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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2014

¨	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)		(IRS Employer Identification No.)

275 Grove Street Suite 2-400, Auburndale, MA 02466		01748
(Address of Principal Executive Offices)		(Zip Code)

(508) 497-2360

(Registrant’s Telephone Number, Including Area Code)

None

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

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):

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

As of July 31, 2014, there were 30,635,720 shares of the registrant’s Common Stock issued and outstanding.

ALSERES PHARMACEUTICALS, INC.

FORM 10-Q

TABLE OF CONTENTS


	Page
Part I FINANCIAL INFORMATION
Item 1 Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of June 30, 2014 and December 31, 2013		3
Condensed Consolidated Statements of Comprehensive Loss for the three months ended June 30, 2014 and 2013, for the six months ended June 30, 2014 and 2013		4
Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2014 and 2013		5
Notes to Condensed Consolidated Financial Statements		6
Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations		12
Item 3 Quantitative and Qualitative Disclosures About Market Risk		15
Item 4 Controls and Procedures		15

Part II OTHER INFORMATION		16
Item 1 Legal Proceedings		18
Item 6 Exhibits		17

SIGNATURES		18
EX-31.1
EX-31.2
EX-32.1
EX-32.2
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

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

Part I — FINANCIAL INFORMATION

Item 1 — Financial Statements

Alseres Pharmaceuticals, Inc.

Consolidated Balance Sheets

(unaudited)


	June 30, 2014			December 31, 2013
ASSETS
Current assets:
Cash and cash equivalents	$	46,444		$	113,958
Short-term investments		140,510			196,650
Restricted marketable securities		7,400			10,350
Prepaid expenses and other current assets		25,687			3,686


Total current assets		220,041			324,644

Deferred charges		58,984			60,827


Total assets	$	279,025		$	385,471


LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable and accrued expenses	$	1,103,472		$	1,055,738
Accrued interest on notes payable		4,788			5,630
Note payable, current		118,855			—
Deferred revenue		73,731			73,731
Other current liabilities		10,271			13,221
Advances from related party		500,000			500,000


Total current liabilities		1,811,117			1,648,320

Note payable		8,296,735			7,819,960
Deferred revenue, net of current portion		1,105,952			1,142,816
Other long-term liabilities		43,750			43,750


Total liabilities	$	11,257,554			10,654,846


Commitments and contingencies

Series F convertible redeemable preferred stock, $.01 par value; 200,000 shares designated; 12,000 shares issued and outstanding at June 30, 2014 and December 31, 2013, (liquidation preference of $300,000 at June 30, 2014)	$	400,887		$	390,443


Stockholders’ deficit:
Common stock, $.01 par value; 80,000,000 shares authorized at June 30, 2014 and December 31, 2013; 30,635,720 issued and outstanding at June 30, 2014 and December 31, 2013		306,357			306,357
Additional paid-in capital		188,651,804			188,622,248
Accumulated other comprehensive loss		(49,490	)		6,650
Deficit accumulated		(200,288,087	)		(199,635,073	)


Total stockholders’ deficit		(11,379,416	)		(10,659,818	)


Total liabilities and stockholders’ deficit	$	279,025		$	385,471

Alseres Pharmaceuticals, Inc.

Condensed Consolidated Statements of Comprehensive Loss

(Unaudited)


	Three Months Ended June 30,						Six Months Ended June 30,
	2014			2013			2014			2013
Revenue	$	18,432		$	18,432		$	36,864		$	36,864


Operating expenses:
General and administrative		334,634			370,924			682,793			810,604
Sub-license and option fees		921						1,843


Operating expenses before accrual reversal		335,555			370,924			684,636			810,064
Accrual reversal		—			—			—			(405,026	)


Total operating expenses		335,555			370,924			684,636			405,578

Loss from operations		(317,123	)		(352,492	)		(647,772	)		(368,714	)

Interest expense		(3,878	)		(111,243	)		(5,242	)		(222,110	)
Realized loss on sale of marketable securities		—			(56,317	)		—			(227,083	)


Net loss		(321,001	)		(520,052	)		(653,014	)		(817,907	)

Other comprehensive income
Unrealized gain (loss) on marketable securities:		(35,150	)		(6,306	)		(56,140	)		49,185
Unrealized holding gain (loss) arising during the year
Less: reclassification adjustments for loss on sale included in net loss					56,317						227,083
Net unrealized gain (loss) on marketable securities		(35,150	)		50,011			(56,140	)		276,269




Comprehensive loss	$	(356,151	)	$	(470,041	)	$	(709,154	)	$	(541,638	)


Basic and diluted net loss attributable to common stockholders per share	$	(0.01	)	$	(0.02	)	$	(0.02	)	$	(0.03	)


Weighted average common shares outstanding		30,635,720			30,635,720			30,635,720			30,635,720

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

Alseres Pharmaceuticals, Inc.

Consolidated Statements of Cash Flows

(Unaudited)


	Six Months Ended June 30,
	2014			2013
Cash flows from operating activities:
Net loss	$	(653,014	)	$	(817,907	)
Adjustments to reconcile net loss to net cash used for operating activities:
Amortization and depreciation		—			1,186
Loss on sale of marketable securities		—			227,083

Changes in operating assets and liabilities:
(Increase) decrease in prepaid expenses and other current assets		(22,001	)		13,815
(Increase) decrease in deferred charges		1,843			1,843
Increase (decrease) in accounts payable and accrued expenses		47,734			(551,892	)
Increase in accrued interest payable		4,788			222,699
Increase (decrease) in deferred revenue		(36,864	)		(36,864	)
Increase (decrease) in current liabilities					(60,126	)


Net cash used for operating activities		(657,514	)		(1,000,163	)


Cash flows from investing activities:
Sales and maturities of marketable securities		—			861,617


Net cash provided by investing activities		—			861,617


Cash flows from financing activities:
Advances from related party		—			100,000
Proceeds from issuance of promissory notes		590,000			50,000


Net cash provided by financing activities		590,000			150,000


Net (decrease) increase in cash and cash equivalents		(67,514	)		11,454
Cash and cash equivalents, beginning of period		113,958			16,528


Cash and cash equivalents, end of period	$	46,444		$	27,982


Supplemental cash flow disclosures:

Net change in unrealized holding gains and losses	$	56,140		$	276,269
Accretion of Series F preferred stock		10,444		$	10,356

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

Alseres Pharmaceuticals, Inc.

Notes to Consolidated Financial Statements (Unaudited)

June 30, 2014

1. Nature of Operations and Basis of Presentation

Nature of Operations

Alseres Pharmaceuticals, Inc. and its subsidiaries (the “Company”) was founded as a biotechnology company focused on therapeutic and 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. Through 2013 the Company was engaged in the development of its Altropane diagnostic imaging agent for the diagnosis of Parkinson’s disease and dementia with Lewy Bodies. In 2013 the Company began to receive revenues from milestone payments associated with the sublicensing of Altropane in July 2012. Since the Company has begun to receive revenues from its out licensed product and is no longer engaged in development activities, the Company no longer qualifies as a development-stage company for accounting purposes.

As of June 30, 2014, we experienced total net losses since inception of $200,288,087, stockholders’ deficit of $11,379,415 and a net working capital deficit of approximately $1,591,076. For the foreseeable future, we expect to experience continuing operating losses and negative cash flows from operations as we execute our current business plan. We believe that the approximately $20,000 in cash and cash equivalents available as of August 1, 2014 may enable us to meet our anticipated cash expenditures through August 2014.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Accordingly, these financial statements do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements.

The interim unaudited condensed consolidated financial statements contained herein include, in management’s opinion, all adjustments necessary for a fair presentation of the financial position, results of operations, and cash flows for the periods presented. The results of operations for the interim period shown on this report are not necessarily indicative of results for a full year. These financial statements should be read in conjunction with the Company’s consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013.

The accompanying condensed consolidated financial statements have been prepared on a basis which assumes that the Company will continue as a going concern which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The uncertainty inherent in the need to raise additional capital and the Company’s limited resources and 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.

2. Summary of Significant Accounting Policies

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 June 30, 2014 and December 31, 2013, cash equivalents consisted of money market funds.

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 fair values. Marketable securities are classified as short-term 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 conversion to cash 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 condensed 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 June 30, 2014 and December 31, 2013, the Company’s short-term investments consist of shares of common stock in Navidea Biopharmaceuticals, Inc. (“Navidea” or “NAVB”). These securities are classified as freely tradable short term investments. 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.

Revenue Recognition

The Company evaluates multiple element revenue arrangements under Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 605-25, Multiple-Element Arrangements. 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, if there is a general right of return for the delivered item, delivery or performance of the undelivered item is probably or within our control. The consideration is allocated to the separate units of accounting as determined by the best estimate of the selling price which requires judgment on the part of management. When non-refundable license fees do not meet all of these criteria, the license revenues are recognized over the expected period of performance. Current period revenue reported represents the amortization of license fees over the associated term.

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.

Comprehensive Income (Loss)

The new presentation requirements under Accounting Standards Update (ASU) 2011-05, “Presentation of Comprehensive Income”. Comprehensive income (loss) consists of net income (loss) and other comprehensive income (loss). Other comprehensive income (loss) includes unrealized gains and losses, net of taxes, on our marketable securities which are also recognized as separate components of equity. ASU 2011-05 requires companies to present the components of net income (loss) and the components of other comprehensive income (loss) either as one continuous statement or as two consecutive statements. In February 2013, the FASB issued ASU 2013-02, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income, which requires an entity to separately present the amount reclassified out of accumulated other comprehensive income (AOCI) for each component of AOCI and to disclose, for each affected line item in the income statement, the amount of AOCI that has been reclassified into that line item. This information must be provided either on the face of the financial statements by income statement line item, or in a footnote. For public companies the amendments in the update became effective for interim or annual periods beginning on or after December 15, 2012. As ASU 2013-02 and ASU 2011-05 impacted presentation only, neither had an effect on the Company’s financial position nor results of operations as of and for the three months and six months ended June 30, 2014 and the year ended December 31, 2013, respectively.

Convertible Redeemable Shares

In accordance with ASC 480, Distinguishing Liabilities from Equity the Company determined that since Series F shares are redeemable at the option of the shareholder for cash or for a variable, uncapped, number of common shares, they are accounted for as temporary equity and the carrying value is adjusted to reflect the accretion of periodic dividends.

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.

Restricted Marketable Securities

Pursuant to the terms of the Amended and Restated License Agreement with Harvard University and its affiliated hospitals (“Harvard”) entered into on July 31, 2012, the Company had an obligation to transfer 5,000 shares of the NAVB common stock to Harvard at June 30, 2014 and December 31, 2013. The market value of the 5,000 shares held on June 30, 2014 and December 31, 2013 was $7,400 and $10,350, respectively. The 5,000 shares of NAVB common stock held by the Company at June 30, 2014 and December 31, 2013 is classified as restricted securities in the consolidated balance sheet and the corresponding liability is reported in other current liabilities.

3. Accounts Payable and Accrued Expenses

The Company’s accounts payable and accrued expenses consisted of the following:


	June 30, 2014		December 31, 2013

Research and development expenses	$	430,824	$	470,824

Professional fees		251,898		201,146

General and administrative expenses		346,566		307,883

Compensation related expenses		74,184		75,885


	$	1,103,472	$	1,055,738

On February 15, 2013, 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 those individuals which, in aggregate, totaled $167,400 by issuing fully vest options to purchase a total of 167,400 shares of the common stock of Alseres Neurodiagnostics, Inc. ( a wholly owned subsidiary of 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, in whole or in part on or before February 28, 2018. The common stock issued pursuant to the exercise of the options will bear all appropriate restrictive legends on resale or disposition of the common stock. As of June 30, 2014 the options had not yet been issued. Therefore the associated liability of $167,400 remains outstanding and is recorded in accrued expenses on the balance sheet at June 30, 2014. While the fair value of the options will likely be lower than the value of the current liability, the Company has determined it is not appropriate to recognize a gain at this time given the uncertainty of these events and the variability associated with the value of the options.

4. 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 845,000 shares of common stock and 3 million shares of common stock were outstanding at June 30, 2014 and June 30, 2013, respectively, 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 June 30, 2014 could potentially dilute earnings per share in the future.

5. Accounting for Stock-Based Compensation

We have one active stock option plan under which we can issue both nonqualified and incentive stock options to employees, officers, consultants and scientific advisors of the Company. At June 30, 2013, the 2005 Stock Incentive Plan (the “2005 Plan”) provided for the issuance of options, restricted stock, restricted stock units, stock appreciation rights or other stock-based awards to purchase 3,450,000 shares of our common stock. The 2005 Plan contains a provision that allows for an annual increase in the number of shares available for issuance under the 2005 Plan on the first day of each of the 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 increase in the number of shares available for issuance was made in January 2014.

We also have outstanding stock options in three other stock option plans, the 1998 Omnibus Plan, the Amended and Restated Omnibus Stock Option Plan and the Amended and Restated 1990 Non-Employee Directors’ Non-Qualified Stock Option Plan. These plans have expired and no future issuance of awards is permissible.

Our Board of Directors determines the term, vesting provisions, price, and number of shares for each award that is granted. The term of each option cannot exceed ten years.

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 six months ended June 30, 2014 and 2013.

A summary of our outstanding stock options for the six months ended June 30, 2014 and 2013 is presented below.


	2014					2013
	Shares			Weighted Average Exercise Price		Shares		Weighted Average Exercise Price
Outstanding at beginning of period		3,002,480		$	1.51		3,010,980	$	1.51
Granted		—			—		—		—
Exercised		—			—		—		—
Forfeited and expired		(2,157,500	)		1.19		—


Outstanding at end of period		844,980		$	2.27		3,010,980	$	1.51


Options exercisable at end of period		844,980		$	2.27		3,010,980	$	1.51

The following table summarizes information about stock options outstanding and exercisable at June 30, 2014:


Range of Exercise Prices	Number Outstanding		Weighted Average Remaining Contractual Life	Weighted Average Exercise Price

$1.15 — $1.36		150,000	4.5 years	$	1.15
$2.00 — $3.00		539,980	1.2 years		2.33
$3.10 — $4.65		155,000	3.3 years		3.17


		844,980	2.2 years	$	2.27

There was no intrinsic value of outstanding options and exercisable options as of June 30, 2014. As of June 30, 2014, 2,946,672 shares were available for grant under the 2005 Stock Incentive Plan.

6. Notes Payable and Debt

Through 2013, a series of working capital loans (“Borrowings”) were made to the Company by its significant stockholder, Mr. Robert Gipson, evidenced by demand promissory notes totaling $7,135,000 and bearing interest at 7% per annum. Interest on these notes was accrued and totaled approximately $1,365,000 at December 31, 2013. On December 31, 2013, the Company executed a Loan Consolidation Agreement with its significant stockholder (“Lender”). The terms of the Borrowings were modified to reduce the stated interest rate and provide for a fixed due date, additional borrowing capacity and a security interest in certain assets of the Company. Upon execution of the Loan Consolidation Agreement, all amounts outstanding under the Borrowings including accrued interest were cancelled and considered paid in full and the Company entered into a new Promissory Note (“Consolidated Note”).

The Consolidated Note bears interest at 3.2% per annum payable semi-annually in arrears and requires principal to be repaid on or before December 31, 2016. The Consolidated Note also includes semi-annual cash draws for the future working capital needs of the Company. The draws will be a minimum of $110,000 and are to be added to principal when drawn. Coincident with the execution of the Loan Consolidation Agreement, the Company and the Lender also executed a Security Agreement which provides the Lender with an undivided security interest in and to all personal and intellectual property of the Company subject to all existing liens, encumbrances and license rights previously granted by the Company. The Security Agreement also allows the Company to be free to dispose of or liquidate the collateral without any prior waiver or authorization from the Lender so long as the proceeds of any such disposition are used to pay down the principal on the Consolidated Note or the Lender affirmatively waives such obligation in writing. The Company considered whether the transaction was within the scope of ASC 470-60-55 Accounting for Troubled Debt Restructuring, which states that if a company is experiencing financial difficulties and a concession is granted, troubled debt restructuring accounting should be applied. The Company concluded that it was experiencing financial difficulties and the creditor had granted a concession as the effective borrowing rate for the restructured debt is less than the effective rate of the old debt prior to restructuring. In 2013 the Company recognized a gain of $682,670 equal to the difference between the carrying value of the old debt and the present value of the future cash flows under the new terms. Since the lender is a related party, the gain was considered in essence to be a capital transaction and therefore, the gain was recognized as an increase to additional paid in capital. Additionally, due to this restructuring, future payments made will be charged to the carrying value of the restructured debt balance and no interest expense will be recorded going forward.

During the six months ended June 30, 2014, the Company borrowed an additional $590,000 under the Consolidated Note. Interest expense of $4,788 was recognized for the six month period ended June 30, 2014. The accrued interest balance at June 30, 2014 represents the accrued interest associated with the additional borrowings and the current portion of the restructured debt balance, which is interest only.

7. Convertible Preferred Stock

The Company’s Series F Convertible, Redeemable Preferred Stock (“Series F Stock”) can be 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. All shares of Series F Stock were sold to Robert Gipson in 2009 at $25 per share, yielding the Company aggregate proceeds of $4,600,000. As of June 30, 2014, 12,000 shares of Series F Stock were outstanding and held by Robert Gipson.

8. Commitments and Contingencies

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.

In settlement of all claims by BCH and CMCC, the Company agreed to pay a lump sum of $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 upon the occurrence of the first milestone described in Section 4.2 of the sublicense agreement dated as of July 31, 2012 between Navidea and the Company. The milestone occurred in December, 2013 at which time the value of 20,000 shares of Navidea common stock was $40,000. The Company paid CMCC the sum of $40,000 in January 2014 in accordance with the terms of the Settlement Agreement and Release.

9. Income taxes

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, 2010 through December 31, 2013. The U.S. Internal Revenue Service (IRS) has completed an audit of tax years 2007 and 2008 and has informed us that no adjustments to the federal tax returns as filed will be proposed as a result of the audit. However, because we are carrying forward income tax attributes such as a net operating loss (“NOL”) from 2006, these attributes can still be audited when utilized on returns filed in the future.

10. 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

The following table summarizes the financial assets that we measured at fair value as of June 30, 2014 and December 31, 2013.


	June 30, 2014
	Level 1		Level 2		Level 3		Total
Available for sale securities	$	140,510	$	—	$	—	$	140,510


	December 31, 2013
	Level 1		Level 2		Level 3		Total
Available for sale securities	$	196,650	$	—	$	—	$	196,650

As of June 30, 2014 and December 31, 2013, the Company’s Level 1 short-term investments consist of 95,000 shares of Navidea common stock which are traded on the NYSE under the symbol NAVB.

11. Related Party Transaction

During the first six months of 2014, Robert Gipson provided a total of $590,000 to the Company as an increase to the Consolidated Note referenced in Note 6 above.

12. Subsequent Events

We evaluated all events or transactions that occurred after June 30, 2014 up through the date we issued these financial statements.

Item 2 — 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 Carefully review the risks outlined in other documents that we file from time to time with the SEC.

Overview

Description of Company

We were formally 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 is a 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. At present we are operating with minimal resources and focusing our efforts on exploring the feasibility of the central nervous system diagnostic centers described in more detail below.

Product Development — Molecular Imaging Program

Altropane Molecular Imaging Agent

On July 31, 2012 we executed a License Agreement with Navidea Biopharmaceuticals, Inc. (“Navidea” or “NAVB”) under which we granted Navidea an exclusive, worldwide sublicense to research, develop, and commercialize 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. Under the terms of the sublicense agreement, Navidea has agreed to use its best commercial efforts to develop and launch Altropane in accordance with an agreed to development plan for the product. 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. 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”, 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.

Central Nervous System Diagnostic Centers Opportunity

We are presently conducting a preliminary feasibility assessment for a new business focused on organizing and operating a US network of diagnostic centers concentrating on neurodegenerative conditions. If the business is deemed to be feasible and moves forward, we intend to operate it through our subsidiary, Alseres Neurodiagnostics, Inc. The cost of caring for people with degenerative brain disease, trauma induced brain dysfunction and psychiatric brain disorders is projected to surpass that of cancer and heart disease combined by 2030. Today, progressive degenerative brain diseases like Alzheimer’s, Parkinson’s and Lewy Body Dementia are clinically diagnosed and therefore go undetected for up to 20 years. Neither patients, nor physicians, nor scientists can benefit from early stage diagnosis and treatment.

The diagnostic and treatment landscape is changing. Multi-modal diagnostic tools that combine inexpensive, convenient, predictive in-vitro diagnostic tests, in-vivo visualization tools and data interpretation algorithms are here, with more on the horizon. These advances coupled with new developments in disease modifying drugs and devices will fuel demand for accurate, precise CNS data to predict, diagnose and treat these devastating conditions.

The number of Americans living with neurodegenerative movement disorders such as Parkinson’s disease, and dementias like Alzheimer’s and Dementia with Lewy Bodies, 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

The new business would be tasked with taking full advantage of a proprietary multi-modal diagnostic toolkit to cost-effectively provide:

•

Patients, physicians and caregivers with the information they need to predict, diagnose, monitor and manage CNS disease progression; and

•

Scientists with information and access to the well-characterized, early stage patients they need to discover, develop and commercialize predictive, diagnostic, therapeutic and preventative products.

The clinics will capture clinical samples and longitudinal patient data and analyses that will be retained in a central location. They will utilize state-of-the-art imaging technology, clinical diagnostic equipment and in-vitro diagnostic tools. All clinics will operate under standard, network-wide screening, imaging, interpretation and data acquisition protocols ensuring quality control and consistency of patient data and interpretation.

The clinics will provide screening, diagnosis and on-going monitoring of both pre-symptomatic and symptomatic patients affected by neurodegenerative brain disorders. The clinics 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.

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.

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. Our estimates include those related to marketable securities, research contracts and the fair value and classification of financial instruments. We base our estimates on historical experience and on various other assumptions that we believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.

Results of Operations for the Three Months Ended June 30, 2014 and June 30, 2013

For each of the three month periods ended June 30, 2014 and 2013, the Company recognized revenue of $18,432. The 2014 and 2013 revenues reflect the ratable recognition of the $1,321,000 upfront sublicense fee received from Navidea effective on July 31, 2012. Revenue will be recognized ratably from the date the sublicense agreement became effective (July 31, 2012) through the expected life of the U.S. patent for Altropane (June 30, 2030).

Our net loss was $321,001 for the three months ended June 30, 2014 compared to a net loss of $520,052 for the three months ended June 30, 2013. The net loss for the three months ended June 30, 2014 resulted from operating expenses of approximately $336,000 and interest expense of approximately $4,000 partially offset by revenues of $18,432 . The net loss of $520,052 for the three months ended June 30, 2013 was attributable to operating expenses of approximately $371,000 and interest expense of approximately $111,000 partially offset by revenues of $18,432.

Research and development expenses were $0 during the three months ended June 30, 2014 and 2013.

General and administrative expenses were $334,634 during the three months ended June 30, 2014 compared to $370,924 during the three months ended June 30, 2013. The decrease of $36,290 for the three months ended June 30, 2014 was principally attributable to reductions in rent expense due to renegotiation of terms with our landlord in 2013, IT consulting fees, health insurance premiums, travel and directors and officers liability insurance premiums.

Interest expense of $3,878 was incurred during the three months ended June 30, 2014 compared to $111,243 during the three months ended June 30, 2013. The significant reduction from 2013 to 2014 was attributable to the debt restructuring more fully described in footnote 6 above.

Results of Operations for the Six Months Ended June 30, 2014 and June 30, 2013

For the six month periods ended June 30, 2014 and 2013, the Company recognized revenue of $36,864. The 2014 and 2013 revenues reflect the ratable recognition of the $1,321,000 upfront sublicense fee received from Navidea effective on July 31, 2012. Revenues will be recognized ratably from the date the sublicense agreement became effective (July 31, 2012) through the expected life of the U.S. patent for Altropane (June 30, 2030).

Our net loss was $653,014 for the six months ended June 30, 2014 compared to a net loss of $817,907 for the six months ended June 30, 2013. The net loss for the six months ended June 30, 2014 resulted from operating expenses of approximately $684,000 and interest expense of approximately $5,000 partially offset by approximately $36,000 in revenues from the Navidea license. The net loss of $817,907 for the six months ended June 30, 2013 was attributable to operating expenses of approximately $405,000 net of a non-recurring accrual reversal of $465,000 and interest expense of approximately $222,000 partially offset by recognition of approximately $36,000 of revenue.

Research and development expenses were $0 during the six months ended June 30, 2014 and 2013.

General and administrative expenses were $682,793 during the six months ended June 30, 2014 compared to $810,604 during the six months ended June 30, 2013. The decrease of $127,811 for the six months ended June 30, 2014 was principally attributable to reduction in rent expense due to renegotiation of terms with our landlord in 2013 and reduction in consulting fees related to accounting services.

Interest expense of $5,242 was incurred during the six months ended June 30, 2014 compared to $222,110 during the six months ended June 30, 2013. The significant reduction from 2013 to 2014 was attributable to the debt restructuring more fully described in footnote 6 above.

Liquidity and Capital Resources

As of June 30, 2014, we had experienced total net losses since inception of $200,288,087, stockholders’ deficit of $11,379,416 and a net working capital deficit of $1,591,100. For the foreseeable future, we expect to experience continuing operating losses and negative cash flows from operations as we execute our current business plan. The cash and cash equivalents available at June 30, 2014 will not provide sufficient working capital to meet our anticipated expenditures for the next twelve months. We believe that the approximately $20,000 in cash and cash equivalents available as of August 1, 2014 may enable us to meet our anticipated cash expenditures through August 2014.

Operating Activities

Net cash used for operating activities was $673,014 for the six months ended June 30, 2014 compared to $1,000,163 for the six months ended June 30, 2013. The reduction for 2013 to 2014 was attributable to lower overall operating costs for the first six months of 2014 driven by lower facilities costs, lower patent expenses as well as consulting and legal costs.

Investing Activities

Net cash was provided by investing activities for the six months ended June 30, 2014 totaled $0 compared to $861,617 for the six months ended June 30, 2013. The reduction from 2013 to 2014 was attributable to sales of marketable securities in 2013 and no such sales in 2014.

Financing Activities

Financing activities provided cash of $590,000 for the six months ended June 30, 2014 compared to $150,000 for the six months ended June 30, 2013. Cash provided by financing activities for the six months ended June 30, 2014 and 2013 reflects the proceeds of advances from Robert Gipson.

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.

In order to continue as a going concern, we will need to raise additional capital through one or more of the following: a debt financing, an equity offering, or a collaboration, merger, acquisition or other transaction with one or more pharmaceutical or biotechnology companies. We are currently engaged in fundraising efforts. There can be no assurance that we will be successful in our fundraising efforts or that additional funds will be available on acceptable terms, if at all. We also cannot be sure that we will be able to obtain additional credit from, or effect additional sales of debt or equity securities to certain of our existing investors in which case we may need to cease operations or reduce, cease or delay one or more of our research or development programs and/or adjust our current business plan and in any such event may not be able to continue as a going concern.

Item 3 — 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 4 — Controls and Procedures

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 2013, management identified a control deficiency that was also identified during its assessments for the 2012 fiscal year. During the course of the previous year’s evaluation, and again during the evaluation for the 2013 fiscal year, management determined that the Company lacked 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, 2013. We believe this deficiency continued through June 30, 2014.

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 2014 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.

Part II — OTHER INFORMATION

The disclosure contained under the heading “Contingencies” in Note 9 to the condensed consolidated financial statements included in Part I, Item 1 hereof is incorporated herein by reference.

Statements contained or incorporated by reference in this Quarterly Report on Form 10-Q that are not based on historical fact are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act. These forward-looking statements regarding future events and our future results are based on current expectations, estimates, forecasts, and projections, and the beliefs and assumptions of our management including, without limitation, our expectations regarding our product candidates, including the success and timing of our preclinical, clinical and development programs, the submission of regulatory filings and proposed partnering arrangements, the outcome of any litigation, collaboration, merger, acquisition and

fund raising efforts, results of operations, selling, general and administrative expenses, research and development expenses and the sufficiency of our cash for future operations. Forward-looking statements may be identified by the use of forward-looking terminology such as “may,” “could,” “will,” “expect,” “estimate,” “anticipate,” “continue,” or similar terms, variations of such terms or the negative of those terms.

We cannot assure investors that our assumptions and expectations will prove to have been correct. Important factors could cause our actual results to differ materially from those indicated or implied by forward-looking statements. Such factors that could cause or contribute to such differences include those factors discussed below. We undertake no intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Item 6 — Exhibits


31.1*		Certification of the Chief Executive Officer pursuant to Section 1350 of Title 18, United States Code, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*		Certification of the Chief Financial Officer pursuant to Section 1350 of Title 18, United States Code, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

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

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

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.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


				ALSERES PHARMACEUTICALS, INC (Registrant)

DATE: August 14, 2014				/s/ PETER G. SAVAS
				Peter G. Savas
				Chief Executive Officer (Principal Executive Officer)

DATE: August 14, 2014				/S/ KENNETH L. RICE, JR.
				Kenneth L. Rice, Jr.
				Executive Vice President Finance and Administration And Chief Financial Officer (Principal Financial and Accounting Officer)

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ALSERES PHARMACEUTICALS INC /DE 10-Q