Annual Report (10-k)

Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

 

Form 10-K

 

 

(Mark One)

x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2012

OR

 

¨	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 incorporation or organization)		(I.R.S. Employer Identification No.)
239 SOUTH STREET HOPKINTON, MASSACHUSETTS		01748
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code [phone]

Securities registered pursuant to Section 12(b) of the Act:

 

Title of Each Class		Name of Each Exchange on Which Registered
Common Stock, $.01 par value (Excluding Rights to Purchase Preferred Stock)

Securities registered pursuant to Section 12(g) of the Act:

None

 

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes   ¨     No   x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes   ¨     No   x

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   x     No   ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, 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   x     No   ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.     ¨

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		¨		Accelerated filer		¨
Non-accelerated filer		¨   (Do not check if a smaller reporting company)		Smaller reporting company		x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes   ¨     No   x

Based on the last sales price of the registrant’s Common Stock as reported on the Pink Sheets OTC Market on December 31, 2012 (the last business day of our most recently completed fiscal quarter), the aggregate market value of the shares of voting stock held by non-affiliates of the registrant was $1,219,506.

As of March 15, 2013, there were 30,635,720 shares of the registrant’s Common Stock issued and outstanding.

 

 

 

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Table of Contents

TA BLE OF CONTENTS

 

PART I
Item 1.		Business			1
Item 1A.		Risk Factors			3
Item 1B.		Unresolved Staff Comments			6
Item 2.		Properties			7
Item 3.		Legal Proceedings			7
Item 4.		Removed and Reserved			7
PART II
Item 5.		Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities			7
Item 6.		Selected Financial Data			8
Item 7.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			9
Item 7A.		Quantitative and Qualitative Disclosures about Market Risk			13
Item 8.		Financial Statements and Supplementary Data			13
Item 9.		Changes in and Disagreements with Accountants on Accounting and Financial Disclosure			13
Item 9A.		Controls and Procedures			13
Item 9B.		Other Information			14
PART III
Item 10.		Directors, Executive Officers and Corporate Governance			15
Item 11.		Executive Compensation			16
Item 12.		Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters			17
Item 13.		Certain Relationships and Related Transactions, and Director Independence			18
Item 14.		Principal Accountant Fees and Services			18
PART IV
Item 15.		Exhibits and Financial Statement Schedules			20
Signatures					46

In this report, “we”, “us”, and “our” refer to Alseres Pharmaceuticals, Inc. The following are trademarks of ours that are mentioned in this Annual Report on Form 10-K; Alseres™ and Altropane ^® . All other trade names, trademarks or service marks appearing in this Annual Report on Form 10-K are the property of their respective owners and are not the property of Alseres Pharmaceuticals, Inc. or any of our subsidiaries.

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PART I

 

Item 1.

Business

Overview

We are a biotechnology company focused on diagnostic products primarily for disorders in the central nervous system, or CNS. Our clinical product candidate is called Altropane and based on the following proprietary technology platform:

 

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Molecular imaging program focused on the diagnosis of i) Parkinsonian Syndromes, or PS, including Parkinson’s Disease, or PD, and ii) Dementia with Lewy Bodies, or DLB;

During the second half of 2011 and throughout 2012, severe resource constraints forced us to terminate all on-going pre-clinical research efforts and to focus our minimal resources on identifying a suitable development partner for our Altropane product candidate. All other development programs were terminated and, wherever possible, in-licensed technology was returned to our licensing partners.

At December 31, 2012, we were considered a “development stage enterprise” and will continue to be so until we realize royalty revenue from our outlicensed intellectual property. 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 December 31, 2012.

As of December 31, 2012, we have experienced total net losses since inception of approximately $207,983,000, stockholders’ deficit of approximately $26,721,000 and a net working capital deficit of approximately $9,167,000. The cash and cash equivalents available at December 31, 2012 will not provide sufficient working capital to meet our anticipated expenditures for the next twelve months. As of January 1, 2013 we have liquidated 235,000 shares of our Navidea Biopharmaceuticals, Inc. (“Navidea” AMEX: NAVB) common stock for total proceeds of $726,934. We have used the funds to settle our lawsuit with Children’s Hospital and meet our day-to-day obligations and continue to comply with our regulatory reporting requirements. As of February 28, 2013, we have 50,000 shares of NAVB common stock which have from January 1, 2013 through March 28, 2013 traded within the range of $2.88—$3.35 a share.

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. 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. 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 in the second part of the program, 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 covered by the SPA 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.

 

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In January 2012, we executed an Option Agreement with Navidea pursuant to which Navidea paid Alseres the non-refundable sum of $500,000 in exchange for the exclusive option to license the Altropane program, to conduct its final due diligence review of the program and to prepare the paperwork necessary for the execution of the license.

On July 31, 2012 we executed a License Agreement with Navidea under which we granted Navidea an exclusive, worldwide sublicense to research, develop, and commercialize Altropane. In connection with the execution of this agreement, Navidea made a one-time sublicense execution payment to us equal to (i) One Hundred Seventy-Five Thousand Dollars ($175,000) and (ii) issued us 300,000 shares of NAVB common stock.

The license agreement also provides for contingent milestone payments of up to $2.9 million, $2.5 million of which will principally occur at the time of product registration or upon commercial sales, and the issuance of up to an additional 1.15 million shares of Navidea stock, 950,000 shares of which are issuable at the time of product registration or upon commercial sales. In addition, the license terms anticipate royalties on yearly net sales of the approved product which are consistent with industry-standard terms and certain license extension fees, payable in cash and shares of common stock, in the event certain milestones are not met.

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.

Brain Diagnostic Centers Opportunity

We are presently conducting a preliminary feasibility assessment for a new business focused on organizing and operating a US network of Brain Diagnostic Centers concentrating on neurodegenerative conditions. The centers will provide screening, diagnosis and on-going monitoring of both pre-symptomatic and symptomatic patients affected by neurodegenerative brain disorders. The centers will take advantage of currently available in-vitro diagnostics as well as imaging diagnostics to identify patients who are “at risk” of developing degenerative brain disorders. We are working, on a confidential basis, with industry participants to assess possible support for the development of the potential new business including capital and human resources.

The number of Americans living with neurodegenerative movement disorders such as Parkinson’s disease (PD), and dementias like Alzheimer’s (AD) and Dementia with Lewy Bodies (DLB), is expected to grow from 20 million in 2010 to 30 million by 2030. By 2050, that number is expected to grow to 40 million. Unchecked and without accounting for loss of productivity, the annual cost of care for patients with these diseases will grow from $200 billion today to $500 billion by 2030 .

Today, PD, AD and DLB are diagnosed post-symptomatically. By the time diagnosable clinical symptoms appear, the disease is in an advanced stage. The disease has already progressed well beyond the point that current therapies have been shown to have disease modifying effects. Drugs in development are routinely tested in patients with advanced stage disease, where the drugs are least likely to have the disease modifying or arresting affect desired. What is needed are:

 

•

Early detection, definitive diagnostics and therapeutic drug monitoring tools; and

 

•

Comprehensive, longitudinal data to enable disease modifying treatments for early stage degenerative brain diseases

At present our work on this opportunity is preliminary and is focused on identifying an initial location for a pilot site intended to demonstrate the proof of concept for the centers and accessing potential sources of capital. We can provide no assurance that this business will ever be launched or that the capital and human resources necessary to launch and grow the new business will be available on acceptable terms if at all.

 

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Employees

As of December 31, 2012 we employed 3 full-time employees.

Other Information

We are subject to the informational requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act, and, accordingly, file reports, proxy statements and other information with the Securities and Exchange Commission. Such reports, proxy statements and other information can be read and copied at the public reference facilities maintained by the Securities and Exchange Commission at the Public Reference Room, 100 F Street, N.E., Room 1580, Washington, D.C. 20549. Information regarding the operation of the Public Reference Room may be obtained by calling the Securities and Exchange Commission at 1-800-SEC-0330. The Securities and Exchange Commission maintains a web site (http://www.sec.gov) that contains material regarding issuers that file electronically with the Securities and Exchange Commission.

Our Internet address is www.alseres.com. We are not including the information contained on our web site as a part of, or incorporating it by reference into, this Annual Report on Form 10-K. We make available free of charge on our website our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission.

Additional financial information is contained in Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 7 of Part II, and in Item 8 of Part II of this Annual Report on Form 10-K.

 

Item 1A.

Risk Factors.

Statements contained or incorporated by reference in this Annual Report on Form 10-K 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. If any of the following risks actually occur, our business, financial condition or results of operations would likely suffer.

Risks Related to our Financial Results and Need for Additional Financing

We are a development stage company.

Biotechnology companies that have no approved products or other sources of revenue are generally referred to as development stage companies. We have never generated revenues from product sales and we do not currently expect to generate revenues from product sales for at least the next three years. Our future revenues are expected to be derived from royalties paid to us by Navidea if and when the Altropane product is approved and sold by

 

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them. There can be no assurances that Altropane will be approved or that sales will result. If we do generate revenues and operating profits in the future, our ability to continue to do so in the long term could be affected by Navidea’s ability to invest in marketing of Altropane and by the introduction of competitors’ products and other market factors.

We have incurred losses from operations since inception and anticipate losses for the foreseeable future.

We expect to incur operating losses for at least the next three years. The level of our operating losses may increase in the future if Navidea fails to satisfy its contractual obligations to develop and commercialize Altropane. We will never generate revenues or achieve profitability unless Navidea or we obtain regulatory approval and market acceptance of our Altropane product. This will require Navidea and/or us to be successful in a range of challenging activities, including clinical trial stages of development, obtaining regulatory approval for Altropane, and manufacturing, marketing and selling it. We may never succeed in these activities, and may never generate revenues that are significant enough to achieve profitability. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis.

As of December 31, 2012, we have experienced total net losses since inception of approximately $207,983,000, stockholders’ deficit of approximately $26,721,000 and a net working capital deficit of approximately $9,167,000. The cash and cash equivalents available at December 31, 2012 will not provide sufficient working capital to meet our anticipated expenditures for the next twelve months. We believe that the cash available as of March 15, 2013 may cover our expenses through April 2013.

As a result of our current lack of financial liquidity and negative stockholders’ equity we may not be able to raise additional capital on favorable terms, if at all.

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.

For the year ended December 31, 2012, we obtained all of our funding from one key investor and our license transaction with Navidea. Our key investor, Mr. Robert Gipson, is a related party to the Company. He serves as a senior director of Ingalls & Snyder and served as a director of the Company in 2004. His activities with the Company are more fully described in the footnotes to the consolidated financial statements contained herein. In the event that Mr. Gipson cannot provide future funding or we cannot obtain any additional funding from sources other than Mr. Gipson, we may need to cease operations or modify our current business plan and in any such event may not be able to continue as a going concern. The financial statements have been prepared assuming that the Company will continue as a going concern basis; however, the report of the independent registered public accounting firm indicates substantial doubt about the Company’s ability to continue as a going concern.

Risks Related to Clinical Development of our Altropane Product Candidate

Navidea is obligated under the license agreement to complete the clinical development of Altropane and to seek its regulatory approval. However, our Altropane product candidate is only one of a number of product candidates in the Navidea development pipeline. We can provide no assurances that development of our Altropane product candidate by Navidea will be or remain a high priority project for Navidea. There can be no assurances that Navidea will have or be able to gain access to the capital and human resources necessary to satisfy its obligations under the license agreement. If Navidea is unable to meet its obligations under the license agreement, we would be forced to terminate the license agreement and attempt to identify a new development partner for the Altropane product candidate.

Risks Related to Commercialization

Our success depends on Navidea’s ability to successfully develop our Altropane product candidate into a commercial product.

To date, we have not marketed, distributed or sold any products. The success of our business depends primarily upon Navidea’s ability to successfully develop and commercialize our Altropane product candidate. Successful

 

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research and product development in the biotechnology industry is highly uncertain, and very few research and development projects produce a commercial product. In the biotechnology industry, it has been estimated that less than five percent of the technologies for which research and development efforts are initiated ultimately result in an approved product. If we are unable to successfully commercialize Altropane or any of our other product candidates, our business would be materially harmed and we would likely be forced to cease operations.

Risks Related to Regulation

Our Altropane product candidate is subject to rigorous regulatory review and, even if approved, remains subject to extensive regulation.

Our technologies and 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. Our research and development activities are regulated by a number of government authorities in the United States and other countries, including the FDA pursuant to the Federal Food, Drug, and Cosmetic Act. The clinical trial and regulatory approval process usually requires many years and substantial cost. To date, neither the FDA nor any of its international equivalents has approved any of our product candidates for marketing.

Obtaining FDA approval to sell our product candidates is time-consuming and expensive. The FDA usually takes at least 12 to 18 months to review an NDA which must be submitted before the FDA will consider granting approval to sell a product. If the FDA requests additional information, it may take even longer for the FDA to make a decision especially if the additional information that they request requires us to complete additional studies. We may encounter similar delays in foreign countries. After reviewing any NDA we submit, the FDA or its foreign equivalents may decide not to approve our products. Failure to obtain regulatory approval for a product candidate will prevent us from commercializing our product candidates.

Other risks associated with the regulatory approval process include:

 

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Regulatory approvals may impose significant limitations on the uses for which any approved products may be marketed;

 

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Any marketed product and its manufacturer are subject to periodic reviews and audits, and any discovery of previously unrecognized problems with a product or manufacturer could result in suspension or limitation of approvals;

 

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Changes in existing regulatory requirements, or the enactment of additional regulations or statutes, could prevent or affect the timing of our ability to achieve regulatory compliance. Federal and state laws, regulations and policies may be changed with possible retroactive effect, and how these rules actually operate can depend heavily on administrative policies and interpretation over which we have no control, and we may possess inadequate experience to assess their full impact upon our business; and

 

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The approval may impose significant restrictions on the indicated uses, conditions for use, labeling, advertising, promotion, marketing and/or production of such product, and may impose ongoing requirements for post-approval studies, including additional research and development and clinical trials.

Risks Related to our Intellectual Property

If we are unable to secure adequate patent protection for our technologies; then we may not be able to compete effectively.

At the present time, we do not have patent protection for all uses of our technologies. There is significant competition in the field of CNS diseases. Our competitors may seek patent protection for their technologies, and such patent applications or rights might conflict with the patent protection that we are seeking for our technologies. If we do not obtain patent protection for our technologies, or if others obtain patent rights that

 

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block our ability to develop and market our technologies, our business prospects may be significantly and negatively affected. Further, even if patents can be obtained, these patents may not provide us with any competitive advantage if our competitors have stronger patent positions or if their product candidates work better in clinical trials than our product candidates. Our patents may also be challenged, narrowed, invalidated or circumvented, which could limit our ability to stop competitors from marketing similar products or limit the length of term of patent protection we may have for our products.

We in-license a significant portion of our intellectual property and if we fail to comply with our obligations under any of the related agreements, we could lose license rights that are necessary to develop our product candidate.

We have entered into license agreements with Harvard University and its affiliated hospitals, or Harvard and its Affiliates, which give us rights to intellectual property that is necessary for our business. These license arrangements impose various development and royalty obligations on us. If we breach these obligations and fail to cure such breach in a timely manner, these exclusive licenses could be converted to non-exclusive licenses or the agreements could be terminated, which would result in our being unable to develop, manufacture and sell products that are covered by the licensed technology.

Risks Related to Competition

We are engaged in highly competitive industries dominated by larger, more experienced and better capitalized companies.

The biotechnology and pharmaceutical industries are highly competitive, rapidly changing, and are dominated by larger, more experienced and better capitalized companies. Such greater experience and financial strength may enable them to bring their products to market sooner than Navidea or us, thereby gaining the competitive advantage of being the first to market. Research on the causes of, and possible treatments for, diseases for which we are trying to develop therapeutic or diagnostic products are developing rapidly and there is a potential for extensive technological innovation in relatively short periods of time.

To our knowledge, there is only one company, GE Healthcare (formerly Nycomed/Amersham), that has marketed a diagnostic imaging agent for PD and DLB, DaTSCAN ^® . GE Healthcare has obtained marketing approval in Europe. In January, 2011, GE Healthcare obtained approval to market DaTSCAN in the U.S. as well. GE Healthcare has significantly greater infrastructure and financial resources than us. Marketing approval s in the US and Europe combined with their established market presence, and greater financial strength could position GE to make it difficult for Navidea or us to successfully market Altropane if it is approved for sale.

Risks Related to our Stock

Our common stock is deemed to be “penny stock,” which may make it more difficult for investors to sell their shares due to suitability requirements.

Our common stock is deemed to be “penny stock” as that term is defined in Rule 3a51-1 promulgated under the Securities Exchange Act of 1934 (the “Exchange Act”). These requirements may reduce the potential market for our common stock by reducing the number of potential investors. This may make it more difficult for investors in our common stock to sell shares to third parties or to otherwise dispose of them. This could cause our stock price to decline.

Broker/dealers dealing in penny stocks are required to provide potential investors with a document disclosing the risks of penny stocks. Moreover, broker/dealers are required to determine whether an investment in a penny stock is a suitable investment for a prospective investor.

 

Item 1B.

Unresolved Staff Comments

Not applicable.

 

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Item 2.

Properties

Our corporate office is located at 239 South Street in Hopkinton, Massachusetts. We are currently a tenant at will occupying approximately 4,500 square feet of office space. We believe that our existing facility is adequate for our present and anticipated needs.

 

Item 3.

Legal Proceedings

On March 13, 2012 the Company received notice that Children’s Hospital Boston and Children’s Medical Center Corporation had filed a lawsuit in Middlesex Superior Court, Middlesex County, Massachusetts seeking to recover amounts alleged to be owed by the Company to the plaintiffs in the amount of $642,906 plus costs.

On February 1, 2013 the Company entered into a Settlement Agreement and Release with Boston Children’s Hospital (BCH) and Children’s Medical Center Corporation (CMCC) in full settlement of the lawsuit filed by BCH and CMCC seeking to recover amounts alleged to be owed by the Company to the plaintiffs totaling $642,906 plus costs.

In settlement of all claims by BCH and CMCC, the Company agreed to pay a lump sum of One Hundred Eighty five Thousand dollars ($185,000) to the plaintiffs. In addition to the lump sum payment, the Company agreed to pay to the plaintiffs an additional sum equal to the then cash value of 20,000 shares of the common stock of Navidea BioPharmaceuticals, Inc. upon the occurrence of the first milestone described in Section 4.2 of the sublicense agreement dated as of July 31, 2012 between Navidea BioPharmaceuticals, Inc. and the Company. This second payment is only due upon the occurrence of the first milestone unless the Company declares bankruptcy or alters its agreement with Navidea in a manner that results in the delay or cancellation of said milestone payment.

On May 2, 2012 the Company received notice that Biostorage Technologies, Inc. had filed a lawsuit in Marion Superior/Circuit Court, Marion County, Indiana seeking to recover amounts alleged to be owed by the Company to the plaintiffs totaling $119,363. The Company believes that the total amounts claimed in the Biostorage lawsuit are overstated by at least 100%. The Company believes that a high level of uncertainty regarding the outcome, disposition and ultimate liability to the Company related to this lawsuit exists thus we have retained an accrual of $133,000 on our books which reflects the amount of the alleged claim plus additional legal fees. The discovery process in the case is on-going The Company intends to vigorously pursue all available legal and equitable remedies to defend this claim with a goal of settling it at or below the level of liability we believe is actually owed and without a trial.

 

Item 4.

Mine Safety Disclosures

Not applicable

 

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities

Market Information

The following table sets forth for the periods indicated the high and low closing prices for our common stock for the last two fiscal years. Our common stock is traded on the OTC Market under the symbol ALSE.

 

		2012 High				2012 Low				2011 High				2011 Low
First Quarter (January 1 – March 31)		$	0.51			$	0.15			$	0.24			$	0.12
Second Quarter (April 1 – June 30)		$	0.30			$	0.07			$	0.16			$	0.06
Third Quarter (July 1 – September 30)		$	0.24			$	0.08			$	0.15			$	0.03
Fourth Quarter (October 1 – December 31)		$	0.17			$	0.06			$	0.51			$	0.02

 

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As of December 31, 2012 there were approximately 2,000 stockholders of record. This number does not include beneficial owners for whom shares are held by nominees in street name.

We have not paid or declared any cash dividends on our common stock and do not expect to pay cash dividends on our common stock in the foreseeable future.

On December 31, 2012 the Company purchased 537,931 shares of its common stock held by Arthur Koenig and 1,793,104 shares of its common stock held by Ingalls and Snyder Value Partners at a purchase price per share of $0.0008 for total proceeds of $1,864. The closing price for the Company’s common stock on December 27, 2012 was $0.08 per share. The shares were purchased in a private transaction.

 

Item 6.

Selected Financial Data

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, we are not required to provide this information.

 

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Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Our management’s 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”.

Results of Operations

Years Ended December 31, 2012 and 2011

Our net loss was $1,645,476 for the year ended December 31, 2012 compared to a net loss of $2,882,214 for the year ended December 31, 2011. The net loss for the year ended December 31, 2012 resulted from operating expenses of approximately $1,743,000 and interest expense of approximately $435,000 partially offset by the recognition of $531,000 in revenue. The net loss for the year ended December 31, 2011 resulted from operating expenses of approximately $2,126,000 and interest expense of approximately $1,838,000. These expenses were partially offset by a gain recognized on forgiveness of debt of $477,000, a gain of $59,000 recognized on the change in method for valuing our FluoroPharma Medical, Inc. stock previously accounted for under the cost method and the reversal of a prior year accrual of $561,000 related to a potential dispute with a contract manufacturer.

For the year ended December 31, 2012, the Company recognized revenue of $530,723. Revenue was comprised of a non-refundable option fee of $500,000 the Company received from Navidea Biopharmaceuticals in January 2012 and $30,723 in revenue recognized from the upfront sublicense fee received from Navidea Biopharmaceuticals in July 2012. Under the terms of the sublicense agreement, Navidea made a one-time sublicense execution payment of $175,000 and issued the Company 300,000 shares of Navidea common stock (“NAVB”) which had a market value of $1,146,000 as of July 31, 2012. Revenue from the $1,321,000 upfront sublicense fee will be recognized ratably from the date the sublicense agreement became effective in July 2012 through the expected life of the last to expire issued and sublicensed U.S. patent for Altropane in June 2030.

Research and development expenses were $50,705 for the year ended December 31, 2012 compared to $93,319 for the year ended December 31, 2011. Under the terms of the sublicense agreement entered into with Navidea in July 2012, the Company has no further cost obligations related to Altropane. Navidea is responsible for funding and conducting the development plan, completing all necessary regulatory filings and managing the manufacturing and global commercialization efforts for Altropane.

Sublicense and option fees were $26,536 for the year ended December 31, 2012. This expense reflects the $25,000 option fee due to Harvard under the terms of the Amended and Restated License Agreement related to the non-refundable option fee the Company received from Navidea in January 2012. The remaining expense reflects the amortization of fees due to Harvard related to the cash and stock consideration received from Navidea in July 2012 under the terms of the sublicense agreement. As of December 31, 2012, total cash payments of $33,750 are due to Harvard related to these two agreements.

General and administrative expenses were $1,665,605 for the year ended December 31, 2012 compared to $2,032,946 for the year ended December 31, 2011. The decrease of $367,341 or 18% for the year ended December 31, 2012 was attributable to (i) a reduction in employee payroll and related tax and benefit costs of approximately $110,000 resulting from reduced headcount; (ii) a reduction in consulting fees of approximately $12,000; (iii) a reduction in patent expense of approximately $24,000 resulting from the sublicense agreement which transferred all future responsibility for such expense to Navidea; (iv) reduction in outside directors fees of approximately $66,000 offset by increases in insurance premiums of approximately $10,000 and outside valuation services of $30,000 and (v) a reduction in overhead costs of approximately $240,000 related to the expiration and reorganization of our office lease in September 2011. The overhead reductions are attributable to lower rent expense and common area maintenance charges of approximately $163,000, the elimination of approximately $32,000 in non-cash charges for the amortization of leasehold improvements, a reduction in non- cash depreciation expense of approximately $7,000 and the reduction of approximately $24,000 in utility expenses. In addition, office expenses

 

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attributable to equipment rental and supplies decreased by approximately $10,000. The savings realized from these reductions were partially offset by an increase of approximately $20,000 attributable to complying with additional regulatory reporting requirements and investor relations expense .

On February 15, 2013, Alseres Pharmaceuticals, Inc. (the “Company”), entered into Settlement Agreements with Michael Mullen and William Guinness, both members of the Board of Directors of the Company pursuant to which the Company agreed to satisfy certain outstanding obligations to these individuals which, in aggregate, totaled $220,734 by issuing fully vested options to purchase a total of 167,400 shares of the common stock of Alseres Neurodiagnostics, Inc. (a subsidiary of the Company) out at a purchase price to be established by the Company coincident with the closing of an equity financing for Alseres Neurodiagnostics, Inc. The options must be exercised, if at all, in whole or in part, on or before February 28, 2018. The common stock of Alseres Neurodiagnostics, Inc. to be issued pursuant to the options will bear all appropriate restrictive legends regarding disposition or resale of the common stock. Prior to entering into the Settlement Agreements, Mr. Mullen and Mr. Guinness had not received payment for board fees since 2010. As of December 31, 2012 the Company had a liability of $167,400 to Messrs. Mullen and Guinness which was settled in 2013 as described above.

Other income of $905 was recorded for the year ended December 31, 2012 compared to $43,814 for the year ended December 31, 2011. Other income of $43,814 was primarily attributable to the issuance to the Company of 39,209 restricted shares of FluoroPharma Medical, Inc. common stock with a closing price of $1.88 on September 30, 2011. Although the shares were restricted under Rule 144 and had very light trading volume, they were trading on a public exchange and could no longer be accounted for under the cost method. Taking into consideration the shares trading restrictions and light trading volume, the shares were recorded in the Condensed Consolidated Balance Sheet as of September 30, 2011 at a 20% discount or $1.50 per share. The change in method for valuing these shares from the cost method to the fair value method resulted in the recognition of a gain of $58,814.

Forgiveness of debt totaling $476,837 was recognized for the year ended December 31, 2011. In July 2011, John Preston, Henry Brem, Gary Frashier and Robert Langer signed settlement agreements to resolve unpaid fees due to them for services rendered during the period of July 2008 through January 2010. As of the settlement date a total of $358,500 had been accrued for director and consulting fees. Per the agreements, each former board member was issued one share of stock for each dollar owed. The Company stock closed at $.08 per share on the effective date of the agreements. As a result of these transactions $327,570 was recognized as forgiveness of debt. In July 2011, Michael Mullen and William Guinness our current board members, signed settlement agreements to resolve unpaid fees due to them for services rendered during the period of July 2008 through January 31, 2010. As of the settlement date, approximately $172,000 had been accrued for directors fees owed to the two board members who agreed to a reduced payment totaling $22,400. As a result of these transactions approximately $149,000 was recognized as forgiveness of debt.

Interest expense of $434,551 was incurred for the year ended December 31, 2012 compared to $1,838,484 for the year ended December 31, 2011. The decrease of $1,403,932 or 76% for the year ended December 31, 2012 was attributable to the debt reduction agreements signed in the fourth quarter of 2011. In December 2011, Robert Gipson and Thomas Gipson converted $7,172,412 of their convertible notes payable into common stock of the Company. The debt reduction agreement provided that all future interest related to these promissory notes would be waived. In November 2011, the Company further reduced its debt obligations by purchasing from Robert Gipson (the “Holder”) an unsecured promissory note, pursuant to which the Company’s wholly owned subsidiary, Neurobiologics Inc., had borrowed an aggregate principal amount of $1,000,000 (“the Note”) dated February 11, 2009. The savings associated with the debt reduction agreements were partially offset by $2,240,000 of new debt obligations entered into with Robert Gipson during 2011 and an additional $510,000 in new debt obligations entered into during 2012.

Liquidity and Capital Resources

As of December 31, 2012, we have experienced total net losses since inception of approximately $207,983,000, stockholders’ deficit of approximately $26,721,000 and a net working capital deficit of approximately

 

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$9,167,000. The cash and cash equivalents available at December 31, 2012 will not provide sufficient working capital to meet our anticipated expenditures for the next twelve months. We believe that the cash available as of March 15, 2013. As of January 1, 2013 we have liquidated 235,000 shares of our NAVB common stock for total proceeds of $726,934. We have used the funds to settlement our lawsuit with Children’s Hospital and meet our day-to-day operation needs including the cost to comply with regulatory reporting requirements. As of February 28, 2013, we had 50,000 shares remaining of NAVB common stock which has a trading range for the previous 90 days of between $2.88 - $3.35 per share. We believe that the cash available as of March 15, 2013 may cover our expenses through April 2013.

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.

For the year ended December 31, 2012, the Company generated $675,000 in cash receipts and was issued 300,000 shares of Navidea (“NAVB”) common stock attributable to option and sublicense agreements for Altropane. The Company used the cash to cover its current operating expenses. The Company plans to fund future working capital requirements through the orderly sale of its shares in Navidea common stock and from potential future consideration due to the Company pursuant to its sublicense agreement.

Our future working capital requirements have been reduced substantially due to the terms of the sublicense agreement with Navidea. Per the agreement, Navidea will be responsible for conducting and funding all future development, regulatory filings, manufacturing and global commercialization of Altropane. The Company will have no further cost obligations related to Altropane. Our future working capital requirements will be determined by our ability to control certain necessary expenditures in connection with operating as a public company.

Our major source of future working capital will come in the form of additional shares of Navidea common stock as Navidea attains certain milestones. The sublicense agreement provides for contingent milestone payments to the Company of up to $2.9 million and the issuance of up to an additional 1.15 million shares of Navidea common stock. Milestone payments of $2.5 million and the issuance of 550,000 shares of Navidea common stock are due to the Company at the time of product registration. The Company will be issued an additional 400,000 shares of Navidea common stock if certain cumulative net sales of the approved product are achieved. In addition, the license terms anticipate royalties on yearly net sales of the approved product which are consistent with industry-standard terms and certain license extension fees, payable in cash and shares of common stock, in the event certain milestones are not met.

As of February 15, 2013, the Company had completed the sale of 235,000 shares of NAVB common stock for total proceeds of $726,934. The resulting loss of $170,766 from these sales will be recognized in the condensed consolidated comprehensive loss statement in the first quarter of 2013.

Operating Activities

Net cash used for operating activities was $1,261,466 year ended December 31, 2012 compared to $2,484,803 for the year ended December 31, 2011. Net cash used for operating activities for the year ended December 31, 2012 reflects our curtailment of operations pending additional funding, the reduction in accrued interest expense associated with the debt reduction agreements signed in the fourth quarter of 2011 and the receipt of $675,000 from Navidea Biopharmaceuticals related to our Altropane product.

Forgiveness of accrued directors and consulting fees totaling $476,837 was recognized for the year ended December 31, 2011.

 

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Investing Activities

Investing activities provided cash of $0 for the year ended December 31, 2012 compared to $301,388 of cash provided by investing activities for the year ended December 31, 2011.

Cash provided by investing activities for the year ended December 31, 2011 reflects the refund of $184,763 in security deposits which were used to satisfy the remaining lease obligation on the Newbury Street property and pay outstanding rent and common area maintenance obligations on the South Street property. In December 2011 we received a blanket release for our indemnity trust funds totaling $115,568. As such, those funds were reclassified to cash and cash equivalents in the Consolidated Balance Sheet.

Financing Activities

Financing activities provided cash of $833,000 for the year ended December 31, 2012 compared to $2,220,744 for the year ended December 31, 2011.

Cash provided by financing activities for the year ended December 31, 2012 reflects $510,000 in proceeds from the issuance of demand notes payable issued to Robert Gipson. All notes bear interest at the rate of 7% per annum. The Company used $1,866 to repurchase 2,331,035 shares @ $.0008 per share.

Cash provided by financing activities for the year ended December 31, 2011 reflects $2,240,000 in proceeds from the issuance of demand notes payable issued to Robert Gipson. All notes bear interest at the rate of 7% per annum. Proceeds of $18,256 were used to repurchase 3,977,390 shares of our common stock.

A summary of financings completed through December 31, 2012 can be found in Note 7 of these Consolidated Financial Statements.

Off-Balance Sheet Arrangements

We had no “off balance sheet arrangements” (as defined in Item 303(a) (4) of Regulation S-K) for the year ended December 31, 2012.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based upon our 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. We base our estimates on authoritative literature and pronouncements, historical experience and on various other assumptions that we believe are reasonable under the circumstances. Although we regularly assess these estimates, actual results could differ materially from these estimates under different assumptions or conditions. Changes in estimates are recorded in the period in which they become known.

While all of our significant accounting policies are described in Note 1 to our consolidated financial statements, we believe that our accounting policies relating to revenue recognition are especially important to aiding you in fully understanding and evaluating our reported financial results.

Revenue Recognition

The Company evaluates multiple element revenue arrangements under FASB ASC 605-25, Multiple-Element Arrangements (as amended by ASU No. 2009-13). In addition to the form of the arrangement, the substance of the arrangement is also considered in determining whether separate agreements entered into, at or near the same time,

 

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that include elements that are interrelated or interdependent should be treated as one multiple-element arrangement. If the Company concludes that separate agreements represent one arrangement, then all the elements in the separate agreements are combined into one multiple-element arrangement for accounting purposes.

Revenues from non-refundable license fees are recognized upon receipt of the payment if the license has stand-alone value, we do not have ongoing involvement or obligations, and we have determined the best estimate of the selling price for any undelivered items. When non-refundable license fees do not meet all of these criteria, the license revenues are recognized over the expected period of performance.

We will periodically review our expected period of substantial involvement under the agreements that provide for non-refundable up-front payments and license fees. We will adjust the amortization periods when appropriate to reflect changes in assumptions relating to the duration of our expected involvement. We could accelerate revenue recognition for non-refundable upfront payments or license fees in the event of an early termination of the agreements. Alternatively, we could decelerate such revenue recognition if our period of involvement is extended. While changes to such estimates have no impact on our reported cash flows, our reported revenue is significantly influenced by our estimates of the period over which our obligations are expected to be performed and, therefore, over which revenue will be recognized.

Revenues associated with substantive, at-risk milestones pursuant to our licensing agreements are recognized upon achievement of the milestones. We consider a milestone to be substantive at the inception of the arrangement if it is commensurate with either our performance to achieve the milestone or the enhancement of the value of the delivered item as a result of a specific outcome resulting from our performance to achieve the milestone, it relates solely to past performance and it is reasonable relative to all of the deliverables and payment terms within the arrangement. Non-refundable contingent future amounts receivable in connection with future events specified in our licensing agreements that are not considered milestones will be recognized as revenue when payments are earned by our counterparties through completion of any underlying performance obligations, the amounts are fixed or determinable and collectability is reasonably assured.

 

Item 7A.

Quantitative and Qualitative Disclosures about Market Risk

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, we are not required to provide this information.

 

Item 8.

Financial Statements and Supplementary Data

The information required by Item 8 is included on pages 18 - 39.

 

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

None

 

Item 9A.

Controls and Procedures

As of the end of the period covered by this annual report on Form 10-K, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)). That evaluation was performed under the supervision and with the participation of its management, including its Chief Executive Officer and its Chief Financial Officer. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC rules and forms, and that such information is accumulated and communicated to our management, including our certifying officer, to allow timely decisions regarding the required disclosure.

 

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Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

In the course of its assessment for fiscal year 2012, management identified a control deficiency. During the course of the evaluation, management determined that subsequent to the end of the fiscal year, but prior to completing all adjustments and disclosures necessary for a fair presentation of our financial statements that the departure of a key member of the accounting and reporting department created a lack of sufficient staff to segregate accounting duties. Management believes this control deficiency is primarily the result of the Company employing, due to its limited size, the equivalent of only one person performing all accounting-related on-site duties. As a result, Alseres does not maintain adequate segregation of duties within its critical financial reporting applications, the related modules and financial reporting processes. This control deficiency could result in a misstatement of our interim or annual consolidated financial statements that would not be detected. Accordingly, management has determined that this control deficiency constituted a material weakness, and that the Company’s internal control over financial reporting was not effective, as of December 31, 2012.

Management has discussed the material weakness and related potential corrective actions with the Audit Committee and Board of Directors of the Company and Alseres’ independent registered public accounting firm. As part of our 2013 assessment of internal control over financial reporting, our management will test and evaluate additional controls implemented, if any, to assess whether they are operating effectively. Our goal is to take all actions possible given our financial condition to remediate any material weakness and enhance our internal controls, but we cannot guarantee that our efforts, if any, will result in the remediation of our material weakness or that new issues will not be exposed in the process. In designing and evaluating our internal control over financial reporting, management recognizes that any controls, no matter how well designed and operated, can provide only reasonable, but not absolute, assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, with the Company will be detected.

In connection with the evaluation referred to in the foregoing paragraph, we have made changes in our internal control over financial reporting (as defined in Rules 13a-15(f) under the Securities Exchange Act of 1934) during the fiscal year ended December 31, 2012 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. As described in the preceding paragraph subsequent to the end of the fiscal year, but prior to completing all adjustments and disclosures necessary for a fair presentation of our financial statements that the departure of a key member of the accounting and reporting department created a lack of sufficient staff to segregate accounting duties. Accordingly, management has determined that this control deficiency constituted a material weakness, and that the Company’s internal control over financial reporting was not effective, as of December 31, 2012.

Changes in internal controls over financial reporting

There were no changes in our internal control over financial reporting that occurred during the period covered by this Annual Report on Form 10-K that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

Item 9B.

Other Information

    None

 

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PART III

 

Item 10.

Directors, Executive Officers and Corporate Governance

As of December 31, 2012 our Board of Directors (the “Board”) consisted of three directors.

 

		Age				Year first elected Director				Position(s) with the Company
Peter G. Savas			64				2004			Chairman of the Board, Chief Executive Officer and Director
Michael J. Mullen, C.P.A.			54				2004			Director
William Guinness			73				2006			Director

Peter G. Savas has been the Chairman of the Board and our Chief Executive Officer since September 2004. From March 2004 to September 2004, Mr. Savas was the Managing Partner of Tughill Partners, a life sciences consulting firm. From September 2000 to March 2004, Mr. Savas served as Chief Executive Officer and President and, from April 2001 to March 2004, as Chairman, of Aderis Pharmaceuticals, Inc., a privately-held biopharmaceutical company. From 1992 to 2000, Mr. Savas served as President of Unisyn, Inc., a contract manufacturer of biologics, and was also Unisyn’s Chief Executive Officer from 1995 to 2000. Mr. Savas serves on the board of directors of pSivida Corp., a leading drug delivery company.

Michael J. Mullen has been a member of our Board since June 2004. Since May 2011, Mr. Mullen has been the Chief Financial Officer of Rapid Micro Biosystems, Inc. a rapid microbial detection company. From June 2010 to May 2011, Mr. Mullen was an independent consultant. From December 2009 to June 2010, Mr. Mullen was Interim Chief Financial Officer of Valeritas, Inc., a medical technology company. From July 2006 to October 2009, Mr. Mullen was the Chief Financial Officer of Magellan Biosciences, Inc., a clinical diagnostics company.

William Guinness has been a member of our Board since July 2006. Mr. Guinness was Chairman of Sibir Energy plc, a UK independent oil and gas production company, from March 1999 up to August 2009 when the company was taken over. He was previously a Non-Executive Director of Pentex Energy plc and Pentex Oil plc. Since 1988, Mr. Guinness has been involved with various private venture capital operations, which cover areas as diverse as metal manufacturing, general aviation and fine art consultancy. Mr. Guinness is also a director of a number of private companies involved in a wide range of commercial activities. Mr. Guinness previously served on our Board of Directors from June 30, 2003 to September 20, 2003.

Code of Business Conduct and Ethics

We have adopted a written Code of Business Conduct and Ethics that applies to our directors, officers and employees, including our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions.

 

Executive Officers		Position		In Position Since
Peter G. Savas		Chairman of the Board and Chief Executive Officer		September 2004
Kenneth L. Rice, Jr., J.D., L.L.M., M.B.A.		Executive Vice President, Finance and Administration, Chief Financial Officer and Secretary		September 2005 (Executive Vice President, Finance and Administration and Chief Financial Officer since July 2005)

Kenneth L. Rice, Jr . was appointed Executive Vice President, Finance and Administration and Chief Financial Officer in July 2005. Mr. Rice was appointed Secretary in September 2005. In June 2005, Mr. Rice served as a part-time consultant to the Company. From April 2001 to June 2005, Mr. Rice served as Vice President, Chief Financial Officer, Chief Commercial Officer and Secretary of Aderis Pharmaceuticals, Inc., a privately-held

 

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biopharmaceutical company. From August 1999 through March 2001, Mr. Rice served as Vice President and Chief Financial Officer of MacroChem Corporation, a publicly-traded drug delivery company.

No family relationships exist between any of our executive officers and our directors. Our executive officers are elected annually by the board of directors and serve until their successors are duly elected and qualified.

Audit Committee

Our Board has a standing Audit Committee that currently consists of Michael J. Mullen and William Guinness. Our Board has determined that each of the members of the Audit Committee are independent as defined under the independence requirements contemplated by Rule 10A-3 under the Exchange Act. The Board has determined that Mr. Mullen is an “audit committee financial expert” as defined in Item 407(d) (5) of Regulation S-K.

 

Item 11.

 

Name and Principal Position		Year				Salary
Peter G. Savas			2012			$	401,625
Chairman and CEO			2011			$	401,625
Kenneth L. Rice, Jr., J.D., L.L.M., M.B.A.			2012			$	267,750
Executive Vice President and CFO			2011			$	267,750

Mr. Savas serves as a member of our board of directors, but receives no additional compensation in his capacity as director.

Outstanding Equity Awards

Outstanding option awards held by our Named Executive Officers as of December 31, 2012:

 

						Number of securities - underlying unexercised options exercisable				Option - exercise price				Options Expiration Date
Peter G. Savas			(1	)			200,000			$	2.31				3/11/2015
			(1	)			950,000			$	1.15				1/31/2014
Kenneth L. Rice, Jr., J.D., L.L.M., M.B.A.			(1	)			375,000			$	1.15				1/31/2014

 

(1)	All options are fully vested and exercisable.

Potential Payments upon Termination or Change-in-Control

On March 31, 2006, we entered into employment agreements with Mr. Savas and Mr. Rice effective January 1, 2006 for a term of one year. These agreements are collectively referred to as the Employment Agreements. Each Employment Agreement automatically renews for an additional 12 month period, unless either party notifies the other party in writing not less than 90 days prior to expiration.

In general, in the event of termination without “cause” (as defined in the Employment Agreements) or voluntarily by an executive within one year following a “change in control” (as defined below), the Employment Agreements provide for (i) a cash severance payment equal to the sum of 75% — 100% of the sum of an executive’s highest base salary in effect during the preceding 12 month period and the average annual cash bonus paid during the preceding twenty-four month period, (ii) the continuation of health care benefits for a period of 9 to 12 months following termination of employment, and (iii) full acceleration of the vesting of all of the executive’s unvested equity awards. In the event of termination of employment by us for “disability” (as defined

 

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in the Employment Agreements), the Employment Agreements provide for a cash severance payment equal to the sum of 75% — 100% of the sum of an executive’s highest base salary in effect during the preceding 12 month period and the average annual cash bonus paid during the preceding twenty-four month period.

A “change in control” means:

 

(1)	an acquisition of any of our voting securities by any person immediately after which such person has beneficial ownership of 45% or more of the combined voting power of our then outstanding voting securities; or

 

(2)	approval by our stockholders of:

(a) our merger, consolidation, share exchange or reorganization, unless our stockholders, immediately before such merger, consolidation, share exchange or reorganization, own, directly or indirectly immediately following such merger, consolidation, share exchange or reorganization, at least 51% of the combined voting power of the outstanding voting securities of the corporation that is the successor in such merger, consolidation, share exchange or in substantially the same proportion as their ownership of the voting securities immediately before such merger, consolidation, share exchange or reorganization; or

(b) our complete liquidation or dissolution; or

(c) an agreement for the sale or other disposition of all or substantially all of our assets.

If the employment of any Named Executive Officer is terminated, unless employment is terminated without cause or after the occurrence of a change in control, such Named Executive Officer will remain subject to certain conditions regarding non-competition, non-solicitation and confidentiality, for a period of one year following the date of termination of employment.

Compensation of Directors

Our non-employee directors consisted of Michael J. Mullen and William Guinness. Their compensation for the year ended December 31, 2012 was comprised of a $2,500 fee per meeting attended. Mr. Mullen and Mr. Guinness have not received payment for board fees since 2010. At December 31, 2012 the Company had an accrued liability of $167,400 to Messrs. Mullen and Guinness which was settled in 2013 as described below.

On February 15, 2013, Alseres Pharmaceuticals, Inc. (the “Company”), entered into Settlement Agreements with Michael Mullen and William Guinness, both members of the Board of Directors of the Company pursuant to which the Company agreed to satisfy certain outstanding obligations to these individuals which, in aggregate, totaled $220,734 by issuing fully vested options to purchase a total of 167,400 shares of the common stock of Alseres Neurodiagnostics, Inc. (a subsidiary of the Company) presently owned by the Company at a purchase price to be established by the Company coincident with the closing of an equity financing for Alseres Neurodiagnostics, Inc. The options must be exercised, if at all, in whole or in part, on or before February 28, 2018. The common stock of Alseres Neurodiagnostics, Inc. to be issued pursuant to the options will bear all appropriate restrictive legends regarding disposition or resale of the common stock.

 

Item 12.

Security ownership of certain beneficial owners and management and related stockholder matters

Security Ownership

The following table sets forth information, as of December 31, 2012, regarding the beneficial ownership of our common stock by:

 

•

each person or “group,” as that term is defined in Section 13(d)(3) of the Exchange Act, that beneficially owns more than 5% of our outstanding common stock based on currently available Schedules 13D and 13G filed with the Securities and Exchange Commission;

 

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•

each of our directors;

 

•

each of the Named Executive Officers; and

 

•

all directors and executive officers as a group.

Unless otherwise indicated above, the address for each listed director and executive officer is c/o Alseres Pharmaceuticals, Inc., 239 South Street, Hopkinton, Massachusetts 01748.

 

(1)

Except as set forth in the footnotes to this table and subject to applicable community property law, the persons and entities named in the table have sole voting and investment power with respect to all shares.

 

(2)

Applicable percentage ownership for each holder is based on 30,635,720 shares of common stock outstanding on December 31, 2012, plus common stock issuable upon conversion of any outstanding convertible promissory notes, Series F Convertible Preferred Stock, and any common stock equivalents and presently exercisable stock options or warrants held by each such holder.

 

(3)

Information is based on a Schedule 13 D/A filed on December 27, 2011 with the SEC. Consists of 15,676,004 shares of common stock currently issued and outstanding. As of December 31, 2012, Mr. Gipson held 100% of the issued and outstanding Series F Preferred.

 

(4)

Information is based on a Schedule 13 D/A filed on December 27, 2011 with the SEC. Consists of 4,656,004 shares of common stock currently issued and outstanding.

 

Item 13.

Certain Relationships and Related Transactions

We have entered into indemnity agreements with each of our directors and executive officers containing provisions that may require us, among other things, to indemnify those directors and officers against liabilities that may arise by reason of their status or service as directors and officers. The agreements also provide for us to advance to the directors and officers expenses that they expect to incur as a result of any proceeding against them related to their service as directors and officers. For information regarding related party transactions see Note 14 of these Consolidated Financial Statements. For information relating to our employment and severance arrangements with our Named Executive Officers, see “Executive Compensation — Potential Payments upon Termination or Change-in-Control.”

 

Item 14.

Principal Accountant Fees and Services

Independent Registered Public Accounting Firm’s Fees and Other Matters

The following table summarizes the fees billed to us for professional services rendered by McGladrey LLP, our independent registered public accounting firm and our tax advisors and preparers for the last two years:

 

Fee Category		2012				2011
Audit Fees		$	82,000			$	82,000
Tax Fees			25,000				25,000
Total Fees		$	107,000			$	107,000

Audit Fees

Audit fees consist of fees for the audit of our consolidated annual financial statements, the review of the interim consolidated financial statements included in our quarterly reports on Form 10-Q and other professional services provided in connection with statutory and regulatory filings or engagements paid to McGladrey, LLP.

 

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Tax Fees

Tax fees consist of fees related to tax return preparation and tax compliance.

Policy on Audit Committee Pre-approval of Audit and Permissible Non-audit Services of Independent Registered Public Accounting Firm

Consistent with policies of the SEC regarding independent registered public accounting firm independence and our Audit Committee Charter, our Audit Committee has the responsibility for appointing, retaining, setting compensation and overseeing the work of the independent registered public accounting firm. Our Audit Committee’s policy is to pre-approve all audit and permissible non-audit services provided by the independent registered public accounting firm. Our Audit Committee presently pre-approves particular services on a case-by-case basis. In assessing requests for services by the independent registered public accounting firm, our Audit Committee considers whether such services are consistent with the independent registered public accounting firm’s independence, whether the independent registered public accounting firm is likely to provide the most effective and efficient service based upon their familiarity with us, and whether the service could enhance our ability to manage or control risk or improve audit quality.

All of the audit-related, tax and other services provided by McGladrey LLP in 2012 were approved in advance by our Audit Committee. None of the services or fees was approved using the “de-minimis” exception under SEC rules.

Our Audit Committee believes that the provision of the non-audit services above is compatible with maintaining the independent registered public accounting firm’s independence.

 

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PART IV

 

Item 15.

Exhibits and Financial Statement Schedules

The following documents are included as part of this Annual Report on Form 10-K.

1. Financial Statements:

 

Consolidated Financial Statements of the Company:
Consolidated Balance Sheets at December 31, 2012 and 2011			22
Consolidated Statements of Comprehensive Loss for the fiscal years ended December  31, 2012 and 2011 and for the period from inception (October 16, 1992) through December 31, 2012			23
Consolidated Statements of Stockholders’ (Deficit) Equity for the fiscal years ended December  31, 2012 and 2011 and for the period from inception (October 16, 1992) through December 31, 2012			24
Consolidated Statements of Cash Flows for the fiscal years ended December  31, 2012 and 2011 and for the period from inception (October 16, 1992) through December 31, 2012			28
Notes to Consolidated Financial Statements			30

2. Financial Statement Schedules :

Schedules are omitted since the required information is not applicable or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the Consolidated Financial Statements or Notes thereto.

3. Exhibits :

The Exhibits listed in the Exhibit Index immediately preceding the Exhibits are filed as a part of this Annual Report on Form 10-K.

 

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Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders

Alseres Pharmaceuticals, Inc.

We have audited the accompanying consolidated balance sheets of Alseres Pharmaceuticals, Inc. and Subsidiaries (the “Company”) as of December 31, 2012 and 2011, and the related consolidated statements of comprehensive loss, stockholders’ (deficit) equity, and cash flows for the years then ended and for the period from October 16, 1992 (Inception) to December 31, 2012. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. The financial statements for the period from October 16, 1992 (Inception) to December 31, 2006 were audited by other auditors and our opinion, insofar as it relates to cumulative amounts include for such prior periods, is based solely on the reports of such other auditors.

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

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Alseres Pharmaceuticals, Inc. and Subsidiaries as of December 31, 2012 and 2011, and the results of its operations and its cash flows for the years then ended and for the period from October 16, 1992 (Inception) to December 31, 2012, in conformity with U.S. generally accepted accounting principles.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has suffered recurring losses from operations, its total liabilities exceed its total assets, and it has determined that it will need to raise additional capital. This raises substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ McGladrey LLP

Boston, Massachusetts

April 1, 2013

 

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ALSERES PHARMACEUTICALS, INC.

(A Development Stage Company)

CONSOLIDATED BALANCE SHEETS

 

		December  31, 2012				December  31, 2011
ASSETS
Current assets:
Cash and cash equivalents		$	16,528			$	135,843
Short-term investments			838,309				27,446
Restricted marketable securities			42,450				—
Prepaid expenses and other current assets			2,720				4,965
Total current assets			900,007				168,254
Property and equipment, net			1,186				2,475
Deferred charges			64,514				—
Total assets		$	965,707			$	170,729
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable and accrued expenses		$	2,278,398			$	2,210,229
Convertible notes payable			—				21,827,588
Notes payable			6,410,000				5,900,000
Accrued interest on notes payable			919,526				486,691
Other current liabilities			60,126				—
Advances from related party			325,000
Deferred revenue			73,730				—
Total current liabilities			10,066,780				30,424,508
Contingent royalty			16,000,000				—
Deferred revenue, net of current portion			1,216,547				—
Other long-term liabilities			33,750				—
Total liabilities			27,317,077				30,424,508
Commitments and contingencies (see note 13)
Series F convertible redeemable preferred stock, $.01 par value; 200,000 shares designated; 12,000 shares issued and outstanding at December 31, 2012 and 2011 (liquidation preference of $300,000 at December 31, 2012)			369,501				348,444
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 December 31, 2012 and 2011			—				—
Common stock, $.01 par value; 80,000,000 shares authorized at December 31, 2012 and 2011; 30,635,720 issued and outstanding at December 31, 2012 and 2011			306,357				306,357
Additional paid-in capital			171,975,520				166,170,855
Accumulated other comprehensive loss			(309,204	)			(31,367	)
Deficit accumulated during development stage			(198,693,544	)			(197,048,068	)
Total stockholders’ deficit			(26,720,871	)			(30,602,223	)
Total liabilities and stockholders’ deficit		$	965,707			$	170,729

The accompanying notes are an integral part of the consolidated financial statements.

 

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ALSERES PHARMACEUTICALS, INC.

(A Development Stage Company)

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

 

		For the Year Ended December 31,								Period from October 16, 1992 (inception) to December 31, 2012
		2012				2011
Revenues		$	530,720			$	—			$	1,430,720
Operating expenses:
General and administrative			1,665,605				2,032,946				70,413,744
Research and development			50,750				93,319				116,092,348
Sublicense and option fees			26,536				—				26,536
Purchased in-process research and development			—				—				12,146,544
Operating expenses before accrual reversal			1,742,891				2,126,265				198,745,921
Accrual reversal			—				(561,195	)			(561,195	)
Total operating expenses			1,742,891				1,565,070				198,184,726
Loss from operations			(1,212,171	)			(1,565,070	)			(196,754,006	)
Interest expense			(434,551	)			(1,838,484	)			(14,923,661	)
Investment income			341				689				7,705,345
Other income (expense), net			905				43,814				(1,473,159	)
Gain on early extinguishment of debt			—				—				6,277,100
Forgiveness of debt			—				476,837				476,837
Net loss			(1,645,476	)			(2,882,214	)			(198,691,544	)
Preferred stock beneficial conversion feature			—				—				(8,062,712	)
Accrual of preferred stock dividends and modification of warrants held by preferred stock stockholders			—				—				(1,229,589	)
Net loss attributable to common stockholders			(1,645,476	)			(2,882,214	)			(207,983,845	)
Other comprehensive income
Net change in unrealized loss on marketable securities			(277,837	)			(31,367	)			309,204
Comprehensive loss		$	(1,923,313	)		$	(2,913,581	)		$	208,293,049
Basic and diluted net loss attributable to common stockholders per share		$	(0.06	)		$	(0.10	)
Weighted average common shares outstanding			30,635,720				29,626,072

The accompanying notes are an integral part of the consolidated financial statements.

 

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ALSERES PHARMACEUTICALS, INC.

(A Development Stage Company)

Consolidated Statements of Stockholders’ (Deficit) Equity

For the Period from inception (October 16, 1992) to December 31, 2012

 

		Preferred Stock								Common Stock								Additional Paid-In Capital				Deferred Compensation		Accumulated Other Comprehensive Income (Loss)		Deficit Accumulated During Development Stage		Total Stockholders’ (Deficit) Equity and Preferred Stock
		Number  of shares				Amount				Number  of shares				Par Value
Issuance of common stock to founders											304,009			$	3,040			$	45,685									$	48,725
Exercise of warrants and stock options											1,185,039				11,850				7,584,589										7,596,439
Issuance of common stock and warrants, net of issuance costs											11,516,790				115,168				56,343,378										56,458,546
Issuance of common stock and warrants upon Merger											723,947				7,239				14,596,709										14,603,948
Conversion of convertible debentures											31,321				313				988,278										988,591
Issuance of warrants related to debentures, net of issuance costs																			3,632,632										3,632,632
Issuance of warrants related to preferred series C stock and BCF, net of issuance costs																			3,736,789										3,736,789
Accretion preferred series C stock																			(4,327,679	)									(4,327,679	)
Preferred stock, net of issuance costs			240,711			$	2,296,355												23,288,101										25,584,456
Conversion of Preferred Stock K and payment of interest, net of issuance costs			(240,149.7	)			(1,491,474	)			1,553,749				15,538				7,655,122										6,179,186

 

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ALSERES PHARMACEUTICALS, INC.

(Continued)

Consolidated Statements of Stockholders’ (Deficit) Equity

For the Period from inception (October 16, 1992) to December 31, 2012

 

		Preferred Stock								Common Stock								Additional Paid- In Capital				Deferred Compensation				Accumulated Other Comprehensive Income (Loss)		Deficit Accumulated During Development Stage				Total Stockholders’ (Deficit) Equity and Preferred Stock
		Number of shares				Amount				Number of shares				Par Value
Conversion of debentures and payment of interest, net of issuance costs											317,083				3,171				4,844,249														4,847,420
Conversion of preferred stock and modification of warrants			(561.3	)			(3,501,539	)			900,646				9,006				3,492,533														—
Preferred stock conversion inducement																			(600,564	)													(600,564	)
Amortization of preferred stock Series E BCF							2,696,658												(2,696,658	)													—
Issuance of warrants related to Series E Stock, net of issuance costs																			2,049,297														2,049,297
Issuance of common stock and cancellation of warrants											42,667				427				(427	)													—
Dividend accrual preferred Series E																			(573,597	)													(573,597	)
BCF on convertible secured promissory notes																			558,000														558,000
Deferred compensation- stock options and warrants																			804,607				(804,607	)									—
Share-based compensation																			3,470,199				804,607										4,274,806
Modification of options and warrants																			1,804,694														1,804,694
Other											783				8				69,925														69,933
Net loss (Inception October 16, 1992 to December 31, 2006)																												$	(143,503,529	)		$	(143,503,529	)

 

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Consolidated Statements of Stockholders’ (Deficit) Equity

(Continued)

For the Period from inception (October 16, 1992) to December 31, 2012

 

		Preferred Stock								Common Stock								Additional Paid- In Capital				Deferred Compensation				Accumulated Other Comprehensive Income (Loss)				Deficit Accumulated During Development Stage				Total Stockholders’ (Deficit) Equity and Preferred Stock
		Number of shares				Amount				Number of shares				Par Value
Exercise of warrants and options											202,183				2,022				143,683																145,705
Conversion of notes payable											4,000,000				40,000				9,960,000																10,000,000
BCF on convertible notes payable																			1,880,000																1,880,000
Share-based compensation																			1,665,155																1,665,155
Modification of stock options																			5,614																5,614
Unrealized gain on marketable securities																											9,310								9,310
Net loss																															(19,548,348	)			(19,548,348	)
Balance at December 31, 2007			—			$	—				20,778,217			$	207,782			$	140,420,314			$	—			$	9,310			$	(163,051,877	)		$	(22,414,471	)
Exercise of stock options											1,100				11				2,530																2,541
Conversion of notes payable											48,000				480				119,520																120,000
BCF on convertible notes payable																			380,000																380,000
Share-based compensation																			1,670,063																1,670,063
Issuance of common stock											571,806				5,718				1,079,557																1,085,275
Comprehensive loss:
Unrealized loss on marketable securities																											(9,310	)							(9,310	)
Net loss																															(20,847,459	)			(20,847,459	)
Balance at December 31, 2008			—			$	—				21,399,123			$	213,991			$	143,671,984			$	—			$	—			$	(183,899,336	)		$	(40,013,361	)
Share-based compensation																			1,473,083																1,473,083
Issuance of common stock											4,156,522				41,565				1,960,435																2,002,000
Accretion of convertible redeemable preferred stock																			(192,107	)											(2,000	)			(194,107	)
Net Loss																															(10,776,937	)			(10,776,937	)
Balance at December 31, 2009			—			$	—				25,555,645			$	255,556			$	146,913,395			$	—			$	—			$	(194,678,273	)		$	(47,509,322	)

 

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Consolidated Statements of Stockholders’ (Deficit) Equity

(Continued)

For the Period from inception (October 16, 1992) to December 31, 2012

 

		Preferred Stock								Common Stock								Additional Paid- In Capital				Deferred Compensation				Accumulated Other Comprehensive Income (Loss)				Deficit Accumulated During Development Stage				Total Stockholders’ (Deficit) Equity and Preferred Stock
		Number of shares				Amount				Number of shares				Par Value
Share-based compensation																			61,722																61,722
Issuance of common stock											1,500,000				15,000				(15,000	)															0
Buyback of common stock											(270,000	)			(2,700	)			(5,400	)															(8,100	)
Accretion of preferred stock																			(343,000	)															(343,000	)
Net income (loss)																															512,419				512,419
Balance at December 31, 2010			—			$	—				26,785,645			$	267,856			$	146,611,717			$	—			$	—			$	(194,165,854	)		$	(47,286,281	)
Share-based compensation																			834																834
Issuance of common stock-debt forgiveness											358,500				3,585				25,095																28,680
Conversion of notes payable to common stock											2,868,965				28,690				7,143,722																7,172,412
Buyback of common stock at $.0025 per share											(2,868,965	)			(28,690	)			21,518																(7,172	)
Buyback of common stock											(1,108,425	)			(11,084	)																			(11,084	)
Forgiveness of accrued interest on convertible debt																			6,132,499																6,132,499
Conversion of Series F Preferred to common stock											4,600,000				46,000				4,554,000																—
Forgiveness of accrued interest on note payable																			195,807																195,807
Settlement of note payable																			999,000																999,000
Accretion of preferred stock																			486,663																486,663
Net income (loss)																															(2,882,214	)			(2,882,214	)
Unrealized loss on marketable securities																											(31,367	)							(31,367	)
Balance at December 31, 2011			—			$	—				30,635,720			$	306,357			$	166,170,855			$	—			$	(31,367	)		$	(197,048,068	)		$	(30,602,223	)
Conversion of notes payable to common stock											2,331,035				23,311				5,804,277																5,827,588
Buyback of common stock at $.0008 per share											(2,331,035	)			(23,311	)			21,445																(1,866	)
Accretion of preferred stock																			(21,057	)															(21,057	)
Net income (loss)																															(1,645,476	)			(1,645,476	)
Unrealized loss on marketable securities																											(277,837	)							(277,837	)
Balance at December 31, 2012			—			$	—				30,635,720			$	306,357			$	171,975,520			$	—			$	(309,204	)		$	(198,693,544	)		$	(26,720,871	)

 

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ALSERES PHARMACEUTICALS, INC.

(A Development Stage Company)

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

		For the Year Ended
		December 31, 2012				December 31, 2011				From Inception (October 16, 1992) to December 31, 2012
Cash flows from operating activities:
Net loss		$	(1,645,476	)		$	(2,882,214	)		$	(198,6,91,544	)
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
Loss on disposition of assets			—				3,391				3,391
Interest expense settled through issuance of notes payable			—				—				350,500
Expenses satisfied with the issuance of stock			—				28,680				28,680
Forgiveness of debt			—				(476,837	)			(476,837	)
Gain on early extinguishment of debt			—				—				(6,277,100	)
Non-cash gain on restricted stock valuation			—				(58,814	)			(58,814	)
Non-cash interest expense			—				—				3,966,394
Non-cash charges related to options, warrants and common stock			—				834				11,115,437
Amortization of financing costs			—				6,949				25,188
Amortization and depreciation			1,289				40,751				2,891,955
Changes in operating assets and liabilities:
Decrease in prepaid expenses and other current assets			2,245				9,108				502,608
Increase in deferred charges			(64,514	)			—				(64,514	)
(Decrease) increase in accounts payable and accrued expenses			68,169				(889,742	)			1,982,571
Increase in accrued interest payable			432,835				1,829,516				8,247,632
Increase in deferred revenue			201,577				—				201,577
Increase in current liabilities			17,676				—				17,676
Increase in other long-term liabilities			33,750				—				33,750
Decrease in accrued lease			—				(96,425	)			—
Net cash used for operating activities			(952,449	)			(2,484,803	)			(160,554,906	)
Cash flows from investing activities:
Cash acquired through Merger			—				—				1,758,037
Purchases of property and equipment			—				(2,373	)			(1,654,487	)
Proceeds from the sale of property and equipment			—				3,430				3,430
Decrease in security deposits and other assets			—				184,763				—
Decrease in indemnity fund			—				115,568				—
Purchases of marketable securities			—				—				(132,004,923	)
Sales and maturities of marketable securities			—				—				132,004,923
Net cash provided by investing activities			—				301,388				106,980

 

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ALSERES PHARMACEUTICALS, INC.

(continued)

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

		For the Year Ended
		December 31, 2012				December 31, 2011				From Inception (October 16, 1992) to December 31, 2012
Cash flows from financing activities:
Proceeds from issuance of common stock			—				—				66,731,339
Buyback of common stock			(1,866	)			(18,256	)			(28,222	)
Advances from related party			325,000				—				325,000
Proceeds from issuance of preferred stock			—				—				39,922,170
Preferred stock conversion inducement			—				—				(600,564	)
Proceeds from issuance of promissory notes			510,000				2,240,000				58,995,000
Proceeds from issuance of convertible debentures			—				—				9,000,000
Principal payments of notes payable/repurchase of debt			—				(1,000	)			(7,750,667	)
Dividend payments on Series E Cumulative Convertible Preferred Stock			—				—				(516,747	)
Payments of financing costs			—				—				(5,612,855	)
Net cash provided by financing activities			833134				2,220,744				160,464,454
Net (decrease) increase in cash and cash equivalents			(119,315	)			(37,329	)			16,528
Cash and cash equivalents, beginning of period			135,843				98,514				—
Cash and cash equivalents, end of period		$	16,528			$	135,843			$	16,528
Supplemental cash flow disclosures :
Cash paid for interest		$	—			$	—			$	628,406
Supplemental disclosure of non-cash investing and financing activity :
Conversion of notes payable to common stock		$	5,827,588			$	7,172,412			$	13,000,000
Capital contribution related to forgiveness of accrued interest		$	—			$	6,328,306			$	6,328,306
Accrued interest reclassified in connection with conversion of Series F convertible redeemable preferred stock to common stock		$	—			$	640,874			$	640,874
Supplemental disclosure of other non-cash transactions:
Receipt of marketable securities as payment for license agreement		$	1,146,000			$	—			$	1,146,000
Conversion of notes payable to future royalties		$	16,000,000			$	—			$	16,000,000

The accompanying notes are an integral part of the consolidated financial statements.

 

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ALSERES PHARMACEUTICALS, INC.

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. The Company and Summary of Significant Accounting Policies

Alseres Pharmaceuticals, Inc. and its subsidiaries (the “Company”) is a biotechnology company engaged in the development of diagnostic products primarily for disorders in the central nervous system. The Company was founded in 1992 and merged with a publicly held company in 1995 (the “Merger”) whereby the Company changed its name to Boston Life Sciences, Inc. Effective June 7, 2007, the Company changed its name to Alseres Pharmaceuticals, Inc. During the period from inception through December 31, 2012, the Company has devoted substantially all of its efforts to business planning, raising financing, furthering the research and development of its technologies, and corporate partnering efforts. Accordingly, the Company is considered to be a “development stage enterprise” as defined in ASC 915, Development Stage Entities and will continue to be so until the commencement of commercial operations. The development stage is from October 16, 1992 (inception) through December 31, 2012.

The accompanying 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 Company’s recurring losses from operations raise substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. The Company is taking a number of steps to address the issues regarding our ability to continue as a going concern until such time as routine royalty income from the Navidea transaction is realized by the Company. We are continuing to tightly control our monthly expenses through further staff reductions and elimination of discretionary spending. We are engaged in fundraising efforts that could include one or more of the following: a debt financing or equity offering, or a collaboration, merger, acquisition or other transaction with one or more pharmaceutical or biotechnology companies. There can be no assurances that any of these efforts will be successful and we may still be forced to curtail operations in such event.

Basis of Presentation

The Company’s consolidated financial statements include the accounts of its seven subsidiaries where all of the Company’s operations are conducted. During 2012 the Company organized its seventh subsidiary, Alseres Neurodiagnostics, Inc. as a Delaware corporation. As of December 31, 2012 all of the subsidiaries were wholly-owned. All significant intercompany transactions and balances have been eliminated.

Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ significantly from those estimates. Changes in estimates are reflected in reported results in the period in which they become known.

Cash and Cash Equivalents

Cash equivalents are short-term, highly liquid financial instruments that are readily convertible to cash and have maturities of 90 days or less from the date of purchase. As of December 31, 2012 and 2011, cash equivalents consisted of overnight sweep account balances.

Short-term Investments

The Company has designated its marketable securities as of each balance sheet date as available-for-sale securities and accounts for them at their respective fair values. Marketable securities are classified as short-term

 

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ALSERES PHARMACEUTICALS, INC.

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

or long-term investments based on the nature of these securities and the availability of these securities to meet current operating requirements. Marketable securities that are readily available for use in current operations are classified as short-term available-for-sale securities and are reported as a component of current assets in the accompanying consolidated balance sheets. The Company reviews all available-for-sale securities at each period end to determine if they remain available-for-sale based on the Company’s then current intent and ability to sell the security if it is required to do so. As of December 31, 2012, the Company’s short-term investments included 285,000 shares of common stock in Navidea Biopharmaceutical, Inc. (“NAVB”) and 39,209 shares of FluoroPharma Medical, Inc. common stock (“FPMI”). The unrealized loss associated with these marketable securities has been determined to be temporary and therefore has been included in other comprehensive loss as a component of stockholders’ deficit.

As of February 15, 2013, the Company had completed the sale of 235,000 shares of NAVB common stock for total proceeds of $726,934. The resulting loss of $170,766 from these sales will be recognized in the condensed consolidated comprehensive loss statement in the first quarter of 2013.

Fair Value of Financial Instruments

The carrying amounts of the Company’s cash and cash equivalents, prepaid expenses, trade payables, accrued expenses and notes payable approximate their fair value due to the short-term nature of these instruments. Short-term investments consist of available-for-sale-securities as of December 31, 2012 and 2011 and are carried at fair value as disclosed in Note 10.

Property and Equipment

Property and equipment are recorded at cost and depreciated using the straight-line method over the estimated useful lives of the assets, ranging from three to five years.

Revenue Recognition

The Company evaluates multiple element revenue arrangements under FASB ASC 605-25, Multiple-Element Arrangements (as amended by ASU No. 2009-13). In addition to the form of the arrangement, the substance of the arrangement is also considered in determining whether separate agreements entered into, at or near the same time, that include elements that are interrelated or interdependent should be treated as one multiple-element arrangement. If the Company concludes that separate agreements represent one arrangement, then all the elements in the separate agreements are combined into one multiple-element arrangement for accounting purposes.

Revenues from non-refundable license fees are recognized upon receipt of the payment if the license has stand-alone value, we do not have ongoing involvement or obligations, and we have determined the best estimate of the selling price for any undelivered items. When non-refundable license fees do not meet all of these criteria, the license revenues are recognized over the expected period of performance.

We periodically review our expected period of substantial involvement under the agreements that provide for non-refundable up-front payments and license fees. When applicable, we will adjust the amortization periods when appropriate to reflect changes in assumptions relating to the duration of our expected involvement. We could accelerate revenue recognition for non-refundable upfront payments or license fees in the event of an early termination of the agreements. Alternatively, we could decelerate such revenue recognition if our period of involvement is extended. While changes to such estimates have no impact on our reported cash flows, our reported revenue is significantly influenced by our estimates of the period over which our obligations are expected to be performed and, therefore, over which revenue will be recognized.

 

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ALSERES PHARMACEUTICALS, INC.

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

Revenues associated with substantive, at-risk milestones pursuant to our licensing agreements are recognized upon achievement of the milestones. We consider a milestone to be substantive at the inception of the arrangement if it is commensurate with either our performance to achieve the milestone or the enhancement of the value of the delivered item as a result of a specific outcome resulting from our performance to achieve the milestone, it relates solely to past performance and it is reasonable relative to all of the deliverables and payment terms within the arrangement. Non-refundable contingent future amounts receivable in connection with future events specified in our licensing agreements that are not considered milestones will be recognized as revenue when payments are earned by our counterparties through completion of any underlying performance obligations, the amounts are fixed or determinable and collectability is reasonably assured.

Comprehensive Loss

On January 1, 2012, the Company adopted the new presentation requirements under ASU 2011-05, “ Presentation of Comprehensive Income ”. ASU 2011-05 requires companies to present the components of net income and the components of other comprehensive income either as one continuous statement or as two consecutive statements. Other than a change in presentation, the implementation of ASU 2011-05 did not have a material impact on our financial statements.

Convertible Redeemable Shares

In accordance with Accounting Standards Codification 480, Distinguishing Liabilities from Equity ( ASC 480-10-S99) the Company determined that since the Series F shares are mandatorily redeemable for cash or for a variable, uncapped, number of common shares, they do not qualify for equity classification.

Income Taxes

The Company accounts for income taxes under the liability method. Under the liability method, deferred income taxes are determined based on differences between the financial reporting and tax bases of assets and liabilities. They are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company is required to adjust its deferred tax liabilities in the period when tax rates or the provisions of the income tax laws change. Valuation allowances are established to reduce deferred tax assets to the amounts expected to be realized.

2. Restricted Marketable Securities

Under the terms of the Amended and Restated License Agreement with the President and Fellows of Harvard College (“Harvard”) entered into on July 31, 2012, the Company had an obligation to transfer 15,000 shares of the Navidea stock received from the Navidea sublicense agreement to Harvard. The market value of the shares on December 31, 2012 was $42,450. The Company completed the transfer of the 15,000 shares of NAVB common stock to Harvard during January 2013.

3. Property and Equipment, net

 

		December 31,
		2012				2011
Computer equipment		$	26,539			$	26,539
Office furniture and equipment			6,738				6,738
			33,277				33,277
Less accumulated amortization and depreciation			32,091				30,802
		$	1,186			$	2,475

 

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ALSERES PHARMACEUTICALS, INC.

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

Depreciation expense for the year ended December 31, 2012 was approximately $1,300. Amortization and depreciation expense for the year ended December 31, 2011 was approximately $41,000. Amortization and depreciation expense for the period from inception through December 31, 2012 totaled approximately $2,891,955.

4. Accounts Payable and Accrued Expenses

The Company’s management is required to estimate accrued expenses as part of the process of preparing financial statements. Accrued expenses include professional service fees for legal services, accounting and tax services and regulatory reporting services.

 

		December 31, 2012				December 31, 2011
Research and development expenses		$	1,339,851			$	1,316,095
Professional fees			735,990				715,672
General and administrative expenses			121,554				99,746
Compensation related expenses			81,003				78,716
		$	2,278,398			$	2,210,229

 

5. Deferred charges

Under the terms of the Amended and Restated License Agreement with Harvard, total license fees of $66,050 are due to Harvard related to the cash and stock consideration received from the sublicense agreement with Navidea The Company is amortizing those license fees on a straight-line basis over the estimated performance period which is the effective date of the agreements on July 31, 2012 through the patent expiration date in June 2030.

6. 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 to purchase approximately 3.0 million shares of common stock were outstanding at December 31, 2012, but were not included in the computation of diluted net loss per common share because they were anti-dilutive. Stock options and warrants to purchase approximately 3.6 million shares of common stock were outstanding at December 31, 2011, but were not included in the computation of diluted net loss per common share because they were anti-dilutive. In computing diluted earnings per share, common stock equivalents in the

form of convertible redeemable preferred stock were not included in the calculation of net loss per share as their inclusion would be anti-dilutive. The exercise of stock options outstanding at December 31, 2012 could potentially dilute earnings per share in the future.

 

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ALSERES PHARMACEUTICALS, INC.

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

7. Notes Payable and Debt

 

		December 31,
Convertible Notes Payable to Significant Stockholders		2012				2011
Unsecured convertible promissory note; interest rate of 5%; due December 31, 2010		$	—			$	4,655,173
Unsecured convertible promissory note; interest rate of 5%; due December 31, 2010			—				10,000,000
Unsecured convertible promissory note; interest rate of 5%; due December 31, 2010			—				2,172,415
Unsecured convertible promissory note; interest rate of 5%; due December 31, 2010			—				5,000,000
Aggregate carrying value		$	—			$	21,827,588

No interest expense was incurred related to the convertible notes payable for the year ended December 31, 2012. Interest expense totaling $1,417,776 was incurred related to the convertible notes payable for the year ended December 31, 2011. In December 2011 the Company entered into the Fifth Amendment to Convertible Note Purchase Agreement (“Amendment”) with the Purchasers of convertible promissory notes of the Company purchased pursuant to a Promissory Note Purchase Agreement executed in March, 2007. The Amendment provided that each Purchaser would waive their respective right to be paid any and all interest accrued or to be accrued pursuant to the promissory notes issued under the Note Purchase Agreement. This transaction resulted in a reduction of $6,132,499 in accrued interest expense. The Amendment related to convertible promissory notes held by the Company’s majority shareholder, therefore the reversal of this accrual was recorded as a contribution to capital.

In December 2012, Arthur Koenig and Ingalls & Snyder Value Partners LLP elected to convert the remaining $5,827,588 of their convertible notes payable into common stock of the Company. Effective July 31, 2012, Arthur Koenig and Ingalls & Snyder Value Partners LLP had executed the Sixth Amendment to Convertible Note Purchase Agreement. The sixth amendment provides that the two lenders waive any and all rights to convert the $5,827,588 of principal still outstanding under the promissory notes into royalty on future sales of the Company’s Altropane product, while retaining their right to convert all or any portion of the remaining convertible debt to common stock of the Company at $2.50 per share.

Effective July 31, 2012, Robert Gipson, Thomas Gipson, Arthur Koenig and Ingalls & Snyder Value Partners LLP, all lenders to the Company under a Convertible Note Purchase Agreement originally executed in 2007, elected to convert $16,000,000 of principal outstanding under the promissory notes to a royalty on future net sales of the Company’s Altropane product (see Note 8). All other rights under the Convertible Note Purchase Agreement related to the $16,000,000 of principal were waived by the lenders. As of December 31, 2012, the contingent royalty liability resulting from the conversion is classified as a Level 3 liability and is reflected in the consolidated balance sheet at its fair value as a long-term liability.

The Company has demonstrated financial difficulties. Further, the intent of the above convertible debt conversion and modifications was to allow for continued product development and was considered to be the most viable option for the Company. Based on these factors, these transactions were considered to be concessions and were accounted for as a troubled debt restructuring under the guidance of ASC 470-60-55. As prescribed in ASC 470-60-35-11, when estimates are used relating to the maximum future cash payments as is this case, no gain shall be recognized until the estimated maximum future cash payments fall below the carrying value of the debt before restructuring. As a result of applying this guidance the company has determined that the carrying value of the obligation remains $16,000,000 at December 31, 2012.

 

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ALSERES PHARMACEUTICALS, INC.

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

Promissory Notes

 

		December 31,
Notes Payable to Significant Stockholder		2012				2011
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 — December 2011			2,240,000				2,240,000
Unsecured demand notes payable; interest rate of 7%: issued January 2012 — September 2012			510,000				—
			6,410,000				5,900,000
Accrued interest			919,526				486,691
Aggregate carrying value		$	7,329,526			$	6,386,691

Interest expense totaling $432,835 and $411,741 was incurred related to the notes payable for the years ended December 31, 2012 and 2011, respectively.

According to a Schedule D/A filed with the SEC on December 27, 2011 Robert Gipson beneficially owned approximately 50.1% of the outstanding common stock of the Company as of that date. 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 D/A filed with the SEC on December 27, 2011, Thomas Gipson beneficially owned approximately 15.2% of the outstanding common stock of the Company as of that date. According to a Schedule 13G/A filed with the SEC on June 7, 2011, Arthur Koenig beneficially owned approximately 7% of the outstanding common stock of the Company on June 1, 2011. According to a Schedule 13G/A filed with the SEC on February 2, 2012, ISVP owned approximately 9.99% of the outstanding common stock of the Company as of December 31, 2011. According to a Schedule 13G/A filed with the SEC on February 7, 2012, Ingalls & Snyder LLC beneficially owned approximately 9.99% of the outstanding common stock of the Company on December 31, 2011.

8. Contingent Royalty Liability

Effective July 31, 2012, Robert Gipson, Thomas Gipson, Arthur Koenig and Ingalls & Snyder Value Partners LLP, all lenders to the Company under a Convertible Note Purchase Agreement originally executed in 2007, elected to convert $16,000,000 of principal outstanding under the promissory notes to a royalty on future net sales of the Company’s Altropane product. See Note 7 for full disclosure of this transaction.

9. Revenue Recognition

Our revenues have been generated primarily through sublicense and option agreements related to our Altropane product. The terms of these agreements generally contain multiple elements, or deliverables, which have included (i) licenses or options to obtain licenses to our technology; (ii) technology transfer obligations related to the licenses and (iii) research, development, regulatory and commercialization activities to be performed on our behalf. Payments to the Company under these arrangements typically include one or more of the following: non-refundable, up-front license fees; option exercise fees; milestone payments; and royalties on future product sales.

The Company evaluates multiple element revenue arrangements under FASB ASC 605-25, Multiple-Element Arrangements (as amended by ASU No. 2009-13) as described in Note 1.

 

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ALSERES PHARMACEUTICALS, INC.

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

We considered a variety of factors in determining the appropriate method of accounting for our licensing agreements, including whether the various elements had fair value on a standalone basis and could be separated and accounted for individually as separate units of accounting. Where there are multiple deliverables identified within the licensing agreement that are combined into a single unit of accounting, revenues are deferred and recognized over the expected period of performance. The specific methodology for the recognition of the revenue is determined on a case-by-case basis according to the facts and circumstances of the applicable agreement.

Option Agreement with Navidea

On January 19, 2012 the Company entered into an Option Agreement with Navidea to license [123I]-E-IAFCT Injection (also referred to as Altropane), an Iodine-123 radio labeled imaging agent being developed as an aid in the diagnosis of Parkinson’s disease and movement disorders. Under the terms of the option agreement, Navidea paid the Company a non-refundable option fee of $500,000 upon signing the exclusive right to negotiate a definitive license agreement by June 30, 2012 with a no-fee extension of the diligence period through July 31, 2012 available to Navidea. The option agreement provided Navidea with exclusive rights to license the asset and complete further diligence and prepare the documentation necessary to enter into a definitive license agreement for Altropane. Our deliverables through June 30, 2012 were to provide assistance to Navidea with regards to meetings and communications with the Food and Drug Administration (“FDA”) to allow Navidea to evaluate a path to commercialization and the feasibility of exercising the license option. As such we determined that the $500,000 non-refundable option fee received from Navidea represented a unit of accounting separate from scheduled milestone payments that would be receivable should the license option be exercised. Therefore the Company recognized the non-refundable option fee received from Navidea ratably over the option period which ended June 30, 2012 as the Company had continuing performance obligations through that date. Regulatory feedback received in June caused Navidea to extend their diligence review through July 31, 2012 which they elected to do ahead of executing a license on July 31, 2012. The extension of diligence in to July created no additional obligations on Alseres beyond those completed by June 30, so no adjustment to revenue was required as a result of the extension by Navidea.

Sublicense Agreement with Navidea

Effective July 31, 2012 the Company entered into an exclusive, worldwide sublicense agreement with Navidea Biopharmaceuticals, Inc. (“Navidea”) for the research, development and commercialization of Altropane. Altropane is an iodine-123 radiolabeled imaging agent which is being developed as an aid in the diagnosis of Parkinson’s disease and movement disorders.

The Company concluded that the Sublicense Agreement entered into with Navidea and the Amended and Restated License Agreement entered into with Harvard effective July 31, 2012, should be accounted for as a single unit of accounting in accordance with the rules set forth in FASB ASC 605-25. These transactions are described in greater detail in Note 13 of these Consolidated Financial Statements.

The Company’s deliverables under the Sublicense Agreement with Navidea include granting a license of rights and transferring technology (“know-how”) related to Altropane and an affirmative obligation to ensure that the Harvard agreement remains in full force and effect. Under the terms of the Amended and Restated License Agreement with Harvard, the Company’s deliverables included (i) the use of reasonable efforts to effect introduction of the licensed products into the commercial market as soon as practicable, consistent with sound and reasonable business practices and judgment and (ii) until expiration of the agreement, the Company shall endeavor to keep licensed product reasonably available to the public. The Company determined that pursuant to the accounting guidance governing revenue recognition on multiple element arrangements, the granting of a license of rights, the transfer of technology

 

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ALSERES PHARMACEUTICALS, INC.

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

(“know-how”) related to Altropane and our continuing obligations to Harvard set forth in the Amended and Restated License Agreement were not separable and, accordingly, are being treated as a single unit of accounting. The Company applied the guidance in ASC 605 Revenue Recognition, to determine the appropriate revenue recognition period for the upfront sublicense execution payment received from Navidea. Advance payments received in excess of amounts earned are classified as deferred revenue until earned. The upfront sublicense execution payment of $175,000 in cash and the market value of $1,146,000 for the 300,000 shares of Navidea common stock as of July 31, 2012 were recorded as deferred revenue. Revenue will be recognized ratably from the date the sublicense agreement became effective on July 31, 2012, through the expected life of the last to expire issued and sublicensed U.S. patent for Altropane in June 2030.

The sublicense agreement also provides for contingent milestone payments to the Company of up to $2.9 million and the issuance of up to an additional 1.15 million shares of Navidea common stock. Milestone payments of $2.5 million and the issuance of 550,000 shares of Navidea common stock will occur at the time of product registration. The Company will be issued an additional 400,000 shares of Navidea common stock when certain cumulative net sales of the approved product are achieved. In addition, the license terms anticipate royalties on yearly net sales of the approved product which are consistent with industry-standard terms and certain license extension fees, payable in cash and shares of common stock, in the event certain milestones are not met.

The following summarizes the Company’s revenue generating transactions for the year ended December 31, 2012:

 

		Total Revenue Generated				Revenue Recognized				Deferred Revenue
Option agreement		$	500,000			$	500,000			$	—
Sublicense agreement			1,320,997				30,720				1,290,277
Total		$	1,820,997			$	530,720			$	1,290,277

Unearned revenue of $73,730 is reflected as a current liability and $1,216,547 is classified as a long-term liability in the consolidated balance sheet.

10. Stockholders’ Deficit

Common Stock

On December 31, 2012 the Company agreed to purchase 537,931 shares of common stock held by Arthur Koenig and 1,793,104 shares of common stock held by ISVP Partners at a purchase price per share of $0.0008 for total proceeds of $1,864. The closing price for the Company’s stock on December 27th was $0.08 per share.

For the year ended December 31, 2012, the Company had repurchased a total of 2,331,035 shares of its common stock and applied the constructive retirement method to these shares. The constructive retirement method was applied to these shares as management does not intend to reissue the shares within a reasonable period of time. The aggregate value of the shares reacquired in 2012 was $23,310. This amount has been charged to the common stock account.

In July 2011, John Preston, Henry Brem, Gary Frashier and Robert Langer signed settlement agreements to resolve unpaid fees due to them for services rendered during the period of July 2008 through January 2010. At the time of the agreements, a total of $358,500 had been accrued for director and consulting fees. Per the

 

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ALSERES PHARMACEUTICALS, INC.

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

agreements, each former board member was issued one share of stock for each dollar owed. The Company stock closed at $.08 per share on the effective date of the agreements. As a result of these transactions a total of 358,500 shares of Company stock were issued.

On December 16, 2011 the Company purchased a total of 1,108,425 shares of the Company’s common stock held by certain shareholders of the Company at $0.01 per share or a total of $11,084. The Company purchased 60,000 shares from Robert Gipson, 530,000 shares from Thomas Gipson, 100,000 shares from Ingalls and Snyder Value Partners, 50,000 shares from Arthur Koenig and 218,425 shares from Nikos Monoyios. An additional 150,000 shares were purchased from other holders. The closing price for the Company’s stock on December 16th was $0.14 per share. The price per share paid by the Company to the sellers represented a 93% discount to the market price for the shares.

On December 27, 2011 the Company agreed to purchase 2,331,034 shares of common stock held by Robert Gipson and 537,931 shares of common stock held by Thomas Gipson at a purchase price per share of $0.0025 for a total of $7,172. The closing price for the Company’s stock on December 27th was $0.20 per share. The price per share paid by the Company to the sellers represented a 99% discount to the market price for the shares.

For the year ended December 31, 2011, the Company had repurchased a total of 3,977,390 shares of its common stock and applied the constructive retirement method to these shares. The constructive retirement method was applied to these shares as management does not intend to reissue the shares within a reasonable period of time. The aggregate value of the shares reacquired in 2011 was $18,256. This amount has been charged to the common stock account.

Preferred Stock

The Company authorized 1,000,000 shares of preferred stock of which 25,000 shares have been designated as Series A Convertible Preferred Stock, 500,000 shares have been designated as Series D Convertible Preferred Stock, and 800 shares have been designated as Series E Cumulative Convertible Preferred Stock (the “Series E Stock”). In March 2009, the Company designated 200,000 shares as Series F Convertible Preferred Stock (“Series F Stock”). The remaining authorized shares have not been designated.

Convertible Preferred Stock

In 2009 the Company issued a total of 196,000 shares of Series F convertible preferred stock to Robert Gipson and received gross proceeds of $4,900,000. On June 1, 2011 the Company issued to Robert L. Gipson 4,600,000 shares of its common stock in exchange for the conversion by Mr. Gipson of 184,000 shares of the Company’s Series F Convertible, Redeemable Preferred Stock (“Series F Stock”). Each share of the Series F Stock was converted into 25 shares of common stock pursuant to the conversion terms of the Series F Stock contained in the Certificate of Designation for the Series F Stock. The cumulative accrued interest at the date of conversion of $640,874 was reclassified to additional paid-in capital since the shares were no longer redeemable. As of December 31, 2012 there remained 12,000 shares of Series F Stock outstanding and held by Mr. Gipson.

The key terms of the Series F Stock are summarized below :

Dividend: The Series F Stock is entitled to receive any dividend that is paid to holders of our common stock. Any subdivisions, combinations, consolidations or reclassifications to the common stock must also be made accordingly to Series F Stock, respectively.

 

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ALSERES PHARMACEUTICALS, INC.

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

Liquidation Preference: In the event of our liquidation, dissolution or winding up, before any payments are made to holders of our common stock or any other class or series of our capital stock ranking junior as to liquidation rights to the Series F Stock, the holders of the Series F Stock will be entitled to receive the greater of (i) $25.00 per share (subject to adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization affecting such shares) plus any outstanding and unpaid dividends thereon and (ii) such amount per share as would have been payable had each share been converted into common stock. After such payment to the holders of Series F Stock and the holders of shares of any other series of our preferred stock ranking senior to the common stock as to distributions upon liquidation, the remaining our assets will be distributed pro rata to the holders of our common stock.

Voting Rights: Each share of Series F Stock shall entitle its holder to a number of votes equal to the number of shares of our common stock into which such share of Series F Stock is convertible.

Conversion: Each share of Series F Stock is convertible at the option of the holder thereof at any time. Each share of Series F Stock is initially convertible into 25 shares of common stock, subject to adjustment in the event of certain dividends, stock splits or stock combinations affecting the Series F Stock or the common stock, and subject to adjustment on a weighted-average basis in the event of certain issuances by us of securities for a price less than the then-current price at which the Series F Stock converts into common stock.

Redemption: At any time after September 1, 2011, any holder of Series F Stock may elect to have some or all of such shares redeemed by us at a price equal to the aggregate of (i) $25 per share (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization affecting such shares), or the Original Issue Price, plus (ii) all declared but unpaid dividends thereon, plus (iii) an amount computed at a rate per annum of 7% of the Original Issue Price from March 19, 2009 until the redemption date. No redemption demand has been made as of December 31, 2012.

Accretion: The terms of the Series F Stock contain provisions that may require redemption in circumstances that are beyond the Company’s control. Therefore, the shares have been recorded, net of issuance costs of approximately $25,000, as convertible, redeemable stock outside of permanent equity. The Series F Stock was recorded at fair value on the date of issuance. As of December 31, 2012, the Company recorded approximately $21,057 in accretion on the outstanding Series F Stock.

Stock Option Plans

The Company can issue both nonqualified and incentive stock options to employees, officers, consultants and scientific advisors of the Company under the Amended and Restated 2005 Stock Incentive Plan (the “2005 Plan”).

At December 31, 2009, the 2005 Plan provided for the issuance of options, restricted stock, restricted stock units, stock appreciation rights or other stock-based awards to purchase 3,050,000 shares of the Company’s 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 Company’s 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 Company’s outstanding shares on the first day of the fiscal year; and an amount determined by the Board of Directors. No adjustment to the 2005 Plan was made on January 1, 2012.

The Company also has 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. All plans have expired and no future issuance of awards is permissible.

 

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ALSERES PHARMACEUTICALS, INC.

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

Stock-based employee compensation expense recorded for the years ended December 31, 2012 and 2011 was $0 and $834, respectively. The $834 in stock-based compensation expense recognized during 2011 represented the remaining 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 years ended December 31, 2012 and 2011.

Stock Options

The following table summarizes the options issued and outstanding as of December 31, 2012:

 

		Shares				Weighted- Average Exercise  Price
Outstanding stock options at the beginning of year			3,636,480			$	1.55
Granted			—				—
Exercised			—				—
Forfeited and expired			(625,500	)			1.75
Outstanding and exercisable stock options at year end			3,010,980			$	1.51

The following table summarizes information about the stock options outstanding and exercisable as of December 31, 2012:

 

Range of Exercise Prices		Number Outstanding				Weighted Average remaining Contractual Life				Weighted Average Exercise Price
$1.15 – $1.36			2,287,500				1.4 years			$	1.15
$2.00 – $3.00			539,980				2.7 years				2.33
$3.10 – $4.65			155,000				4.8 years				3.17
$4.99 – $6.96			28,500				1.0 years				5.47
			3,010,980				1.8 years			$	1.51

There was no intrinsic value of outstanding options and exercisable options as of December 31, 2012. As of December 31, 2012, 809,172 shares were available for grant under the 2005 Plan. As of December 31, 2012, the Company had reserved 3,820,152 shares of common stock to meet its option obligation.

11. Fair Value Measurements

The fair value hierarchy prioritizes observable and unobservable inputs used to measure fair value into three broad levels:

 

Level

1 — unadjusted quoted prices in active markets for identical securities;

 

Level

2 — unadjusted quoted prices in markets that are not active,

 

Level

3 — significant unobservable inputs, including our own assumptions in determining fair value

 

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ALSERES PHARMACEUTICALS, INC.

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

The following table summarizes the financial assets that we measured at fair value as of:

 

		December 31, 2012
		Level 1				Level 2				Level 3				Total
Available for sale securities		$	838,309			$	—			$	—			$	838,309
Total assets		$	838,309			$	—			$	—			$	838,309
Contingent royalty		$	—			$	—			$	16,000,000			$	16,000,000
Total liabilities		$	—			$	—			$	16,000,000			$	16,000,000
		December 31, 2011
		Level 1				Level 2				Level 3				Total
Available for sale securities		$	—			$	27,446			$	—			$	27,446
Total assets		$	—			$	27,446			$	—			$	27,446

As of December 31, 2012, the Company’s Level 1 assets are comprised of 285,000 shares of Navidea Biopharmaceuticals, Inc. common stock. These shares are traded on the NYSE under the symbol NAVB. Also included in Level 1 assets as of December 31, 2012 are 39,209 shares of FluoroPharma Medical, Inc. common stock which are traded on the OTC Bulletin Board (“OTCBB”) under the symbol FPMI.

As of December 31, 2011, the Company’s Level 2 available for sale securities consisted of 39,209 shares of FluoroPharma Medical, Inc. stock. These shares were subject to Rule 144 restrictions and traded on very thin volume in the open market. Based on those two factors the Company previously classified the shares as a Level 2 asset. As of September 30, 2012, the Company determined that the FluoroPharma Medical, Inc. common stock should be reclassified to Level 1 based on the increased liquidity of the shares due to more stable trading volume in the open market.

A contingent royalty liability which resulted from the election by certain purchasers of the Company’s Convertible Promissory Note Purchase Agreement (the “Note Purchase Agreement”) to convert a total of $16,000,000 in debt obligation into a right to receive future royalties on net sales of the Company’s Molecular Imaging Products. The Company obtained a third party fair value valuation for its contingent royalty liability as of December 31, 2012. The fair value measurement is based on significant inputs not observable in the market, which require it to be reported as a Level 3 asset within the fair value hierarchy. The valuation uses assumptions that the Company believes would be made by a market participant. In particular, the valuation analysis employed the Income Approach based on the sum of the economic income that an asset is anticipated to produce in the future. In this case that asset is the potential royalty income to be paid to the Company by Navidea as a result of the license agreement for Altropane. The Discounted Cash Flow method of the Income Approach was chosen

as the method best suited to valuing the contingent royalty liability. Changes in the fair value of the contingent royalty liability will be reflected in the consolidated statements of comprehensive income in the period they become known. The actual calculated fair value of the liability was $16.6 million, however, as described in Note 7 the accounting guidance does not provide for an increase in the liability in a troubled debt restructuring.

12. Income Taxes

As of December 31, 2012, the Company had federal and state net operating loss (“NOL”) carryforwards of approximately $71,662,000 and $40,373,000, respectively and federal and Massachusetts state research and

 

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ALSERES PHARMACEUTICALS, INC.

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

development (“R&D”) credit carryforwards of approximately $1,578,000 and $1,110,000, respectively subject to limitation, may be available to offset future federal and state income tax liabilities through 2031.

 

Deferred tax assets consisted of the following as of December 31:		2012				2011
Net operating loss carryforward		$	27,181,000			$	31,338,000
Capitalized research and development expenses			8,115,000				10,402,000
License fees			349,000				325,000
Stock-based compensation expense			2,264,000				2,264,000
Other			917,000				737,000
Gross deferred tax assets			38,826,000				45,066,000
Valuation allowance			(38,826,000	)			(45,066,000	)
Net deferred tax assets		$	—			$	—

A reconciliation of the amount of reported tax benefit and the amount computed using the U.S. federal statutory rate of 35% for the years ended December 31 is as follows:

 

		2012				2011
Tax benefit at statutory rate		$	(576,000	)		$	(1,009,000	)
State taxes, net of federal benefit			251,000				267,000
Expiring state net operating loss carryforward			978,454				455,000
Gain on forgiven interest and cancellation of debt and other			2,042,000				2,567,000
Decrease in valuation allowance			(6,240,000	)			(5,080,000	)
NOL attribute reduction on debt cancellation			3,544,545				2,800,000
		$	—			$	—

For the years ended December 31, 2012 and 2011, the Company did not record any federal or state tax expense given its continued net operating loss position. The Company has evaluated the positive and negative evidence bearing upon its ability to realize the deferred tax assets, which are comprised principally of net operating losses (“NOL”) and capitalized research and development expenditures. Management has determined that it is more likely than not that the Company will not recognize the benefits of federal and state deferred tax assets and, as a result, a full valuation allowance has been recorded.

 

Income tax benefit for the years ended December 31:		2012				2011
Federal		$	(348,366	)		$	(2,737,000	)
State			(82,115	)			(645,000	)
			(430,481	)			(1,949,000	)
Valuation allowance			430,481				1,949,000
		$	—			$	—

 

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ALSERES PHARMACEUTICALS, INC.

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

A reconciliation of the unrecognized tax benefits recorded for the years ended December 31 is as follows:

 

		2012				2011
Balance at January 1		$	2,822,531			$	2,822,531
Additions based on tax positions related to the current year			—				—
Balance at December 31		$	2,822,531			$	2,822,531

The balance of unrecognized tax benefits as of December 31, 2012 of approximately $2,822,531 are tax benefits that, if recognized, would not affect the Company’s effective tax rate since they are subject to a full valuation allowance.

The Company recognizes interest and penalties related to income tax matters in income tax expense. The Company has no accrual for interest and penalties as of December 31, 2012.

The Company is subject to both federal and state income tax for the jurisdiction within which it operates. Within these jurisdictions, the Company is open to examination for tax years ended December 31, 2009 through December 31, 2012. The U.S. Internal Revenue Service (IRS) had completed an audit of tax years 2007 and 2008 and had informed us that no adjustments to the federal tax returns as filed would be proposed as a result of the audit. However, because we are carrying forward income tax attributes such as the NOL from 2006, these attributes can still be audited when utilized on returns filed in the future.

13. Commitments and Contingencies

The Company is currently a tenant at will occupying approximately 4,500 square feet of office space. Total rent expense was approximately $71,500 and $220,000 for the years ended December 31, 2012 and 2011, respectively and approximately $4115,500 for the period from inception (October 16, 1992) through December 31, 2012. The Company received approximately $102,000 for the year ended December 31, 2011, related to the sublease of the premises and no income from subleasing in 2012.

On March 13, 2012 the Company received notice that Children’s Hospital Boston and Children’s Medical Center Corporation had filed a lawsuit in Middlesex Superior Court, Middlesex County, Massachusetts seeking to recover amounts alleged to be owed by the Company to the plaintiffs.

On February 1, 2013 the Company entered into a Settlement Agreement and Release with Boston Children’s Hospital (BCH) and Children’s Medical Center Corporation (CMCC) in full settlement of the lawsuit filed by BCH and CMCC seeking to recover amounts alleged to be owed by the Company to the plaintiffs totaling $642,906 plus costs. The amount of $642,906 is included in accrued expenses at December 31, 2012 and 2011, but was incurred and expensed prior to January 1, 2011.

In settlement of all claims by BCH and CMCC, the Company agreed to pay a lump sum of One Hundred Eighty five Thousand dollars ($185,000) to the plaintiffs. In addition to the lump sum payment, the Company agreed to pay to the plaintiffs an additional sum equal to the then cash value of 20,000 shares of the common stock of Navidea BioPharmaceuticals, Inc. upon the occurrence of the first milestone described in Section 4.2 of the sublicense agreement dated as of July 31, 2012 between Navidea BioPharmaceuticals, Inc. and the Company. This second payment is only due upon the occurrence of the first milestone unless the Company declares bankruptcy or alters its agreement with Navidea in a manner that results in the delay or cancellation of said milestone payment.

 

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ALSERES PHARMACEUTICALS, INC.

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

On May 2, 2012 the Company received notice that Biostorage Technologies, Inc. had filed a lawsuit in Marion Superior/Circuit Court, Marion County, Indiana seeking to recover amounts alleged to be owed by the Company to the plaintiffs totaling $119,363. The Company believes that the total amounts claimed in the Biostorage lawsuit are overstated by at least 100%. The Company believes that a high level of uncertainty regarding the outcome, disposition and ultimate liability to the Company related to this lawsuit exists thus we have retained an accrual of $133,000 on our books which reflects the amount of the alleged claim plus additional legal fees. The discovery process in the case is on-going The Company intends to vigorously pursue all available legal and equitable remedies to defend this claim with a goal of settling it at or below the level of liability we believe is actually owed and without a trial.

Guarantor Arrangements

The Company has entered into agreements to indemnify its executive officers and directors for certain events or occurrences while the officer or director is, or was serving, at the Company’s request in such capacity. The indemnification period is for the officer’s or director’s lifetime. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited; however, the Company has a director and officer insurance policy that limits the Company’s exposure and enables the Company to recover a portion of any future amounts paid. As a result of the Company’s insurance policy coverage, the Company believes the estimated fair value of these indemnification agreements is minimal.

14. Related Party Transactions

During the last 4 months of 2012, Robert Gipson provided a total of $325,000 to the Company as an advance against his planned purchase of stock in Alseres Neurodiagnostics, Inc. to occur in 2013. These funds were available to the Company for use during 2012 and the advance is reflected as advances from related parties on the consolidated balance sheet.

Additional Related Party Transactions during 2012 are disclosed in footnotes 8 and 10.

15. Subsequent Events

Settlement Agreement and Release with Boston Children’s Hospital (BCH) and Children’s Medical Center Corporation (CMCC)

On February 1, 2013 the Company entered into a Settlement Agreement and Release with Boston Children’s Hospital (BCH) and Children’s Medical Center Corporation (CMCC) in full settlement of the lawsuit filed by BCH and CMCC seeking to recover amounts alleged to be owed by the Company to the plaintiffs totaling $642,906 plus costs.

In settlement of all claims by BCH and CMCC, the Company agreed to pay a lump sum of One Hundred Eighty five Thousand dollars $185,000 to the plaintiffs. In addition to the lump sum payment, the Company agreed to pay to the plaintiffs an additional sum equal to the then cash value of 20,000 shares of the common stock of Navidea BioPharmaceuticals, Inc. upon the occurrence of the first milestone described in Section 4.2 of the sublicense agreement dated as of July 31, 2012 between Navidea BioPharmaceuticals, Inc. and the Company. This second payment is only due upon the occurrence of the first milestone unless the Company declares bankruptcy or alters its agreement with Navidea in a manner that results in the delay or cancellation of said milestone payment in which case CMCC and BCH could bring additional claims against the Company for additional consideration.

 

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ALSERES PHARMACEUTICALS, INC.

(A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

 

Settlement with Board of Directors

On February 15, 2013, Alseres Pharmaceuticals, Inc. (the “Company”), entered into Settlement Agreements with Michael Mullen and William Guinness, both members of the Board of Directors of the Company pursuant to which the Company agreed to satisfy certain outstanding obligations to these individuals which, in aggregate, totaled $220,734 by issuing fully vested options to purchase a total of 167,400 shares of the common stock of Alseres Neurodiagnostics, Inc. (a subsidiary of the Company) out at a purchase price to be established by the Company coincident with the closing of an equity financing for Alseres Neurodiagnostics, Inc. The options must be exercised, if at all, in whole or in part, on or before February 28, 2018. The common stock of Alseres Neurodiagnostics, Inc. to be issued pursuant to the options will bear all appropriate restrictive legends regarding disposition or resale of the common stock.

 

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the under signed, thereunto duly authorized this 1st day of April, 2013.

 

A LSERES P HARMACEUTICALS , I NC .
By:		/ S /     P ETER G. S AVAS
		Peter G. Savas
		Chairman and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

Signature		Title		Date
/ S /    P ETER G. S AVAS         Peter G. Savas		Chairman and Chief Executive Officer (Principal Executive Officer)		April 1, 2013
/ S /    K ENNETH L. R ICE , J R .         Kenneth L. Rice, Jr.		Executive Vice President Finance and Administration and Chief Financial Officer (Principal Financial and Accounting Officer)		April 1, 2013
/ S /    W ILLIAM L.S. G UINNESS         William L.S. Guinness		Director		April 1, 2013
/ S /    M ICHAEL J. M ULLEN         Michael J. Mullen		Director		April 1, 2013

 

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EXHIBIT INDEX

 

				Incorporated by Reference to
Exhibit Number		Description		Form		Exhibit Number		Filing Date		SEC File Number
Articles of Incorporation and By-laws
3.1		Amended and Restated Certificate of Incorporation, dated March 28, 1996		10-K/A for 12/31/1998		3.1		3/19/1999			000-6533
3.2		Certificate of Amendment of Certificate of Incorporation, dated June 6, 1997		10-K/A for 12/31/1998		3.1		3/19/1999			000-6533
3.3		Certificate of Amendment of Amended and Restated Certificate of Incorporation, dated June 28, 1999		10-Q for 9/30/1999		3.5		11/15/1999			000-6533
3.4		Certificate of Amendment of Amended and Restated Certificate of Incorporation, dated June 14, 2000		10-K for 12/31/2000		3.3		3/29/2001			000-6533
3.5		Certificate of Correction to the Amended and Restated Certificate of Incorporation, dated March 14, 2001		10-K for 12/31/2000		3.3		3/29/2001			000-6533
3.6		Form of Certificate of Amendment of Amended and Restated Certificate of Incorporation dated June 11, 2002		Proxy Statement		App. A		5/1/2002			000-6533
3.7		Certificate of Amendment of Amended and Restated Certificate of Incorporation of the Company, dated as of July 9, 2003		10-Q for 6/30/2003		3.1		8/13/2003			000-6533
3.8		Certificate of Amendment of Amended and Restated Certificate of Incorporation of the Company, dated as of August 5, 2004		10-Q for 6/30/2004		3.1		8/13/2004			000-6533
3.9		Certificate of Amendment of Amended and Restated Certificate of Incorporation of the Company, dated as of February 4, 2005		8-K		3.1		2/7/2005			000-6533
3.10		Certificate of Amendment of Amended and Restated Certificate of Incorporation of the Company, dated as of June 7, 2007		8-K		3.1		6/8/2007			000-6533
3.11		Amended and Restated By-Laws, effective as of December 6, 2007		8-K		3.1		12/7/2007			000-6533
Instruments Defining the Rights of Security Holders
4.1		Specimen certificate evidencing shares of common stock, par value $.01 per share		10-Q for 6/30/2007		4.1		8/14/2007			000-6533
series D
4.2		Restated Certificate of Designations, Preferences, and Rights of Series D Preferred Stock		8-A/A		Ex. A to 3.3		9/13/2001			000-6533
series F
4.3		Certificate of Designations, Preferences, and Rights of Series F Convertible Preferred Stock		8-K		4.1		3/25/2009			000-6533

 

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				Incorporated by Reference to
Exhibit   Number		Description		Form		Exhibit Number		Filing Date		SEC File Number
Rights Agreement
4.4		Rights Agreement, dated as of September 11, 2001, including the form of Certificate of Designation with Respect to the Series D Preferred Stock and the form of Rights Certificate, between the Company and Continental Stock Transfer & Trust Company, as Rights Agent (the “Rights Agreement”)		8-A/A		1		9/13/2001			000-6533
4.5		Amendment No. 1 to the Rights Agreement, dated November 13, 2001		8-A/A		2		11/25/2002			000-6533
4.6		Amendment No. 2 to the Rights Agreement, dated November 22, 2002		8-A/A		3		11/25/2002			000-6533
4.7		Amendment No. 3 to the Rights Agreement, dated March 12, 2003		8-K		99.6		3/13/2003			000-6533
4.8		Amendment No. 4 to the Rights Agreement, dated December 23, 2003		8-A/A		5		12/29/2003			000-6533
4.9		Amendment No. 5 to the Rights Agreement, dated March 14, 2005		8-K		4.1		3/15/2005			000-6533
Miscellaneous
4.10		Form of Warrant issued by the Company under the Securities Purchase Agreement dated November 20, 2008		8-K		10.2		11/25/2008			000-6533
4.11		Promissory Note dated February 11, 2009 issued by Neurobiologics, Inc. to Robert L. Gipson		8-K		10.1		2/18/2009			000-6533
Ingalls
4.12		Amended and Restated Registration Rights Agreement, dated as of March 9, 2005, by and among the Company and Ingalls, Robert L. Gipson and Nickolaos D. Monoyios and other Investors		10-K for 12/31/2004		10.42		3/31/2005			000-6533
4.13		Amendment No. 1, dated August 30, 2005, to the Amended and Restated Registration Rights Agreement, dated as of March 9, 2005, by and among the Company and Ingalls, Robert L. Gipson and Nickolaos D. Monoyios and other Investors		10-Q for 9/30/2005		10.6		11/14/2005			000-6533
4.14		Common Stock Purchase Agreement, dated March 9, 2005, by and among the Company, Ingalls and other Investors		10-K for 12/31/2004		10.41		3/31/2005			000-6533
4.15		Common Stock Purchase Agreement, dated August 30, 2005, by and among the Company, Ingalls and other Investors		10-Q for 9/30/2005		10.5		11/14/2005			000-6533
4.16		Mutual Release of Claims, dated as of June 15, 2004, by and among the Company, S. David Hillson, Marc E. Lanser, Robert L. Gipson, Thomas O. Boucher, Jr., Ingalls & Snyder, LLC and Ingalls		8-K		99.3		6/17/2004			000-6533

 

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Incorporated by Reference to

Exhibit Number

Description

Form

Exhibit Number

Filing Date

SEC File Number

Material Contracts — Supply, License, Distribution

CMCC

10.1+

License Agreement between CMCC and the Company dated as of May 10, 2006 (Dr. Larry Benowitz) (relating to INOSINE)

10-Q for 6/30/2006

10.1

8/14/2006

000-6533

10.2+

License Agreement between CMCC and the Company dated as of May 10, 2006 (Dr. Zhigang He) (relating to Oncomodulin)

10-Q for 6/30/2006

10.2

8/14/2006

000-6533

Harvard

10.3

License Agreement between President and Fellows of Harvard College (“Harvard”) and NeuroBiologics, Inc. (a subsidiary of the Company) dated as of December 10, 1993 (relating to ALTROPANE)

S-4

10.16

4/12/1995

333-91106

10.4

Amendment, dated May 7, 2004, to License Agreement between Harvard and the Company dated as of December 10, 1993 (relating to ALTROPANE)

10-Q for 6/30/2005

10.6

8/15/2005

000-6533

10.5

License Agreement between Harvard and the Company dated as of March 15, 2000 (relating to ALTROPANE)

S-3/A

10.11

9/3/2002

333-88726

10.6

Amendment, dated May 11, 2004, to License Agreement between Harvard and the Company dated as of March 15, 2000 (relating to ALTROPANE)

10-Q for 6/30/2005

10.4

8/15/2005

000-6533

10.7

License Agreement, effective as of October 15, 1996, between Harvard and the Company; as amended on August 22, 2001 and on May 4, 2004 (relating to FLUORATEC)

10-Q for 9/30/2005

10.8

11/14/2005

000-6533

10.8

Third Amendment, dated April 1, 2007, to License Agreement between Harvard and the Company dated as of October 15, 1996, as amended on August 22, 2001 and on May 4, 2004 (relating to FLUORATEC)

10-Q for 3/31/2007

10.2

5/15/2007

000-6533

Nordion

10.9+

Manufacturing Agreement dated August 9, 2000 between the Company and MDS Nordion, Inc. (“Nordion Agreement”)

10-K for 12/31/2001

10.15

3/29/2002

000-6533

10.10+

Amendment dated August 23, 2001 to Nordion Agreement

10-K for 12/31/2001

10.16

3/29/2002

000-6533

10.11

Amendment No. 2 dated as of September 18, 2002 to Nordion Agreement

10-K for 12/31/2002

10.16

3/31/2003

000-6533

 

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Incorporated by Reference to

Exhibit Number

Description

Form

Exhibit Number

Filing Date

SEC File Number

10.12

Amendment No. 3 dated as of November 22, 2003 to Nordion Agreement

10-K for 12/31/2003

10.17

3/30/2004

000-6533

10.13+

Amendment No. 4 dated as of December 22, 2004 to Nordion Agreement

10-K for 12/31/2004

10.48

3/31/2005

000-6533

10.14+

Amendment No. 5 dated as of January 24, 2005 to Nordion Agreement

10-K for 12/31/2004

10.48

3/31/2005

000-6533

10.15+

Amendment No. 6 dated as of December 19, 2005 to Nordion Agreement

8-K

99.1

12/19/2005

000-6533

10.16+

Amendment No. 7 dated as of December 7, 2006 to Nordion Agreement

8-K

10.1

12/8/2006

000-6533

10.17+

Amendment No. 8 dated as of December 4, 2007 to Nordion Agreement

8-K

10.1

12/7/2007

000-6533

10.18+

Amendment No. 9 dated as of December 3, 2008 to Nordion Agreement

8-K

10.1

12/8/2008

000-6533

10.19+

Amendment No. 10 dated as of January 4, 2010 to Nordion Agreement

10-K for 12/31/2009

10.19

3/31/2010

000-6533

Organix

10.20

License Agreement, effective as of July 1, 2000, between Organix, Inc. and the Company (“Organix Agreement”) (relating to 0-1369)

10-Q for 9/30/2005

10.7

11/14/2005

000-6533

10.21

Amendment, dated May 11, 2004, to Organix Agreement (relating to 0-1369)

10-Q for 9/30/2005

10.7

11/14/2005

000-6533

10.22

Second Amendment, dated April 1, 2007, to Organix Agreement (relating to 0-1369)

10-Q for 3/31/2007

10.3

5/15/2007

000-6533

BioAxone

10.23+

License Agreement, dated December 28, 2006, by and between the Company and BioAxone Therapeutic Inc. (“BioAxone Agreement) (relating to CETHRIN)

8-K

10.1

1/4/2007

000-6533

10.24+

First Amendment, dated March 23, 2007, to BioAxone Agreement (relating to CETHRIN)

10-Q for 3/31/2007

10.1

5/15/2007

000-6533

10.25

Amendment to BioAxone License Agreement dated as of April 23, 2009

10-K for 12/31/2009

10.25

3/31/2010

000-6533

Material Contracts — Leases

10.24

Lease Agreement, dated as of January 28, 2002, between the Company and Brentwood Properties, Inc. (“Brentwood”)

10-K for 12/31/2004

10.47

3/31/2005

000-6533

10.25

Amendment of Lease, dated September 9, 2005, by and between Brentwood and the Company

10-Q for 9/30/2005

10.1

11/14/2005

000-6533

10.26

Lease Agreement, dated as of June 9, 2005, by and between Straly Corporation and the Company

10-Q for 6/30/2005

10.3

8/15/2005

000-6533

 

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				Incorporated by Reference to
Exhibit   Number		Description		Form		Exhibit Number		Filing Date		SEC File Number
10.27		Sublease, dated September 9, 2005, by and between Small Army, Inc. and the Company		10-Q for 9/30/2005		10.2		11/14/2005			000-6533
10.28		Sublease, dated September 9, 2005, by and between Dell Mitchell Architects, Inc. and the Company		10-Q for 9/30/2005		10.3		11/14/2005			000-6533
Material Contracts — Stock Purchase, Financing and Credit Agreements
10.29		Third Amended and Restated Convertible Promissory Note Purchase Agreement (unsecured), dated March 18, 2008 by and among the Company and the purchasers listed therein		8-K		10.1		3/20/2008			000-6533
10.30		Convertible Promissory Note Purchase Agreement (unsecured) dated June 25, 2008, by and between the Company and Robert L. Gipson		8-K		10.1		6/30/2008			000-6533
10.31		Securities Purchase Agreement, dated November 20, 2008, by and between the Company and Robert L. Gipson		8-K		10.1		11/25/2008			000-6533
10.32		Letter Agreement, dated November 20, 2008, by and between the Company and Robert L. Gipson		8-K		10.3		11/25/2008			000-6533
10.33		Securities Purchase Agreement, dated January 8, 2009, by and between the Company and Robert L. Gipson		10-K for 12/31/2009		10.33		3/31/2010			000-6533
10.34		Securities Purchase Agreement, dated February 24, 2009, by and between the Company and Cato Holding Company		8-K		10.1		2/27/2009			000-6533
10.35		Letter Agreement, dated February 24, 2009, by and between the Company and Cato BioVentures		8-K		10.2		2/27/2009			000-6533
10.36		Securities Purchase Agreement, dated March 19, 2009, by and between the Company and Robert L. Gipson		8-K		10.1		3/25/2009			000-6533
10.37		Securities Purchase Agreement, dated April 16, 2009, by and between the Company and Robert L. Gipson		8-K		10.7		4/22/2009			000-6533
10.38		Securities Purchase Agreement, dated May 12, 2009, by and between the Company and Robert L. Gipson		10-Q		10.2		8/14/2009			000-6533
10.39		Securities Purchase Agreement, dated June 10, 2009, by and between the Company and Robert L. Gipson		8-K		10.7		6/22/2009			000-6533
10.40		Securities Purchase Agreement, dated July 9, 2009, by and between the Company and Robert L. Gipson		8-K		10.7		7/13/2009			000-6533
10.41		Securities Purchase Agreement, dated July 23, 2009, by and between the Company and Robert L. Gipson		8-K		10.7		7/29/2009			000-6533

 

51

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Table of Contents

				Incorporated by Reference to
Exhibit   Number		Description		Form		Exhibit Number		Filing Date		SEC File Number
10.42		Securities Purchase Agreement, dated August 11, 2009, by and between the Company and Robert L. Gipson		10-K for 12/31/2009		10.42		3/31/2010			000-6533
10.43		Securities Purchase Agreement, dated August 26, 2009, by and between the Company and Robert L. Gipson		8-K		10.7		9/1/2009			000-6533
10.44		Securities Purchase Agreement, dated September 10, 2009, by and between the Company and Robert L. Gipson		8-K		10.7		9/16/2009			000-6533
10.45		Securities Purchase Agreement, dated September 28, 2009, by and between the Company and Robert L. Gipson		8-K		10.7		10/2/2009			000-6533
10.46		Securities Purchase Agreement, dated November 4, 2009, by and between the Company and Robert L. Gipson		8-K		10.7		11/10/2009			000-6533
10.47		Promissory Note issued by the Company to Robert Gipson dated December 23, 2009		8-K		10.7		12/28/2009			000-6533
10.48		Promissory Note issued by the Company to Robert Gipson dated January 28, 2010		8-K		10.7		1/28/2010			000-6533
10.49		Promissory Note issued by the Company to Robert Gipson dated February 10, 2010		10-K for 12/31/2009		10.49		3/31/2010			000-6533
10.50		Promissory Note issued by the Company to Robert Gipson dated February 26, 2010		8-K		10.7		3/4/2010			000-6533
10.51		Promissory Note issued by the Company to Robert Gipson dated March 9, 2010		10-K for 12/31/2009		10.51		3/31/2010			000-6533
10.52		Promissory Note issued by the Company to Robert Gipson dated March 25, 2010		10-K for 12/31/2009		10.52		3/31/2010			000-6533
10.53		Promissory Note issued by the Company to Robert Gipson dated April 20, 2010		8-K		10.7		4/21/2010			000-6533
10.54		Promissory Note issued by the Company to Robert Gipson dated May 24, 2010		10-K for 12/31/2011		10.54		3/31/2011			000-6533
10.55		Promissory Note issued by the Company to Robert Gipson dated June 10, 2010		8-K		10.7		6/11/2010			000-6533
10.56		Promissory Note issued by the Company to Robert Gipson dated July 1, 2010		8-K		10.7		7/8/2010			000-6533
10.57		Promissory Note issued by the Company to Robert Gipson dated August 2, 2010		8-K		10.7		8/3/2010			000-6533
10.58		Promissory Note issued by the Company to Robert Gipson dated September 7, 2010		8-K		10.7		9/8/2010			000-6533
10.59		Promissory Note issued by the Company to Robert Gipson dated September 13, 2010		8-K		10.8		9/16/2010			000-6533

 

52

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Table of Contents

Incorporated by Reference to

Exhibit Number

Description

Form

Exhibit Number

Filing Date

SEC File Number

10.60

Promissory Note issued by the Company to Robert Gipson dated September 20, 2010

10-K for 12/31/2011

10.60

3/31/2011

000-6533

10.61

Promissory Note issued by the Company to Robert Gipson dated October 18, 2010

10-K for 12/31/2011

10.61

3/31/2011

000-6533

10.62

Note purchase Agreement with Highbridge International LLC dated September 10, 2010

8-K

10.7

9/16/2010

000-6533

10.63

Promissory Note issued by the Company to Robert Gipson dated November 4, 2010

8-K

10.7

11/5/2010

000-6533

10.64

Promissory Note issued by the Company to Robert Gipson dated December 9, 2010

8-K

10.7

12/10/2010

000-6533

10.65

Promissory Note issued by the Company to Robert Gipson dated January 7, 2011

8-K

10.7

1/13/2011

000-6533

10.66

Stock Repurchase Agreement with Robert Gipson dated December 28, 2010

8-K

1.01

1/3/2011

000-6533

10.67

Promissory Note issued by the Company to Robert Gipson dated February 8, 2011

8-K

10.7

2/9/2011

000-6533

10.68

Promissory Note issued by the Company to Robert Gipson dated March 4, 2011

8-K

10.7

3/10/2011

000-6533

10.69

Promissory Note issued by the Company to Robert Gipson dated March 16, 2011

8-K

10.7

3/22/2011

000-6533

Management Contract or Compensatory Plan or Arrangement

10.70#

Form of Indemnity for Directors and Executive Officers

10-K for 12/31/2003

10.32

3/30/2004

000-6533

10.71#

Form of Incentive Stock Option Agreement, as amended

10-Q for 3/31/2005

10.1

5/16/2005

000-6533

10.72#

Form of Non-Statutory Stock Option Agreement, as amended

10-Q for 3/31/2005

10.2

5/16/2005

000-6533

10.73#

Form of Incentive Stock Option Agreement for 2005 Stock Incentive Plan

10-K for 12/31/2005

10.54

3/31/2006

000-6533

10.74#

Form of Non-Statutory Stock Option Agreement for 2005 Stock Incentive Plan

10-K for 12/31/2005

10.55

3/31/2006

000-6533

10.75#

Amended and Restated 1990 Non-Employee Directors’ Non Qualified Stock Option Plan, as amended

10-K for 12/31/2008

10.44

3/31/2009

000.6533

10.76#

Amended and Restated Omnibus Stock Option Plan

10-K for 12/31/2008

10.45

3/31/2009

000.6533

10.77#

Amended and Restated 1998 Omnibus Stock Option Plan

10-K for 12/31/2008

10.46

3/31/2009

000.6533

10.78#

Amended and Restated 2005 Stock Incentive Plan

10-K for 12/31/2008

10.47

3/31/2009

000.6533

10.79#

Director and Officer Indemnity Trust Agreement, dated June 15, 2004, between S. David Hillson, Boston Private Bank & Trust Company and the Company

8-K

99.6

6/17/2004

000-6533

 

53

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Table of Contents

Incorporated by Reference to

Exhibit Number

Description

Form

Exhibit Number

Filing Date

SEC File Number

10.80#

Amended and Restated Employment Agreement, dated December 31, 2008, between the Company and Peter G. Savas

8-K

10.1

1/6/2009

000-6533

10.81#

Amended and Restated Employment Agreement, dated December 31, 2008, between the Company and Mark J. Pykett

8-K

10.2

1/6/2009

000-6533

10.82#

Amended and Restated Employment Agreement, dated December 31, 2008, between the Company and Kenneth L. Rice, Jr.

8-K

10.3

1/6/2009

000-6533

10.83#

Consulting Agreement dated September 29, 2006, by and between the Company and Robert S. Langer, Jr.

8-K

10.1

10/4/2006

000-6533

Additional Exhibits

21

Subsidiaries of the Registrant

*

23.1

Consent of McGladrey LLP

*

31.1

Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended

*

31.2

Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended

*

32.1

Certification of 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 Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

*

101.INS**

XBRL Instance Document

101.SCH**

XBRL Taxonomy Extension Schema Document

101.CAL**

XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB**

XBRL Taxonomy Extension Label Linkbase Document

101.PRE**

XBRL Taxonomy Presentation Linkbase Document

101.DEF**

XBRL Taxonomy Definition Linkbase Document

 

*	Filed herewith.

**

In accordance with Rule 406T of Regulation S-T, the XBRL related information in Exhibit 101 to this Annual Report on Form 10-K shall not be deemed to be “filed” for purposed of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

(#)	Management contract or compensatory plan or arrangement filed as an exhibit to this Form pursuant to Item 15(b) of Form 10-K.

(+)	Confidential treatment has been requested as to certain portions, which portions have been filed separately with the Securities and Exchange Commission.

 

54