Results of Operations

Three-month Periods Ended March 31, 2009 and 2008

Research and Development Expenses

Research and development expenses were $122,000 for the three-month period ended March 31, 2009, compared to $4.0 million for the three-month period ended March 31, 2008. The decrease of $3.9 million, or 97%, is due to the adoption of the Plan of Dissolution, which resulted in the termination of all current research and development activities, and the cessation of all personnel related costs as they relate to development, including severance and benefit charges, which were charged to general and administrative expense.

General and Administrative Expenses

General and administrative expenses were $8.4 million for the three-month period ended March 31, 2009, compared to $2.4 million for the three-month period ended March 31, 2008. The increase of $6.0 million, or 250%, was primarily due to one time restructuring charges of $2.1 million associated with the termination of our facility lease, $2.0 million in one-time employee severance and benefit charges, and $1.9 million in stock compensation expenses, of which $1.7 million was primarily associated with the acceleration of options.

Impairment on property and equipment

Impairment on property and equipment was $650,000 for the three-month period ended March 31, 2009. The current period charge was the result of impairment losses taken related to the write-down of held for sale and abandoned property and equipment values to the lower of cost, net of accumulated depreciation, or the fair value, less costs to sell.

Interest Income, Net

Interest income, net, was $287,000 for the three-month period ended March 31, 2009, compared to $922,000 for the three-month period ended March 31, 2008. The decrease of $635,000, or 69%, reflects reduced interest earned on cash and investments attributable primarily to lower average cash and investment balances and decreased interest rates stemming from general market conditions.

Northstar Neuroscience is a medical device company focused on developing and commercializing innovative neuromodulation therapies to restore function and quality of life for people suffering from neurological diseases and disorders.