UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended March 31, 2011
OR
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from
to
Commission File Number 0-6533
ALSERES PHARMACEUTICALS, INC.
(Exact Name of Registrant as Specified in Its Charter)
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Delaware
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87-0277826
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(State or Other Jurisdiction of
Incorporation or Organization)
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(IRS Employer
Identification No.)
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239 South Street, Hopkinton, Massachusetts
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01748
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(Address of Principal Executive Offices)
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(Zip Code)
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(508) 497-2360
(Registrants Telephone Number, Including Area Code)
None
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes
þ
No
o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes
o
No
o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
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Large accelerated filer
o
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Accelerated filer
o
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Non-accelerated filer
o
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Smaller reporting company
þ
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(Do not check if a smaller reporting company)
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes
o
No
þ
As of May 13, 2011, there were 26,785,645 shares of the registrants Common Stock issued and
outstanding.
ALSERES PHARMACEUTICALS, INC.
FORM 10-Q
TABLE OF CONTENTS
In this report, we, us, and our refer to Alseres Pharmaceuticals, Inc. The following are
trademarks of ours that are mentioned in this Quarterly Report on Form 10-Q: Alseres and Altropane
®
. All other trade names, trademarks or service marks appearing in this Quarterly
Report on Form 10-Q are the property of their respective owners and are not the property of Alseres
Pharmaceuticals, Inc. or any of our subsidiaries.
2
Part I FINANCIAL INFORMATION
Item 1 Financial Statements
Alseres Pharmaceuticals, Inc.
(A Development Stage Enterprise)
Condensed Consolidated Balance Sheets
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(Unaudited)
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March 31,
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December 31,
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2011
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2010
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ASSETS
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Current assets:
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Cash and cash equivalents
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$
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13,898
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$
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98,514
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Security deposits
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96,163
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96,163
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Prepaid expenses and other current assets
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45,253
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14,073
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Total current assets
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155,314
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208,750
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Property and Equipment, net
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33,905
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47,674
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Indemnity fund
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115,530
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115,568
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Security deposits and other assets
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88,600
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88,600
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Total assets
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$
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393,349
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$
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460,592
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LIABILITIES AND STOCKHOLDERS DEFICIT
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Current liabilities:
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Accounts payable and accrued expenses
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$
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3,549,074
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$
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3,576,809
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Convertible notes payable
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29,000,000
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29,000,000
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Notes payable
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5,260,000
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4,660,000
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Accrued interest payable on convertible notes
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5,077,221
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4,714,722
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Accrued interest payable on demand notes
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356,905
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270,759
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Accrued lease (Note 6)
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68,923
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65,922
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Total current liabilities
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43,312,123
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42,288,212
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Accrued lease, excluding current portion (Note 6)
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12,520
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30,503
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Total liabilities
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43,324,643
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42,318,715
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Commitments and contingencies (Note 7)
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Series F convertible redeemable preferred stock, $.01
par value; 200,000 shares designated; 196,000 shares
issued and outstanding at March 31, 2011 and December
31, 2010; (liquidation preference of $4,900,000 at
March 31, 2011)
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5,515,339
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5,428,158
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Stockholders deficit:
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Preferred stock, $.01 par value; 1,000,000 shares
authorized; 25,000 shares designated Convertible
Series A, 500,000 shares designated Convertible
Series D and 800 shares designated Convertible
Series E; no shares issued and outstanding at March
31, 2011 and December 31, 2010, respectively
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Common stock, $.01 par value; 79,730,000 shares
authorized at March 31, 2011 and December 31, 2010;
26,785,645 issued and outstanding at March 31, 2011
and December 31, 2010.
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267,856
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267,856
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Additional paid-in capital
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146,527,976
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146,611,717
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Deficit accumulated during development stage
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(195,242,465
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)
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(194,165,854
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)
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Total stockholders deficit
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(48,446,633
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)
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(47,286,281
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)
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Total liabilities and stockholders deficit
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$
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393,349
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$
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460,592
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The accompanying notes are an integral part of the condensed consolidated financial
statements.
3
Alseres Pharmaceuticals, Inc.
(A Development Stage Enterprise)
Condensed Consolidated Statements of Operations
(Unaudited)
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From Inception
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(October 16, 1992)
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Three Months Ended March 31,
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to
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2011
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2010
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March 31, 2011
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Revenues
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$
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$
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$
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900,000
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Operating expenses:
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Research and development
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25,596
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474,807
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115,973,875
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General and administrative
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597,597
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727,154
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67,379,539
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Purchased in-process research and development
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12,146,544
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Total operating expenses
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623,193
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1,201,961
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195,499,958
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Loss from operations
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(623,193
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)
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(1,201,961
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)
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(194,599,958
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)
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Gain on early extinguishment of debt
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6,277,100
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Other expense
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(966
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)
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(1,517,878
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)
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Interest expense, net
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(453,751
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)
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(656,700
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)
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(13,104,377
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)
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Investment income
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333
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673
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7,704,648
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Net loss
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(1,076,611
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)
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(1,858,954
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)
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(195,240,465
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)
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Preferred stock beneficial conversion feature
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(8,062,712
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)
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Accrual of preferred stock dividends and
modification of warrants held by preferred
stockholders
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(1,229,589
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)
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Net loss attributable to common stockholders
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(1,076,611
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)
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(1,858,954
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)
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(204,532,766
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)
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Basic and diluted net loss attributable to
common stockholders per share
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$
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(0.04
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)
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$
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(0.07
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)
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Weighted average common shares outstanding
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26,785,645
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25,572,312
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The accompanying notes are an integral part of the condensed consolidated financial
statements.
4
Alseres Pharmaceuticals, Inc.
(A Development Stage Enterprise)
Condensed Consolidated Statements of Cash Flows
(Unaudited)
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From Inception
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(October 16,
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1992) to
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Three Months Ended March 31,
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March 31,
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2011
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2010
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2011
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Cash flows from operating activities
:
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Net loss
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$
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(1,076,611
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)
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$
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(1,858,954
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)
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$
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(195,240,465
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)
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Adjustments to reconcile net loss to net cash used for
operating activities:
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Purchased in-process research and development
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12,146,544
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Write-off of acquired technology
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3,500,000
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Interest expense settled through issuance of notes payable
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|
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350,500
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Net gain on early extinguishment of debt
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(5,277,300
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)
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Non-cash interest expense
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189,293
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3,966,394
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Non-cash charges related to options, warrants and common
stock
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834
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15,015
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11,115,437
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Amortization of financing costs
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2,606
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20,845
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Amortization and depreciation
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13,769
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15,844
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2,863,684
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Changes in operating assets and liabilities:
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(Increase) decrease in prepaid expenses and other
current assets
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(31,180
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)
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(40,941
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)
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|
660,210
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(Decrease) increase in accounts payable and accrued
expenses
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(27,735
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)
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|
273,187
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2,776,409
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Increase in accrued interest payable
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448,645
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465,648
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5,434,126
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(Decrease) increase in accrued lease
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(14,982
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)
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(10,274
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)
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81,443
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Net cash used for operating activities
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(684,654
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)
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(951,182
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)
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(157,602,173
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)
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Cash flows from investing activities
:
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Cash acquired through Merger
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1,758,037
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Purchases of fixed assets
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(1,652,114
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)
|
Decrease (increase) in security deposits and other assets
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|
|
|
|
|
15,696
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|
|
|
(384,898
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)
|
Decrease (increase) in indemnity fund
|
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|
38
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|
|
|
55
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|
|
|
(115,530
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)
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Purchases of marketable securities
|
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|
|
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|
|
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(132,004,923
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)
|
Sales and maturities of marketable securities
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|
132,004,923
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Net cash provided by (used for) investing activities
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|
38
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15,751
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(394,505
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)
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Cash flows from financing activities
:
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Proceeds from issuance of common stock
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|
|
|
|
|
|
|
|
|
66,731,339
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Buyback of common stock
|
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|
|
|
|
|
|
|
|
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(8,100
|
)
|
Proceeds from issuance of preferred stock
|
|
|
|
|
|
|
|
|
|
|
39,922,170
|
|
Preferred stock conversion inducement
|
|
|
|
|
|
|
|
|
|
|
(600,564
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)
|
Proceeds from issuance of promissory notes
|
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|
600,000
|
|
|
|
800,000
|
|
|
|
56,845,000
|
|
Proceeds from issuance of convertible debentures
|
|
|
|
|
|
|
|
|
|
|
9,000,000
|
|
Principal payments of notes payable
|
|
|
|
|
|
|
|
|
|
|
(7,749,667
|
)
|
Dividend payments on Series E Cumulative Convertible
Preferred Stock
|
|
|
|
|
|
|
|
|
|
|
(516,747
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)
|
Payments of financing costs
|
|
|
|
|
|
|
|
|
|
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(5,612,855
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)
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|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
600,000
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|
|
|
800,000
|
|
|
|
158,010,576
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(84,616
|
)
|
|
|
(135,431
|
)
|
|
|
13,898
|
|
Cash and cash equivalents, beginning of period
|
|
|
98,514
|
|
|
|
314,964
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
13,898
|
|
|
$
|
179,533
|
|
|
$
|
13,898
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow disclosures:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
|
|
|
$
|
|
|
|
$
|
628,406
|
|
The accompanying notes are an integral part of the condensed consolidated financial
statements.
5
Alseres Pharmaceuticals, Inc.
(A Development Stage Enterprise)
Notes to Condensed Consolidated Financial Statements (Unaudited)
March 31, 2011
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States of America for
interim financial information and pursuant to the rules and regulations of the Securities and
Exchange Commission (the SEC). Accordingly, these financial statements do not include all of the
information and footnotes required by accounting principles generally accepted in the United States
of America for complete financial statements.
The interim unaudited condensed consolidated financial statements contained herein include, in
managements opinion, all adjustments (consisting of normal recurring adjustments) necessary for a
fair statement of the financial position, results of operations, and cash flows for the periods
presented. The results of operations for the interim period shown on this report are not
necessarily indicative of results for a full year. These financial statements should be read in
conjunction with the Companys consolidated financial statements and notes included in the
Companys Annual Report on Form 10-K for the year ended December 31, 2010.
The accompanying condensed consolidated financial statements have been prepared on a basis which
assumes that the Company will continue as a going concern which contemplates the realization of
assets and the satisfaction of liabilities in the normal course of business. The uncertainty
inherent in the need to raise additional capital and the Companys recurring losses from operations
raise substantial doubt about the Companys ability to continue as a going concern. The condensed
consolidated financial statements do not include any adjustments that might result from the outcome
of this uncertainty.
As of March 31, 2011, we had experienced total net losses since inception of approximately
$204,533,000, stockholders deficit of approximately $48,447,000 and a net working capital deficit
of approximately $43,157,000. For the foreseeable future, we expect to experience continuing
operating losses and negative cash flows from operations as we execute our current business plan.
The cash and cash equivalents available at March 31, 2011 will not provide sufficient working
capital to meet our anticipated expenditures for the next twelve months. We believe that the
approximately $170,000 in cash and cash equivalents available at May 2, 2011 combined with minimal
additional operating capital committed by our lead investor and our ability to control certain
costs, including those related to clinical trial programs, preclinical activities, and certain
general and administrative expenses will enable us to meet our anticipated cash expenditures
through May 2011.
In order to continue as a going concern, we must immediately raise additional funds through one or
more of the following: a debt financing, an equity offering or a collaboration, merger, acquisition
or other transaction with one or more pharmaceutical or biotechnology companies. We are currently
engaged in fundraising efforts. There can be no assurance that we will be successful in our
fundraising efforts or that additional funds will be available on acceptable terms, if at all. We
also cannot be sure that we will be able to obtain additional credit from, or effect additional
sales of debt or equity securities. If we are unable to raise additional or sufficient capital or
if we violate a debt covenant or default under our convertible note purchase agreements, we will
need to cease operations or reduce, cease or delay one or more of our research or development
programs and/or adjust our current business plan and in any such event may not be able to continue
as a going concern. Additionally, our common stock was delisted from trading on the NASDAQ Capital
Market as a result of our failure to meet continued listing requirements of NASDAQ. On May 8, 2009
we began trading on the Pink Sheets OTC Market. This delisting has had an adverse affect on our
ability to obtain future financing and could continue to adversely impact our stock price and the
liquidity of our common stock.
Reclassification
Certain reclassifications have been made to the prior years consolidated condensed balance sheet
to conform to the current year presentation.
2. Net Loss Per Share
Basic and diluted net loss per share attributable to common stockholders has been calculated by
dividing net loss attributable to common stockholders by the weighted average number of common
shares outstanding during the period. All potentially dilutive common shares have been excluded
from the calculation of weighted average common shares outstanding since their inclusion would be
anti-dilutive.
Stock options and warrants to purchase approximately 3.6 million and 3.7 million shares of common
stock were outstanding at March 31, 2011 and 2010, respectively, but were not included in the
computation of diluted net loss per common share because they were anti-dilutive. The exercise of
those stock options and warrants outstanding at March 31, 2011 could potentially dilute earnings
per share in the future.
3. Reporting Comprehensive Loss
Accounting Standards Codification 220,
Comprehensive Income
(ASC 220), establishes standards for
the reporting and display of comprehensive income (loss) and its components in the financial
statements. Comprehensive income (loss) is the total of net income (loss) and all other non-owner
changes in equity including such items as unrealized holding gains/losses on securities, foreign
currency translation adjustments and minimum pension liability adjustments. The Company had no such
items for the three months ended March 31, 2011 and 2010 and as a result, comprehensive loss is the
same as reported net loss for all periods presented.
6
4. Accounting for Stock-Based Compensation
We have one stock option plan under which we can issue both nonqualified and incentive stock
options to employees, officers, consultants and scientific advisors of the Company. At March 31,
2011, the 2005 Stock Incentive Plan (the 2005 Plan) provided for the issuance of options,
restricted stock, restricted stock units, stock appreciation rights or other stock-based awards to
purchase 3,450,000 shares of our common stock. The 2005 Plan contains a provision that allows for
an annual increase in the number of shares available for issuance under the 2005 Plan on the first
day of each of the Companys fiscal years during the period beginning in fiscal year 2006 and
ending on the second day of fiscal year 2014. The annual increase in the number of shares shall be
equal to the lowest of 400,000 shares; 4% of the Companys outstanding shares on the first day of
the fiscal year; and an amount determined by the Board of Directors. On January 1, 2009, the number
of shares available for issuance under the 2005 Plan was increased by 400,000 shares. No adjustment
was made in January 2011.
We also have outstanding stock options in three other stock option plans, the 1998 Omnibus Plan,
the Amended and Restated Omnibus Stock Option Plan and the Amended and Restated 1990 Non-Employee
Directors Non-Qualified Stock Option Plan. These plans have expired and no future issuance of
awards is permissible.
Our Board of Directors determines the term, vesting provisions, price, and number of shares for
each award that is granted. The term of each option cannot exceed ten years.
Stock-based employee compensation expense recorded during the three months ended March 31, 2011 and
2010 was $834 and $15,015, respectively. The $834 in expense recognized during the three months
ended March 31, 2011 represents the remaining compensation costs related to non-vested stock
options.
We use the Black-Scholes option-pricing model to calculate the fair value of each option grant on
the date of grant. No stock options were granted during the three months ended March 31, 2011 and
2010.
A summary of our outstanding stock options for the three months ended March 31, 2011 and 2010 is
presented below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
Exercise
|
|
|
|
|
|
|
Exercise
|
|
|
|
Shares
|
|
|
Price
|
|
|
Shares
|
|
|
Price
|
|
Outstanding at beginning of year
|
|
|
3,650,443
|
|
|
$
|
1.59
|
|
|
|
3,695,745
|
|
|
$
|
1.63
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited and expired
|
|
|
(5,000
|
)
|
|
|
15.63
|
|
|
|
(6,500
|
)
|
|
|
18.13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of period
|
|
|
3,645,443
|
|
|
$
|
1.57
|
|
|
|
3,689,245
|
|
|
$
|
1.60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at end of period
|
|
|
3,645,443
|
|
|
$
|
1.57
|
|
|
|
3,536,745
|
|
|
$
|
1.62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes information about stock options outstanding at March 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Weighted-
|
|
|
|
|
|
|
Average
|
|
|
Weighted-
|
|
|
|
|
|
|
|
Remaining
|
|
|
Average
|
|
|
|
|
|
|
Remaining
|
|
|
Average
|
|
|
|
Number
|
|
|
Contractual
|
|
|
Exercise
|
|
|
Number
|
|
|
Contractual
|
|
|
Exercise
|
|
Range of Exercise Prices
|
|
Outstanding
|
|
|
Life
|
|
|
Price
|
|
|
Exercisable
|
|
|
Life
|
|
|
Price
|
|
$1.15 $1.36
|
|
|
2,713,000
|
|
|
3.1 years
|
|
$
|
1.15
|
|
|
|
2,713,000
|
|
|
3.1 years
|
|
$
|
1.15
|
|
$2.00 $3.00
|
|
|
639,980
|
|
|
4.4 years
|
|
|
2.33
|
|
|
|
639,980
|
|
|
4.4 years
|
|
|
2.33
|
|
$3.10 $4.65
|
|
|
255,363
|
|
|
5.5 years
|
|
|
3.40
|
|
|
|
255,363
|
|
|
5.5 years
|
|
|
3.40
|
|
$4.99 $6.96
|
|
|
28,500
|
|
|
2.8 years
|
|
|
5.47
|
|
|
|
28,500
|
|
|
2.8 years
|
|
|
5.47
|
|
$8.95 $13.06
|
|
|
8,600
|
|
|
0.5 years
|
|
|
10.57
|
|
|
|
8,600
|
|
|
0.5 years
|
|
|
10.57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,645,443
|
|
|
3.5 years
|
|
$
|
1.57
|
|
|
|
3,645,443
|
|
|
3.5 years
|
|
$
|
1.57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There was no intrinsic value of outstanding options and exercisable options as of March 31,
2011. There was no intrinsic value of options vested during the three months ended March 31, 2011.
As of March 31, 2011, 384,172 shares were available for grant under the 2005 Plan.
7
5. Notes Payable and Debt
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible Notes Payable to Significant Stockholders
|
|
|
|
|
|
March 31, 2011
|
|
|
December 31, 2010
|
|
Unsecured convertible promissory note; interest
rate of 5%; due December 31, 2010
|
|
|
|
|
|
$
|
9,000,000
|
|
|
$
|
9,000,000
|
|
Unsecured convertible promissory note; interest rate of
5%; due December 31, 2010
|
|
BCF
|
|
|
10,000,000
|
|
|
|
10,000,000
|
|
Unsecured convertible promissory note; interest rate of
5%; due December 31, 2010
|
|
BCF
|
|
|
5,000,000
|
|
|
|
5,000,000
|
|
Unsecured convertible promissory note; interest rate of
5%; due December 31, 2010
|
|
|
|
|
|
|
5,000,000
|
|
|
|
5,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate carrying value
|
|
|
|
|
|
$
|
29,000,000
|
|
|
$
|
29,000,000
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense of $362,499 and $621,016 was recorded related to the convertible notes
payable for the three months ended March 31, 2011 and 2010, respectively.
The above unsecured convertible promissory notes may be converted, at the option of the Purchasers,
into (i) shares of the Companys common stock at a conversion price per share of $2.50, (ii) the
right to receive future payments related to the Companys molecular imaging products in amounts
equal to 2% of the Companys pre-commercial revenue related to such products plus 0.5% of future
net sales of such products for each $1,000,000 of outstanding principal and interest that a
Purchaser elects to convert into future payments, or (iii) a combination of (i) and (ii). Any
outstanding notes that are not converted into the Companys common stock or into the right to
receive future payments became due and payable on December 31, 2010. As of March 31, 2011, the
holders of this debt have not made any formal demand for payment and the Company continues to
accrue interest on this obligation. However, each Purchaser is prohibited from effecting a
conversion into common stock if at the time of such conversion the common stock issuable to such
Purchaser, when taken together with all shares of common stock then held or otherwise beneficially
owned by such Purchaser exceeds 19.9%, or 9.99% ISVP, of the total number of issued and outstanding
shares of the Companys common stock immediately prior to such conversion unless and until the
Companys stockholders approve the conversion of all of the shares of common stock issuable there
under.
The Company is subject to certain debt covenants pursuant to the March 2008 Amended Purchase
Agreement and the June 2008 Purchase Agreement (the Purchase Agreements). If the Company (i)
fails to pay the principal or interest due under the Purchase Agreements, (ii) files a petition for
action for relief under any bankruptcy or similar law or (iii) an involuntary petition is filed
against the Company, all amounts borrowed under the Purchase Agreements may become immediately due
and payable by the Company. In addition, without the consent of the Purchasers, the Company may not
(i) create, incur or otherwise, permit to be outstanding any indebtedness for money borrowed, (ii)
declare or pay any cash dividend, or make a distribution on, repurchase, or redeem, any class of
the Companys stock, subject to certain exceptions or sell, lease, transfer or otherwise dispose of
any of the Companys material assets or property or (iii) dissolve or liquidate.
Beneficial Conversion Feature (BCF)
Three of the unsecured promissory notes were issued with a conversion price of $2.50 which was
below the market price of the Companys common stock on the dates the agreements were entered into
and resulted in the recording of a beneficial conversion feature. The Company recorded a BCF of
$1,400,000 on (the ISVP) note and a BCF of $380,000 on (the 2008 RG) note which was recognized
as a decrease in the carrying value and an increase to additional paid-in capital. The BCF was
fully recognized as interest expense using the effective interest method through December 31, 2010.
Therefore, the Company did not record any interest expense related to the BCF for the three months
ended March 31, 2011 and recorded approximately $185,000 for the three months ended March 31, 2010.
Promissory Notes
|
|
|
|
|
|
|
|
|
Demand Notes Payable to Significant Stockholder
|
|
March 31, 2011
|
|
|
December 31, 2010
|
|
Unsecured demand note payable; interest rate of 7% to Neurobiologics, Inc. (a
subsidiary of the Company)
|
|
$
|
1,000,000
|
|
|
$
|
1,000,000
|
|
Unsecured demand note payable; interest rate of 7%: issued December 2009
|
|
|
350,000
|
|
|
|
350,000
|
|
Unsecured demand notes payable; interest rate of 7%: issued January 2010 - December 2010
|
|
|
3,310,000
|
|
|
|
3,310,000
|
|
Unsecured demand notes payable; interest rate of 7%: issued January 2011 - March 2011
|
|
|
600,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,260,000
|
|
|
|
4,660,000
|
|
Accrued interest
|
|
|
356,905
|
|
|
|
270,759
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate carrying value
|
|
$
|
5,616,905
|
|
|
$
|
4,930,759
|
|
|
|
|
|
|
|
|
Interest expense of $86,146 and $29,649 was recorded related to the demand notes payable for
the three months ended March 31, 2011 and 2010, respectively.
8
According to a Schedule 13G/A filed with the SEC on November 29, 2010 Robert Gipson beneficially
owned approximately 59.4% of the outstanding common stock of the Company on November 29, 2010.
Robert Gipson, who serves as a Senior Director of Ingalls & Snyder and a General Partner of ISVP,
served as a director of the Company from June 15, 2004 until October 28, 2004. According to a
Schedule 13G/A filed with the SEC on January 12, 2010, Thomas Gipson beneficially owned
approximately 20.0% of the outstanding common stock of the Company on December 31, 2009. According
to a Schedule 13G/A filed with the SEC on February 9, 2011, Arthur Koenig beneficially owned
approximately 7.6% of the outstanding common stock of the Company on December 31, 2010. According
to a Schedule 13G filed with the SEC on February 9, 2011, ISVP owned approximately 9.99% of the
outstanding common stock of the Company on December 31, 2010. According to a Schedule 13G filed
with the SEC on February 10, 2011, Ingalls & Snyder LLC beneficially owned approximately 9.9% of
the outstanding common stock of the Company on December 31, 2010.
6. Exit Activities
In September 2005, the Company relocated its headquarters from Boston to Hopkinton, Massachusetts.
The Company amended its lease dated January 28, 2002 with Brentwood Properties, Inc. (the
Landlord) for the property located in Boston. At March 31, 2011, the security deposit under the
Lease Agreement was approximately $88,600 and not refundable to the Company until the termination
of the lease in May 2012.
As a result of the Companys relocation, an expense was recorded for the cost associated with the
exit activity at its fair value in the period in which the liability was incurred. The liability
recorded was calculated by discounting the estimated cash flows for the two sublease agreements and
the Lease Agreement using an estimated credit-adjusted risk-free rate of 15%.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash payments,
|
|
|
|
|
|
|
|
|
|
|
net of
|
|
|
|
|
|
|
December 31, 2010
|
|
|
sublease receipts
|
|
|
March 31, 2011
|
|
Lease Amendment
|
|
$
|
96,425
|
|
|
$
|
14,982
|
|
|
$
|
81,443
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term portion of lease accrual
|
|
|
65,922
|
|
|
|
|
|
|
|
68,923
|
|
Long-term portion of lease accrual
|
|
$
|
30,503
|
|
|
|
|
|
|
$
|
12,520
|
|
For the three months ended March 31, 2011 and 2010 the Company recorded approximately $3,200 and
$5,400, respectively of expense related to the imputed cost of the lease expense accrual included
in general and administrative expense in the accompanying Condensed Consolidated Statements of
Operations.
7. Commitments and Contingencies
We recognize and disclose commitments when we enter into executed contractual obligations with
third parties. We accrue contingent liabilities when it is probable that future expenditures will
be made and such expenditures can be reasonably estimated.
License Agreements
The Company has entered into license agreements (the Harvard License Agreements) with Harvard
University and its affiliated hospitals (Harvard and its Affiliates) to acquire the exclusive
worldwide rights to certain technologies within its molecular imaging and neurodegenerative disease
programs. The Harvard License Agreements obligate the Company to pay up to an aggregate of
approximately $2,520,000 in milestone payments in the future. The future milestone payments are
generally payable only upon achievement of certain regulatory milestones.
The Companys license agreements with Harvard and its Affiliates generally provide for royalty
payments equal to specified percentages of product sales, annual license maintenance fees and
continuing patent prosecution costs.
8. Income taxes
The Company is subject to both federal and state income tax for the jurisdictions within which it
operates, which are primarily focused in Massachusetts. Within these jurisdictions, the Company is
open to examination for tax years ended December 31, 2006 through December 31, 2010. However,
because we are carrying forward income tax attributes such as NOLs from 2005 and earlier tax years,
these attributes can still be audited when utilized on returns filed in the future. The U.S.
Internal Revenue Service (IRS) has completed an audit of tax years 2007 and 2008 and has informed
us that no adjustments to the federal tax returns as filed will be proposed as a result of the
audit.
9
9. Fair Value Measurements
The fair value hierarchy prioritizes observable and unobservable inputs used to measure fair value
into three broad levels:
Level 1 quoted prices in active markets for identical securities;
Level 2 other significant observable inputs, including quoted prices for similar
securities, interest rates and credit risk,
Level 3 significant unobservable inputs, including our own assumptions in determining fair
value
The following table summarizes the financial assets that we measured at fair value at March 31,
2011 and December 31, 2010. We did not have any non-financial assets or liabilities that were
measured or disclosed at fair value for the three months ended March 31, 2011. No transfers
occurred between Level 1 and Level 2 assets for the three months ended March 31, 2011.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011
|
|
|
|
|
|
|
December 31, 2010
|
|
|
|
|
|
|
Fair Value
|
|
|
Input Level
|
|
|
Fair Value
|
|
|
Input Level
|
|
Cash and money market funds current assets
|
|
$
|
13,898
|
|
|
Level 1
|
|
$
|
98,514
|
|
|
Level 1
|
Indemnity fund-restricted money market funds
|
|
|
115,530
|
|
|
Level 1
|
|
|
115,568
|
|
|
Level 1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
129,428
|
|
|
|
|
|
|
$
|
214,082
|
|
|
|
|
|
|
|
|
|
|
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It is not practicable to estimate the fair value of the Companys convertible debt. However,
it is likely that the fair value of the debt would be materially less than the carrying value of
the debt because the conversion price of $2.50 is higher than the Companys stock price of $0.13 as
of March 31, 2011.
10. New Accounting Pronouncements
The Company has reviewed all recently issued, but not effective, accounting pronouncements and does
not believe the future adoption of any such pronouncements may be expected to cause a material
impact on its financial condition or the results of its operations.
11. Subsequent Events
We evaluated all events or transactions that occurred after March 31, 2011 up through the date we
issued these financial statements. In April, 2011 we borrowed the principal sum of $170,000 from
Robert Gipson. In May, 2011 we borrowed the principal sum of $170,000 from Robert Gipson. Both
amounts are secured by demand promissory notes issued to Mr. Gipson that bear interest at the rate
of 7% per annum.
Item 2 Managements Discussion and Analysis of Financial Condition and Results of Operations
Our managements discussion and analysis of our financial condition and results of operations
include the identification of certain trends and other statements that may predict or anticipate
future business or financial results that are subject to important factors that could cause our
actual results to differ materially from those indicated. See Item 1A, Risk Factors and also
carefully review the risks outlined in other documents that we file from time to time with the SEC.
Overview
Description of Company
We are a biotechnology company focused on the development of therapeutic and diagnostic products
primarily for disorders in the central nervous system, or CNS. Our clinical and preclinical product
candidates are based on two proprietary technology platforms:
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Molecular imaging program focused on the diagnosis of i)
Parkinsonian Syndromes, or PS, including Parkinsons
Disease, or PD, and ii) Dementia with Lewy Bodies, or DLB;
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Regenerative therapeutics program primarily focused on
nerve repair in patients who have had significant loss of
CNS function resulting from CNS trauma.
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At March 31, 2011, we were considered a development stage enterprise as defined in Accounting
Standards Codification (ASC) 915-10.
Development Stage Entities
and will continue to be so
until we commence commercial operations. A development stage enterprise is one in which planned
principal operations have not commenced or, if its operations have commenced, there has been no
significant revenue there from. Development stage companies report cumulative costs from the
inception of the enterprise. Our development stage started on October 16, 1992 and continued
through March 31, 2011.
As of March 31, 2011, we have experienced total net losses since inception of approximately
$204,533,000, stockholders deficit of approximately $48,447,000 and a net working capital deficit
of approximately $43,157,000. The cash and cash equivalents available at March 31, 2011 will not
provide sufficient working capital to meet our
anticipated expenditures for the next twelve months. At May 2, 2011, we had cash and cash
equivalents of approximately $170,000 which combined with our ability to control administrative
expenses will enable us to meet our anticipated cash expenditures through May, 2011.
10
In order to continue as a going concern and fund the approximately $30 million of investment
required to complete the Altropane U.S. clinical trial program, we will need to raise additional
capital through one or more of the following: a debt financing, an equity offering, or a
collaboration, merger, acquisition or other transaction with one or more pharmaceutical or
biotechnology companies. We are currently engaged in fundraising efforts. There can be no assurance
that we will be successful in our fundraising efforts or that additional funds will be available on
acceptable terms, if at all. We also cannot be sure that we will be able to obtain additional
credit from, or effect additional sales of debt or equity securities to certain of our existing
investors described below in Liquidity and Capital Resources. If we are unable to raise additional
or sufficient capital, we will need to cease operations or reduce, cease or delay one or more of
our research or development programs, adjust our current business plan and may not be able to
continue as a going concern. Additionally, our common stock was delisted from trading on the NASDAQ
Capital Market as a result of our failure to meet continued listing requirements of NASDAQ. On May
8, 2009 we began trading on the Pink Sheets OTC Market. This delisting has had an adverse affect on
our ability to obtain future financing and has adversely impacted our stock price and the liquidity
of our common stock. Our ability to advance our clinical programs, including the development of
Altropane, is affected by the availability of financial resources. Financial considerations have
caused us to suspend planned development activities for our clinical and preclinical programs until
we are able to secure additional working capital. If we are not able to raise additional capital,
we will not have sufficient funds to complete the clinical trial programs for Altropane.
Product Development Molecular Imaging Program
Altropane Molecular Imaging Agent
The Altropane molecular imaging agent is intended to be used for the differential diagnosis of PS,
including PD, and non-PS in patients with an upper extremity tremor. In July 2007, we completed
enrollment in a clinical study that optimized Altropanes image acquisition protocol which we
believe will enhance Altropanes commercial use. After a series of discussions with the U.S. Food
and Drug Administration, or FDA, and our expert advisors, the POET-2 program was designed as a
two-part Phase III program using the optimized Altropane image acquisition protocol. The first part
of the program enrolled 54 subjects in a multi-center clinical study to acquire a set of Altropane
images which will be used to train the expert readers, as is the customary process for clinical
trials of molecular imaging agents. Enrollment in the first part of POET-2 was completed in January
2009. In April, 2009 we reached agreement with the FDA under the Special Protocol Assessment, or
SPA, process for the second part of the Phase III clinical trial program of Altropane. A SPA is a
process by which sponsors and the FDA reach an agreement on the size, design and analysis of
clinical trials that will form the primary basis of approval. The Phase III program is designed to
confirm the diagnostic utility of the agent in anticipation of drug registration. The second
portion of the Phase III, POET-2 program consists of two clinical trials in up to 480 subjects in
total to be conducted in parallel at up to 40 medical facilities throughout the US. The subjects to
be tested will be 40-80 years of age and have had a tremor in their hand(s) or arm(s) for less than
three years. Each subject will be assessed by a general neurologist, an Altropane imaging procedure
and a Movement Disorder Specialist considered the gold standard. The success of the trial will be
determined by measuring the diagnostic efficacy of the neurologist diagnosis compared with the
diagnosis determined by the Altropane scan versus the MDS gold standard diagnosis. Based on the
trial design and scope covered by the Special Protocol Assessment Agreement for POET-2, we estimate
that the total costs to complete the POET-2 program and prepare and submit an NDA for Altropane in
the U.S. will be approximately $30 million. This funding is not available at present and there can
be no assurance that such funds will be available on acceptable terms if at all.
We believe in the current environment that, due to their proximity to commercialization and return
on investment, late stage development programs may continue to be of significant interest to
potential partners and investors. To maximize the value of our molecular imaging program, we are
focusing on obtaining the funding necessary to execute the Altropane Phase III registration
program. We are pursuing the capital necessary to enable us to advance the Altropane program
through our own means. In parallel, we are seeking to partner our molecular imaging program with a
firm or firms with the resources necessary for the completion of the Phase III clinical program,
for the manufacturing and supply of Altropane, and for the launch and commercialization of
Altropane. During 2010 we engaged in numerous discussions with potential development and
commercialization partners for Altropane with no term sheets resulting from those discussions. Late
in 2010 and early this year, a number of events occurred which have stimulated new interest in the
Altropane program by potential partners. These included the purchase of Avid Radiopharmaceuticals
by Eli Lilly for up to $800 million, the US approval of GEs DaTscan product, a favorable FDA
Advisory Panel review of Avids imaging product and EU guidance recommending imaging as first line
diagnosis in dementias. We believe that these events could assist with our partnering and financing
efforts for Altropane. We can provide no assurances that a partnership transaction will occur. We
believe that the expansion of the program into other indications such as DLB and other countries
including those in Europe could increase the value of the program for the partner and us. All of
these activities require additional funding not presently available and as such have been
suspended. There can be no assurance that the required funding to advance the Altropane program
will be available on acceptable terms if at all.
We have licensed worldwide exclusive rights to develop Altropane from Harvard University and its
affiliated hospitals, which we refer to as Harvard and its Affiliates, including the Massachusetts
General Hospital. The license agreement provides for milestone payments and royalties based on
product sales that are consistent with industry averages for such products.
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Altropane Diagnostic for Parkinsonian Syndromes (PS)
PS is characterized by loss of dopamine-producing neurons resulting in a variety of movement
disorders, especially tremors and gait problems. The most prevalent form of PS is PD which is a
chronic, irreversible, neurodegenerative disease that generally affects people over 50 years old.
PD is caused by a significant decrease in the number of dopamine producing neurons in specific
areas of the brain. Inadequate production of dopamine causes, at least in part, the PD symptoms of
tremor, muscle retardation and rigidity. PD can be difficult to diagnose using subjective analyses
and can be confused with Essential Tremor, or ET. ET manifests with clinical symptoms very similar
to those of PD. However, ET patients do not need the drugs routinely prescribed to PD patients.
Need for an Objective Diagnosis
According to published data, clinical criteria used to diagnose PS is prone to high error rates,
especially in early stages of PD. This highlights the critical need for an effective diagnostic.
Presently, patients who have experienced tremors and other evidence of a movement disorder may
pursue diagnosis and treatment with a number of medical professionals. These include an internist
or general practitioner, also known as a primary care physician, or PCP, a neurologist, or a
movement disorder specialist, or MDS, whose practice is focused on movement disorders.
Patients can exhibit symptoms and/or have clinical histories that are inconclusive. A primary tool
utilized to diagnose PD or PS is a clinical history and a physical exam. However, studies in the
literature have reported error rates in diagnosing PD or PS from a low of 10% for MDSs to as high
as 40 to 50% for PCPs.
This high error rate is driving the need for a diagnostic test that provides physicians with
additional clinical information to help them make a definitive diagnosis when clinical symptoms and
the patients history are inconclusive. Further, while the accuracy of MDSs is reported to be
higher, the number of MDSs in the United States is limited with current estimates between 300 and
500. The limited availability of MDSs underscores the potential utility of a widely available
diagnostic tool such as Altropane.
There are a number of important and potentially harmful results associated with misdiagnosis. These
include:
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Patients who are improperly diagnosed as having PD but
actually do not (false positive) may be administered
medications for PD. These drugs can have damaging effects
on individuals who do not actually have PD.
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Patients who are improperly diagnosed as not having PD but
actually do (false negative), may not benefit from
available treatments, thereby suffering further worsening
of symptoms and progression of their disease.
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Market Opportunity
It has been estimated that approximately 180,000 individuals in the United States per year present
to their physician with new, undiagnosed cases of PD and ET, and are therefore candidates for a
scan using the Altropane molecular imaging agent to diagnose or rule out early PS. It has also been
estimated by the National Institute of Neurological Disorders and Stroke and the National
Parkinsons Foundation that the number of people in the United States with PD is between 500,000
and 1,500,000. It has been estimated by the Tremor Action Network that there are approximately
10,000,000 people in the United States with ET. In addition, a study done by the World Health
Organization claims that approximately 2,000,000 individuals suffer from PD in Europe. We expect
the number of individuals affected by PD to grow substantially as people continue to live longer
and the overall population ages.
Altropane Diagnostic for Dementia with Lewy Bodies (DLB)
DLB is a progressive brain disease and the second most common cause of neurodegenerative dementia.
The symptoms of DLB are caused by the build-up of Lewy bodies inside the section of the brain that
controls particular aspects of memory and motor control. The similarity of symptoms between DLB and
PD, and between DLB and Alzheimers disease, can make it difficult to accurately diagnose. As with
PD, there is no objective diagnostic tool available in the United States. We believe that the
underlying basis for DLB coupled with our existing preclinical and clinical data supports the
potential development of Altropane as a diagnostic for DLB. We also believe the potential use of
our molecular imaging agents for the diagnosis of DLB could be strategic in our partnering efforts
for our molecular imaging program.
It has been estimated by the Alzheimers Association that there are approximately 7,000,000 to
10,000,000 people in the United States with dementia of which the journal Age and Ageing estimates
that up to approximately 3,000,000 people have DLB. According to Alzheimer Europe, there were
approximately 1,800,000 people in Europe with DLB.
Regenerative Therapeutics Program Nerve Repair
Our nerve repair program is dormant at present with no investment being made in these technologies
given our resource constraints. The program focused on product candidates that could restore
movement and sensory function in patients who have had significant loss of CNS function resulting
from traumas such as SCI, stroke, traumatic brain injury, or TBI, and optic nerve damage. Resource
constraints have severely restricted our ability to progress our regenerative therapeutics program.
On May 11, 2010, the Company was notified by CMCC of the termination of its license agreements with
the Company as a result of the Companys lack of resources and resulting inability to comply with
the performance conditions of the licenses. At March 31, 2011 CMCC was owed a total of
approximately $77,000 in license fees and legal costs associated with the licenses. Since we were
unable to pay the overdue amounts within the cure periods specified in the CMCC licenses, we no
longer have the rights to further develop and/or partner the axon regeneration technologies
licensed from CMCC.
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Research and Development
We rely on licensing from third parties as our source for new technologies and product candidates.
Research and development expenses were approximately $26,000 and $475,000 for the three months
ended March 31, 2011 and 2010, respectively.
Marketing and Sales
Although we currently sell no products, our strategy is to pursue partnering opportunities in order
to accelerate and maximize commercialization of our clinical product candidates and strategic
collaborations for development of our preclinical product candidates. These collaborators may
provide financial and other resources, including capabilities in research, development,
manufacturing, marketing and sales. There can be no assurances that we will be successful in our
collaboration efforts.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations are based upon our
condensed consolidated financial statements which have been prepared by us in accordance with
accounting principles generally accepted in the United States of America. The preparation of these
financial statements requires us to make estimates and judgments that affect the reported amounts
of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and
liabilities. Our estimates include those related to marketable securities, research contracts, the
fair value and classification of financial instruments, our lease accrual and stock-based
compensation. We base our estimates on historical experience and on various other assumptions that
we believed to be reasonable under the circumstances. Actual results may differ from these
estimates under different assumptions or conditions.
Going Concern Basis of Accounting
The consolidated financial statements have been prepared on the basis that we will continue as a
going concern. We have incurred significant operating losses and negative cash flows from operating
activities since our inception. As of March 31, 2011, these conditions raised substantial doubt as
to our ability to continue as a going concern. There can be no assurance that we will be successful
in our efforts to raise additional capital or that we will be able to continue as a going concern.
The condensed consolidated financial statements do not include any adjustments relating to the
recoverability of the carrying amount of the recorded assets or the amount of liabilities that
might result from the outcome of this uncertainty. In the event that we concluded that we would not
be able to continue as a going concern, we would potentially present our financial statements on a
liquidation basis of accounting.
Research Contracts
We regularly enter into contracts with third parties to perform research and development activities
on our behalf in connection with our scientific technologies. Costs incurred under these contracts
are recognized ratably over the term of the contract or based on actual enrollment levels which we
believe corresponds to the manner in which the work is performed. Clinical trial, contract services
and other outside costs require that we make estimates of the costs incurred in a given accounting
period and record accruals at period end as the third party service periods and billing terms do
not always coincide with our period end. We base our estimates on our knowledge of the research and
development programs, services performed for the period, past history for related activities and
the expected duration of the third party service contract, where applicable.
Fair Value and Classification of Financial Instruments
Historically, we have issued warrants to purchase shares of our common stock in connection with our
debt and equity financings. We record each of the securities issued on a relative fair value basis
up to the amount of the proceeds received. We estimate the fair value of the warrants using the
Black-Scholes valuation model. The Black-Scholes valuation model is dependent on a number of
variables and estimates including interest rates, dividend yield, volatility and the expected term
of the warrants. Our estimates are based on market interest rates at the date of issuance, our past
history for declaring dividends, our estimated stock price volatility and the contractual term of
the warrants. The value ascribed to the warrants in connection with debt offerings is considered a
cost of capital and amortized to interest expense over the term of the debt.
We have, at certain times, issued preferred stock and notes, which were convertible into common
stock at a discount from the common stock market price at the date of issuance. The amount of the
discount associated with such conversion rights represents an incremental yield, or beneficial
conversion feature that is recorded when the consideration allocated to the convertible security,
divided by the number of common shares into which the security converts, is below the fair value of
the common stock at the date of issuance of the convertible instrument.
A beneficial conversion feature associated with the preferred stock is recognized as a return to
the preferred stockholders and represents a non-cash charge in the determination of net loss
attributable to common stockholders. The beneficial conversion feature is recognized in full
immediately if there is no redemption date for the preferred stock, or over the period of issuance
through the redemption date, if applicable. A beneficial conversion feature associated with
debentures, notes or other debt instruments is recognized as a discount to the debt and is
amortized as additional interest expense using the effective interest method over the remaining
term of the debt instrument.
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Lease Accrual
We are required to make significant judgments and assumptions when estimating the liability for our
net ongoing obligations under our amended lease agreement relating to our former executive offices
located in Boston, Massachusetts. We use a discounted cash-flow analysis to calculate the amount of
the liability. We applied a discount rate of 15% representing our best estimate of our
credit-adjusted risk-free rate. The discounted cash-flow analysis is based on managements
assumptions and estimates of our ongoing lease obligations, and income from sublease rentals,
including estimates of sublease timing and sublease rental terms. It is possible that our estimates
and assumptions will change in the future, resulting in additional adjustments to the amount of the
estimated liability, and the effect of any adjustments could be material. We review our assumptions
and judgments related to the lease amendment on at least a quarterly basis, until the outcome is
finalized, and make whatever modifications we believe are necessary, based on our best judgment, to
reflect any changes in circumstances.
Stock-Based Compensation
We measure compensation costs for all share-based awards at fair value on grant date and recognize
it as expense over the requisite service period or expected performance period of the award. We
estimate the fair value of stock-based awards using the Black-Scholes valuation model on the grant
date. The Black-Scholes valuation model requires us to make certain assumptions and estimates
concerning the expected term of the awards, the rate of return of risk-free investments, our stock
price volatility, and our anticipated dividends. If any of our estimates or assumptions prove to be
incorrect, our results could be materially affected.
Results of Operations
Three Months Ended March 31, 2011 and 2010
Our net loss and net loss attributable to common stockholders was $1,076,611 during the three
months ended March 31, 2011 as compared with $1,858,954 during the three months ended March 31,
2010. Net loss attributable to common stockholders totaled $0.04 per share for the 2011 period as
compared to $0.07 per share for the 2010 period. The decrease in net loss in the 2011 period was
attributable to lower operating expenses resulting from our curtailment of operations. The decrease
in net loss attributable to common stockholders on a per share basis in the 2011 period was due to
the decrease in net loss in 2011 and the net increase in weighted average shares outstanding of
approximately 1,213,000.
Research and development expenses were $25,596 during the three months ended March 31, 2011 as
compared with $474,807during the three months ended March 31, 2010. The decrease of $449,211, or
95% for the three months ended March 31, 2011, was attributable to our scale back of operations
resulting in $442,000 in reduced expenses related to Altropane PD.
General and administrative expenses were $597,597 during the three months ended March 31, 2011 as
compared with $727,154 during the three months ended March 31, 2010. The decrease of $129,557, or
18% for the three months ended March 31, 2011, was attributable to (i) lower compensation and
related costs of approximately $13,000 which resulted from a further reduction in headcount and
lower stock-compensation expense of $14,000; and (ii) lower legal costs of approximately $20,000
and a reduction of $67,000 related to termination of consulting agreements; (iii) reduced occupancy
expenses of $56,000 also contributed to the decrease in overall general and administrative
expenses. The decrease was partially offset by approximately $70,000 related to an accrual
adjustment recorded in 2010.
Other expense was $0 during the three months ended March 31, 2011 as compared with $966 during the
three months ended March 31, 2010.
Interest expense was $453,751 during the three months ended March 31, 2011 as compared with
$656,700 during the three months ended March 31, 2010. The decrease of $202,949, or 31% for the
three months ended March 31, 2011, was attributable to the early extinguishment of $5,880,000 in
debt during September 2010 offset by only $3,110,000 in new demand note obligations. All the Notes
bear interest at the rate of 7% per annum.
Investment income was $333 during the three months ended March 31, 2011 as compared with $673
during the three months ended March 31, 2010. The decrease in the 2011 period was due to lower
average cash and cash equivalent balances during the 2011 period.
Liquidity and Capital Resources
Net cash used for operating activities primarily related to our net loss, totaled $684,654 during
the three months ended March 31, 2011 as compared to $951,182 during the three months ended March
31, 2010. The decrease in cash used during the 2011 period is primarily related to the decrease in
net loss. Net cash provided by investing activities totaled $38 during the three months ended March
31, 2011 as compared to $15,751 during the three months ended March 31, 2010. The decrease of
$15,713 in cash provided by investing activities is primarily attributable to the completion of
scheduled refunds of our security deposit as of April 2010. Net cash provided by financing
activities totaled $600,000 during the three months ended March 31, 2011 as compared to $800,000
during the three months ended March 31, 2010. The decrease during the 2011 period reflects our
ability to further curtail spending and reduce our funding needs from our lead investor.
To date, we have dedicated most of our financial resources to the research and development of our
product candidates, general and administrative expenses (including costs related to obtaining and
protecting patents). Since inception, we have primarily satisfied our working capital requirements
from the sale of our securities through private placements. These private placements have included
the sale and issuance of preferred stock, common stock, promissory notes and convertible
debentures.
A summary of financings completed through March 31, 2011 can be found in Note 5 of these Condensed
Consolidated Financial Statements. A summary of financing activities through May 13, 2011 can be
found in Note 11 of these Condensed Consolidated Financial Statements.
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During the three months ended March 31, 2011, we have obtained all of our funding from Robert
Gipson. In the event that Mr. Gipson cannot provide any future funding or we cannot obtain any
additional funding from sources other than Mr. Gipson, we may need to cease operations or reduce,
cease or delay one or more of our research or development programs and/or adjust our current
business plan and in any such event may not be able to continue as a going concern.
In the future, our working capital and capital requirements will depend on numerous factors,
including the progress of our research and development activities, the level of resources that we
devote to the developmental, clinical, and regulatory aspects of our technologies, and the extent
to which we enter into collaborative relationships with pharmaceutical and biotechnology companies.
As of March 31, 2011, we have experienced total net losses since inception of approximately
$204,533,000, stockholders deficit of approximately $48,447,000 and a net working capital deficit
of approximately $43,157,000. The cash and cash equivalents available at March 31, 2011 will not
provide sufficient working capital to meet our anticipated expenditures for the next twelve months.
At May 2, 2011, we had cash and cash equivalents of approximately $170,000 which combined with
minimal additional operating capital committed by our lead investor and our ability to control
certain costs, including those related to clinical trial programs, preclinical activities, and
certain general and administrative expenses will enable us to meet our anticipated cash
expenditures through May 2011.
In order to continue as a going concern, we will need to raise additional capital through one or
more of the following: a debt financing, an equity offering, or a collaboration, merger,
acquisition or other transaction with one or more pharmaceutical or biotechnology companies. We are
currently engaged in fundraising efforts. There can be no assurance that we will be successful in
our fundraising efforts or that additional funds will be available on acceptable terms, if at all.
We also cannot be sure that we will be able to obtain additional credit from, or effect additional
sales of debt or equity securities to certain of our existing investors (described below). If we
are unable to raise additional or sufficient capital or if we violate a debt covenant or default
under the March 2008 Amended Purchase Agreement or the June 2008 Purchase Agreement (described
below) we may need to cease operations or reduce, cease or delay one or more of our research or
development programs and/or adjust our current business plan and in any such event may not be able
to continue as a going concern. Additionally, our common stock was delisted from trading on the
NASDAQ Capital Market as a result of our failure to meet continued listing requirements of NASDAQ.
On May 8, 2009 we began trading on the Pink Sheets OTC Market. This delisting has had an adverse
affect on our ability to obtain future financing and has adversely impacted our stock price and the
liquidity of our common stock. See the risk factor entitled Our common stock has been delisted
from, the NASDAQ Capital Market.
Contractual Obligations and Commitments
The disclosures relating to our contractual obligations in our Annual Report on Form 10-K for the
year ended December 31, 2010 have not materially changed since we filed that report.
Item 3 Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes in the market risks reported in our Annual Report on Form 10-K
for the year ended December 31, 2010.
We generally maintain a portfolio of cash equivalents, and short-term and long-term marketable
securities in a variety of securities which can include commercial paper, certificates of deposit,
money market funds and government and non-government debt securities. The fair value of these
available-for-sale securities are subject to changes in market interest rates and may fall in value
if market interest rates increase. Our investment portfolio includes only marketable securities
with active secondary or resale markets to help insure liquidity. We have implemented policies
regarding the amount and credit ratings of investments. Due to the conservative nature of these
policies, we do not believe we have material exposure due to market risk. We may not have the
ability to hold our fixed income investments until maturity, and therefore our future operating
results or cash flows could be affected if we are required to sell investments during a period in
which increases in market interest rates have adversely affected the value of our securities
portfolio. For fixed rate debt, changes in interest rates generally affect the fair market value of
the debt instrument, but not earnings or cash flows. We do not have an obligation to prepay any
fixed rate debt prior to maturity and, therefore, interest rate risk and changes in the fair market
value of fixed rate debt should not have a significant impact on earnings or cash flows until such
debt is refinanced, if necessary. The terms related to our fixed rate debt are described in Note 5
to the condensed consolidated financial statements. For variable rate debt, changes in interest
rates generally do not impact the fair market value of the debt instrument, but do affect future
earnings and cash flows. We did not have any variable rate debt outstanding during the three months
ended March 31, 2011.
Item 4T Controls and Procedures
Our management, with the participation of our chief executive officer and chief financial officer,
evaluated the effectiveness of our disclosure controls and procedures as of March 31, 2011. The
term disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, as amended, or the Exchange Act, means controls and other
procedures of a company that are designed to ensure that information required to be disclosed by a
company in the reports that it files or submits under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in the SECs rules and forms. Disclosure
controls and procedures include, without limitation, controls and procedures designed to ensure
that information required to be disclosed by a company in the reports that it files or submits
under the Exchange Act is accumulated and communicated to the companys management, including its
principal executive and principal financial officers, as appropriate to allow timely decisions
regarding required disclosure. Our management recognizes that any controls and procedures, no
matter how well designed and operated, can provide only reasonable assurance of achieving their
objectives and management necessarily applies its judgment in evaluating the cost-benefit
relationship of possible controls and procedures. Based on the evaluation of our disclosure
controls and procedures as of March 31, 2011, our chief executive officer and chief financial
officer concluded that, as of such date, our disclosure controls and procedures were effective at
the reasonable assurance level.
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Part II OTHER INFORMATION
Item 1 Legal Proceedings
The disclosure contained under the heading Contingencies in Note 7 to the condensed consolidated
financial statements included in Part I, Item 1 hereof is incorporated herein by reference.
Statements contained or incorporated by reference in this Quarterly Report on Form 10-Q that are
not based on historical fact are forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Exchange Act. These forward-looking statements regarding future events and
our future results are based on current expectations, estimates, forecasts, and projections, and
the beliefs and assumptions of our management including, without limitation, our expectations
regarding our product candidates, including the success and timing of our preclinical, clinical and
development programs, the submission of regulatory filings and proposed partnering arrangements,
the outcome of any litigation, collaboration, merger, acquisition and fund raising efforts, results
of operations, selling, general and administrative expenses, research and development expenses and
the sufficiency of our cash for future operations. Forward-looking statements may be identified by
the use of forward-looking terminology such as may, could, will, expect, estimate,
anticipate, continue, or similar terms, variations of such terms or the negative of those
terms.
We cannot assure investors that our assumptions and expectations will prove to have been correct.
Important factors could cause our actual results to differ materially from those indicated or
implied by forward-looking statements. Such factors that could cause or contribute to such
differences include those factors discussed below. We undertake no intention or obligation to
update or revise any forward-looking statements, whether as a result of new information, future
events or otherwise.
Item 6 Exhibits
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31.1*
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Certification of the Chief Executive Officer pursuant to Section
1350 of Title 18, United States Code, as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
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31.2*
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|
Certification of the Chief Financial Officer pursuant to Section
1350 of Title 18, United States Code, as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
|
|
|
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32.1*
|
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Certification of the Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
|
|
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32.2*
|
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Certification of the Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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ALSERES PHARMACEUTICALS, INC
(Registrant)
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DATE: May 13, 2011
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/s/
Peter G. Savas
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Peter G. Savas
|
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Chief Executive Officer
(Principal Executive Officer)
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DATE: May 13, 2011
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/s/
Kenneth L. Rice, Jr.
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Kenneth L. Rice, Jr.
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Executive Vice President Finance and
Administration And Chief Financial Officer
(Principal Financial and Accounting Officer)
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17
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