Attached files
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EX-32.1 - EX-32.1 - ALSERES PHARMACEUTICALS INC /DE | b81604exv32w1.htm |
EX-31.2 - EX-31.2 - ALSERES PHARMACEUTICALS INC /DE | b81604exv31w2.htm |
EX-31.1 - EX-31.1 - ALSERES PHARMACEUTICALS INC /DE | b81604exv31w1.htm |
EX-32.2 - EX-32.2 - ALSERES PHARMACEUTICALS INC /DE | b81604exv32w2.htm |
Table of Contents
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2010
OR
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 0-6533
ALSERES PHARMACEUTICALS, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware | 87-0277826 | |
(State or Other Jurisdiction of | (IRS Employer | |
Incorporation or Organization) | Identification No.) |
239 South Street, Hopkinton, Massachusetts | 01748 | |
(Address of Principal Executive Offices) | (Zip Code) |
(508) 497-2360
(Registrants Telephone Number, Including Area Code)
(Registrants Telephone Number, Including Area Code)
None
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
(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):
Large accelerated filer o | Accelerated filer o | Non-accelerated filer o (Do not check if a smaller reporting company) | Smaller reporting company þ |
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 August 6, 2010, there were 27,055,645 shares of the registrants Common Stock issued and
outstanding.
ALSERES PHARMACEUTICALS, INC.
FORM 10-Q
TABLE OF CONTENTS
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
Table of Contents
Part I FINANCIAL INFORMATION
Item 1 Financial Statements
Alseres Pharmaceuticals, Inc.
(A Development Stage Enterprise)
(A Development Stage Enterprise)
Condensed Consolidated Balance Sheets
(Unaudited) | ||||||||
June 30, | December 31, | |||||||
2010 | 2009 | |||||||
ASSETS |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 30,341 | $ | 314,964 | ||||
Security deposits |
7,536 | 38,928 | ||||||
Prepaid expenses and other current assets |
99,373 | 34,231 | ||||||
Total current assets |
137,250 | 388,123 | ||||||
Fixed assets, net |
75,667 | 106,272 | ||||||
Indemnity fund |
115,617 | 115,720 | ||||||
Security deposits and other assets |
180,700 | 180,700 | ||||||
Total assets |
$ | 509,234 | $ | 790,815 | ||||
LIABILITIES AND STOCKHOLDERS DEFICIT |
||||||||
Current liabilities: |
||||||||
Accounts payable and accrued expenses |
$ | 4,069,749 | $ | 3,522,581 | ||||
Notes payable |
2,735,000 | 1,350,000 | ||||||
Accrued lease (Note 7) |
61,188 | 51,493 | ||||||
Total current liabilities |
6,865,937 | 4,924,074 | ||||||
Convertible notes payable |
34,529,940 | 34,155,632 | ||||||
Accrued interest payable |
4,929,084 | 4,057,086 | ||||||
Accrued lease, excluding current portion (Note 7) |
64,692 | 96,426 | ||||||
Total liabilities |
46,389,653 | 43,233,218 | ||||||
Commitments and contingencies (Note 8) |
||||||||
Series F convertible redeemable preferred stock, $.01
par value; 200,000 shares designated; 196,000 shares
issued and outstanding at June 30, 2010 and December
31, 2009; (liquidation preference of $4,900,000 at June
30, 2010) |
5,250,037 | 5,066,919 | ||||||
Stockholders deficit: |
||||||||
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 June
30, 2010 and December 31, 2009, respectively |
| | ||||||
Common stock, $.01 par value; 80,000,000 shares
authorized; 27,055,645 and 25,555,645 shares issued
and outstanding at June 30, 2010 and December 31,
2009, respectively |
270,556 | 255,556 | ||||||
Additional paid-in capital |
146,780,018 | 146,913,395 | ||||||
Deficit accumulated during development stage |
(198,181,030 | ) | (194,678,273 | ) | ||||
Total stockholders deficit |
(51,130,456 | ) | (47,509,322 | ) | ||||
Total liabilities and stockholders deficit |
$ | 509,234 | $ | 790,815 | ||||
The accompanying notes are an integral part of the condensed consolidated financial statements.
3
Table of Contents
Alseres Pharmaceuticals, Inc.
(A Development Stage Enterprise)
(A Development Stage Enterprise)
Condensed Consolidated Statements of Operations
(Unaudited)
(Unaudited)
From Inception | ||||||||||||||||||||
(October 16, 1992) | ||||||||||||||||||||
Three Months Ended June 30, | Six Months Ended June 30, | to | ||||||||||||||||||
2010 | 2009 | 2010 | 2009 | June 30, 2010 | ||||||||||||||||
Revenues |
$ | | $ | | $ | | $ | | $ | 900,000 | ||||||||||
Operating expenses: |
||||||||||||||||||||
Research and development |
206,424 | 892,520 | 681,232 | 2,720,535 | 116,164,062 | |||||||||||||||
General and administrative |
755,121 | 1,092,946 | 1,483,240 | 3,063,068 | 65,607,694 | |||||||||||||||
Purchased in-process research and development |
| | | | 12,146,544 | |||||||||||||||
Total operating expenses |
961,545 | 1,985,466 | 2,164,472 | 5,783,603 | 193,918,300 | |||||||||||||||
Loss from operations |
(961,545 | ) | (1,985,466 | ) | (2,164,472 | ) | (5,783,603 | ) | (193,018,300 | ) | ||||||||||
Other income (expense) |
| | | 65,000 | (1,517,878 | ) | ||||||||||||||
Interest expense, net |
(682,665 | ) | (630,501 | ) | (1,339,365 | ) | (1,249,051 | ) | (11,346,361 | ) | ||||||||||
Investment income |
407 | 1,887 | 1,080 | 5,218 | 7,703,509 | |||||||||||||||
Net loss |
(1,643,803 | ) | (2,614,080 | ) | (3,502,757 | ) | (6,962,436 | ) | (198,179,030 | ) | ||||||||||
Preferred stock beneficial conversion feature |
| | | | (8,062,712 | ) | ||||||||||||||
Accrual of preferred stock dividends and modification of warrants held by preferred stockholders |
| | | | (1,229,589 | ) | ||||||||||||||
Net loss attributable to common stockholders |
(1,643,803 | ) | (2,614,080 | ) | (3,502,757 | ) | (6,962,436 | ) | (207,471,331 | ) | ||||||||||
Basic and diluted net loss attributable to common stockholders per share |
$ | (0.06 | ) | $ | (0.11 | ) | $ | (0.13 | ) | $ | (0.30 | ) | ||||||||
Weighted average common shares outstanding |
27,055,645 | 23,309,004 | 26,318,076 | 22,971,047 | ||||||||||||||||
The accompanying notes are an integral part of the condensed consolidated financial statements.
4
Table of Contents
Alseres Pharmaceuticals, Inc.
(A Development Stage Enterprise)
(A Development Stage Enterprise)
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(Unaudited)
From Inception | ||||||||||||
(October 16, | ||||||||||||
1992) to | ||||||||||||
Six Months Ended June 30, | June 30, | |||||||||||
2010 | 2009 | 2010 | ||||||||||
Cash flows from operating activities: |
||||||||||||
Net loss |
$ | (3,502,757 | ) | $ | (6,962,436 | ) | $ | (198,179,030 | ) | |||
Adjustments to reconcile net loss to net cash used for operating activities: |
||||||||||||
Purchased in-process research and development |
| | 12,146,544 | |||||||||
Write-off of acquired technology |
| | 3,500,000 | |||||||||
Interest expense settled through issuance of notes payable |
| | 350,500 | |||||||||
Non-cash interest expense |
391,413 | 350,206 | 3,616,336 | |||||||||
Non-cash charges related to options, warrants and common stock |
51,713 | 1,371,180 | 11,104,594 | |||||||||
Amortization of financing costs |
13,027 | | 13,027 | |||||||||
Amortization and depreciation |
30,604 | 39,574 | 2,821,921 | |||||||||
Changes in operating assets and liabilities: |
||||||||||||
(Increase) decrease in prepaid expenses and other current assets |
(85,246 | ) | 10,212 | 603,089 | ||||||||
Increase (decrease ) in accounts payable and accrued expenses |
474,490 | (734,114 | ) | 3,161,668 | ||||||||
Increase in accrued interest payable |
944,677 | 898,846 | 5,064,501 | |||||||||
(Decrease) increase in accrued lease |
(22,039 | ) | (25,994 | ) | 125,880 | |||||||
Net cash used for operating activities |
(1,704,118 | ) | (5,052,526 | ) | (155,670,970 | ) | ||||||
Cash flows from investing activities: |
||||||||||||
Cash acquired through Merger |
| | 1,758,037 | |||||||||
Purchases of fixed assets |
| | (1,652,114 | ) | ||||||||
Decrease (increase) in security deposits and other assets |
34,392 | 42,041 | (385,371 | ) | ||||||||
Decrease (increase) in indemnity fund |
103 | (320 | ) | (115,617 | ) | |||||||
Purchases of marketable securities |
| | (132,004,923 | ) | ||||||||
Sales and maturities of marketable securities |
| | 132,004,923 | |||||||||
Net cash provided by (used for) investing activities |
34,495 | 41,721 | (395,065 | ) | ||||||||
Cash flows from financing activities: |
||||||||||||
Proceeds from issuance of common stock |
| 1,000,000 | 66,731,339 | |||||||||
Proceeds from issuance of preferred stock |
| 3,000,000 | 39,922,170 | |||||||||
Preferred stock conversion inducement |
| | (600,564 | ) | ||||||||
Proceeds from issuance of promissory notes |
1,385,000 | 1,000,000 | 54,320,000 | |||||||||
Proceeds from issuance of convertible debentures |
| | 9,000,000 | |||||||||
Principal payments of notes payable |
| | (7,146,967 | ) | ||||||||
Dividend payments on Series E Cumulative Convertible Preferred Stock |
| | (516,747 | ) | ||||||||
Payments of financing costs |
| (25,188 | ) | (5,612,855 | ) | |||||||
Net cash provided by financing activities |
1,385,000 | 4,974,812 | 156,096,376 | |||||||||
Net (decrease) increase in cash and cash equivalents |
(284,623 | ) | (35,993 | ) | 30,341 | |||||||
Cash and cash equivalents, beginning of period |
314,964 | 73,974 | | |||||||||
Cash and cash equivalents, end of period |
$ | 30,341 | $ | 37,981 | $ | 30,341 | ||||||
Supplemental cash flow disclosures: |
||||||||||||
Non-cash transactions |
||||||||||||
Cash paid for interest |
$ | | $ | | $ | 628,406 |
The accompanying notes are an integral part of the condensed consolidated financial statements.
5
Table of Contents
Alseres Pharmaceuticals, Inc.
(A Development Stage Enterprise)
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2010
(A Development Stage Enterprise)
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2010
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, 2009.
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 June 30, 2010, we had experienced total net losses since inception of approximately
$207,471,000, stockholders deficit of approximately $51,130,000 and a net working capital deficit
of approximately $6,729,000. 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 June 30, 2010 will not provide sufficient working
capital to meet our anticipated expenditures for the next twelve months. We believe that the
approximately $200,000 in cash and cash equivalents available at August 6, 2010 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 August 2010.
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.
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 3.7 million and 4.0 million shares
of common stock were outstanding at June 30, 2010 and 2009, 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 June 30, 2010 could potentially dilute earnings
per share in the future.
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Table of Contents
3. Comprehensive Loss
We had a total comprehensive loss of $1,643,803 and $2,614,080 for the three months ended
June 30, 2010 and 2009, respectively. For the six months ended June 30, 2010 and 2009, total
comprehensive loss was $3,502,757 and $6,962,436, respectively.
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 June
30, 2010, 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 2010.
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 and six months ended
June 30, 2010 and 2009 is as follows:
Three months ended | Six months ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Research and development |
$ | | $ | 836 | $ | | $ | 447,612 | ||||||||
General and administrative |
36,698 | 57,130 | 51,713 | 723,569 | ||||||||||||
$ | 36,698 | $ | 57,966 | $ | 51,713 | $ | 1,171,181 | |||||||||
Impact on basic and
diluted net loss
attributable to common
stockholders per share |
$ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.05 | ) |
We use the Black-Scholes option-pricing model to calculate the fair value of each option
grant on the date of grant. The fair value of stock options granted during the three and six months
ended June 30, 2010 and 2009 was calculated using the following estimated weighted-average
assumptions:
Three months ended | Six months ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Expected term |
5 years | |||||||||||||||
Risk-free interest rate |
| % | | % | | % | 1.36 | % | ||||||||
Stock volatility |
| % | | % | | % | 90 | % | ||||||||
Dividend yield |
| % | | % | | % | 0 | % |
Expected term We determined the weighted-average expected term assumption for plain
vanilla and performance-based option grants based on historical data on exercise behavior.
Risk-free interest rate The risk-free interest rate used for each grant is equal to the
U.S. Treasury yield curve in effect at the time of grant for instruments with a similar expected
term.
Expected volatility Our expected stock-price volatility assumption is based on
historical volatilities of the underlying stock which is obtained from public data sources.
7
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Expected dividend yield We have never declared or paid any cash dividends on our
common stock and do not expect to do so in the foreseeable future. Accordingly, we use an expected
dividend yield of zero to calculate the grant-date fair value of a stock option.
As of June 30, 2010, there remained approximately $11,000 of compensation costs related
to non-vested stock options to be recognized as expense over a weighted-average period of
approximately 0.31 years.
A summary of our outstanding stock options for the six months ended June 30, 2010 and
2009 is presented below.
Six months ended June 30, | ||||||||||||||||
2010 | 2009 | |||||||||||||||
Weighted- | Weighted- | |||||||||||||||
Average | Average | |||||||||||||||
Exercise | Exercise | |||||||||||||||
Shares | Price | Shares | Price | |||||||||||||
Outstanding at beginning of year |
3,695,745 | $ | 1.63 | 4,184,403 | $ | 2.90 | ||||||||||
Granted |
| | 2,732,500 | 1.15 | ||||||||||||
Exercised |
| | | | ||||||||||||
Forfeited and expired |
(35,162 | ) | 5.23 | (2,900,214 | ) | 2.87 | ||||||||||
Outstanding at end of period |
3,660,583 | $ | 1.59 | 4,016,689 | $ | 1.73 | ||||||||||
Options exercisable at end of period |
3,556,001 | $ | 1.59 | 3,741,689 | $ | 1.75 | ||||||||||
The weighted-average fair value of options granted was $0.80 during the six months
ended June 30, 2009.
The following table summarizes information about stock options outstanding at June 30,
2010:
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 | 3.9 years | $ | 1.15 | 2,608,418 | 3.8 years | $ | 1.15 | ||||||||||||||||
$2.00 $3.00 |
649,980 | 5.1 years | 2.33 | 649,980 | 5.1 years | 2.33 | ||||||||||||||||||
$3.10 $4.65 |
255,363 | 6.2 years | 3.40 | 255,363 | 6.2 years | 3.40 | ||||||||||||||||||
$4.99 $6.96 |
28,500 | 3.5 years | 5.47 | 28,500 | 3.5 years | 5.47 | ||||||||||||||||||
$8.95 $13.06 |
8,740 | 1.2 years | 10.55 | 8,740 | 1.2 years | 10.55 | ||||||||||||||||||
$15.62 $22.36 |
5,000 | 0.5 years | 15.63 | 5,000 | 0.5 years | 15.63 | ||||||||||||||||||
3,660,583 | 4.2 years | $ | 1.59 | 3,556,001 | 4.2 years | $ | 1.60 | |||||||||||||||||
There was no intrinsic value of outstanding options and exercisable options as of
June 30, 2010. The intrinsic value of options vested during the six months ended June 30, 2010 was
$0.
As of June 30, 2010, 384,172 shares were available for grant under the 2005 Plan.
5. Notes Payable and Debt
Notes Payable to Significant Stockholders
We issued the following unsecured, promissory notes to Robert Gipson during the quarter
ended June 30, 2010:
April |
$ | 200,000 | ||
May |
$ | 235,000 | ||
June |
$ | 150,000 | ||
Total |
$ | 585,000 | ||
Each of the notes are payable on demand and bear interest at the rate of 7% per annum.
According to a Schedule 13G/A filed with the SEC on April 23, 2009, Robert Gipson
beneficially owned approximately 46.4% of
8
Table of Contents
the outstanding common stock of the Company on April 16, 2009. 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
January 8, 2010, Arthur Koenig beneficially owned approximately 8.0% of the outstanding common
stock of the Company on December 31, 2009. According to a Schedule 13G filed with the SEC on
January 12, 2010, ISVP owned approximately 9.9% of the outstanding common stock of the Company on
December 31, 2009. According to a Schedule 13G filed with the SEC on January 13, 2010, Ingalls &
Snyder LLC beneficially owned approximately 9.9% of the outstanding common stock of the Company on
December 31, 2009.
6. Related Party Transactions
As of January 1, 2010 Mr. Mark Pykett, previously our President and Chief Operating Officer,
resigned his position with us to assume the role of Chief Executive Officer of Talaris Advisors,
LLC. (Talaris). Talaris is a strategic drug development organization focused on providing project
management and technical support services for drug candidates in or approaching clinical trials. In
addition to Mr. Pykett, Talaris employs senior technical staff employed by us during 2009. We have
requested the services of Talaris to ensure that our Altropane and nerve repair development
programs are properly managed as funding permits. Our arrangement with Talaris resulted in accrual
of a monthly retainer fee of approximately $71,000 or approximately 50% of the monthly costs we
incurred during 2009 for the same staff. Talaris is free to pursue other clients but we are assured
of priority from the Talaris team for our programs. Our Chairman and CEO, Peter Savas, is a
director of Talaris. At June 30, 2010 we had accrued a total of $500,000 to Talaris and these costs
were classified as Research and Development expense. As of May 31, 2010 we determined that we no
longer required the services of Talaris. Further, we are in discussions with Talaris regarding the
already accrued fees to determine if any adjustment to this accrual is warranted.
7. Exit Activities
Office Relocation
In September 2005, we relocated our headquarters to office space in Hopkinton,
Massachusetts. In addition, we amended our Lease Agreement (the Lease Amendment), dated as of
January 28, 2002 by and between us and Brentwood Properties, Inc. (the Landlord) relating to our
former principal executive offices (the Premises) located in Boston, Massachusetts (the Lease
Agreement). Pursuant to the terms of the Lease Amendment, the Landlord consented to, among other
things, the sublease of all rentable square feet of the Premises pursuant to two sublease
agreements which run through May 30, 2012, the term of the Lease Agreement. In consideration for
the Landlords consent, we agreed to increase the security deposit provided for under the Lease
Agreement from $250,000 to $388,600 subject to periodic reduction pursuant to a predetermined
formula. At June 30, 2010, the security deposit under the Lease Agreement was approximately
$93,000.
As a result of the 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 for the Lease Amendment 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%. The expense and accrual recorded requires us to make significant estimates and assumptions.
These estimates and assumptions will be evaluated and adjusted as appropriate on at least a
quarterly basis for changes in circumstances. It is reasonably possible that such estimates could
change in the future resulting in additional adjustments, and the effect of any such adjustments
could be material.
The activity related to the lease accrual at June 30, 2010, is as follows:
Cash | ||||||||||||
Payments, | ||||||||||||
Accrual at | Net of Sublease | Accrual at | ||||||||||
December 31, 2009 | Receipts 2010 | June 30, 2010 | ||||||||||
Lease Amendment |
$ | 147,919 | $ | 22,039 | $ | 125,880 | ||||||
Short-term portion of lease accrual |
51,493 | 61,188 | ||||||||||
Long-term portion of lease accrual |
$ | 96,426 | $ | 64,692 | ||||||||
During the three and six months ended June 30, 2010, we recorded approximately
$5,000 and $10,400, respectively of expense related to the imputed cost of the lease expense
accrual included in general and administrative expenses in the accompanying condensed consolidated
statements of operations. During the three and six months ended June 30, 2009, we recorded
approximately $6,600 and $13,600, respectively of expense related to the imputed cost of the lease
expense accrual included in general and administrative expenses in the accompanying condensed
consolidated statements of operations.
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8. 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 entered into two license agreements (the CMCC Licenses) with Childrens
Medical Center Corporation (also known as Childrens Hospital Boston) (CMCC) to acquire the
exclusive worldwide rights to certain axon regeneration technologies and to replace the Companys
former axon regeneration licenses with CMCC. The CMCC Licenses provide for future milestone
payments of up to an aggregate of approximately $425,000 for each product candidate upon
achievement of certain regulatory milestones. On May 11, 2010, the Company was notified by CMCC of
the termination of these license agreements as a result of the Companys lack of resources and
resulting inability to comply with the performance conditions of the licenses. At June 30, 2010
CMCC was owed a total of approximately $77,000 in license fees and legal costs associated with the
licenses. Resource constraints prevented us from paying the overdue amounts as required by the
licenses during the cure periods thus, we no longer have the rights to further develop and/or
partner the axon regeneration technologies licensed from CMCC.
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.
9. 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, 2009.
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.
10. Fair Value Measurements
The Company adopted certain provisions of Financial Accounting Standards Board (FASB)
Accounting Standards Codification (ASC) Topic 820 to evaluate the fair value of certain of its
financial assets required to be measured on a recurring basis. FASB ASC Topic 820 defines fair
value, establishes a framework for measuring fair value and expands disclosures about fair value
measurements. Fair value is determined based upon the exit price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction between market participants
exclusive of any transaction costs.
FASB ASC Topic 820 establishes a fair value hierarchy that prioritizes observable and
unobservable inputs used to measure fair value into three broad levels, described below:
Level 1: Observable inputs that reflect quoted prices (unadjusted) for identical assets
or liabilities in active markets. The fair value hierarchy gives the highest priority to Level 1
inputs.
Level 2: Inputs other than quoted prices included in Level 1 that are observable for the
asset or liability, either directly or indirectly.
Level 3: Unobservable inputs are used when little or no market data is available. The
fair value hierarchy gives the lowest priority to Level 3 inputs.
The following tables set forth our financial assets that were measured at fair value on a
recurring basis at June 30, 2010 and
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December 31, 2009, by level within the fair value hierarchy. We did not have any non-financial
assets or liabilities that were measured or disclosed at fair value on a recurring basis during the
six months ended June 30, 2010 or the year ended December 31, 2009. Assets and liabilities measured
at fair value are classified in their entirety based on the lowest level of input that is
significant to the fair value measurement. The Companys assessment of the significance of a
particular input to the fair value measurement in its entirety requires judgment, and considers
factors specific to the asset or liability. We did not have any transfers between Level 1 and Level
2 measurements during the six months ended June 30, 2010.
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Fair Value Measurement at Reporting Date Using | ||||||||||||||||
Quoted Prices in | Significant | |||||||||||||||
Carrying Value | Active Markets | Other | Significant | |||||||||||||
at | for | Observable | Unobservable | |||||||||||||
June 30, | Identical Assets | Inputs | Inputs | |||||||||||||
Description | 2010 | (Level 1) | (Level 2) | (Level 3) | ||||||||||||
Assets: |
||||||||||||||||
Cash equivalents and money market
funds current assets |
$ | 30,341 | $ | 30,341 | $ | | $ | | ||||||||
Money market funds long term assets |
$ | 115,617 | $ | 115,617 | $ | | $ | | ||||||||
Total |
$ | 145,958 | $ | 145,958 | $ | | $ | | ||||||||
Fair Value Measurement at Reporting Date Using | ||||||||||||||||
Quoted Prices in | Significant | |||||||||||||||
Carrying Value | Active Markets | Other | Significant | |||||||||||||
at | for | Observable | Unobservable | |||||||||||||
December 31, | Identical Assets | Inputs | Inputs | |||||||||||||
Description | 2009 | (Level 1) | (Level 2) | (Level 3) | ||||||||||||
Assets: |
||||||||||||||||
Cash equivalents and money market
funds current assets |
$ | 314,964 | $ | 314,964 | $ | | $ | | ||||||||
Money market funds long term assets |
$ | 115,720 | $ | 115,720 | $ | | $ | | ||||||||
Total |
$ | 430,684 | $ | 430,684 | $ | | $ | | ||||||||
Money market funds are measured at fair value using quoted market prices and are
classified within Level 1 of the valuation hierarchy.
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
$0.19 as of June 30, 2010.
11. New Accounting Pronouncements
In January 2010, the Financial Accounting Standards Board issued Accounting Standards
Update No. 2010-06 for Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures
about Fair Value Measurements. This Update requires new disclosures for transfers in and out of
Level 1 and 2 and activity in Level 3. This Update also clarifies existing disclosures for level of
disaggregation and about inputs and valuation techniques. The new disclosures are effective for
interim and annual periods beginning after December 15, 2009, except for the Level 3 disclosures,
which are effective for fiscal years beginning after December 15, 2010 and for interim periods
within those years. Other than requiring additional disclosures, adoption of this new guidance did
not have a material impact on our financial statements.
12. Subsequent Events
In July, 2010 we borrowed the principal sum of $200,000 from Robert Gipson. From August
1, 2010 through the filing date of this report, we borrowed the principal sum of $200,000 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.
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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:
| 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; | ||
| Regenerative therapeutics program, primarily focused on nerve repair and restoring movement and sensory function in patients who have had significant loss of CNS function resulting from trauma such as spinal cord injury, or SCI, stroke, and optic nerve damage utilizing technology referred to as axon regeneration. |
At June 30, 2010, we were considered a development stage enterprise as defined in ASC
915, Development Stage Entities (ASC 915) (formerly SFAS No. 7, Accounting and Reporting by
Development Stage Enterprises ), and will continue to be so until we commence commercial
operations. The development stage is from October 16, 1992 (inception) through June 30, 2010.
As of June 30, 2010, we have experienced total net losses since inception of
approximately $207,471,000, stockholders deficit of approximately $51,130,000 and a net working
capital deficit of approximately $6,729,000. The cash and cash equivalents available at June 30,
2010 will not provide sufficient working capital to meet our anticipated expenditures for the next
twelve months. At August 6, 2010, we had cash and cash equivalents of approximately $200,000 which
combined with our ability to control administrative expenses will enable us to meet our anticipated
cash expenditures through August, 2010. We must immediately raise additional funds in order to
continue operations and to fund the approximately $34 million of investment required to complete
the Altropane clinical development program. 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.
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 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.
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Product Development
Molecular Imaging Program
The Altropane molecular imaging agent is being developed for the differential diagnosis of PS,
including PD, and non-PS in patients with an upper extremity tremor.
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 financing 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. 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 and as such are proceeding, if at all, only as rapidly as available resources
permit. There can be no assurance that the required funding to advance the Altropane program will
be available on acceptable terms if at all.
Regenerative Therapeutics Program Nerve Repair
Our nerve repair program is focused on restoring 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. Our efforts are aimed at the use of proprietary
regenerative drugs and/or methods to induce nerve fibers to regenerate and form new connections
that restore compromised abilities. Licensing or acquiring the rights to the technologies of
complementary approaches for nerve repair is part of our strategy of creating competitive
advantages by assembling a broad portfolio of related technologies and intellectual property.
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 these
license agreements as a result of the Companys lack of resources and resulting inability to comply
with the performance conditions of the licenses. At June 30, 2010 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.
Sales and Marketing and Government Regulation
To date, we have not marketed, distributed or sold any products and, with the exception of
Altropane and Cethrin, all of our other product candidates are in preclinical development. Our
product candidates must undergo a rigorous regulatory approval process which includes extensive
preclinical and clinical testing to demonstrate safety and efficacy before any resulting product
can be marketed. The FDA has stringent standards with which we must comply before we can test our
product candidates in humans or make them commercially available. Preclinical testing and clinical
trials are lengthy and expensive and the historical rate of failure for product candidates is high.
Clinical trials require sufficient patient enrollment which is a function of many factors. Delays
and difficulties in completing patient enrollment can result in increased costs and longer
development times. The foregoing uncertainties and risks limit our ability to estimate the timing
and amount of future costs that will be required to complete the clinical development of each
program. In addition, we are unable to estimate when material net cash inflows are expected to
commence as a result of the successful completion of one or more of our programs.
Research and Development
Following is information on the direct research and development costs incurred on our
principal scientific technology programs currently under development. These amounts do not include
research and development employee and related overhead costs which total approximately $30,516,000
on a cumulative basis.
From Inception | ||||||||||||
For the Three | For the Six | (October 16, 1992) | ||||||||||
Months Ended | Months Ended | to | ||||||||||
Program | June 30, 2010 | June 30, 2010 | June 30, 2010 | |||||||||
Molecular imaging |
$ | 200,000 | $ | 670,000 | $ | 27,801,000 | ||||||
Regenerative therapeutics |
$ | 16,000 | $ | 23,000 | $ | 28,944,000 | ||||||
Neurodegenerative disease |
$ | | $ | 20,000 | $ | 1,151,000 |
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As of January 1, 2010 Mr. Mark Pykett, previously our President and Chief Operating Officer,
resigned his position with us to assume the role of Chief Executive Officer of Talaris Advisors,
LLC. (Talaris). Talaris is a strategic drug development organization focused on providing project
management and technical support services for drug candidates in or approaching clinical trials. In
addition to Mr. Pykett, Talaris employs senior technical staff employed by us during 2009. We have
requested the services of Talaris to ensure that our Altropane and nerve repair development
programs are properly managed as funding permits. Our arrangement with Talaris resulted in accrual
of a monthly retainer fee of approximately $71,000 or approximately 50% of the monthly costs we
incurred during 2009 for the same staff. Talaris is free to pursue other clients but we are assured
of priority from the Talaris team for our programs. Our Chairman and CEO, Peter Savas, is a
director of Talaris. At June 30, 2010 we had accrued a total of $500,000 to Talaris and these costs
were classified as Research and Development expense. As of May 31, 2010 we determined that we no
longer required the services of Talaris. Further, we are in discussions with Talaris regarding the
already accrued fees to determine if any adjustment to this accrual is warranted.
Estimating costs and time to complete development of a specific program or technology is
difficult due to the uncertainties of the development process and the requirements of the FDA which
could require additional clinical trials or other development and testing. Results of any testing
could lead to a decision to change or terminate development of a technology, in which case
estimated future costs could change substantially. In the event we were to enter into a licensing
or other collaborative agreement with a corporate partner involving sharing or funding by such
corporate partner of development costs, the estimated development costs incurred by us could be
substantially less than estimated. Additionally, research and development costs are extremely
difficult to estimate for early-stage technologies due to the fact that there are generally less
comprehensive data available for such technologies to determine the development activities that
would be required prior to the filing of a New Drug Application, or NDA. As a result, we cannot
reasonably estimate the cost and the date of completion for any technology that is not at least in
Phase III clinical development due to the uncertainty regarding the number of required trials, the
size of such trials and the duration of development. Even in Phase III clinical development,
estimating the cost and the filing date for an NDA can be challenging due to the uncertainty
regarding the number and size of the required Phase III trials. 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 $34 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.
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 June 30, 2010, 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.
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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.
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 incorrect, our results could be materially affected.
Results of Operations
Three Months Ended June 30, 2010 and 2009
Our net loss and net loss attributable to common stockholders was $1,643,803 during the three
months ended June 30, 2010 as compared with $2,614,080 during the three months ended June 30, 2009.
Net loss attributable to common stockholders totaled $0.06 per share for the 2010 period as
compared to $0.11 per share for the 2009 period. The decrease in net loss in the 2010 period was
primarily due to lower operating expenses resulting from our ongoing curtailment of operations. The
decrease in net loss attributable to common stockholders on a per share basis in the 2010 period
was primarily due to the decrease in net loss in 2010 and an increase in weighted average shares
outstanding of approximately 3,747,000 shares in 2010, which was primarily the result of the common
stock issued in November 2009 and March 2010.
Research and development expenses were $206,424 during the three months ended June 30, 2010 as
compared with $892,520
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during the three months ended June 30, 2009. The decrease of 686,096, or 77% for the three
months ended June 30, 2010, was primarily attributable to our decision to scale back operations
specifically resulting in (i) lower costs of approximately $78,000 associated with our nerve repair
program, primarily related to Cethrin clinical costs offset by an increase in Altropane spending of
$67,000 (ii) lower compensation and related costs of approximately $673,000 related to lower
headcount .
General and administrative expenses were $755,121 during the three months ended June 30, 2010
as compared with $1,092,946 during the three months ended June 30, 2009. The decrease of $337,825,
or 31% for the three months ended June 30, 2010, was primarily attributable to (i) lower
compensation and related costs of approximately $199,000 which resulted from additional reductions
in headcount and lower stock-compensation expense of $20,000; and (ii) lower legal costs of
approximately $188,000 and a reduction of $48,000 in directors fees as a result of the January
2010 resignation of four board members. The decrease was partially offset due to an increase of
$55,000 in occupancy expenses now being allocated to general and administrative expense and an
increase in consulting services of $67,000.
Interest expense was $682,665 during the three months ended June 30, 2010 as compared with
$630,501 during the three months ended June 30, 2009. The increase of $52,164, or 8% for the three
months ended June 30, 2010, was attributable to the issuance of a $350,000 promissory note in
December 2009 and the issuance of $1,385,000 in promissory notes during the six months ended June
30, 2010. The Notes all bear interest at the rate of 7% per annum.
Investment income was $407 during the three months ended June 30, 2010 as compared with $1,887
during the three months ended June 30, 2009. The decrease in the 2010 period was primarily due to
lower average cash and cash equivalent balances during the 2010 period.
Six Months Ended June 30, 2010 and 2009
Our net loss and net loss attributable to common stockholders was $3,502,757 during the six
months ended June 30, 2010 as compared with $6,962,436 during the six months ended June 30, 2009.
Net loss attributable to common stockholders totaled $0.13 per share for the 2010 period as
compared to $0.30 per share for the 2009 period. The decrease in net loss in the 2010 period was
primarily due to lower operating expenses resulting from our decision to curtail operations pending
additional funding. The decrease in net loss attributable to common stockholders on a per share
basis in the 2010 period was primarily due to the decrease in net loss in 2010 and an increase in
weighted average shares outstanding of approximately 3,347,000 shares in 2010, which was primarily
the result of the common stock issuances in November 2009 and March 2010.
Research and development expenses were $681,232 during the six months ended June 30, 2010 as
compared with $2,720,535 during the six months ended June 30, 2009. The decrease of $2,039,303, or
75% for the six months ended June 30, 2010, was primarily attributable to our decision to scale
back operations specifically resulting in (i) lower costs of approximately $313,000 associated with
our nerve repair program, primarily related to Cethrin clinical costs including our Phase I/IIa
trial and suspended preparations for our Phase IIb trial; offset by an increase in Altropane
spending of $170,000 (ii) lower compensation and related costs of approximately $1,448,000
primarily related to lower headcount and (iii) and lower stock-compensation expense of $448,000.
General and administrative expenses were $1,483,240 during the six months ended June 30, 2010
as compared with $3,063,068 during the six months ended June 30, 2009. The decrease of $1,579,828,
or 52% for the six months ended June 30, 2010, was primarily related to (i) lower compensation and
related costs of approximately $637,000 which resulted from additional reductions in headcount and
lower stock-compensation expense of $672,000; and (ii) lower legal costs of approximately $393,000
and a reduction of $110,000 in directors fees as a result of the January 2010 resignation of four
board members. The decrease was partially offset due to an increase of $145,000 in occupancy
expenses now being allocated to general and administrative expense and an increase in consulting
services of $148,000.
Other income was $0 during the six months ended June 30, 2010 as compared with $65,000 during
the six months ended June 30, 2009. The amount recorded during the 2009 period represents the gain
on sale of Cethrin drug substance to a vendor for said vendor to use in additional research.
Interest expense was $1,339,365 during the six months ended June 30, 2010 as compared with
$1,249,051 during the six months ended June 30, 2009. The increase of $90,314 or 7% for the six
months ended June 30, 2010, was attributable to the issuance of a $350,000 promissory note in
December 2009 and the issuance of $1,385,000 in promissory notes during the six months ended June
30, 2010. The Notes all bear interest at the rate of 7% per annum.
Investment income was $1,080 during the six months ended June 30, 2010 as compared with $5,218
during the six months ended June 30, 2009. The decrease in the 2010 period was primarily due to
lower average cash and cash equivalent balances during the 2010 period.
Liquidity and Capital Resources
Global market and economic conditions have been, and continue to be, disruptive and volatile.
In particular, the cost of raising money in the debt and equity markets has increased substantially
while the availability of funds from those markets has diminished significantly. Recent distress in
the financial markets combined with the loss of staff and licenses to our nerve repair technologies
have combined to adversely affect our ability to raise capital. We must immediately raise
additional funds in order to continue operations.
Net cash used for operating activities, primarily related to our net loss, totaled $1,704,118
during the six months ended June 30, 2010 as compared to $5,052,526 during the six months ended
June 30, 2009. The decrease in cash used during the 2010 period is primarily related to
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the decrease in net loss. Net cash provided by investing activities totaled $34,495 during the six
months ended June 30, 2010 as compared to $41,721 during the six months ended June 30, 2009. The
decrease in cash provided by investing activities is primarily related to the scheduled partial
refunds of security deposits. Net cash provided by financing activities totaled $1,385,000 during
the six months ended June 30, 2010 as compared to $4,974,812 during the six months ended June 30,
2009. The decrease during the 2010 period reflects the lack of funding from the issuance of
additional common or preferred stock.
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 between October 2006 and June 30, 2010 is as follows:
Securities or Debt | ||||
Date | Net Proceeds Raised | Instrument Issued | ||
June 2010 |
$0.2 million | Promissory Note | ||
May 2010 |
$0.2 million | Promissory Note | ||
April 2010 |
$0.2 million | Promissory Note | ||
March 2010 |
$0.3 million | Promissory Note | ||
February 2010 |
$0.2 million | Promissory Note | ||
January 2010 |
$0.3 million | Promissory Note | ||
December 2009 |
$0.3 million | Promissory Note | ||
November 2009 |
$1.0 million | Common Stock | ||
September 2009 |
$0.7 million | Convertible Preferred Stock | ||
August 2009 |
$0.6 million | Convertible Preferred Stock | ||
July 2009 |
$0.6 million | Convertible Preferred Stock |
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Securities or Debt | ||||
Date | Net Proceeds Raised | Instrument Issued | ||
June 2009 |
$0.5 million | Convertible Preferred Stock | ||
May 2009 |
$1.0 million | Convertible Preferred Stock | ||
April 2009 |
$0.5 million | Convertible Preferred Stock | ||
March 2009 |
$1.0 million | Convertible Preferred Stock | ||
February 2009 |
$0.2 million | Common Stock | ||
February 2009 |
$1.0 million | Promissory Notes | ||
January 2009 |
$1.0 million | Common Stock | ||
November 2008 |
$1.0 million | Common Stock | ||
June 2008 |
$5.0 million | Convertible Promissory Notes | ||
March 2008 |
$5.0 million | Convertible Promissory Notes | ||
August 2007 |
$10.0 million | Convertible Promissory Notes | ||
May 2007 |
$6.0 million | Convertible Promissory Notes | ||
March 2007 |
$9.0 million | Convertible Promissory Notes | ||
February 2007 |
$2.0 million | Convertible Promissory Notes(1) | ||
October 2006 |
$6.0 million | Convertible Promissory Notes(1) |
(1) | Converted to shares of our common stock in June 2007. |
During the six months ended June 30, 2010, 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 June 30, 2010, we have experienced total net losses since inception of approximately
$207,471,000, stockholders deficit of approximately $51,130,000 and a net working capital deficit
of approximately $6,729,000. The cash and cash equivalents available at June 30, 2010 will not
provide sufficient working capital to meet our anticipated expenditures for the next twelve months.
At August 6, 2010, we had cash and cash equivalents of approximately $200,000 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 August 2010.
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 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.
Contractual Obligations and Commitments
With the exception of the termination of our CMCC licenses described above, the disclosures
relating to our contractual obligations in our Annual Report on Form 10-K for the year ended
December 31, 2009 have not materially changed since we filed that report.
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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, 2009.
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. 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 six months ended June 30,
2010.
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 June 30, 2010.
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 June 30, 2010, 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.
During the quarter ended March 31, 2010, our corporate controller left the company. In light
of resource constraints we have no plans to replace this individual with a full time employee. We
are utilizing the services of temporary accounting staff and management will continually assess the
effectiveness of our internal control over financial reporting during the fiscal year.
Part II OTHER INFORMATION
Item 1 Legal Proceedings
The disclosure contained under the heading Contingencies in Note 8 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
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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
31.1* |
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. | |
31.2* |
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. | |
32.1* |
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. | |
32.2* |
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. |
* | Filed herewith. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
ALSERES PHARMACEUTICALS, INC (Registrant) |
||||
DATE: August 16, 2010 | /s/ Peter G. Savas | |||
Peter G. Savas | ||||
Chief Executive Officer (Principal Executive Officer) |
||||
DATE: August 16, 2010 | /s/ Kenneth L. Rice, Jr. | |||
Kenneth L. Rice, Jr. | ||||
Executive Vice President Finance and Administration And Chief Financial Officer (Principal Financial and Accounting Officer) |
||||
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