and 2008. See “Government Regulation” section for detailed discussion.

F-22

CNS RESPONSE, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

	For the three months ended June 30,						For the nine months ended June 30,
	2010			2009			2010			2009
REVENUES
Laboratory Information Services	$	39,900		$	26,700		$	96,700		$	86,300
Clinical Services		119,300			133,700			384,300			441,900
		159,200			160,400			481,000			528,200

OPERATING EXPENSES
Cost of laboratory services revenues		32,800			30,700			101,900			99,800
Research and development		302,400			480,800			843,600			1,628,500
Sales and marketing		201,600			161,300			603,800			708,100
General and administrative		1,081,700			867,500			3,639,900			2,360,100

Total operating expenses		1,618,500			1,540,300			5,189,200			4,796,500

OPERATING LOSS		(1,459,300	)		(1,379,900	)		(4,708,200	)		(4,268,300	)

OTHER INCOME (EXPENSE):
Interest income (expense), net		(40,900	)		(126,300	)		(42,600	)		(129,900	)
Financing premium (expense), net		-			(90,000	)		-			(90,000	)

Total other income		(40,900	)		(216,300	)		(42,600	)		(219,900	)

LOSS BEFORE PROVISION FOR INCOME TAXES		(1,500,200	)		(1,596,200	)		(4,750,800	)		(4,488,200	)
Income taxes		-			4,300			2,400			7,200

NET LOSS	$	(1,500,200	)	$	(1,600,500	)	$	(4,753,200	)	$	(4,495,400	)

NET LOSS PER SHARE:
Basic	$	(0.03	)	$	(0.06	)	$	(0.09	)	$	(0.18	)
Diluted	$	(0.03	)	$	(0.06	)	$	(0.09	)	$	(0.18	)

WEIGHTED AVERAGE SHARES OUTSTANDING:
Basic		56,023,921			25,782,277			51,028,185			25,460,457
Diluted		56,023,921			25,782,277			51,028,185			25,460,457

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

F-23

CNS RESPONSE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

	June 30, 2010			September 30, 2009
	(unaudited)
ASSETS

CURRENT ASSETS
Cash	$	35,100		$	988,100
Accounts receivable (net of allowance for doubtful accounts of $11,100 (unaudited) as of June 30, 2010 and $11,200 as of September 30, 2009)		56,300			61,700

Prepaid and other		105,600			89,500
Total current assets		197,000			1,139,300

Furniture and Fittings		19,200			17,500
Other Assets		18,700			4,100

TOTAL ASSETS	$	234,900		$	1,160,900

LIABILITIES AND STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES
Accounts payable (including amounts due to related parties of $25,600 (unaudited) as of June 30, 2010 and $7,000 as of September 30, 2009)	$	1,116,300		$	1,285,600
Accrued liabilities		325,700			261,400
Deferred compensation (including $92,000 (unaudited) and $81,200 to related parties as of June 30, 2010 and September 30, 2009 respectively)		237,600			220,100
Accrued patient costs		144,000			305,500
Accrued consulting fees (including $18,000 (unaudited) and $18,000 to related parties as of June 30, 2010 and September 30, 2009 respectively)		75,000			72,100
Accrued Interest		1,800			-
Secured convertible promissory note, net of discount of $187,500		62,500			-
Current portion of long-term debt		51,000			95,900
Total current liabilities		2,013,900			2,240,600
LONG –TERM LIABILITIES
Note payable to officer		-			24,800
Capital lease		4,000			5,600
Total long term liabilities		4,000			30,400
TOTAL LIABILITIES		2,017,900			2,271,000

COMMITMENTS AND CONTINGENCIES

Stockholders’ equity (deficit):
Common stock, $0.001 par value; authorized, 750,000,000 shares, issued and, 56,023,921 and 41,781,129 shares outstanding as of June 30, 2010 and September 30, 2009 respectively		56,000			41,800
Additional paid-in capital		28,110,100			24,044,000
Accumulated deficit		(29,949,100	)		(25,195,900	)
Total stockholders’ equity (deficit)		(1,783,000	)		(1,110,100	)

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	234,900		$	1,160,900

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

F-24

CNS RESPONSE, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

	For the nine months ended June 30,
	2010			2009
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(4,753,200	)	$	(4,495,400	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and Amortization		7,200			6,700
Amortization of note discount		37,500			107,500
Stock-based compensation		859,900			644,200
Write-off of doubtful accounts		13,400			22,700
Changes in operating assets and liabilities:
Accounts receivable		(8,000	)		(27,300	)
Prepaids and other current assets		(16,100	)		(12,000	)
Accounts payable		(169,300	)		437,200
Accrued liabilities		69,000			112,700
Deferred compensation		17,500			(48,800	)
Accrued patient costs		(161,500	)		126,700
Security deposits on leases		(14,600	)		-
Net cash used in operating activities		(4,118,200	)		(3,125,800	)

CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of office furniture		(8,900	)		(2,000	)
Net cash used in investing activities		(8,900	)		(2,000	)

CASH FLOWS FROM FINANCING ACTIVITIES
Cash from Secured Convertible notes		250,000			1,700,000
Repayment of note		(69,800	)		(114,400	)
Repayment of lease		(1,500	)		(1,400	)
Funds pending exercise of options		-			280,500
Cash from exercise of warrants		-			14,400
Proceeds from sale of common stock, net of offering costs		2,995,400			-
Net cash provided by financing activities		3,174,100			1,879,100

Net decrease in cash		(953,000	)		(1,248,700	)
Cash, beginning of period		988,100			1,997,000
Cash, end of period	$	35,100		$	748,300

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest	$	8,200		$	61,500
Income taxes	$	2,400		$	7,200

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

F-25

CNS RESPONSE, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

	Common Stock				Additional Paid-in			Accumulated
For the nine months ended June 30, 2010	Shares		Amount		Capital			Deficit			Total
BALANCE - September 30, 2009		41,781,129	$	41,800	$	24,044,000		$	(25,195,900	)	$	(1,110,100	)
Stock- based compensation		-		-		859,900			-			859,900
Issuance of stock in connection with the Maxim PIPE net of offering costs of $540,600		11,786,666		11,800		2,983,600			-			2,995,400
Warrants issued in association with the Maxim PIPE		-		-		7,615,100			-			7,615,100
Offering cost pertaining to the Maxim PIPE		-		-		(7,615,100	)		-			(7,615,100	)
Value of warrants surrendered for cashless exercise		-		-		(415,800	)		-			(415,800	)
Stock issued for cashless exercise		2,456,126		2,400		413,400			-			415,800
Beneficial conversion feature - Secured convertible promissory note		-		-		225,000			-			225,000
Net loss for the nine months ended June 30, 2010		-		-		-			(4,753,200	)		(4,753,200	)
Balance at June 30, 2010		56,023,921	$	56,000	$	28,110,100		$	(29,949,100	)	$	(1,783,000	)

	Common Stock				Additional Paid-in		Accumulated
For the nine months ended June 30, 2009	Shares		Amount		Capital		Deficit			Total
BALANCE - September 30, 2008		25,299,547	$	25,300	$	17,701,300	$	(16,673,700	)	$	1,052,900
Exercise of $0.01 warrants in June, 2009		1,448,189		1,400		13,000		-			14,400
Issuance of 3,433,333 warrants associated with bridge financings valued at		-		-		1,058,000		-			1,058,000
Stock- based compensation		-		-		644,200		-			644,200
Net loss for the nine months ended June 30, 2009		-		-		-		(4,495,400	)		(4,495,400	)
Balance at June 30, 2009		26,747,736	$	26,700	$	19,416,500	$	(21,169,100	)	$	(1,725,900	)

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

F-26

CNS RESPONSE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED JUNE 30, 2010 AND 2009

1.	NATURE OF OPERATIONS AND BASIS OF PRESENTATION

Organization and Nature of Operations

CNS Response, Inc. (the “Company”) was incorporated as Strativation, Inc. in Delaware on July 10, 1984. In connection with a merger on March 7, 2007 with CNS Response, Inc., a California corporation, the Company changed its name to its current name and commenced its current operations. The Company utilizes a patented system that guides psychiatrists and other physicians to determine a personalized regimen for patients with mental, behavioral and/or addictive disorders. The Company also intends to identify, develop and commercialize new indications of approved drugs and drug candidates for this patient population.

In addition, as a result of its acquisition of Neuro-Therapy Clinic, Inc. (“NTC”) on January 11, 2008, the Company provides behavioral health care services. NTC is a center for highly-advanced testing and treatment of neuropsychiatric problems, including learning, attentional and behavioral challenges, mild head injuries, as well as depression, anxiety, bipolar and all other common psychiatric disorders. Through this acquisition, the Company expects to advance neurophysiology data collection, beta-test planned technological advances in rEEG, advance physician training in rEEG and investigate practice development strategies associated with rEEG.

Going Concern Uncertainty

The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America which contemplate continuation of the company as a going concern. The Company has a limited operating history and its operations are subject to certain problems, expenses, difficulties, delays, complications, risks and uncertainties frequently encountered in the operation of a new business. These risks include the failure to develop or supply technology or services to meet the demands of the marketplace, the ability to obtain adequate financing on a timely basis, the failure to attract and retain qualified personnel, competition within the industry, government regulation and the general strength of regional and national economies.

To date, the Company has financed its cash requirements primarily from debt and equity financings. It will be necessary for the Company to raise additional funds. The Company’s liquidity and capital requirements depend on several factors, including the rate of market acceptance of its services, the future profitability of the Company, the rate of growth of the Company’s business and other factors described elsewhere in this Quarterly Report. The Company is currently exploring additional sources of capital but there can be no assurances that any financing arrangement will be available in amounts and on terms acceptable to the Company.

Basis of Presentation

The unaudited condensed consolidated financial statements of CNS Response, Inc. (“CNS,” “we,” “us,” “our” or the “Company”) have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission and include all the accounts of CNS and its wholly owned subsidiaries CNS California and NTC. Certain information and note disclosures, normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States, have been condensed or omitted pursuant to such rules and regulations. The unaudited condensed consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, necessary for a fair statement of our financial position as of June 30, 2010 and our operating results, cash flows, and changes in stockholders’ equity for the interim periods presented. The September 30, 2009 balance sheet was derived from our audited consolidated financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America. These unaudited condensed consolidated financial statements and the related notes should be read in conjunction with our consolidated financial statements and notes for the year ended September 30, 2009 which are included in our current report on Form 10-K, filed with the Securities and Exchange Commission on December 30, 2009.

F-27

CNS RESPONSE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED JUNE 30, 2010 AND 2009

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 the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities and revenues and expenses in the financial statements. Examples of estimates subject to possible revision based upon the outcome of future events include, among others, recoverability of long-lived assets and goodwill, stock-based compensation, the allowance for doubtful accounts, the valuation of equity instruments, use and other taxes. Actual results could differ from those estimates.

The results of operations for the nine months ended June 30, 2010 are not necessarily indicative of the results that may be expected for future periods or for the year ending September 30, 2010.

Reclassifications

Certain amounts previously reported have been reclassified to conform to the current period presentation. The reclassifications were made to change the income statement presentation to provide the users of the financial statements additional information related to the operating results of the Company. These reclassifications include reclassifying the Company’s patent costs to General and Administrative costs which were previously included in Research and Development costs. The reclassifications had no effect on consolidated net income or consolidated assets and liabilities.

Fair Value of Financial Instruments

Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 3 inputs to the valuation methodology are unobservable and significant to the fair value.

F-28

CNS RESPONSE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED JUNE 30, 2010 AND 2009

During the six months ended June 30, 2010, the Company issued a secured promissory convertible note of $250,000. As of June 30, 2010, the carrying value of this convertible note was $62,500, net of discount of $187,500. The Company used level 3 inputs for its valuation methodology and the fair value was determined to be approximately $257,000 using cash flows discounted at relevant market interest rates in effect at the period close since there is no observable market price.

As of June 30, 2010 the Company did not identify any other assets or liabilities that are required to be presented on the balance sheet at fair value in accordance with ASC 820-10.

Recent Accounting Pronouncements

In April 2009, the FASB issued ASC 825-10 (formerly FASB Staff Position No. FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments) (“ASC 825”) , which requires that the fair value disclosures required for all financial instruments within the scope of SFAS 107, "Disclosures about Fair Value of Financial Instruments", be included in interim financial statements. This FSP also requires entities to disclose the method and significant assumptions used to estimate the fair value of financial instruments on an interim and annual basis and to highlight any changes from prior periods. FSP 107-1 was effective for interim periods ending after June 15, 2009, with early adoption permitted. The adoption of FSP 107-1 did not have a material impact on the Company’s unaudited consolidated financial statements.

As a result of the Company’s implementation of the Codification during the year ended September 30, 2009, previous references to new accounting standards and literature are no longer applicable. In the current interim financial statements, the Company will provide reference to both new and old guidance to assist in understanding the impact of recently adopted accounting literature, particularly for guidance adopted since the beginning of the current fiscal year but prior to the Codification.

In August 2009, the FASB issued Accounting Standards Update No. 2009-05 (ASU 2009-05), “Fair Value Measurements and Disclosures (Topic 820) – Measuring Liabilities at Fair Value.” ASU 2009-05 amends Subtopic 820-10, “Fair Value Measurements and Disclosures – Overall,” and provides clarification for the fair value measurement of liabilities. ASU 2009-05 is effective for the first reporting period including interim period beginning after issuance. The adoption of ASU 2009-05 did not have a material impact on the Company’s unaudited consolidated financial statements.

F-29

CNS RESPONSE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED JUNE 30, 2010 AND 2009

In January 2010, the FASB issued Accounting Standards Update No. 2010-06 (ASU 2010-06), “Fair Value Measurements and Disclosures (Topic 820) – Improving Disclosures About Fair Value Measurements.” ASU 2010-06 amends Subtopic 820-10 that requires new disclosures and provides clarification of existing disclosures. ASU 2010-06 also includes conforming amendments to the guidance on employers’ disclosures about postretirement benefit plans assets (Subtopic 715-20). ASU 2010-06 is effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. The Company is evaluating the impact of the adoption of ASU 2010-06 on its unaudited consolidated financial statements.

In February 2010, the FASB issued Accounting Standards Update No. 2010-09 (“ASU 2010-09”) as amendments to certain recognition and disclosure requirements. The amendments remove the requirement for an SEC filer to disclose a date in both issued and revised financial statements. Revised financial statements include financial statements revised as a result of either correction of an error or retrospective application of U.S. GAAP. Those amendments remove potential conflicts with the SEC’s literature. All of the amendments in ASU 2010-09 were effective upon issuance for interim and annual periods. The adoption of ASU 2010-09 did not have a material impact on the Company’s unaudited consolidated financial statements.

In April 2010, the FASB issued Accounting Standards Update 2010-12 (“ASU 2010-12”), “Income Taxes (Topic 740): Accounting for Certain Tax Effects of the 2010 Health Care Reform Acts”. After consultation with the FASB, the SEC stated that it “would not object to a registrant incorporating the effects of the Health Care and Education Reconciliation Act of 2010 when accounting for the Patient Protection and Affordable Care Act.” The Company does not expect the provisions of ASU 2010-12 to have a material impact on the Company’s unaudited consolidated financial statements.

In April 2010, the FASB issued Accounting Standards Update 2010-13 (“ASU 2010-13”), Compensation-Stock Compensation (Topic 718): Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity Security Trades - a consensus of the FASB Emerging Issues Task Force. The amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2010. Earlier application is permitted. The Company does not expect the provisions of ASU 2010-13 to have a material impact on the Company’s unaudited consolidated financial statements.

2.	CONVERTIBLE DEBT AND EQUITY FINANCING

Between March 30 and June 12, 2009 the Company entered into three rounds of bridge financings in the form of secured convertible promissory notes. These three rounds are referred to as:

(a)

the March 30, 2009 SAIL/Brandt Notes

(b)

the May 14, 2009 SAIL Note

(c)

the June 12, 2009 Pappajohn Note

All these notes were converted to equity as a result of a private placement transaction that closed on August 26, 2009, which is fully described in the section below.

The Private Placement Transactions

Completion of First Closing of Private Placement Transaction

On August 26, 2009, the Company received gross proceeds of approximately $2,043,000 in a private placement transaction (the “Private Placement”) with six investors. Pursuant to Subscription Agreements entered into with the investors, the Company sold approximately 38 Investment Units at $54,000 per Investment Unit. Each “Investment Unit” consists of 180,000 shares of the Company’s common stock and a five year non-callable warrant to purchase 90,000 shares of the Company’s common stock at an exercise price of $0.30 per share. After commissions and expenses, the Company received net proceeds of approximately $1,792,300 in the Private Placement. These funds were used to repay outstanding liabilities, fund the Company’s recent clinical trial and for general working capital purposes.

F-30

CNS RESPONSE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED JUNE 30, 2010 AND 2009

A FINRA member firm, the Maxim Group LLC (“Maxim Group”), acted as lead placement agent in connection with the Private Placement. For its services in connection with the first closing of the offering, Maxim Group received (i) a cash fee of $ 55,980, (ii) a cash expense allowance of $40,860, and (iii) a five year non-callable warrant to purchase 274,867 shares of the Company’s common stock at an exercise price of $0.33 per share. By agreement dated July 23, 2010, the Company and Maxim Group agreed, among other things, to amend the five year exercise period to begin on the date that the registration statement covering the resale of the shares of common stock issuable upon exercise of the placement agent warrants (among other securities) is declared effective.

A secondary placement agent who participated in the first closing of the private placement received cash fees of $29,200 and five year non-callable warrants to purchase 97,200 shares of the Company’s common stock at an exercise price of $ 0.33 per share. The Company has agreed to amend the five year exercise period applicable to these warrants to begin on the effective date of the registration statement, as described above.

In addition, the Company agreed to use its best efforts to have the registration statement declared effective no later than 180 days following the final closing of the offering, or July 3, 2010, and maintain such effectiveness until the earlier of the second anniversary of the date of such effectiveness or the date that all of the securities covered by the registration statement may be sold without restriction. The registration statement has not yet been declared effective.

Events Relating to Private Placement Transaction

(a)	Conversion of the March 30, 2009 SAIL/Brandt Notes

On March 30, 2009, the Company entered into two Senior Secured Convertible Promissory Notes, each in the principal amount of $250,000 (each a “March Note” and, collectively, the “March Notes”), with Brandt Ventures, GP (“Brandt”) and SAIL Venture Partners, LP (“SAIL”). Leonard Brandt, a former member of the Company’s board of directors, is the general partner of Brandt and David B. Jones, a current member of the Company’s board of directors, is a managing member of SAIL Venture Partners, LLC, which is the general partner of SAIL. The terms of the March Notes provided that in the event the Company consummates an equity financing transaction of at least $1,500,000 (excluding any and all other debt that is converted), then the principal and all accrued, but unpaid interest outstanding under the notes shall be automatically converted into the securities issued in the equity financing by dividing such amount by 90% of the per share price paid by the investors in such financing. In accordance with the terms of the March Notes, at the closing of the Private Placement, the Company issued to each of Brandt and SAIL 956,164 shares of common stock and a five year non-callable warrant to purchase 478,082 shares of its common stock at an exercise price of $0.30 per share.

F-31

CNS RESPONSE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED JUNE 30, 2010 AND 2009

(b)	Conversion of the May 14, 2009 SAIL Note

(c)	Conversion of the June 12, 2009 Pappajohn Note

F-32

CNS RESPONSE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED JUNE 30, 2010 AND 2009

Upon the abovementioned conversions, the Company evaluated the terms and calculated the fair value of the common stock (by using the closing market price on the respective original issuance dates of the convertible notes) and warrants (through the use of the Black-Scholes Model) issued upon the conversions and determined that the notes were converted with a beneficial conversion feature amounting to $642,000. As a result, for the year ended September 30, 2009, the Company recorded $642,000 as interest expense.

Completion of Second, Third and Fourth Closings of Private Placement Transaction

On December 24 and 31, 2009 and January 4, 2010, the Company completed a second, third and fourth and final closing of its private placement (the first closing having occurred on August 26, 2009), resulting in additional gross proceeds to the Company of $2,996,000, $432,000 and $108,000 respectively from accredited investors.

Pursuant to Subscription Agreements entered into with the investors, the Company sold approximately 65 Investment Units in the three closings at $54,000 per Investment Unit. Each “Investment Unit” consists of 180,000 shares of the Company’s common stock and a five year non-callable warrant to purchase 90,000 shares of the Company’s common stock at an exercise price of $0.30 per share.

After commissions and expenses, the Company received net proceeds of approximately $2,650,400 million at the second closing, $380,200 at the third and $95,000 at the fourth and final closing. The Company intends to use the proceeds from these closings of its private placement for general corporate purposes, including clinical trial expenses, research and development expenses, and general and administrative expenses, including the payment of accrued legal expenses incurred in connection with the Company’s litigation with Mr. Brandt.

A FINRA member firm, the Maxim Group acted as lead placement agent in connection with the second, third and fourth closings of the private placement. For its services in connection with the second closing, the Maxim Group received (i) a cash fee of $195,200, (ii) a cash expense allowance of $59,920, and (iii) a five year non-callable warrant to purchase 672,267 shares of the Company’s common stock at an exercise price of $ 0.33 per share. For the third closing the Maxim Group received (i) a cash fee of $4,300, (ii) a cash expense allowance of $8,600, and (iii) a five year non-callable warrant to purchase 14,400 shares of the Company’s common stock at an exercise price of $ 0.33 per share. For the fourth closing the Maxim Group received (i) a cash fee of $1,100, (ii) a cash expense allowance of $2,100, and (iii) a five year non-callable warrant to purchase 3,600 shares of the Company’s common stock at an exercise price of $ 0.33 per share. By agreement dated July 23, 2010, the Company and Maxim Group agreed, among other things, to amend the five year exercise period applicable to the placement agent warrants in the second, third and fourth closings of the private placement to begin on the date that the registration statement covering the resale of the shares of common stock issuable upon exercise of the placement agent warrants (among other securities) is declared effective.

Secondary placement agents who participated in the second closing of the private placement received cash fees of $75,200 and five year non-callable warrants to purchase 250,800 shares of the Company’s common stock at an exercise price of $ 0.33 per share. For the third closing, the secondary placement agents received cash fees of $38,900 and five year non-callable warrants to purchase 129,600 shares of the Company’s common stock at an exercise price of $ 0.33 per share. For the fourth closing, the secondary placement agents received cash fees of $9,700 and five year non-callable warrants to purchase 32,400 shares of the Company’s common stock at an exercise price of $ 0.33 per share. The Company has agreed to amend the five year exercise period applicable to these warrants to begin on the effective date of the registration statement, as described above.

F-33

CNS RESPONSE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED JUNE 30, 2010 AND 2009

In connection with the second, third and fourth closing of the Company’s private placement, each investor who participated in the financing became party to the abovementioned Registration Rights agreement, which was filed with the Securities and Exchange Commission on February 1, 2010, and received the same rights and benefits as the investors in the first closing of the Company’s Private Placement on August 26, 2009.

2010 Promissory Note Transactions

On June 3, 2010, we entered into a Bridge Note and Warrant Purchase Agreement with John Pappajohn to purchase two secured promissory notes (each, a “Bridge Note”) in the aggregate principal amount of $500,000, with each Bridge Note in the principal amount of $250,000 maturing on December 2, 2010. On June 3, 2010, Mr. Pappajohn loaned the Company $250,000 in exchange for the first Bridge Note (there were no warrants issued in connection with this first note) and on July 25, 2010, Mr. Pappajohn loaned the Company $250,000 in exchange for the second Bridge Note. In connection with his purchase of the second Bridge Note, Mr. Pappajohn received a warrant to purchase up to 250,000 shares of our common stock. The exercise price of the warrant (subject to customary anti-dilution adjustments) is $0.50 per share.

Pursuant to a separate agreement that we entered into with Mr. Pappajohn on July 25, 2010, we have granted him a right to convert his Bridge Notes into shares of our common stock at a conversion price of $0.50. The conversion price is subject to customary anti-dilution adjustments, but will never be less than $0.30. We have also agreed to enter into a registration rights agreement covering the securities issuable upon exercise of the warrant and conversion of the Bridge Notes. The beneficial conversion feature of the June 3, 2010 Bridge Note was valued at $225,000 which is amortized over the six-month period of the note. The Bridge Note is shown as a secured convertible promissory note net of the unamortized discount of $187,500.

3.	STOCKHOLDERS’ EQUITY

Common and Preferred Stock

As of June 30, 2010 the Company is authorized to issue 750,000,000 shares of common stock.

As of June 30, 2010, CNS California is authorized to issue 100,000,000 shares of two classes of stock, 80,000,000 of which was designated as common shares and 20,000,000 of which was designated as preferred shares.

As of June 30, 2010, Colorado CNS Response, Inc. is authorized to issue 1,000,000 shares of common stock.

As of June 30, 2010, Neuro-Therapy Clinic, Inc., a wholly-owned subsidiary of Colorado CNS Response, Inc., is authorized to issue ten thousand (10,000) shares of common stock, no par value per share.

F-34

CNS RESPONSE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED JUNE 30, 2010 AND 2009

Stock-Option Plan

On August 3, 2006, CNS California adopted the CNS California 2006 Stock Incentive Plan (the “2006 Plan”). The 2006 Plan provides for the issuance of awards in the form of restricted shares, stock options (which may constitute incentive stock options (ISO) or non-statutory stock options (NSO), stock appreciation rights and stock unit grants to eligible employees, directors and consultants and is administered by the board of directors. A total of 10 million shares of stock were initially reserved for issuance under the 2006 Plan.

The 2006 Plan initially provided that in any calendar year, no eligible employee or director shall be granted an award to purchase more than 3 million shares of stock. The option price for each share of stock subject to an option shall be (i) no less than the fair market value of a share of stock on the date the option is granted, if the option is an ISO, or (ii) no less than 85% of the fair market value of the stock on the date the option is granted, if the option is a NSO; provided, however, if the option is an ISO granted to an eligible employee who is a 10% shareholder, the option price for each share of stock subject to such ISO shall be no less than 110% of the fair market value of a share of stock on the date such ISO is granted. Stock options have a maximum term of ten years from the date of grant, except for ISOs granted to an eligible employee who is a 10% shareholder, in which case the maximum term is five years from the date of grant. ISOs may be granted only to eligible employees. The Company has adopted ASC 718-20 (formerly, SFAS No. 123R-revised 2004, “Share-Based Payment”), and related interpretations. Under ASC 718-20, share-based compensation cost is measured at the grant date based on the calculated fair value of the award. The Company estimates the fair value of each option on the grant date using the Black-Scholes model.

On March 3, 2010, the Board of Directors approved an amendment to the 2006 Plan which increased the number of shares reserved for issuance under the 2006 Plan from 10 million to 20 million shares of stock. The amendment also increased the limit on shares issued within a calendar year to any eligible employee or director from 3 million to 4 million shares of stock. The amendment was approved by shareholders at the annual meeting held on April 27, 2010.

On March 3, 2010, the Board of Directors also approved the grant of 9,150,000 options to staff members, directors, advisors and consultants, of which 8,650,000 were in fact granted. For staff members the options will vest equally over a 48 month period while for directors, advisors and consultants the options will vest equally over a 36 month period. The effective grant date for accredited investors was March 3, 2010 and the exercise price of $0.55 per share was based on the quoted closing share price of the Company’s stock at the time of grant. For non-accredited investors the grant date will be determined after obtaining a permit from the State of California allowing the granting of options to non-accredited investors. This permit was granted by the State of California in July 2010.

As of June 30, 2010, 2,124,740 options were exercised and there were 14,870,973 options and 183,937 restricted shares outstanding under the amended 2006 Plan leaving 2,820,350 shares available for issuance of future awards.

Stock-based compensation expense is recognized over the employees’ or service provider’s requisite service period, generally the vesting period of the award. Stock-based compensation expense included in the accompanying statements of operations for the periods ended June 30, 2010 and 2009 is as follows:

	For the three months ended June 30,
	2010		2009
Cost of laboratory services revenues	$	6,600	$	4,000
Research and development		107,000		65,200
Sales and marketing		58,700		27,000
General and administrative		267,200		106,500
Total	$	439,500	$	202,700

F-35

CNS RESPONSE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED JUNE 30, 2010 AND 2009

	For the nine months ended June 30,
	2010		2009
Cost of laboratory services revenues	$	15,500	$	12,100
Research and development		250,700		195,600
Sales and marketing		123,900		107,000
General and administrative		469,800		329,500
Total	$	859,900	$	644,200

Total unrecognized compensation expense as of June 30, 2010 amounted to $4,640,200

A summary of stock option activity is as follows:

	Number of Shares			Weighted Average Exercise Price
Outstanding at September 30, 2009		6,662,014		$	0.76
Granted		-		$	-
Exercised		-			-
Forfeited		(191,041	)	$	1.14
Outstanding at December 31, 2009		6,470,973		$	0.74
Granted		8,650,000		$	0.55
Exercised		-			-
Forfeited		(250,000	)		0.55
Outstanding at March 31, 2010		14,870,973		$	0.63
Granted		-			-
Exercised		-			-
Forfeited		-			-
Outstanding at June 30, 2010		14,870,973		$	0.63
Weighted average fair value of options granted during:
Three months ended June 30, 2010					-
Nine months ended June 30, 2010				$	0.55

The following is a summary of the status of options outstanding at June 30, 2010:

Exercise Price		Number of Shares		Weighted Average Contractual Life	Weighted Average Exercise Price

$	0.12		859,270	10 years	$	0.12
$	0.132		987,805	7 years	$	0.132
$	0.30		135,700	10 years	$	0.30
$	0.59		28,588	10 years	$	0.59
$	0.80		140,000	10 years	$	0.80
$	0.89		968,875	10 years	$	0.89
$	0.96		496,746	10 years	$	0.96
$	1.09		2,513,549	10 years	$	1.09
$	1.20		243,253	5 years	$	1.20
$	0.51		41,187	10 years	$	0.51
$	0.40		56,000	10 years	$	0.40
$	0.55		8,400,000	10 years	$	0.55
Total			14,870,973		$	0.63

F-36

CNS RESPONSE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED JUNE 30, 2010 AND 2009

Warrants to Purchase Common Stock

At September 30, 2008, there were warrants outstanding to purchase 6,899,353 shares of the Company’s common stock at exercise prices ranging from $0.01 to $1.812 with a weighted average exercise price of $1.04. The warrants expire at various times through 2017.

During the year ended September 30, 2009, 1,498,986 warrants with an exercise price of $0.01 were exercised.

During the year ended September 30, 2009, the following additional 10,137,118 warrants were granted as follows:

Warrants to Purchase	Exercise Price		Issued in Connection With:

100,000 shares	$	0.25	A $200,000 bridge note with SAIL on May 14, 2009 as described in Note 2

3,333,333 shares	$	0.30	A $1,000,000 bridge note with Pappajohn on June 12, 2009 as described in Note 2

3,404,991 shares	$	0.30	Associated with the August 26, 2009 private placement transaction of 6,810,002 shares at $0.30 with 50% warrant coverage as described in Note 2

3,023,927 shares	$	0.30	Associated with the automatic conversion of
			$1,700,000 of convertible promissory notes and
			$20,900 accrued interest upon completion an equity
			financing in excess of $1,500,000 as described in Note 2

274,867 shares	$	0.33	The placement agent for private placement as described in Note 2

At September 30, 2009, there were warrants outstanding to purchase 15,537,485 shares. During the nine months ended June 30, 2010, a further 7,093,601 warrants were granted and 3,333,333 warrants were exercised as follows:

5,893,334 shares	$	0.30	Associated with the second, third and fourth closing of the private placement transaction of 11,786,667 shares at $0.30 with 50% warrant coverage as described in Note 2

1,200,267 shares	$	0.33	Associated with warrants for the lead and secondary placement agents for private placement as described in Note 2

(3,333,333) shares	$	0.30	These warrants were surrendered in a net issue exercise and 2,456,126 shares were issued in lieu of cash.

F-37

CNS RESPONSE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED JUNE 30, 2010 AND 2009

At June 30, 2010, there were warrants outstanding to purchase 19,297,753 shares of the Company’s common stock at exercise prices ranging from $0.01 to $1.812 with a weighted average exercise price of $0.59. The warrants expire at various times through 2017.

4. RELATED PARTY TRANSACTIONS

As at June 30, 2010 accounts payable included the following: $18,000 of accrued fees due to a director in accordance with a consulting agreement. During the nine months ended June 30, 2010 a payment of $24,000 was made to a director for consulting services per an agreement and $36,000 was paid, with board approval, to a family member of the Company’s Chief Executive Officer, who provided data discovery consulting services in support of the Company’s litigation with Mr. Brandt.

On June 3, 2010, we entered into a Bridge Note and Warrant Purchase Agreement with John Pappajohn to purchase two secured promissory notes in the aggregate principal amount of $500,000. For further detail, please refer to the section 2010 Promissory Note Transactions in Note 2 above.

5. LONG-TERM DEBT

During the year ended September 30, 2008 the Company issued a note payable to an officer in connection with the acquisition of NTC. The note is non-interest bearing and the Company determined its fair value by imputing interest at an annual rate of 8%. As of June 30, 2010 and September 30, 2009 the note has an outstanding principal balance in the amount of $48,900 and $118,600 respectively. The entire balance is current as of June 30, 2010.

6. REPORTABLE SEGMENTS

The Company operates in two business segments: Laboratory Information Services and Clinic. Laboratory Information Services provide reports (“rEEG Reports”) that assist physicians with treatment strategies for patients with behavioral (psychiatric and/or addictive) disorders based on the patient’s own physiology. Clinic operates NTC, a full service psychiatric practice.

The following tables show operating results for the Company’s reportable segments, along with reconciliation from segment gross profit to (loss) from operations, the most directly comparable measure in accordance with generally accepted accounting principles in the United States, or GAAP:

	Three Months ended June 30, 2010
	Laboratory Information Services			Clinic			Eliminations			Total
Revenues		45,300			119,300			(5,400	)		159,200

Operating expenses:
Cost of revenues		32,800			5,400			(5,400	)		32,800
Research and development		302,400			-						302,400
Sales and marketing		187,500			14,100			-			201,600
General and administrative		899,600			182,100			-			1,081,700
Total operating expenses		1,422,300			201,600			(5,400	)		1,618,500

Income (Loss) from operations		(1,377,000	)		(82,300	)		-			(1,459,300	)

F-38

CNS RESPONSE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED JUNE 30, 2010 AND 2009

	Three Months ended June 30, 2009
	Laboratory Information Services			Clinic			Eliminations			Total
Revenues	$	32,000		$	133,700		$	(5,300	)	$	160,400

Operating expenses:
Cost of revenues		30,700			5,300			(5,300	)		30,700
Research and development		480,800			-			-			480,800
Sales and marketing		159,600			1,700			-			161,300
General and administrative		683,100			184,400			-			867,500
Total operating expenses	$	1,354,200		$	191,400		$	(5,300	)	$	1,540,300

Income (Loss) from operations	$	(1,322,200	)	$	(57,700	)	$	-		$	(1,379,900	)

	Nine Months ended June 30, 2010
	Laboratory Information Services			Clinic			Eliminations			Total
Revenues		112,100			417,600			(48,700	)		481,000

Operating expenses:
Cost of revenues		101,900			15,400			(15,400	)		101,900
Research and development		843,600			-			-			843,600
Sales and marketing		587,800			16,000			-			603,800
General and administrative		3,150,900			522,300			(33,300	)		3,639,900
Total operating expenses		4,684,200			553,700			(48,700	)		5,189,200

Income (Loss) from operations		(4,572,200	)		(136,100	)		-			(4,708,200	)

	Nine Months ended June 30, 2009
	Laboratory Information Services			Clinic			Eliminations			Total
Revenues	$	98,800		$	463,400		$	(34,000	)	$	528,200

Operating expenses:
Cost of revenues		99,800			12,500			(12,500	)		99,800
Research and development		1,628,500			-			-			1,628,500
Sales and marketing		702,500			5,600			-			708,100
General and administrative		1,879,800			501,800			(21,500	)		2,360,100
Total operating expenses	$	4,310,600		$	519,900		$	(34,000	)	$	4,796,500

Income (Loss) from operations	$	(4,211,800	)	$	(56,500	)	$	-		$	(4,268,300	)

The following table includes selected segment financial information as of June 30, 2010, related to goodwill and total assets:

	Laboratory Information Services		Clinic		Total

Goodwill	$	-	$	-	$	-

Total assets	$	181,200	$	53,700	$	234,900

F-39

CNS RESPONSE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED JUNE 30, 2010 AND 2009

7.	EARNINGS PER SHARE

In accordance with ASC 260-10 (formerly SFAS 128, “Computation of Earnings Per Share”), basic net income (loss) per share is computed by dividing the net income (loss) to common stockholders for the period by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share is computed by dividing the net income (loss) for the period by the weighted average number of common and dilutive common equivalent shares outstanding during the period. For the three months and nine months ended June 30, 2010 and 2009, the Company has excluded all common equivalent shares from the calculation of diluted net loss per share as such securities are anti-dilutive.

A summary of the net income (loss) and shares used to compute net income (loss) per share for the three months and nine months ended June 30, 2010 and 2009 are as follows:

	For the Three Months ended June 30,
	2010			2009
Net loss for computation of basic net loss per share	$	(1,500,200	)	$	(1,600,500	)
Net loss for computation of dilutive net loss per share	$	(1,500,200	)	$	(1,600,500	)

Basic net loss per share	$	(0.03	)	$	(0.06	)

Diluted net loss per share	$	(0.03	)	$	(0.06	)

Basic weighted average shares outstanding		56,023,921			25,782,277
Dilutive common equivalent shares		-			-
Diluted weighted average common shares		56,023,921			25,782,277

	For the Nine Months ended June 30,
	2010			2009
Net loss for computation of basic net loss per share	$	(4,753,200	)	$	(4,495,400	)
Net loss for computation of dilutive net loss per share	$	(4,753,200	)	$	(4,495,400	)

Basic net loss per share	$	(0.09	)	$	(0.18	)

Diluted net loss per share	$	(0.09	)	$	(0.18	)

Basic weighted average shares outstanding		51,028,185			25,460,457
Dilutive common equivalent shares		-			-
Diluted weighted average common shares		51,028,185			25,460,457

Anti-dilutive common equivalent shares not included in the computation of dilutive net loss per share:

	For the Three Months ended June 30,
	2010			2009
Convertible Debt		150,000			-
Warrants		19,297,753			7,594,401
Options		14,870,973			8,869,545

F-40

CNS RESPONSE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED JUNE 30, 2010 AND 2009

	For the Nine Months ended June 30,
	2010		2009
Convertible Debt		50,000		-
Warrants		18,904,516		7,131,036
Options		9,781,463		8,885,551

8.	COMMITMENTS AND CONTINGENT LIABILITIES

Litigation

Since June of 2009, we have been involved in litigation against Leonard J. Brandt, a stockholder, former director and our former Chief Executive Officer (“Brandt”) in the Delaware Chancery Court and the United States District Court for the Central District of California. At the conclusion of a two-day trial that commenced December 1, 2009, the Chancery Court entered judgment for the Company and dismissed with prejudice Brandt's action brought pursuant to Section 225 of the Delaware General Corporation Law, which sought to oust the incumbent directors other than Brandt. The Chancery Court thereby found that the purported special meeting of stockholders convened by Brandt on September 4, 2009 was not valid and that the directors purportedly elected at that meeting are not entitled to be seated. On January 4, 2010, Brandt filed an appeal with the Supreme Court of the State of Delaware in relation to the case. On April 20, 2010, the Delaware Supreme Court affirmed the ruling of the Chancery Court.

The Chancery Court also denied an injunction sought by Mr. Brandt to prevent the voting of shares issued by the Company in connection with our bridge financing in June 2009, and securities offering in August 2009, and dismissed Brandt's claims regarding those financings and stock issuances. On January 4, 2010, Brandt also filed an appeal in relation to this ruling with the Delaware Supreme Court which, on April 20, 2010, affirmed the ruling of the Chancery Court.

The Chancery Court also dismissed with prejudice another action brought by Mr. Brandt, in which he claimed he had not been provided with information owed to him.

In July 2009, we filed an action in the United States District Court for the Central District of California against Mr. Brandt and certain others. Our complaint alleged a variety of violations of federal securities laws, including anti-fraud based claims under Rule 14a-9, solicitation of proxies in violation of the filing and disclosure dissemination requirements of Regulation 14A, and material misstatements and omissions in and failures to promptly file amendments to Schedule 13D. Mr. Brandt and the other defendants filed counterclaims against us, alleging violations of federal securities laws relating to alleged actions and statements taken or made by us or our officers and directors in connection with Mr. Brandt’s proxy and consent solicitations. On March 10, 2010, we dismissed the Company’s claims against EAC, and EAC dismissed its claims against us and Mr. Carpenter. On April 10, 2010, Mr. Brandt's attorneys moved to withdraw from representing Mr. Brandt in the case. On July 7, 2010, Mr. Brandt moved to dismiss his counterclaims against the Company and the Company consented to dismiss its complaint against Mr. Brandt. On July 13, 2010, all of the Company’s claims and Mr. Brandt’s counterclaims in such action were dismissed. This resolved all pending actions between the Company and Mr. Brandt.

F-41

CNS RESPONSE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED JUNE 30, 2010 AND 2009

Lease Commitments

The Company leased its headquarters and Laboratory Information Services space under an operating lease which terminated on November 30, 2009. The Company continued to lease the space on a month-to-month basis through January 22, 2010 at which time the Company moved to its new premises.

On December 30, 2009 the Company entered a three year lease, commencing February 1, 2010 and terminating on January 30, 2013 for its new Headquarters and Laboratory Information Services business premises located at 85 Enterprise, Aliso Viejo, California 92656. The 2,023 square foot facility has an average cost for the lease term of $3,600 per month.

The Company leases space for its Clinical Services operations under an operating lease. The base rental as of December 31, 2009 was $6,000 per month. This lease terminated on February 28, 2010 and a 37 month extension to the lease was negotiated commencing April 1, 2010 and terminating April 30, 2013. The 3,542 square foot facility has an average cost for the lease term of $5,100 per month.

The Company also sub-leased space for its Clinical Services operations on a month-to-month basis for $1,000 per month up until March 2010 when it terminated this sub-lease and gave up the space.

The Company leases a copier for $200 per month which it accounts for as a capital lease with an interest rate of 9% per year. The lease terminates in February 2013, at which time the copier can be purchased at fair value.

The Company incurred rent expense of $19,600 and $38,500 for the three months ended June 30, 2010 and 2009 and $83,000 and $108,400 for the nine months ended June 30, 2010 and 2009

9. SUBSEQUENT EVENTS

Events subsequent to June 30, 2010 have been evaluated through the date these financial statements were issued, to determine whether they should be disclosed to keep the financial statements from being misleading. The following events have occurred since June 30, 2010.

Publication of our results

On July 3, 2010, a paper with the results of our study, which had been peer-reviewed by the Journal of Psychiatric Research, was published on-line at its website while awaiting hard-copy publication. The study, the largest in our history, was a randomized, single blinded, controlled, parallel group, multicenter study. The patients in the study experienced depression treatment failure of one or more selective serotonin reuptake inhibitors (SSRIs) and/or had failure with at least two classes of antidepressants. The patients fell into two groups: 1) those treated with rEEG medication guidance, and 2) those treated with the modified STAR*D treatment algorithm. The 12-week study, which included 114 patients at 12 medical sites, including Harvard, Stanford, Cornell, UCI and Rush, found that rEEG significantly outperformed the modified STAR*D treatment algorithm. The difference, or separation, between rEEG and the control group was 50 and 100 percent for the study’s two primary endpoints. Typically, separation between a new treatment and a control group is less than 10 percent in antidepressant studies.

F-42

CNS RESPONSE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED JUNE 30, 2010 AND 2009

Secured Convertible Debt Financings

On July 5, 2010, we issued two unsecured promissory notes (each, a “Deerwood Note”) in the aggregate principal amount of $250,000 to Deerwood Partners LLC and Deerwood Holdings LLC, with each investor purchasing a note in the aggregate principal amount of $125,000. The Deerwood Notes mature on December 15, 2010. We received $250,000 in gross proceeds from the issuance of these notes. SAIL Venture Partners L.P. (“SAIL”), of which our director David Jones is a managing partner, issued an unconditional guaranty to each of these investors, guaranteeing the prompt and complete payment when due of all principal, interest and other amounts under each Deerwood Note. We have agreed to indemnify SAIL and grant to SAIL a security interest in our assets in connection with the guaranties.

Each Deerwood Note accrues interest at a rate of 9% per annum which will be paid together with the repayment of the principal amount at the earliest of (i) the maturity date; (ii) prepayment of the Deerwood Note at our option (iii) closing of a financing in which the aggregate proceeds to us are not less than $3,000,000 or (iv) the occurrence of an Event of Default (as defined in the Deerwood Note). In addition, pursuant to a separate agreement that we entered into with each of the Deerwood investors, each investor will have the right to convert its note into shares of our common stock at a conversion price of $0.50. The conversion price is subject to customary anti-dilution adjustments, but will never be less than $0.30.

On June 3, 2010, we had entered into a Bridge Note and Warrant Purchase Agreement with John Pappajohn, pursuant to which Mr. Pappajohn agreed to purchase two secured promissory notes (each, a “Bridge Note”) in the aggregate principal amount of $500,000, with each Bridge Note in the principal amount of $250,000 maturing on December 2, 2010. On June 3, 2010, Mr. Pappajohn loaned the Company $250,000 in exchange for the first Bridge Note (there were no warrants issued in connection with this first note) and on July 25, 2010, Mr. Pappajohn loaned the Company $250,000 in exchange for the second Bridge Note. In connection with his purchase of the second Bridge Note, Mr. Pappajohn received a warrant to purchase up to 250,000 shares of our common stock in accordance with the Bridge Note and Warrant Purchase Agreement. The exercise price of the warrant (subject to customary anti-dilution adjustments) is $0.50 per share.

Grant of Warrants and Options to purchase common stock

On July 5, 2010, the Board of Directors granted warrants to purchase 500,000 shares of common stock to Mr. Brian Thompson for consulting services he had rendered to the Company, advising on and assisting with fund raising activities. Mr. Thompson is an employee of Equity Dynamics, Inc., a company owned by Mr. Pappajohn. These warrants have an exercise price of $0.30 cents per share, are exercisable from the date of grant and have a term of 10 years from the date of grant. At the same meeting, the Board also approved the grant of 800,000 options in total to a new member of management, Michael Darkoch, EVP and Chief Marketing Officer, a new director, Dr. Kallins, and a new advisor to the Company. The options have an exercise price of $0.40 and a term of 10 years. In the case of Mr. Darkoch, the options, the grant of which took effect upon commencement of his employment on July 6, 2010, vest evenly over a period of 48 months. The options for Dr. Kallins and the advisor vest evenly over a 36 month period.

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CNS RESPONSE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE AND NINE MONTHS ENDED JUNE 30, 2010 AND 2009

Letter from the FDA

On July 27, 2010, we received a letter from the FDA division that was reviewing our 510(k) submission. This letter informed us that the FDA had determined that our rEEG service was not substantially equivalent ("NSE") to the predicate devices that had been granted 510(k) clearance. The FDA concluded that the rEEG service had new indications for use, which alters the diagnostic effect and impacts safety and effectiveness. Consequently, the FDA suggests that the rEEG service is a class III device which requires an approved premarket approval application (PMA) before it can be marketed legally, unless it is otherwise reclassified. A statement of classification as a class III device is standard procedure for any 510(k) submission that receives an NSE letter, and does not represent a final FDA action classifying the product into class III.

We currently plan to continue marketing as a non-device laboratory information service, while continuing to discuss alternative approaches with the FDA. Alternative approaches, which are not mutually exclusive, may consist of (1) filing a request for reconsideration of the NSE letter and/or (2) submitting a new 510(k) with revised claims for rEEG and/or additional information about the predicate devices. There is some risk that the FDA will seek to take enforcement action against rEEG based upon the agency's position that rEEG is a medical device if we continue to market our service. The Company and its advisors continue to believe that the Company’s activities consist of medication sensitivity reference testing, as is performed by commercial laboratories and clinical review organizations, which is not subject to regulation by the FDA.

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PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. Other Expenses of Issuance and Distribution.

The Registrant will bear all expenses of registration incurred in connection with this offering. The selling shareholders whose shares are being registered will bear all selling and other expenses. The following table itemizes the expenses incurred by the Registrant in connection with the offering. All the amounts shown are estimates except the Securities and Exchange Commission registration fee.

	Amount
Registration fee – Securities and Exchange Commission	$	2,422
Legal fees and expenses	$	40,000
Accounting fees and expenses	$	20,000
Miscellaneous expenses	$	5,000
Total	$	67,422

ITEM 14. Indemnification of Directors and Officers.

The Delaware General Corporation Law and certain provisions of our certificate of incorporation and bylaws under certain circumstances provide for indemnification of our officers, directors and controlling persons against liabilities which they may incur in such capacities. A summary of the circumstances in which such indemnification is provided for is contained herein, but this description is qualified in its entirety by reference to our certificate of incorporation, bylaws and to the statutory provisions.

In general, any officer, director, employee or agent may be indemnified against expenses, fines, settlements or judgments arising in connection with a legal proceeding to which such person is a party, if that person’s actions were in good faith, were believed to be in our best interest, and with respect to any criminal action or proceeding, such person had no reasonable cause to believe their actions were unlawful. Unless such person is successful upon the merits in such an action, indemnification may be awarded only after a determination by independent decision of the board of directors, by legal counsel, or by a vote of the stockholders, that the applicable standard of conduct was met by the person to be indemnified.

The circumstances under which indemnification is granted in connection with an action brought on our behalf is generally the same as those set forth above; however, with respect to such actions, indemnification is granted only with respect to expenses actually incurred in connection with the defense or settlement of the action. In such actions, unless the court determines otherwise, the person to be indemnified must have acted in good faith and in a manner believed to have been in our best interest, and have not been adjudged liable to the corporation.

Indemnification may also be granted pursuant to the terms of agreements which we are currently party to with each of our directors and executive officers, agreements which we may enter into in the future or pursuant to a vote of stockholders or directors. Delaware law and our certificate of incorporation also grant the power to us to purchase and maintain insurance which protects our officers and directors against any liabilities incurred in connection with their service in such a position, and such a policy may be obtained by us.

A stockholder’s investment may be adversely affected to the extent we pay the costs of settlement and damage awards against directors and officers as required by these indemnification provisions. At present we are reimbursing SAIL Venture Partners, LLP, $107,600 and Equity Dynamics, Inc $55,200 for their costs incurred in defending Mr. Jones and Mr. Pappajohn and their respective organizations in the course of the Brandt Litigation. Apart from our litigation with Brandt, there is no pending litigation or proceeding involving any of our directors, officers or employees regarding which indemnification by us is sought, nor are we aware of any threatened litigation that may result in claims for indemnification.

II-1

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling us pursuant to the foregoing provisions, we have been informed that, in the opinion of the SEC, this indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.

Reference is made to the following documents filed as exhibits to this Registration Statement regarding relevant indemnification provisions described above and elsewhere herein:

Exhibit		Number

Certificate of Incorporation of Registrant, as amended		3.1.1

Bylaws of Registrant		3.2

Form of Indemnification Agreement		10.22

ITEM 15. Recent Sales of Unregistered Securities.

Reference is made to the Shares for Debt Agreement entered into on January 11, 2007 described above in the section entitled Certain Relationships and Related Transaction, which is hereby incorporated by reference.

Merger with CNS California

Securities Issued in 2007 Private Placement

On March 7, 2007, simultaneous with the closing of the Merger, we received gross proceeds of approximately $7,008,450 in the first closing of a private placement transaction (the “Private Placement”) with institutional investors and other high net worth individuals (“Investors”). Pursuant to Subscription Agreements entered into with these Investors, we sold 5,840,368 Investment Units, at $1.20 per Investment Unit. Each “Investment Unit” consists of one share of our common stock, and a five year non-callable warrant to purchase three-tenths of one share of our common Stock, at an exercise price of $1.80 per share (the “Investor Warrant”). On May 16, 2007, we completed a second closing of the Private Placement for an additional 664,390 Investment Units. The additional gross proceeds to us amounted to $797,300.

II-2

Brean Murray Carret & Co. (“Brean Murray”) acted as placement agent and corporate finance advisor in connection with the Private Placement. For their services as placement agent and financial advisor, pursuant to the terms of an Engagement Agreement between CNS California and Brean Murray, Brean Murray received a retainer in the form of 83,333 shares of our common stock (having a deemed value of $100,000) upon the closing of the Private Placement. We also paid Brean Murray a fee equal to 8% of the funds raised in the Private Placement, or approximately $624,500 of the gross proceeds from the financing. In addition, Brean Murray received warrants (the “Placement Agent Warrants”) to purchase shares of our common stock in amounts equal to (i) 8% of the shares of common stock sold by Brean Murray in the Private Placement (520,381 warrants at an exercise price of $1.44 per share), and (ii) 8% of the shares underlying the Investor Warrants sold by Brean Murray in the Private Placement (156,114 warrants at an exercise price of $1.80 per share). The Placement Agent Warrants are fully vested and have a term of 5 years. We also paid $87,700 in costs, fees and expenses incurred by Brean Murray in connection with the Private Placement. We expressly assumed CNS California’s agreement with Brean Murray upon the closing of the Merger. Pursuant to this agreement, Brean Murray had a right of first refusal to represent us in certain corporate finance transactions for a period of one year following the closing of the Private Placement. After payment of commissions and expenses associated with the offering, we received net proceeds of approximately $6.9 million in the private placement financing.

In connection with the above stock issuances, except as otherwise disclosed we did not pay any underwriting discounts or commissions. None of the sales of securities described or referred to above was registered under the Securities Act of 1933, as amended (the “Securities Act”). Each of the purchasers fell into one or more of the categories that follow: one of our existing shareholders, one of our creditors, one of our current or former officers or directors, one of our employees, one of our service providers, or an accredited investor with whom we or one of our affiliates had a prior business relationship. As a result, no general solicitation or advertising was used in connection with the sales. In making the sales without registration under the Securities Act, the company relied upon one or more of the exemptions from registration contained in Sections 4(2) of the Securities Act, and in Regulation D promulgated under the Securities Act.

Securities Issued in 2009-2010 Private Placement

Pursuant to a Placement Agent Agreement entered into with Maxim Group LLC dated as of August 3, 2009 and as amended on July 21, 2010, Maxim Group LLC served as lead placement agent in our recently completed private placement offering and received, in addition to cash commissions and a non-accountable expense allowance, warrants to purchase an aggregate of 965,134 shares of our Common Stock with an exercise price of $0.33 per share. Monarch Capital Group, Robert Nathan and Felix Investments, LLC also acted as placement agents in this private placement. In addition to cash commissions and a non-accountable expense allowance, each placement agent received warrants to purchase shares of our Common Stock at an exercise price of $0.33 per share, with Monarch Capital Group receiving 65,340 warrants, Robert Nathan receiving 152,460 warrants and Felix Investments, LLC receiving 292,200 warrants. This registration statement includes the shares underlying the warrants held by Maxim Group LLC, Monarch Capital Group, Robert Nathan and Felix Investments, LLC.

The warrants held by each placement agent expire between August 26, 2014 and January 4, 2015, corresponding to five years after the closing of each tranche of the private placement in compliance with FINRA Rule 5110(f)(2)(H). All shares of Common Stock issued or issuable upon conversion of placement agent warrants received by each placement agent are restricted from sale, transfer, assignment, pledge or hypothecation or from being the subject of any hedging, short sale, derivative, put, or call transaction that would result in the effective economic disposition of the securities by any person for a period of 180 days immediately following the effective date of this registration statement, except transfers of the warrants to officers or partners each respective placement agent as allowed under FINRA Rule 5110 (g)(1) and (2).

II-3

First Closing: August 26, 2009

On August 26, 2009, we received gross proceeds of approximately $2,000,000 in the first closing of our private placement transaction from six accredited investors. Pursuant to Subscription Agreements entered into with the investors, we sold approximately 38 Investment Units at $54,000 per Investment Unit. Each “Investment Unit” consists of 180,000 shares of our Common Stock and a five year non-callable warrant to purchase 90,000 shares of our Common Stock at an exercise price of $0.30 per share. After commissions and expenses, we received net proceeds of approximately $1,792,300 in the Private Placement. These funds were used to repay outstanding liabilities, fund the clinical trial and for working capital. Maxim Group LLC acted as lead placement agent (the “Placement Agent”) in connection with the Private Placement. Monarch Capital Group, Robert Nathan and Felix Investments, LLC also acted as placement agents. For their services in connection with the Private Placement, the Placement Agents received (i) a cash fee of $55,980, (ii) a cash expense allowance of $40,860, and (iii) a five year non-callable warrant to purchase 274,867 shares of our Common Stock at an exercise price of $0.33 per share, that expires on August 26, 2014.

Pursuant to a Registration Rights Agreement entered into with each investor, we agreed to file a registration statement covering the resale of the Common Stock and the Common Stock underlying the warrants sold in the private placement, as well as the Common Stock underlying the warrants issued to the Placement Agent by the later of October 26, 2009 or the 20th calendar day after the termination of the offering. The Registration Rights agreement was subsequently amended to allow the filing of the registration statement by the later of 10 business days following the Company’s filing of its Annual Report on Form 10-K for its September 30, 2009 year end or the 20th calendar day after termination of the offering.

In issuing the shares and warrants to the investors without registration under the Securities Act of 1933, as amended (the “Securities Act”), we relied upon one or more of the exemptions from registration contained in Sections 4(2) of the Securities Act, and in Regulation D promulgated thereunder, as the shares and warrants were issued to accredited investors, without a view to distribution, and were not issued through any general solicitation or advertisement. We made this determination based on the representations of each investor which included, in pertinent part, that such investor is an “accredited investor” within the meaning of Rule 501 of Regulation D promulgated under the Securities Act, that such investor was acquiring the shares and the warrant for investment purposes for its own account, and not with a view to, or for resale in connection with, any distribution or public offering thereof within the meaning of the Securities Act, and that such investor understood that the shares, the warrant and the securities issuable upon exercise thereof may not be sold or otherwise disposed of without registration under the Securities Act or an applicable exemption therefrom.

The Form of Subscription Agreement, Form of Warrant issued to investors, the Registration Rights Agreement with the investors, Amendment No. 1 to the Registration Rights Agreement with the investors, the Placement Agent Agreement, a Form of Warrant issued to the Placement Agent, a Form of Registration Rights Agreement with the Placement Agent, Amendment No.1 to the Placement Agent Agreement, and Amendment No.1 to the Form of Warrant issued to the Placement Agent associated with our 2009 private placement are referenced at Exhibits 10.18, 10.19, 10.20, 10.21, 10.28, 10.29, 10.30,10.31 and 10.32 to this registration statement.

Events Relating to First Closing of Private Placement Transaction

(a) Conversion of March Notes

On March 30, 2009, we entered into two Senior Secured Convertible Promissory Notes, each in the principal amount of $250,000 (each a “March Note” and, collectively, the “March Notes”), with Brandt Ventures, GP (“Brandt”) and SAIL Venture Partners, LP (“SAIL”). Leonard Brandt, a former member of our board of directors, is the general partner of Brandt and David B. Jones, a current member of our board of directors, is a managing member of Sail Venture Partners, LLC, which is the general partner of SAIL. The terms of the March Notes provided that in the event we consummate an equity financing transaction of at least $1,500,000 (excluding any and all other debt that is converted), then the principal and all accrued, but unpaid interest outstanding under the notes shall be automatically converted into the securities issued in the equity financing by dividing such amount by 90% of the per share price paid by the investors in such financing. In accordance with the terms of the March Notes, at the first closing of the private placement, we issued to each of Brandt and SAIL 956,164 shares of common stock and a five year non-callable warrant to purchase 478,082 shares of our common stock at an exercise price of $0.30 per share.

II-4

(b) Conversion of May SAIL Note

On May 14, 2009, we entered into a Bridge Note and Warrant Purchase Agreement (the “SAIL Purchase Agreement”) with SAIL. Pursuant to the SAIL Purchase Agreement, on May 14, 2009 SAIL purchased a Secured Promissory Note in the principal amount of $200,000 from us (the “May SAIL Note”). In order to induce SAIL to purchase the note, we issued to SAIL a warrant to purchase up to 100,000 shares of our common stock at a purchase price equal to $0.25 per share. The warrant expires on the earlier to occur of May 31, 2016 or a change of control of the company. The terms of the May SAIL Note provided that in the event we consummate an equity financing transaction of at least $1,500,000 (excluding any and all other debt that is converted), then the principal and all accrued, but unpaid interest outstanding under the note shall be automatically converted into the securities issued in the equity financing by dividing such amount by 85% of the per share price paid by the investors in such financing. In accordance with the terms of the May SAIL Note, at the first closing of the private placement, we issued to SAIL 802,192 shares of our common stock and a five year non-callable warrant to purchase 401,096 shares of our common stock at an exercise price of $0.30 per share.

On June 12, 2009, Mr. Pappajohn entered into a Bridge Note and Warrant Purchase Agreement (the “Pappajohn Purchase Agreement”) with us. Pursuant to the Pappajohn Purchase Agreement, Mr. Pappajohn purchased a Secured Convertible Promissory Note in the principal amount of $1,000,000 from us. In order to induce Mr. Pappajohn to purchase the note, we issued to Mr. Pappajohn a warrant to purchase up to 3,333,333 shares of our common stock at a purchase price equal to $0.30 per share. The warrant expires on June 30, 2016.

The note issued pursuant to the Pappajohn Purchase Agreement provided that the principal amount of $1,000,000 together with a single payment of $90,000 (the “Premium Payment”) would be due and payable, unless sooner converted into shares of our common stock (as described below), upon the earlier to occur of: (i) a declaration by Mr. Pappajohn on or after June 30, 2010 or (ii) an Event of Default (as defined in the note). The note was secured by a lien on substantially all of our assets (including all of our intellectual property). In the event of a liquidation, dissolution or winding up of the company, unless Mr. Pappajohn informed us otherwise, we were required to pay Mr. Pappajohn an amount equal to the product of 250% multiplied by the then outstanding principal amount of the note and the Premium Payment.

The Pappajohn Purchase Agreement also provided that in the event we consummated an equity financing transaction of at least $1,500,000 (excluding any and all other debt that is converted), the then outstanding principal amount of the note (but excluding the Premium Payment, which would be repaid in cash at the time of such equity financing) would be automatically converted into the securities issued in the equity financing by dividing such amount by the per share price paid by the investors in such financing. The note also provided that the securities issued upon conversion of the note would be otherwise issued on the same terms as such shares are issued to the lead investor that purchases shares of the company in the qualified financing.

At the first closing of the private placement, we paid the Premium Payment to Mr. Pappajohn, and the outstanding principal amount of Mr. Pappajohn’s note ($1,000,000 as of August 26, 2009) converted into 3,333,334 shares of our common stock. In addition, in accordance with the terms of his note, Mr. Pappajohn was issued a five year non-callable warrant to purchase 1,666,667 shares of our common stock at an exercise price of $0.30 per share.

II-5

In issuing the shares and warrants described above without registration under the Securities Act, we relied upon one or more of the exemptions from registration contained in Sections 4(2) of the Securities Act, and in Regulation D promulgated thereunder, as such shares and warrants were issued to accredited investors, without a view to distribution, and were not issued through any general solicitation or advertisement. We made this determination based on the representations of each note holder which included, in pertinent part, that such note holder is an “accredited investor” within the meaning of Rule 501 of Regulation D promulgated under the Securities Act, that such note holder was acquiring the shares and warrants for investment purposes for its own account, and not with a view to, or for resale in connection with, any distribution or public offering thereof within the meaning of the Securities Act, and that such note holder understood that the shares, the warrants and the securities issuable upon exercise thereof may not be sold or otherwise disposed of without registration under the Securities Act or an applicable exemption therefrom.

Second Closing: December 24, 2009

On December 24, 2009, we completed a second closing of our private placement (as described above, the first closing of our private placement occurred on August 26, 2009), resulting in additional gross proceeds to us of approximately $3.0 million.

Pursuant to Subscription Agreements entered into with investors, we sold approximately 55 Investment Units at $54,000 per Investment Unit. Each “Investment Unit” consists of 180,000 shares of our common stock and a five year non-callable warrant to purchase 90,000 shares of our common stock at an exercise price of $0.30 per share.

After commissions and expenses, we received net proceeds of approximately $2.65 million in connection with the second closing of our private placement. We intend to use (or have used) the proceeds from the second closing for general corporate purposes, including clinical trial expenses, research and development expenses, and general and administrative expenses, including the payment of accrued legal expenses incurred in connection with successfully defending the company from actions brought by Leonard Brandt.

Maxim Group LLC acted as lead placement agent in connection with the second closing of our private placement. Monarch Capital Group, Robert Nathan and Felix Investments, LLC also acted as placement agents. For their services in connection with the second closing, the Placement Agents received (i) a cash fee of $195,200, (ii) a cash expense allowance of $59,920, and (iii) a five year non-callable warrant to purchase 672,267 shares of our common stock at an exercise price of $ 0.33 per share, that expires on December 24, 2014.

In connection with the second closing of our private placement, each investor who participated in the financing became party to the Registration Rights agreement described above and will receive the same rights and benefits as the investors in the first closing of our private placement.

II-6

Third and Fourth Closings: December 31, 2009 and January 4, 2010

After commissions and expenses, the Company received net proceeds of approximately $480,000 in the third and fourth closings of the private placement. The Company intends to use (or has used) the net proceeds from the Private Placement for general corporate purposes, including clinical trial expenses, research and development expenses, and general and administrative expenses, including payment of accrued legal expenses incurred in connection with successfully defending the Company from actions brought by the Company’s former CEO, Leonard Brandt.

Maxim Group LLC acted as lead placement agent (the “Placement Agent”) in connection with the private placement. Monarch Capital Group, Robert Nathan and Felix Investments, LLC also acted as placement agents. For their services in connection with the December 31, 2009 closing of the private placement, the Placement Agents received (i) a cash fee of $4,320, (ii) a cash expense allowance of $8,640, and (iii) a five year non-callable warrant to purchase 14,400 shares of the Company’s common stock at an exercise price of $.33 per share that expires on December 31, 2014.

For their services in connection with the January 4, 2010 closing of the private placement, the lead Placement Agent received (i) a cash fee of $1,080, (ii) a cash expense allowance of $2,160, and (iii) a five year non-callable warrant to purchase 3,600 shares of the Company’s common stock at an exercise price of $.33 per share that expires on January 4, 2015.

In connection with the third and fourth closings of our private placement, each investor who participated in the financing became party to the Registration Rights agreement described above and will receive the same rights and benefits as the investors in the earlier closings of our private placement.

In issuing the shares and warrants to the investors without registration under the Securities Act of 1933, as amended (the “Securities Act”), the Company relied upon one or more of the exemptions from registration contained in Sections 4(2) of the Securities Act, and in Regulation D promulgated thereunder, as the shares and warrants were issued to accredited investors, without a view to distribution, and were not issued through any general solicitation or advertisement. The Company made this determination based on the representations of each investor which included, in pertinent part, that such investor is an “accredited investor” within the meaning of Rule 501 of Regulation D promulgated under the Securities Act, that such investor was acquiring the shares and the warrant for investment purposes for its own account, and not with a view to, or for resale in connection with, any distribution or public offering thereof within the meaning of the Securities Act, and that such investor understood that the shares, the warrant and the securities issuable upon exercise thereof may not be sold or otherwise disposed of without registration under the Securities Act or an applicable exemption therefrom.

June 3, 2010 and July 25, 2010 Bridge Financing

II-7

We have agreed to grant a right to Mr. Pappajohn to convert his notes into shares of our common stock at a conversion price of $0.50, subject to customary anti-dilution adjustments, and have agreed to enter into a registration rights agreement covering the securities issuable upon exercise of the warrant.

The Purchase Agreement, form of Note, and form of Warrant are referenced at Exhibits 10.25, 10.26 and 10.27 hereto.

In issuing the Notes and Warrant to Mr. Pappajohn without registration under the Securities Act, we relied upon one or more of the exemptions from registration contained in Sections 4(2) of the Securities Act, and in Regulation D promulgated thereunder, as the Notes and Warrant were issued to an accredited investor, without a view to distribution, and were not issued through any general solicitation or advertisement. We made this determination based on the representations of Mr. Pappajohn which included, in pertinent part, that Mr. Pappajohn is an “accredited investor” within the meaning of Rule 501 of Regulation D promulgated under the Securities Act, that Mr. Pappajohn was acquiring the Notes and Warrant for investment purposes for his own account, and not with a view to, or for resale in connection with, any distribution or public offering thereof within the meaning of the Securities Act, and that Mr. Pappajohn understood that the securities issuable pursuant to the Notes and Warrant may not be sold or otherwise disposed of without registration under the Securities Act or an applicable exemption therefrom.

July 5, 2010 and August 20, 2010 Bridge Financing

SAIL Venture Partners L.P. (“SAIL”), of which our director David Jones is a managing partner, issued unconditional guaranties to each of these investors, guaranteeing the prompt and complete payment when due of all principal, interest and other amounts under each Deerwood Note. . The obligations under each guaranty are independent of our obligations under the Deerwood Notes and separate actions may be brought against the guarantor. We have agreed to indemnify SAIL and grant to SAIL a security interest in our assets in connection with the guaranties. In addition, on August 20, 2010, we granted SAIL warrants to purchase up to an aggregate of 100,000 shares of common stock at an exercise price (subject to customary anti-dilution adjustments) of $0.56 per share.

II-8

In issuing the Deerwood Notes without registration under the Securities Act, we relied upon one or more of the exemptions from registration contained in Sections 4(2) of the Securities Act, and in Regulation D promulgated thereunder, as the notes were issued to accredited investors, without a view to distribution, and were not issued through any general solicitation or advertisement. We made this determination based on the representations of the investors which included, in pertinent part, that such note holders are “accredited investors” within the meaning of Rule 501 of Regulation D promulgated under the Securities Act, that such note holders were acquiring the notes for investment purposes for their own account, and not with a view to, or for resale in connection with, any distribution or public offering thereof within the meaning of the Securities Act, and that the investors understood that the securities may not be sold or otherwise disposed of without registration under the Securities Act or an applicable exemption therefrom.

July 5, 2010 Grant of Warrants to Consultant

On July 5, 2010, the Board granted warrants to purchase 500,000 shares of common stock to Mr. Thompson for consulting services rendered to the Company in connection with fund raising activities. Mr. Thompson is an employee of Equity Dynamics, Inc, a company owned by Mr. Pappajohn. These warrants have an exercise price of $0.30 cents per share, are exercisable from the date of grant and have a term of 10 years from the date of grant.

The warrants issued to Mr. Thompson were not registered under the Securities Act. Mr. Thompson is a service provider and an accredited investor. As a result, no general solicitation or advertising was used in connection with the grant. In making the grant without registration under the Securities Act, the Company relied upon the exemptions from registration contained in Section 4(2) of the Securities Act and Regulation D promulgated under the Securities Act.

II-9

ITEM 16. Exhibits and Financial Statement Schedules.

(a) The following exhibits are filed herewith:

Exhibit Number		Exhibit Title

2.1		Agreement and Plan of Merger between Strativation, Inc., CNS Merger Corporation and CNS Response, Inc. dated as of January 16, 2007. Incorporated by reference to Exhibit No. 10.1 to the Registrant’s Current Report on Form 8-K (File No. 000-26285) filed with the Commission on January 22, 2007.
2.2		Amendment No. 1 to Agreement and Plan of Merger by and among Strativation, Inc., CNS Merger Corporation, and CNS Response, Inc. dated as of February 28, 2007. Incorporated by reference to Exhibit No. 10.1 to the Registrant’s Current Report on Form 8-K (File No. 000-26285) filed with the Commission on March 1, 2007.
3.1.1		Certificate of Incorporation, dated March 17, 1987. Incorporated by reference to Exhibit No. 3(i) to the Registrant’s Form 10-SB (File No. 000-26285) filed with the Commission on June 7, 1999.
3.1.2		Certificate of Amendment of Certificate of Incorporation, dated June 1, 2004. Incorporated by reference to Exhibit 16 to the Registrant’s Current Report on Form 8-K (File No. 000-26285) filed with the Commission on June 8, 2004.
3.1.3		Certificate of Amendment of Certificate of Incorporation, dated August 2, 2004. Incorporated by reference to Exhibit 16 to the Registrant’s Current Report on Form 8-K (File No. 000-26285) filed with the Commission on August 5, 2004.
3.1.4		Certificate of Amendment of Certificate of Incorporation, dated September 7, 2005. Incorporated by reference to Exhibit 4.4 to the Registrant’s Registration Statement on Form S-8 (File No. 333-150398) filed with the Commission on April 23, 2008.
3.1.5		Certificate of Amendment of Certificate of Incorporation, dated January 8, 2007. Incorporated by reference to Exhibit 3.1.5 to the Registrant’s Registration Statement on Form S-1/A (File No. 333-164613) filed with the Commission on July 6, 2010.
3.1.6		Certificate of Ownership and Merger Merging CNS Response, Inc., a Delaware corporation, with and into Strativation, Inc., a Delaware corporation, dated March 7, 2007. Incorporated by reference to the Registrant’s Current Report on Form 8-K (File No. 000-26285) filed with the Commission on March 13, 2007.
3.2.1		Bylaws. Incorporated by reference to Exhibit No. 3(ii) to the Registrant’s Form 10-SB (File No. 000-26285) filed with the Commission on June 7, 1999.
3.2.2		Amendment No. 1 to Bylaws of CNS Response, Inc. Incorporated by reference to Exhibit 3.2 to the Registrant’s Current Report on Form 8-K (File No. 000-26285) filed with the Commission on July 2, 2009.
3.2.3		Amendment No. 2 to Bylaws of CNS Response, Inc. Incorporated by reference to Exhibit 3.3 to the Registrant’s Current Report on Form 8-K (File No. 000-26285) filed with the Commission on July 23, 2009.
4.1		Amended and Restated 2006 Stock Incentive Plan. Incorporated by reference to Appendix A to the Registrant’s Definitive Proxy Statement on Schedule 14A (File No. 000-26285) filed with the Commission on April 1, 2010.*
5.1		Opinion of Stubbs, Alderton & Markiles, LLP. Incorporated by reference to Exhibit 5.1 to the Registrant’s Registration Statement on Form S-1/A (File No. 333-164613) filed with the Commission on July 6, 2010.
10.1		Amended and Restated Registration Rights Agreement, dated January 16, 2007 by and among the Registrant and the stockholders signatory thereto. Incorporated by reference to Exhibit No. 10.2 to the Registrant’s Current Report on Form 8-K (File No. 000-26285) filed with the Commission on January 16, 2007.
10.2		Form of Subscription Agreement between the Registrant and certain investors, dated March 7, 2007. Incorporated by reference to Exhibit 10.4 to the Registrant’s Current Report on Form 8-K (File No. 000-26285) filed with the Commission on March 13, 2007.

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10.3		Form of Indemnification Agreement by and among the Registrant, CNS Response, Inc., a California corporation, and certain individuals, dated March 7, 2007. Incorporated by reference to Exhibit 10.5 to the Registrant’s Current Report on Form 8-K (File No. 000-26285) filed with the Commission on March 13, 2007.
10.4		Form of Registration Rights Agreement by and among the Registrant and certain Investors signatory thereto dated March 7, 2007. Incorporated by reference to Exhibit 10.6 to the Registrant’s Current Report on Form 8-K (File No. 000-26285) filed with the Commission on March 13, 2007.
10.5		Form of Registration Rights Agreement by and among the Registrant and certain stockholders of the Company signatory thereto dated March 7, 2007. Incorporated by reference to Exhibit 10.7 to the Registrant’s Current Report on Form 8-K (File No. 000-26285) filed with the Commission on March 13, 2007.
10.6		Employment Agreement by and between the Registrant and George Carpenter dated October 1, 2007. Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No. 000-26285) filed with the Commission on October 3, 2007.*
10.7		Employment Agreement by and between the Registrant and Daniel Hoffman dated January 11, 2008. Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No. 000-26285) filed with the Commission on January 17, 2008.*
10.8		Stock Purchase Agreement by and among Colorado CNS Response, Inc., Neuro-Therapy, P.C. and Daniel A. Hoffman, M.D. dated January 11, 2008. Incorporated by reference to the Registrant’s Annual Report on Form 10-K (File No. 000-26285) filed with the Commission on January 13, 2009.
10.9		Form of Warrant issued to Investors in Private Placement. Incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K (File No. 000-26285) filed with the Commission on March 13, 2007.
10.10		Senior Secured Convertible Promissory Note, dated March 30, 2009, by and between the Company and Brandt Ventures, GP. Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No. 000-26285) filed with the Commission on April 3, 2009.
10.11		Senior Secured Convertible Promissory Note, dated March 30, 2009, by and between the Company and SAIL Venture Partners, LP. Incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K (File No. 000-26285) filed with the Commission on April 3 2009.
10.12		Bridge Note and Warrant Purchase Agreement, dated May 14, 2009 by and between the Company and SAIL Venture Partners, LP. Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File Number 000-26285) filed with the Securities and Exchange Commission on May 20, 2009.
10.13		Form of Secured Convertible Promissory Note. Incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K (File Number 000-26285) filed with the Securities and Exchange Commission on May 20, 2009.
10.14		Form of Warrant to Purchase Shares. Incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K (File Number 000-26285) filed with the Securities and Exchange Commission on May 20, 2009.
10.15		Bridge Note and Warrant Purchase Agreement, dated June 12, 2009, by and between the Company and John Pappajohn. Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File Number 000-26285) filed with the Securities and Exchange Commission on June 18, 2009.
10.16		Form of Secured Convertible Promissory Note. Incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K (File Number 000-26285) filed with the Securities and Exchange Commission on June 18, 2009.
10.17		Form of Warrant to Purchase Shares. Incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K (File Number 000-26285) filed with the Securities and Exchange Commission on June 18, 2009.
10.18		Form of Subscription Agreement. Incorporated by reference to Exhibit 10.18 to the Registrant’s Annual Report on Form 10-K (File Number 000-26285) filed with the Securities and Exchange Commission on December 30, 2009.
10.19		Form of Warrant. Incorporated by reference to Exhibit 10.19 to the Registrant’s Annual Report on Form 10-K (File Number 000-26285) filed with the Securities and Exchange Commission on December 30, 2009.

II-11

10.20		Registration Rights Agreement. Incorporated by reference to Exhibit 10.20 to the Registrant’s Annual Report on Form 10-K (File Number 000-26285) filed with the Securities and Exchange Commission on December 30, 2009.
10.21		Amendment No. 1 to Registration Rights Agreement. Incorporated by reference to Exhibit 10.21 to the Registrant’s Annual Report on Form 10-K (File Number 000-26285) filed with the Securities and Exchange Commission on December 30, 2009.
10.22		Form of Indemnification Agreement. Incorporated by reference to Exhibit 10.22 to the Registrant’s Annual Report on Form 10-K (File Number 000-26285) filed with the Securities and Exchange Commission on December 30, 2009.
10.23		Employment Agreement by and between the Registrant and Paul Buck effective as of February 18, 2010. Incorporated by reference to Exhibit 10.23 to the Registrant’s Registration Statement on Form S-1/A (File No. 333-164613) filed with the Commission on July 6, 2010.*
10.24		Consulting Agreement by and among CNS Response, Inc. and Henry T. Harbin, effective January 1, 2010. Incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q (File Number 000-26285) filed with the Securities and Exchange Commission on May 14, 2010.
10.25		Bridge Note and Warrant Purchase Agreement, dated as of June 3, 2010, between CNS Response, Inc. and John Pappajohn. Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File Number 000-26285) filed with the Securities and Exchange Commission on June 7, 2010.
10.26		Form of Note. Incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K (File Number 000-26285) filed with the Securities and Exchange Commission on June 7, 2010.
10.27		Form of Warrant. Incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K (File Number 000-26285) filed with the Securities and Exchange Commission on June 7, 2010.
10.28		Placement Agent Agreement dated August 3, 2009 between the Registrant and Maxim Group LLC. Incorporated by reference to Exhibit 10.28 to the Registrant’s Registration Statement on Form S-1/A (File No. 333-164613) filed with the Commission on July 6, 2010.
10.29		Form of Warrant issued to Placement Agent. Incorporated by reference to Exhibit 10.29 to the Registrant’s Registration Statement on Form S-1/A (File No. 333-164613) filed with the Commission on July 6, 2010.
10.30		Form of Registration Rights Agreement dated August 26, 2009 between the Registrant and Maxim Group, LLC. Incorporated by reference to Exhibit 10.30 to the Registrant’s Registration Statement on Form S-1/A (File No. 333-164613) filed with the Commission on July 6, 2010.
10.31		Form of Amendment No.1 to Placement Agent Agreement dated July 21, 2010 between the Registrant and Maxim Group LLC.
10.32		Form of Amendment No.1 to Form of Warrant issued to Placement Agent dated July 21, 2010.
10.33		Form of Unsecured Promissory Note. Incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K (File Number 000-26285) filed with the Securities and Exchange Commission on July 9, 2010.
10.34		Form of Guaranty. Incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K (File Number 000-26285) filed with the Securities and Exchange Commission on July 9, 2010.
10.35		Form of Deerwood Note. Incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K (File Number 000-26285) filed with the Securities and Exchange Commission on August 24, 2010.
10.36		Form of Deerwood Warrant. Incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K (File Number 000-26285) filed with the Securities and Exchange Commission on August 24, 2010.
21.1		Subsidiaries of the Registrant. Incorporated by reference to the Registrant’s Annual Report on Form 10-K (File No. 000-26285) filed with the Commission on January 13, 2009.
23.1		Consent of Independent Registered Public Accounting Firm.
23.2		Consent of Stubbs, Alderton & Markiles, LLC (included in Exhibit 5.1).

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* Indicates a management contract or compensatory plan.

(b) Financial Statement Schedules

Schedules not listed above have been omitted because the information required to be set forth therein is not applicable or is shown in the consolidated financial statements or notes thereto.

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ITEM 17. Undertakings.

(a) Rule 415 Offering. The undersigned registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:

(i) To include any prospectus required by Section 10(a)(3) of the Securities Actof 1933;

(ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement.

(iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement.

(2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.

(h) Request for Acceleration of Effective Date or filing of registration statement becoming effective upon filing..

Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.

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SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Aliso Viejo, State of California, on August 31, 2010.

	CNS RESPONSE, INC.
	(Registrant)

	By:	/s/ George Carpenter

		George Carpenter
		Chief Executive Officer and Secretary
		(Principal Executive Officer)

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates stated.

Signature	Title	Date

/s/ George Carpenter	Chief Executive Officer and Secretary, and Chairman of the Board	August 31, 2010
George Carpenter	(Principal Executive Officer)

/s/ Paul Buck	Chief Financial Officer (Principal Financial and Accounting Officer)	August 31, 2010
Paul Buck

*	Director	August 31, 2010
David B. Jones

*	Director	August 31, 2010
Jerome Vaccaro, M.D.

*	Director	August 31, 2010
Henry T. Harbin, M.D.

*	Director	August 31, 2010
John Pappajohn

	Director	August 31, 2010
George Kallins, M.D.

*By : George Carpenter
George Carpenter
As Attorney-In-Fact

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EXHIBIT INDEX

Exhibit Number		Exhibit Title

2.1		Agreement and Plan of Merger between Strativation, Inc., CNS Merger Corporation and CNS Response, Inc. dated as of January 16, 2007. Incorporated by reference to Exhibit No. 10.1 to the Registrant’s Current Report on Form 8-K (File No. 000-26285) filed with the Commission on January 22, 2007.
2.2		Amendment No. 1 to Agreement and Plan of Merger by and among Strativation, Inc., CNS Merger Corporation, and CNS Response, Inc. dated as of February 28, 2007. Incorporated by reference to Exhibit No. 10.1 to the Registrant’s Current Report on Form 8-K (File No. 000-26285) filed with the Commission on March 1, 2007.
3.1.1		Certificate of Incorporation, dated March 17, 1987. Incorporated by reference to Exhibit No. 3(i) to the Registrant’s Form 10-SB (File No. 000-26285) filed with the Commission on June 7, 1999.
3.1.2		Certificate of Amendment of Certificate of Incorporation, dated June 1, 2004. Incorporated by reference to Exhibit 16 to the Registrant’s Current Report on Form 8-K (File No. 000-26285) filed with the Commission on June 8, 2004.
3.1.3		Certificate of Amendment of Certificate of Incorporation, dated August 2, 2004. Incorporated by reference to Exhibit 16 to the Registrant’s Current Report on Form 8-K (File No. 000-26285) filed with the Commission on August 5, 2004.
3.1.4		Certificate of Amendment of Certificate of Incorporation, dated September 7, 2005. Incorporated by reference to Exhibit 4.4 to the Registrant’s Registration Statement on Form S-8 (File No. 333-150398) filed with the Commission on April 23, 2008.
3.1.5		Certificate of Amendment of Certificate of Incorporation, dated January 8, 2007. Incorporated by reference to Exhibit 3.1.5 to the Registrant’s Registration Statement on Form S-1/A (File No. 333-164613) filed with the Commission on July 6, 2010.
3.1.6		Certificate of Ownership and Merger Merging CNS Response, Inc., a Delaware corporation, with and into Strativation, Inc., a Delaware corporation, dated March 7, 2007. Incorporated by reference to the Registrant’s Current Report on Form 8-K (File No. 000-26285) filed with the Commission on March 13, 2007.
3.2.1		Bylaws. Incorporated by reference to Exhibit No. 3(ii) to the Registrant’s Form 10-SB (File No. 000-26285) filed with the Commission on June 7, 1999.
3.2.2		Amendment No. 1 to Bylaws of CNS Response, Inc. Incorporated by reference to Exhibit 3.2 to the Registrant’s Current Report on Form 8-K (File No. 000-26285) filed with the Commission on July 2, 2009.
3.2.3		Amendment No. 2 to Bylaws of CNS Response, Inc. Incorporated by reference to Exhibit 3.3 to the Registrant’s Current Report on Form 8-K (File No. 000-26285) filed with the Commission on July 23, 2009.
4.1		Amended and Restated 2006 Stock Incentive Plan. Incorporated by reference to Appendix A to the Registrant’s Definitive Proxy Statement on Schedule 14A (File No. 000-26285) filed with the Commission on April 1, 2010.*
5.1		Opinion of Stubbs, Alderton & Markiles, LLP. Incorporated by reference to Exhibit 5.1 to the Registrant’s Registration Statement on Form S-1/A (File No. 333-164613) filed with the Commission on July 6, 2010.
10.1		Amended and Restated Registration Rights Agreement, dated January 16, 2007 by and among the Registrant and the stockholders signatory thereto. Incorporated by reference to Exhibit No. 10.2 to the Registrant’s Current Report on Form 8-K (File No. 000-26285) filed with the Commission on January 16, 2007.
10.2		Form of Subscription Agreement between the Registrant and certain investors, dated March 7, 2007. Incorporated by reference to Exhibit 10.4 to the Registrant’s Current Report on Form 8-K (File No. 000-26285) filed with the Commission on March 13, 2007.
10.3		Form of Indemnification Agreement by and among the Registrant, CNS Response, Inc., a California corporation, and certain individuals, dated March 7, 2007. Incorporated by reference to Exhibit 10.5 to the Registrant’s Current Report on Form 8-K (File No. 000-26285) filed with the Commission on March 13, 2007.
10.4		Form of Registration Rights Agreement by and among the Registrant and certain Investors signatory thereto dated March 7, 2007. Incorporated by reference to Exhibit 10.6 to the Registrant’s Current Report on Form 8-K (File No. 000-26285) filed with the Commission on March 13, 2007.
10.5		Form of Registration Rights Agreement by and among the Registrant and certain stockholders of the Company signatory thereto dated March 7, 2007. Incorporated by reference to Exhibit 10.7 to the Registrant’s Current Report on Form 8-K (File No. 000-26285) filed with the Commission on March 13, 2007.

EX-1

10.6		Employment Agreement by and between the Registrant and George Carpenter dated October 1, 2007. Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No. 000-26285) filed with the Commission on October 3, 2007.*
10.7		Employment Agreement by and between the Registrant and Daniel Hoffman dated January 11, 2008. Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No. 000-26285) filed with the Commission on January 17, 2008.*
10.8		Stock Purchase Agreement by and among Colorado CNS Response, Inc., Neuro-Therapy, P.C. and Daniel A. Hoffman, M.D. dated January 11, 2008. Incorporated by reference to the Registrant’s Annual Report on Form 10-K (File No. 000-26285) filed with the Commission on January 13, 2009.
10.9		Form of Warrant issued to Investors in Private Placement. Incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K (File No. 000-26285) filed with the Commission on March 13, 2007.
10.10		Senior Secured Convertible Promissory Note, dated March 30, 2009, by and between the Company and Brandt Ventures, GP. Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File No. 000-26285) filed with the Commission on April 3, 2009.
10.11		Senior Secured Convertible Promissory Note, dated March 30, 2009, by and between the Company and SAIL Venture Partners, LP. Incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K (File No. 000-26285) filed with the Commission on April 3 2009.
10.12		Bridge Note and Warrant Purchase Agreement, dated May 14, 2009 by and between the Company and SAIL Venture Partners, LP. Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File Number 000-26285) filed with the Securities and Exchange Commission on May 20, 2009.
10.13		Form of Secured Convertible Promissory Note. Incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K (File Number 000-26285) filed with the Securities and Exchange Commission on May 20, 2009.
10.14		Form of Warrant to Purchase Shares. Incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K (File Number 000-26285) filed with the Securities and Exchange Commission on May 20, 2009.
10.15		Bridge Note and Warrant Purchase Agreement, dated June 12, 2009, by and between the Company and John Pappajohn. Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File Number 000-26285) filed with the Securities and Exchange Commission on June 18, 2009.
10.16		Form of Secured Convertible Promissory Note. Incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K (File Number 000-26285) filed with the Securities and Exchange Commission on June 18, 2009.
10.17		Form of Warrant to Purchase Shares. Incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K (File Number 000-26285) filed with the Securities and Exchange Commission on June 18, 2009.
10.18		Form of Subscription Agreement. Incorporated by reference to Exhibit 10.18 to the Registrant’s Annual Report on Form 10-K (File Number 000-26285) filed with the Securities and Exchange Commission on December 30, 2009.
10.19		Form of Warrant. Incorporated by reference to Exhibit 10.19 to the Registrant’s Annual Report on Form 10-K (File Number 000-26285) filed with the Securities and Exchange Commission on December 30, 2009.
10.20		Registration Rights Agreement. Incorporated by reference to Exhibit 10.20 to the Registrant’s Annual Report on Form 10-K (File Number 000-26285) filed with the Securities and Exchange Commission on December 30, 2009.
10.21		Amendment No. 1 to Registration Rights Agreement. Incorporated by reference to Exhibit 10.21 to the Registrant’s Annual Report on Form 10-K (File Number 000-26285) filed with the Securities and Exchange Commission on December 30, 2009.
10.22		Form of Indemnification Agreement. Incorporated by reference to Exhibit 10.22 to the Registrant’s Annual Report on Form 10-K (File Number 000-26285) filed with the Securities and Exchange Commission on December 30, 2009.
10.23		Employment Agreement by and between the Registrant and Paul Buck effective as of February 18, 2010. Incorporated by reference to Exhibit 10.23 to the Registrant’s Registration Statement on Form S-1/A (File No. 333-164613) filed with the Commission on July 6, 2010.*
10.24		Consulting Agreement by and among CNS Response, Inc. and Henry T. Harbin, effective January 1, 2010. Incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10-Q (File Number 000-26285) filed with the Securities and Exchange Commission on May 14, 2010.

EX-2

10.25		Bridge Note and Warrant Purchase Agreement, dated as of June 3, 2010, between CNS Response,Inc. and John Pappajohn. Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K (File Number 000-26285) filed with the Securities and Exchange Commission on June 7, 2010.
10.26		Form of Note. Incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K (File Number 000-26285) filed with the Securities and Exchange Commission on June 7, 2010.
10.27		Form of Warrant. Incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K (File Number 000-26285) filed with the Securities and Exchange Commission on June 7, 2010.
10.28		Placement Agent Agreement dated August 3, 2009 between the Registrant and Maxim Group LLC. Incorporated by reference to Exhibit 10.28 to the Registrant’s Registration Statement on Form S-1/A (File No. 333-164613) filed with the Commission on July 6, 2010.
10.29		Form of Warrant issued to Placement Agent. Incorporated by reference to Exhibit 10.29 to the Registrant’s Registration Statement on Form S-1/A (File No. 333-164613) filed with the Commission on July 6, 2010.
10.30		Form of Registration Rights Agreement dated August 26, 2009 between the Registrant and Maxim Group, LLC. Incorporated by reference to Exhibit 10.30 to the Registrant’s Registration Statement on Form S-1/A (File No. 333-164613) filed with the Commission on July 6, 2010.
10.31		Form of Amendment No.1 to Placement Agent Agreement dated July 21, 2010 between the Registrant and Maxim Group LLC.
10.32		Form of Amendment No.1 to Form of Warrant issued to Placement Agent dated July 21, 2010.
10.33		Form of Unsecured Promissory Note. Incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K (File Number 000-26285) filed with the Securities and Exchange Commission on July 9, 2010.
10.34		Form of Guaranty. Incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K (File Number 000-26285) filed with the Securities and Exchange Commission on July 9, 2010.
10.35		Form of Deerwood Note. Incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K (File Number 000-26285) filed with the Securities and Exchange Commission on August 24, 2010.
10.36		Form of Deerwood Warrant. Incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K (File Number 000-26285) filed with the Securities and Exchange Commission on August 24, 2010.
21.1		Subsidiaries of the Registrant. Incorporated by reference to the Registrant’s Annual Report on Form 10-K (File No. 000-26285) filed with the Commission on January 13, 2009.
23.1		Consent of Independent Registered Public Accounting Firm.
23.2		Consent of Stubbs, Alderton & Markiles, LLC (included in Exhibit 5.1).

* Indicates a management contract or compensatory plan.

EX-3