UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

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

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

Commission File Number 0-6533

 

ALSERES PHARMACEUTICALS, INC.

(Exact Name of Registrant as Specified in Its Charter)

Delaware		87-0277826
(State or Other Jurisdiction of		(IRS Employer
Incorporation or Organization)		Identification No.)

239 South Street, Hopkinton, Massachusetts		01748
(Address of Principal Executive Offices)		(Zip Code)

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

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

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o		Accelerated filer o		Non-accelerated filer o (Do not check if a smaller reporting company)		Smaller reporting company þ

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

     As of August 6, 2010, there were 27,055,645 shares of the 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, 2010 and December 31, 2009			3
Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2010 and 2009, and for the period from inception (October 16, 1992) to June 30, 2010			4
Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2010 and 2009, and for the period from inception (October 16, 1992) to June 30, 2010			5
Notes to Condensed Consolidated Financial Statements			6
Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations			13
Item 3 Quantitative and Qualitative Disclosures About Market Risk			20
Item 4T Controls and Procedures			20
Part II OTHER INFORMATION
Item 1 Legal Proceedings			20
Item 6 Exhibits			21
SIGNATURES
EX-31.1
EX-31.2
EX-32.1
EX-32.2

     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.
(A Development Stage Enterprise)

Condensed Consolidated Balance Sheets

		(Unaudited)
		June 30,				December 31,
		2010				2009
ASSETS
Current assets:
Cash and cash equivalents		$	30,341			$	314,964
Security deposits			7,536				38,928
Prepaid expenses and other current assets			99,373				34,231
Total current assets			137,250				388,123
Fixed assets, net			75,667				106,272
Indemnity fund			115,617				115,720
Security deposits and other assets			180,700				180,700
Total assets		$	509,234			$	790,815
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable and accrued expenses		$	4,069,749			$	3,522,581
Notes payable			2,735,000				1,350,000
Accrued lease (Note 7)			61,188				51,493
Total current liabilities			6,865,937				4,924,074
Convertible notes payable			34,529,940				34,155,632
Accrued interest payable			4,929,084				4,057,086
Accrued lease, excluding current portion (Note 7)			64,692				96,426
Total liabilities			46,389,653				43,233,218
Commitments and contingencies (Note 8)
Series F convertible redeemable preferred stock, $.01 par value; 200,000 shares designated; 196,000 shares issued and outstanding at June 30, 2010 and December 31, 2009; (liquidation preference of $4,900,000 at June 30, 2010)			5,250,037				5,066,919
Stockholders’ deficit:
Preferred stock, $.01 par value; 1,000,000 shares authorized; 25,000 shares designated Convertible Series A, 500,000 shares designated Convertible Series D and 800 shares designated Convertible Series E; no shares issued and outstanding at June 30, 2010 and December 31, 2009, respectively			—				—
Common stock, $.01 par value; 80,000,000 shares authorized; 27,055,645 and 25,555,645 shares issued and outstanding at June 30, 2010 and December 31, 2009, respectively			270,556				255,556
Additional paid-in capital			146,780,018				146,913,395
Deficit accumulated during development stage			(198,181,030	)			(194,678,273	)
Total stockholders’ deficit			(51,130,456	)			(47,509,322	)
Total liabilities and stockholders’ deficit		$	509,234			$	790,815

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

Alseres Pharmaceuticals, Inc.
(A Development Stage Enterprise)

Condensed Consolidated Statements of Operations
(Unaudited)

																		From Inception
																		(October 16, 1992)
		Three Months Ended June 30,								Six Months Ended June 30,								to
		2010				2009				2010				2009				June 30, 2010
Revenues		$	—			$	—			$	—			$	—			$	900,000
Operating expenses:
Research and development			206,424				892,520				681,232				2,720,535				116,164,062
General and administrative			755,121				1,092,946				1,483,240				3,063,068				65,607,694
Purchased in-process research and development			—				—				—				—				12,146,544
Total operating expenses			961,545				1,985,466				2,164,472				5,783,603				193,918,300
Loss from operations			(961,545	)			(1,985,466	)			(2,164,472	)			(5,783,603	)			(193,018,300	)
Other income (expense)			—				—				—				65,000				(1,517,878	)
Interest expense, net			(682,665	)			(630,501	)			(1,339,365	)			(1,249,051	)			(11,346,361	)
Investment income			407				1,887				1,080				5,218				7,703,509
Net loss			(1,643,803	)			(2,614,080	)			(3,502,757	)			(6,962,436	)			(198,179,030	)
Preferred stock beneficial conversion feature			—				—				—				—				(8,062,712	)
Accrual of preferred stock dividends and modification of warrants held by preferred stockholders			—				—				—				—				(1,229,589	)
Net loss attributable to common stockholders			(1,643,803	)			(2,614,080	)			(3,502,757	)			(6,962,436	)			(207,471,331	)
Basic and diluted net loss attributable to common stockholders per share		$	(0.06	)		$	(0.11	)		$	(0.13	)		$	(0.30	)
Weighted average common shares outstanding			27,055,645				23,309,004				26,318,076				22,971,047

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

Alseres Pharmaceuticals, Inc.
(A Development Stage Enterprise)

Condensed Consolidated Statements of Cash Flows
(Unaudited)

										From Inception
										(October 16,
										1992) to
		Six Months Ended June 30,								June 30,
		2010				2009				2010
Cash flows from operating activities:
Net loss		$	(3,502,757	)		$	(6,962,436	)		$	(198,179,030	)
Adjustments to reconcile net loss to net cash used for operating activities:
Purchased in-process research and development			—				—				12,146,544
Write-off of acquired technology			—				—				3,500,000
Interest expense settled through issuance of notes payable			—				—				350,500
Non-cash interest expense			391,413				350,206				3,616,336
Non-cash charges related to options, warrants and common stock			51,713				1,371,180				11,104,594
Amortization of financing costs			13,027				—				13,027
Amortization and depreciation			30,604				39,574				2,821,921
Changes in operating assets and liabilities:
(Increase) decrease in prepaid expenses and other current assets			(85,246	)			10,212				603,089
Increase (decrease ) in accounts payable and accrued expenses			474,490				(734,114	)			3,161,668
Increase in accrued interest payable			944,677				898,846				5,064,501
(Decrease) increase in accrued lease			(22,039	)			(25,994	)			125,880
Net cash used for operating activities			(1,704,118	)			(5,052,526	)			(155,670,970	)
Cash flows from investing activities:
Cash acquired through Merger			—				—				1,758,037
Purchases of fixed assets			—				—				(1,652,114	)
Decrease (increase) in security deposits and other assets			34,392				42,041				(385,371	)
Decrease (increase) in indemnity fund			103				(320	)			(115,617	)
Purchases of marketable securities			—				—				(132,004,923	)
Sales and maturities of marketable securities			—				—				132,004,923
Net cash provided by (used for) investing activities			34,495				41,721				(395,065	)
Cash flows from financing activities:
Proceeds from issuance of common stock			—				1,000,000				66,731,339
Proceeds from issuance of preferred stock			—				3,000,000				39,922,170
Preferred stock conversion inducement			—				—				(600,564	)
Proceeds from issuance of promissory notes			1,385,000				1,000,000				54,320,000
Proceeds from issuance of convertible debentures			—				—				9,000,000
Principal payments of notes payable			—				—				(7,146,967	)
Dividend payments on Series E Cumulative Convertible Preferred Stock			—				—				(516,747	)
Payments of financing costs			—				(25,188	)			(5,612,855	)
Net cash provided by financing activities			1,385,000				4,974,812				156,096,376
Net (decrease) increase in cash and cash equivalents			(284,623	)			(35,993	)			30,341
Cash and cash equivalents, beginning of period			314,964				73,974				—
Cash and cash equivalents, end of period		$	30,341			$	37,981			$	30,341
Supplemental cash flow disclosures:
Non-cash transactions
Cash paid for interest		$	—			$	—			$	628,406

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

Alseres Pharmaceuticals, Inc.
(A Development Stage Enterprise)
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2010

1. Basis of Presentation

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

     The interim unaudited condensed consolidated financial statements contained herein include, in management’s opinion, all adjustments (consisting of normal recurring adjustments) necessary for a fair statement of the financial position, results of operations, and cash flows for the periods presented. The results of operations for the interim period shown on this report are not necessarily indicative of results for a full year. These financial statements should be read in conjunction with the Company’s consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009.

     The accompanying condensed consolidated financial statements have been prepared on a basis which assumes that the Company will continue as a going concern which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The uncertainty inherent in the need to raise additional capital and the Company’s recurring losses from operations raise substantial doubt about the Company’s ability to continue as a going concern. The condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

     As of June 30, 2010, we had experienced total net losses since inception of approximately $207,471,000, stockholders’ deficit of approximately $51,130,000 and a net working capital deficit of approximately $6,729,000. For the foreseeable future, we expect to experience continuing operating losses and negative cash flows from operations as we execute our current business plan. The cash and cash equivalents available at June 30, 2010 will not provide sufficient working capital to meet our anticipated expenditures for the next twelve months. We believe that the approximately $200,000 in cash and cash equivalents available at August 6, 2010 combined with minimal additional operating capital committed by our lead investor and our ability to control certain costs, including those related to clinical trial programs, preclinical activities, and certain general and administrative expenses will enable us to meet our anticipated cash expenditures through August 2010.

     In order to continue as a going concern, we must immediately raise additional funds through one or more of the following: a debt financing, an equity offering or a collaboration, merger, acquisition or other transaction with one or more pharmaceutical or biotechnology companies. We are currently engaged in fundraising efforts. There can be no assurance that we will be successful in our fundraising efforts or that additional funds will be available on acceptable terms, if at all. We also cannot be sure that we will be able to obtain additional credit from, or effect additional sales of debt or equity securities. If we are unable to raise additional or sufficient capital or if we violate a debt covenant or default under our convertible note purchase agreements, we will need to cease operations or reduce, cease or delay one or more of our research or development programs and/or adjust our current business plan and in any such event may not be able to continue as a going concern. Additionally, our common stock was delisted from trading on the NASDAQ Capital Market as a result of our failure to meet continued listing requirements of NASDAQ. On May 8, 2009 we began trading on the Pink Sheets OTC Market. This delisting has had an adverse affect on our ability to obtain future financing and could continue to adversely impact our stock price and the liquidity of our common stock.

2. Net Loss Per Share

     Basic and diluted net loss per share attributable to common stockholders has been calculated by dividing net loss attributable to common stockholders by the weighted average number of common shares outstanding during the period. All potentially dilutive common shares have been excluded from the calculation of weighted average common shares outstanding since their inclusion would be anti-dilutive.

     Stock options and warrants to purchase approximately 3.7 million and 4.0 million shares of common stock were outstanding at June 30, 2010 and 2009, respectively, but were not included in the computation of diluted net loss per common share because they were anti-dilutive. The exercise of those stock options and warrants outstanding at June 30, 2010 could potentially dilute earnings per share in the future.

3. Comprehensive Loss

     We had a total comprehensive loss of $1,643,803 and $2,614,080 for the three months ended June 30, 2010 and 2009, respectively. For the six months ended June 30, 2010 and 2009, total comprehensive loss was $3,502,757 and $6,962,436, respectively.

4. Accounting for Stock-Based Compensation

     We have one stock option plan under which we can issue both nonqualified and incentive stock options to employees, officers, consultants and scientific advisors of the Company. At June 30, 2010, the 2005 Stock Incentive Plan (the “2005 Plan”) provided for the issuance of options, restricted stock, restricted stock units, stock appreciation rights or other stock-based awards to purchase 3,450,000 shares of our common stock. The 2005 Plan contains a provision that allows for an annual increase in the number of shares available for issuance under the 2005 Plan on the first day of each of the 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. On January 1, 2009, the number of shares available for issuance under the 2005 Plan was increased by 400,000 shares. No adjustment was made in January 2010.

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

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

     Stock-based employee compensation expense recorded during the three and six months ended June 30, 2010 and 2009 is as follows:

		Three months ended								Six months ended
		June 30,								June 30,
		2010				2009				2010				2009
Research and development		$	—			$	836			$	—			$	447,612
General and administrative			36,698				57,130				51,713				723,569
		$	36,698			$	57,966			$	51,713			$	1,171,181
Impact on basic and diluted net loss attributable to common stockholders per share		$	(0.00	)		$	(0.00	)		$	(0.00	)		$	(0.05	)

     We use the Black-Scholes option-pricing model to calculate the fair value of each option grant on the date of grant. The fair value of stock options granted during the three and six months ended June 30, 2010 and 2009 was calculated using the following estimated weighted-average assumptions:

		Three months ended								Six months ended
		June 30,								June 30,
		2010				2009				2010				2009
Expected term														5 years
Risk-free interest rate			—	%			—	%			—	%			1.36	%
Stock volatility			—	%			—	%			—	%			90	%
Dividend yield			—	%			—	%			—	%			0	%

     Expected term — We determined the weighted-average expected term assumption for “plain vanilla” and performance-based option grants based on historical data on exercise behavior.

     Risk-free interest rate — The risk-free interest rate used for each grant is equal to the U.S. Treasury yield curve in effect at the time of grant for instruments with a similar expected term.

     Expected volatility — Our expected stock-price volatility assumption is based on historical volatilities of the underlying stock which is obtained from public data sources.

     Expected dividend yield — We have never declared or paid any cash dividends on our common stock and do not expect to do so in the foreseeable future. Accordingly, we use an expected dividend yield of zero to calculate the grant-date fair value of a stock option.

     As of June 30, 2010, there remained approximately $11,000 of compensation costs related to non-vested stock options to be recognized as expense over a weighted-average period of approximately 0.31 years.

     A summary of our outstanding stock options for the six months ended June 30, 2010 and 2009 is presented below.

						Six months ended June 30,
		2010								2009
						Weighted-								Weighted-
						Average								Average
						Exercise								Exercise
		Shares				Price				Shares				Price
Outstanding at beginning of year			3,695,745			$	1.63				4,184,403			$	2.90
Granted			—				—				2,732,500				1.15
Exercised			—				—				—				—
Forfeited and expired			(35,162	)			5.23				(2,900,214	)			2.87
Outstanding at end of period			3,660,583			$	1.59				4,016,689			$	1.73
Options exercisable at end of period			3,556,001			$	1.59				3,741,689			$	1.75

     The weighted-average fair value of options granted was $0.80 during the six months ended June 30, 2009.

     The following table summarizes information about stock options outstanding at June 30, 2010:

		Options Outstanding												Options Exercisable
						Weighted-												Weighted
						Average				Weighted-								Average				Weighted-
						Remaining				Average								Remaining				Average
		Number				Contractual				Exercise				Number				Contractual				Exercise
Range of Exercise Prices		Outstanding				Life				Price				Exercisable				Life				Price
$1.15 — $1.36			2,713,000			3.9 years				$	1.15				2,608,418			3.8 years				$	1.15
$2.00 — $3.00			649,980			5.1 years					2.33				649,980			5.1 years					2.33
$3.10 — $4.65			255,363			6.2 years					3.40				255,363			6.2 years					3.40
$4.99 — $6.96			28,500			3.5 years					5.47				28,500			3.5 years					5.47
$8.95 — $13.06			8,740			1.2 years					10.55				8,740			1.2 years					10.55
$15.62 — $22.36			5,000			0.5 years					15.63				5,000			0.5 years					15.63
			3,660,583			4.2 years				$	1.59				3,556,001			4.2 years				$	1.60

     There was no intrinsic value of outstanding options and exercisable options as of June 30, 2010. The intrinsic value of options vested during the six months ended June 30, 2010 was $0.

     As of June 30, 2010, 384,172 shares were available for grant under the 2005 Plan.

5. Notes Payable and Debt

Notes Payable to Significant Stockholders

     We issued the following unsecured, promissory notes to Robert Gipson during the quarter ended June 30, 2010:

April		$	200,000
May		$	235,000
June		$	150,000
Total		$	585,000

     Each of the notes are payable on demand and bear interest at the rate of 7% per annum.

     According to a Schedule 13G/A filed with the SEC on April 23, 2009, Robert Gipson beneficially owned approximately 46.4% of

the outstanding common stock of the Company on April 16, 2009. Robert Gipson, who serves as a Senior Director of Ingalls & Snyder and a General Partner of ISVP, served as a director of the Company from June 15, 2004 until October 28, 2004. According to a Schedule 13G/A filed with the SEC on January 12, 2010, Thomas Gipson beneficially owned approximately 20.0% of the outstanding common stock of the Company on December 31, 2009. According to a Schedule 13G/A filed with the SEC on January 8, 2010, Arthur Koenig beneficially owned approximately 8.0% of the outstanding common stock of the Company on December 31, 2009. According to a Schedule 13G filed with the SEC on January 12, 2010, ISVP owned approximately 9.9% of the outstanding common stock of the Company on December 31, 2009. According to a Schedule 13G filed with the SEC on January 13, 2010, Ingalls & Snyder LLC beneficially owned approximately 9.9% of the outstanding common stock of the Company on December 31, 2009.

6. Related Party Transactions

As of January 1, 2010 Mr. Mark Pykett, previously our President and Chief Operating Officer, resigned his position with us to assume the role of Chief Executive Officer of Talaris Advisors, LLC. (Talaris). Talaris is a strategic drug development organization focused on providing project management and technical support services for drug candidates in or approaching clinical trials. In addition to Mr. Pykett, Talaris employs senior technical staff employed by us during 2009. We have requested the services of Talaris to ensure that our Altropane and nerve repair development programs are properly managed as funding permits. Our arrangement with Talaris resulted in accrual of a monthly retainer fee of approximately $71,000 or approximately 50% of the monthly costs we incurred during 2009 for the same staff. Talaris is free to pursue other clients but we are assured of priority from the Talaris team for our programs. Our Chairman and CEO, Peter Savas, is a director of Talaris. At June 30, 2010 we had accrued a total of $500,000 to Talaris and these costs were classified as Research and Development expense. As of May 31, 2010 we determined that we no longer required the services of Talaris. Further, we are in discussions with Talaris regarding the already accrued fees to determine if any adjustment to this accrual is warranted.

7. Exit Activities

Office Relocation

     In September 2005, we relocated our headquarters to office space in Hopkinton, Massachusetts. In addition, we amended our Lease Agreement (the “Lease Amendment”), dated as of January 28, 2002 by and between us and Brentwood Properties, Inc. (the “Landlord”) relating to our former principal executive offices (the “Premises”) located in Boston, Massachusetts (the “Lease Agreement”). Pursuant to the terms of the Lease Amendment, the Landlord consented to, among other things, the sublease of all rentable square feet of the Premises pursuant to two sublease agreements which run through May 30, 2012, the term of the Lease Agreement. In consideration for the Landlord’s consent, we agreed to increase the security deposit provided for under the Lease Agreement from $250,000 to $388,600 subject to periodic reduction pursuant to a predetermined formula. At June 30, 2010, the security deposit under the Lease Agreement was approximately $93,000.

     As a result of the relocation, an expense was recorded for the cost associated with the exit activity at its fair value in the period in which the liability was incurred. The liability recorded for the Lease Amendment was calculated by discounting the estimated cash flows for the two sublease agreements and the Lease Agreement using an estimated credit-adjusted risk-free rate of 15%. The expense and accrual recorded requires us to make significant estimates and assumptions. These estimates and assumptions will be evaluated and adjusted as appropriate on at least a quarterly basis for changes in circumstances. It is reasonably possible that such estimates could change in the future resulting in additional adjustments, and the effect of any such adjustments could be material.

     The activity related to the lease accrual at June 30, 2010, is as follows:

						Cash
						Payments,
		Accrual at				Net of Sublease				Accrual at
		December 31, 2009				Receipts 2010				June 30, 2010
Lease Amendment		$	147,919			$	22,039			$	125,880
Short-term portion of lease accrual			51,493								61,188
Long-term portion of lease accrual		$	96,426							$	64,692

     During the three and six months ended June 30, 2010, we recorded approximately $5,000 and $10,400, respectively of expense related to the imputed cost of the lease expense accrual included in general and administrative expenses in the accompanying condensed consolidated statements of operations. During the three and six months ended June 30, 2009, we recorded approximately $6,600 and $13,600, respectively of expense related to the imputed cost of the lease expense accrual included in general and administrative expenses in the accompanying condensed consolidated statements of operations.

8. Commitments and Contingencies

     We recognize and disclose commitments when we enter into executed contractual obligations with third parties. We accrue contingent liabilities when it is probable that future expenditures will be made and such expenditures can be reasonably estimated.

License Agreements

     The Company entered into two license agreements (the “CMCC Licenses”) with Children’s Medical Center Corporation (also known as Children’s Hospital Boston) (“CMCC”) to acquire the exclusive worldwide rights to certain axon regeneration technologies and to replace the Company’s former axon regeneration licenses with CMCC. The CMCC Licenses provide for future milestone payments of up to an aggregate of approximately $425,000 for each product candidate upon achievement of certain regulatory milestones. On May 11, 2010, the Company was notified by CMCC of the termination of these license agreements as a result of the Company’s lack of resources and resulting inability to comply with the performance conditions of the licenses. At June 30, 2010 CMCC was owed a total of approximately $77,000 in license fees and legal costs associated with the licenses. Resource constraints prevented us from paying the overdue amounts as required by the licenses during the cure periods thus, we no longer have the rights to further develop and/or partner the axon regeneration technologies licensed from CMCC.

     The Company has entered into license agreements (the “Harvard License Agreements”) with Harvard University and its affiliated hospitals (“Harvard and its Affiliates”) to acquire the exclusive worldwide rights to certain technologies within its molecular imaging and neurodegenerative disease programs. The Harvard License Agreements obligate the Company to pay up to an aggregate of approximately $2,520,000 in milestone payments in the future. The future milestone payments are generally payable only upon achievement of certain regulatory milestones.

     The Company’s license agreements with Harvard and its Affiliates generally provide for royalty payments equal to specified percentages of product sales, annual license maintenance fees and continuing patent prosecution costs.

9. Income taxes

     The Company is subject to both federal and state income tax for the jurisdictions within which it operates, which are primarily focused in Massachusetts. Within these jurisdictions, the Company is open to examination for tax years ended December 31, 2006 through December 31, 2009. However, because we are carrying forward income tax attributes such as NOLs from 2005 and earlier tax years, these attributes can still be audited when utilized on returns filed in the future. The U.S. Internal Revenue Service (IRS) has completed an audit of tax years 2007 and 2008 and has informed us that no adjustments to the federal tax returns as filed will be proposed as a result of the audit.

10. Fair Value Measurements

     The Company adopted certain provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 820 to evaluate the fair value of certain of its financial assets required to be measured on a recurring basis. FASB ASC Topic 820 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. Fair value is determined based upon the exit price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants exclusive of any transaction costs.

     FASB ASC Topic 820 establishes a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three broad levels, described below:

     Level 1: Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets. The fair value hierarchy gives the highest priority to Level 1 inputs.

     Level 2: Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly.

     Level 3: Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs.

     The following tables set forth our financial assets that were measured at fair value on a recurring basis at June 30, 2010 and

December 31, 2009, by level within the fair value hierarchy. We did not have any non-financial assets or liabilities that were measured or disclosed at fair value on a recurring basis during the six months ended June 30, 2010 or the year ended December 31, 2009. Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability. We did not have any transfers between Level 1 and Level 2 measurements during the six months ended June 30, 2010.

						Fair Value Measurement at Reporting Date Using
						Quoted Prices in				Significant
		Carrying Value				Active Markets				Other				Significant
		at				for				Observable				Unobservable
		June 30,				Identical Assets				Inputs				Inputs
Description		2010				(Level 1)				(Level 2)				(Level 3)
Assets:
Cash equivalents and money market funds — current assets		$	30,341			$	30,341			$	—			$	—
Money market funds — long term assets		$	115,617			$	115,617			$	—			$	—
Total		$	145,958			$	145,958			$	—			$	—

						Fair Value Measurement at Reporting Date Using
						Quoted Prices in				Significant
		Carrying Value				Active Markets				Other				Significant
		at				for				Observable				Unobservable
		December 31,				Identical Assets				Inputs				Inputs
Description		2009				(Level 1)				(Level 2)				(Level 3)
Assets:
Cash equivalents and money market funds — current assets		$	314,964			$	314,964			$	—			$	—
Money market funds — long term assets		$	115,720			$	115,720			$	—			$	—
Total		$	430,684			$	430,684			$	—			$	—

     Money market funds are measured at fair value using quoted market prices and are classified within Level 1 of the valuation hierarchy.

     It is not practicable to estimate the fair value of the Company’s convertible debt. However, it is likely that the fair value of the debt would be materially less than the carrying value of the debt because the conversion price of $2.50 is higher than the Company’s stock price of $0.19 as of June 30, 2010.

11. New Accounting Pronouncements

     In January 2010, the Financial Accounting Standards Board issued Accounting Standards Update No. 2010-06 for Fair Value Measurements and Disclosures (Topic 820): “Improving Disclosures about Fair Value Measurements”. This Update requires new disclosures for transfers in and out of Level 1 and 2 and activity in Level 3. This Update also clarifies existing disclosures for level of disaggregation and about inputs and valuation techniques. The new disclosures are effective for interim and annual periods beginning after December 15, 2009, except for the Level 3 disclosures, which are effective for fiscal years beginning after December 15, 2010 and for interim periods within those years. Other than requiring additional disclosures, adoption of this new guidance did not have a material impact on our financial statements.

12. Subsequent Events

     In July, 2010 we borrowed the principal sum of $200,000 from Robert Gipson. From August 1, 2010 through the filing date of this report, we borrowed the principal sum of $200,000 from Robert Gipson. Both amounts are secured by demand promissory notes issued to Mr. Gipson that bear interest at the rate of 7% per annum.

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. See Item 1A, “Risk Factors” and also carefully review the risks outlined in other documents that we file from time to time with the SEC.

Overview

Description of Company

     We are a biotechnology company focused on the development of therapeutic and diagnostic products primarily for disorders in the central nervous system, or CNS. Our clinical and preclinical product candidates are based on two proprietary technology platforms:

	•		Molecular imaging program focused on the diagnosis of i) Parkinsonian Syndromes, or PS, including Parkinson’s Disease, or PD, and ii) Dementia with Lewy Bodies, or DLB;
	•		Regenerative therapeutics program, primarily focused on nerve repair and restoring movement and sensory function in patients who have had significant loss of CNS function resulting from trauma such as spinal cord injury, or SCI, stroke, and optic nerve damage utilizing technology referred to as axon regeneration.

     At June 30, 2010, we were considered a “development stage enterprise” as defined in ASC 915, Development Stage Entities (“ASC 915”) (formerly SFAS No. 7, Accounting and Reporting by Development Stage Enterprises ), and will continue to be so until we commence commercial operations. The development stage is from October 16, 1992 (inception) through June 30, 2010.

     As of June 30, 2010, we have experienced total net losses since inception of approximately $207,471,000, stockholders’ deficit of approximately $51,130,000 and a net working capital deficit of approximately $6,729,000. The cash and cash equivalents available at June 30, 2010 will not provide sufficient working capital to meet our anticipated expenditures for the next twelve months. At August 6, 2010, we had cash and cash equivalents of approximately $200,000 which combined with our ability to control administrative expenses will enable us to meet our anticipated cash expenditures through August, 2010. We must immediately raise additional funds in order to continue operations and to fund the approximately $34 million of investment required to complete the Altropane clinical development program. This funding is not available at present and there can be no assurance that such funds will be available on acceptable terms if at all.

     In order to continue as a going concern, we will need to raise additional capital through one or more of the following: a debt financing, an equity offering, or a collaboration, merger, acquisition or other transaction with one or more pharmaceutical or biotechnology companies. We are currently engaged in fundraising efforts. There can be no assurance that we will be successful in our fundraising efforts or that additional funds will be available on acceptable terms, if at all. We also cannot be sure that we will be able to obtain additional credit from, or effect additional sales of debt or equity securities to certain of our existing investors described below in Liquidity and Capital Resources. If we are unable to raise additional or sufficient capital, we will need to cease operations or reduce, cease or delay one or more of our research or development programs, adjust our current business plan and may not be able to continue as a going concern. Additionally, our common stock was delisted from trading on the NASDAQ Capital Market as a result of our failure to meet continued listing requirements of NASDAQ. On May 8, 2009 we began trading on the Pink Sheets OTC Market. This delisting has had an adverse affect on our ability to obtain future financing and has adversely impacted our stock price and the liquidity of our common stock.

Product Development

Molecular Imaging Program

     The Altropane molecular imaging agent is being developed for the differential diagnosis of PS, including PD, and non-PS in patients with an upper extremity tremor.

     We believe in the current environment that, due to their proximity to commercialization and return on investment, late stage development programs may continue to be of significant interest to potential partners and investors. To maximize the value of our molecular imaging program, we are focusing on obtaining the funding necessary to execute the Altropane Phase III registration program. We are pursuing financing necessary to enable us to advance the Altropane program through our own means. In parallel, we are seeking to partner our molecular imaging program with a firm or firms with the resources necessary for the completion of the Phase III clinical program, for the manufacturing and supply of Altropane, and for the launch and commercialization of Altropane. We can provide no assurances that a partnership transaction will occur. We believe that the expansion of the program into other indications such as DLB and other countries including those in Europe could increase the value of the program for the partner and us. All of these activities require additional funding and as such are proceeding, if at all, only as rapidly as available resources permit. There can be no assurance that the required funding to advance the Altropane program will be available on acceptable terms if at all.

Regenerative Therapeutics Program — Nerve Repair

     Our nerve repair program is focused on restoring movement and sensory function in patients who have had significant loss of CNS function resulting from traumas such as SCI, stroke, traumatic brain injury, or TBI, and optic nerve damage. Our efforts are aimed at the use of proprietary regenerative drugs and/or methods to induce nerve fibers to regenerate and form new connections that restore compromised abilities. Licensing or acquiring the rights to the technologies of complementary approaches for nerve repair is part of our strategy of creating competitive advantages by assembling a broad portfolio of related technologies and intellectual property.

     Resource constraints have severely restricted our ability to progress our regenerative therapeutics program. On May 11, 2010, the Company was notified by CMCC of the termination of these license agreements as a result of the Company’s lack of resources and resulting inability to comply with the performance conditions of the licenses. At June 30, 2010 CMCC was owed a total of approximately $77,000 in license fees and legal costs associated with the licenses. Since we were unable to pay the overdue amounts within the cure periods specified in the CMCC licenses, we no longer have the rights to further develop and/or partner the axon regeneration technologies licensed from CMCC.

Sales and Marketing and Government Regulation

     To date, we have not marketed, distributed or sold any products and, with the exception of Altropane and Cethrin, all of our other product candidates are in preclinical development. Our product candidates must undergo a rigorous regulatory approval process which includes extensive preclinical and clinical testing to demonstrate safety and efficacy before any resulting product can be marketed. The FDA has stringent standards with which we must comply before we can test our product candidates in humans or make them commercially available. Preclinical testing and clinical trials are lengthy and expensive and the historical rate of failure for product candidates is high. Clinical trials require sufficient patient enrollment which is a function of many factors. Delays and difficulties in completing patient enrollment can result in increased costs and longer development times. The foregoing uncertainties and risks limit our ability to estimate the timing and amount of future costs that will be required to complete the clinical development of each program. In addition, we are unable to estimate when material net cash inflows are expected to commence as a result of the successful completion of one or more of our programs.

Research and Development

     Following is information on the direct research and development costs incurred on our principal scientific technology programs currently under development. These amounts do not include research and development employee and related overhead costs which total approximately $30,516,000 on a cumulative basis.

										From Inception
		For the Three				For the Six				(October 16, 1992)
		Months Ended				Months Ended				to
Program		June 30, 2010				June 30, 2010				June 30, 2010
Molecular imaging		$	200,000			$	670,000			$	27,801,000
Regenerative therapeutics		$	16,000			$	23,000			$	28,944,000
Neurodegenerative disease		$	—			$	20,000			$	1,151,000

     As of January 1, 2010 Mr. Mark Pykett, previously our President and Chief Operating Officer, resigned his position with us to assume the role of Chief Executive Officer of Talaris Advisors, LLC. (Talaris). Talaris is a strategic drug development organization focused on providing project management and technical support services for drug candidates in or approaching clinical trials. In addition to Mr. Pykett, Talaris employs senior technical staff employed by us during 2009. We have requested the services of Talaris to ensure that our Altropane and nerve repair development programs are properly managed as funding permits. Our arrangement with Talaris resulted in accrual of a monthly retainer fee of approximately $71,000 or approximately 50% of the monthly costs we incurred during 2009 for the same staff. Talaris is free to pursue other clients but we are assured of priority from the Talaris team for our programs. Our Chairman and CEO, Peter Savas, is a director of Talaris. At June 30, 2010 we had accrued a total of $500,000 to Talaris and these costs were classified as Research and Development expense. As of May 31, 2010 we determined that we no longer required the services of Talaris. Further, we are in discussions with Talaris regarding the already accrued fees to determine if any adjustment to this accrual is warranted.

     Estimating costs and time to complete development of a specific program or technology is difficult due to the uncertainties of the development process and the requirements of the FDA which could require additional clinical trials or other development and testing. Results of any testing could lead to a decision to change or terminate development of a technology, in which case estimated future costs could change substantially. In the event we were to enter into a licensing or other collaborative agreement with a corporate partner involving sharing or funding by such corporate partner of development costs, the estimated development costs incurred by us could be substantially less than estimated. Additionally, research and development costs are extremely difficult to estimate for early-stage technologies due to the fact that there are generally less comprehensive data available for such technologies to determine the development activities that would be required prior to the filing of a New Drug Application, or NDA. As a result, we cannot reasonably estimate the cost and the date of completion for any technology that is not at least in Phase III clinical development due to the uncertainty regarding the number of required trials, the size of such trials and the duration of development. Even in Phase III clinical development, estimating the cost and the filing date for an NDA can be challenging due to the uncertainty regarding the number and size of the required Phase III trials. Based on the trial design and scope covered by the Special Protocol Assessment Agreement for POET-2, we estimate that the total costs to complete the POET-2 program and prepare and submit an NDA for Altropane in the U.S. will be approximately $34 million. This funding is not available at present and there can be no assurance that such funds will be available on acceptable terms if at all.

Critical Accounting Policies and Estimates

     Our discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements which have been prepared by us in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. Our estimates include those related to marketable securities, research contracts, the fair value and classification of financial instruments, our lease accrual and stock-based compensation. We base our estimates on historical experience and on various other assumptions that we believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.

Going Concern Basis of Accounting

     The consolidated financial statements have been prepared on the basis that we will continue as a going concern. We have incurred significant operating losses and negative cash flows from operating activities since our inception. As of June 30, 2010, these conditions raised substantial doubt as to our ability to continue as a going concern. There can be no assurance that we will be successful in our efforts to raise additional capital or that we will be able to continue as a going concern. The condensed consolidated financial statements do not include any adjustments relating to the recoverability of the carrying amount of the recorded assets or the amount of liabilities that might result from the outcome of this uncertainty. In the event that we concluded that we would not be able to continue as a going concern, we would potentially present our financial statements on a liquidation basis of accounting.

Research Contracts

     We regularly enter into contracts with third parties to perform research and development activities on our behalf in connection with our scientific technologies. Costs incurred under these contracts are recognized ratably over the term of the contract or based on actual enrollment levels which we believe corresponds to the manner in which the work is performed. Clinical trial, contract services and other outside costs require that we make estimates of the costs incurred in a given accounting period and record accruals at period end as the third party service periods and billing terms do not always coincide with our period end. We base our estimates on our knowledge of the research and development programs, services performed for the period, past history for related activities and the expected duration of the third party service contract, where applicable.

Fair Value and Classification of Financial Instruments

     Historically, we have issued warrants to purchase shares of our common stock in connection with our debt and equity financings. We record each of the securities issued on a relative fair value basis up to the amount of the proceeds received. We estimate the fair value of the warrants using the Black-Scholes valuation model. The Black-Scholes valuation model is dependent on a number of variables and estimates including interest rates, dividend yield, volatility and the expected term of the warrants. Our estimates are based on market interest rates at the date of issuance, our past history for declaring dividends, our estimated stock price volatility and the contractual term of the warrants. The value ascribed to the warrants in connection with debt offerings is considered a cost of capital and amortized to interest expense over the term of the debt.

     We have, at certain times, issued preferred stock and notes, which were convertible into common stock at a discount from the common stock market price at the date of issuance. The amount of the discount associated with such conversion rights represents an incremental yield, or “beneficial conversion feature” that is recorded when the consideration allocated to the convertible security, divided by the number of common shares into which the security converts, is below the fair value of the common stock at the date of issuance of the convertible instrument.

     A beneficial conversion feature associated with the preferred stock is recognized as a return to the preferred stockholders and represents a non-cash charge in the determination of net loss attributable to common stockholders. The beneficial conversion feature is recognized in full immediately if there is no redemption date for the preferred stock, or over the period of issuance through the redemption date, if applicable. A beneficial conversion feature associated with debentures, notes or other debt instruments is recognized as a discount to the debt and is amortized as additional interest expense using the effective interest method over the remaining term of the debt instrument.

Lease Accrual

     We are required to make significant judgments and assumptions when estimating the liability for our net ongoing obligations under our amended lease agreement relating to our former executive offices located in Boston, Massachusetts. We use a discounted cash-flow analysis to calculate the amount of the liability. We applied a discount rate of 15% representing our best estimate of our credit-adjusted risk-free rate. The discounted cash-flow analysis is based on management’s assumptions and estimates of our ongoing lease obligations, and income from sublease rentals, including estimates of sublease timing and sublease rental terms. It is possible that our estimates and assumptions will change in the future, resulting in additional adjustments to the amount of the estimated liability, and the effect of any adjustments could be material. We review our assumptions and judgments related to the lease amendment on at least a quarterly basis, until the outcome is finalized, and make whatever modifications we believe are necessary, based on our best judgment, to reflect any changes in circumstances.

Stock-Based Compensation

     We measure compensation costs for all share-based awards at fair value on grant date and recognize it as expense over the requisite service period or expected performance period of the award. We estimate the fair value of stock-based awards using the Black-Scholes valuation model on the grant date. The Black-Scholes valuation model requires us to make certain assumptions and estimates concerning the expected term of the awards, the rate of return of risk-free investments, our stock price volatility, and our anticipated dividends. If any of our estimates or assumptions prove incorrect, our results could be materially affected.

Results of Operations

Three Months Ended June 30, 2010 and 2009

     Our net loss and net loss attributable to common stockholders was $1,643,803 during the three months ended June 30, 2010 as compared with $2,614,080 during the three months ended June 30, 2009. Net loss attributable to common stockholders totaled $0.06 per share for the 2010 period as compared to $0.11 per share for the 2009 period. The decrease in net loss in the 2010 period was primarily due to lower operating expenses resulting from our ongoing curtailment of operations. The decrease in net loss attributable to common stockholders on a per share basis in the 2010 period was primarily due to the decrease in net loss in 2010 and an increase in weighted average shares outstanding of approximately 3,747,000 shares in 2010, which was primarily the result of the common stock issued in November 2009 and March 2010.

     Research and development expenses were $206,424 during the three months ended June 30, 2010 as compared with $892,520

during the three months ended June 30, 2009. The decrease of 686,096, or 77% for the three months ended June 30, 2010, was primarily attributable to our decision to scale back operations specifically resulting in (i) lower costs of approximately $78,000 associated with our nerve repair program, primarily related to Cethrin clinical costs offset by an increase in Altropane spending of $67,000 (ii) lower compensation and related costs of approximately $673,000 related to lower headcount .

     General and administrative expenses were $755,121 during the three months ended June 30, 2010 as compared with $1,092,946 during the three months ended June 30, 2009. The decrease of $337,825, or 31% for the three months ended June 30, 2010, was primarily attributable to (i) lower compensation and related costs of approximately $199,000 which resulted from additional reductions in headcount and lower stock-compensation expense of $20,000; and (ii) lower legal costs of approximately $188,000 and a reduction of $48,000 in directors’ fees as a result of the January 2010 resignation of four board members. The decrease was partially offset due to an increase of $55,000 in occupancy expenses now being allocated to general and administrative expense and an increase in consulting services of $67,000.

     Interest expense was $682,665 during the three months ended June 30, 2010 as compared with $630,501 during the three months ended June 30, 2009. The increase of $52,164, or 8% for the three months ended June 30, 2010, was attributable to the issuance of a $350,000 promissory note in December 2009 and the issuance of $1,385,000 in promissory notes during the six months ended June 30, 2010. The Notes all bear interest at the rate of 7% per annum.

     Investment income was $407 during the three months ended June 30, 2010 as compared with $1,887 during the three months ended June 30, 2009. The decrease in the 2010 period was primarily due to lower average cash and cash equivalent balances during the 2010 period.

Six Months Ended June 30, 2010 and 2009

     Our net loss and net loss attributable to common stockholders was $3,502,757 during the six months ended June 30, 2010 as compared with $6,962,436 during the six months ended June 30, 2009. Net loss attributable to common stockholders totaled $0.13 per share for the 2010 period as compared to $0.30 per share for the 2009 period. The decrease in net loss in the 2010 period was primarily due to lower operating expenses resulting from our decision to curtail operations pending additional funding. The decrease in net loss attributable to common stockholders on a per share basis in the 2010 period was primarily due to the decrease in net loss in 2010 and an increase in weighted average shares outstanding of approximately 3,347,000 shares in 2010, which was primarily the result of the common stock issuances in November 2009 and March 2010.

     Research and development expenses were $681,232 during the six months ended June 30, 2010 as compared with $2,720,535 during the six months ended June 30, 2009. The decrease of $2,039,303, or 75% for the six months ended June 30, 2010, was primarily attributable to our decision to scale back operations specifically resulting in (i) lower costs of approximately $313,000 associated with our nerve repair program, primarily related to Cethrin clinical costs including our Phase I/IIa trial and suspended preparations for our Phase IIb trial; offset by an increase in Altropane spending of $170,000 (ii) lower compensation and related costs of approximately $1,448,000 primarily related to lower headcount and (iii) and lower stock-compensation expense of $448,000.

     General and administrative expenses were $1,483,240 during the six months ended June 30, 2010 as compared with $3,063,068 during the six months ended June 30, 2009. The decrease of $1,579,828, or 52% for the six months ended June 30, 2010, was primarily related to (i) lower compensation and related costs of approximately $637,000 which resulted from additional reductions in headcount and lower stock-compensation expense of $672,000; and (ii) lower legal costs of approximately $393,000 and a reduction of $110,000 in directors’ fees as a result of the January 2010 resignation of four board members. The decrease was partially offset due to an increase of $145,000 in occupancy expenses now being allocated to general and administrative expense and an increase in consulting services of $148,000.

     Other income was $0 during the six months ended June 30, 2010 as compared with $65,000 during the six months ended June 30, 2009. The amount recorded during the 2009 period represents the gain on sale of Cethrin drug substance to a vendor for said vendor to use in additional research.

     Interest expense was $1,339,365 during the six months ended June 30, 2010 as compared with $1,249,051 during the six months ended June 30, 2009. The increase of $90,314 or 7% for the six months ended June 30, 2010, was attributable to the issuance of a $350,000 promissory note in December 2009 and the issuance of $1,385,000 in promissory notes during the six months ended June 30, 2010. The Notes all bear interest at the rate of 7% per annum.

     Investment income was $1,080 during the six months ended June 30, 2010 as compared with $5,218 during the six months ended June 30, 2009. The decrease in the 2010 period was primarily due to lower average cash and cash equivalent balances during the 2010 period.

Liquidity and Capital Resources

     Global market and economic conditions have been, and continue to be, disruptive and volatile. In particular, the cost of raising money in the debt and equity markets has increased substantially while the availability of funds from those markets has diminished significantly. Recent distress in the financial markets combined with the loss of staff and licenses to our nerve repair technologies have combined to adversely affect our ability to raise capital. We must immediately raise additional funds in order to continue operations.

     Net cash used for operating activities, primarily related to our net loss, totaled $1,704,118 during the six months ended June 30, 2010 as compared to $5,052,526 during the six months ended June 30, 2009. The decrease in cash used during the 2010 period is primarily related to

the decrease in net loss. Net cash provided by investing activities totaled $34,495 during the six months ended June 30, 2010 as compared to $41,721 during the six months ended June 30, 2009. The decrease in cash provided by investing activities is primarily related to the scheduled partial refunds of security deposits. Net cash provided by financing activities totaled $1,385,000 during the six months ended June 30, 2010 as compared to $4,974,812 during the six months ended June 30, 2009. The decrease during the 2010 period reflects the lack of funding from the issuance of additional common or preferred stock.

     To date, we have dedicated most of our financial resources to the research and development of our product candidates, general and administrative expenses (including costs related to obtaining and protecting patents). Since inception, we have primarily satisfied our working capital requirements from the sale of our securities through private placements. These private placements have included the sale and issuance of preferred stock, common stock, promissory notes and convertible debentures.

     A summary of financings completed between October 2006 and June 30, 2010 is as follows:

				Securities or Debt
Date		Net Proceeds Raised		Instrument Issued
June 2010		$0.2 million		Promissory Note
May 2010		$0.2 million		Promissory Note
April 2010		$0.2 million		Promissory Note
March 2010		$0.3 million		Promissory Note
February 2010		$0.2 million		Promissory Note
January 2010		$0.3 million		Promissory Note
December 2009		$0.3 million		Promissory Note
November 2009		$1.0 million		Common Stock
September 2009		$0.7 million		Convertible Preferred Stock
August 2009		$0.6 million		Convertible Preferred Stock
July 2009		$0.6 million		Convertible Preferred Stock

				Securities or Debt
Date		Net Proceeds Raised		Instrument Issued
June 2009		$0.5 million		Convertible Preferred Stock
May 2009		$1.0 million		Convertible Preferred Stock
April 2009		$0.5 million		Convertible Preferred Stock
March 2009		$1.0 million		Convertible Preferred Stock
February 2009		$0.2 million		Common Stock
February 2009		$1.0 million		Promissory Notes
January 2009		$1.0 million		Common Stock
November 2008		$1.0 million		Common Stock
June 2008		$5.0 million		Convertible Promissory Notes
March 2008		$5.0 million		Convertible Promissory Notes
August 2007		$10.0 million		Convertible Promissory Notes
May 2007		$6.0 million		Convertible Promissory Notes
March 2007		$9.0 million		Convertible Promissory Notes
February 2007		$2.0 million		Convertible Promissory Notes(1)
October 2006		$6.0 million		Convertible Promissory Notes(1)

     During the six months ended June 30, 2010, we have obtained all of our funding from Robert Gipson. In the event that Mr. Gipson cannot provide any future funding or we cannot obtain any additional funding from sources other than Mr. Gipson, we may need to cease operations or reduce, cease or delay one or more of our research or development programs and/or adjust our current business plan and in any such event may not be able to continue as a going concern.

     In the future, our working capital and capital requirements will depend on numerous factors, including the progress of our research and development activities, the level of resources that we devote to the developmental, clinical, and regulatory aspects of our technologies, and the extent to which we enter into collaborative relationships with pharmaceutical and biotechnology companies.

     As of June 30, 2010, we have experienced total net losses since inception of approximately $207,471,000, stockholders’ deficit of approximately $51,130,000 and a net working capital deficit of approximately $6,729,000. The cash and cash equivalents available at June 30, 2010 will not provide sufficient working capital to meet our anticipated expenditures for the next twelve months. At August 6, 2010, we had cash and cash equivalents of approximately $200,000 which combined with minimal additional operating capital committed by our lead investor and our ability to control certain costs, including those related to clinical trial programs, preclinical activities, and certain general and administrative expenses will enable us to meet our anticipated cash expenditures through August 2010.

     In order to continue as a going concern, we will need to raise additional capital through one or more of the following: a debt financing, an equity offering, or a collaboration, merger, acquisition or other transaction with one or more pharmaceutical or biotechnology companies. We are currently engaged in fundraising efforts. There can be no assurance that we will be successful in our fundraising efforts or that additional funds will be available on acceptable terms, if at all. We also cannot be sure that we will be able to obtain additional credit from, or effect additional sales of debt or equity securities to certain of our existing investors (described below). If we are unable to raise additional or sufficient capital we may need to cease operations or reduce, cease or delay one or more of our research or development programs and/or adjust our current business plan and in any such event may not be able to continue as a going concern. Additionally, our common stock was delisted from trading on the NASDAQ Capital Market as a result of our failure to meet continued listing requirements of NASDAQ. On May 8, 2009 we began trading on the Pink Sheets OTC Market. This delisting has had an adverse affect on our ability to obtain future financing and has adversely impacted our stock price and the liquidity of our common stock.

Contractual Obligations and Commitments

     With the exception of the termination of our CMCC licenses described above, the disclosures relating to our contractual obligations in our Annual Report on Form 10-K for the year ended December 31, 2009 have not materially changed since we filed that report.

Item 3 — Quantitative and Qualitative Disclosures About Market Risk

     There have been no material changes in the market risks reported in our Annual Report on Form 10-K for the year ended December 31, 2009.

     We generally maintain a portfolio of cash equivalents, and short-term and long-term marketable securities in a variety of securities which can include commercial paper, certificates of deposit, money market funds and government and non-government debt securities. The fair value of these available-for-sale securities are subject to changes in market interest rates and may fall in value if market interest rates increase. Our investment portfolio includes only marketable securities with active secondary or resale markets to help insure liquidity. We have implemented policies regarding the amount and credit ratings of investments. Due to the conservative nature of these policies, we do not believe we have material exposure due to market risk. For fixed rate debt, changes in interest rates generally affect the fair market value of the debt instrument, but not earnings or cash flows. We do not have an obligation to prepay any fixed rate debt prior to maturity and, therefore, interest rate risk and changes in the fair market value of fixed rate debt should not have a significant impact on earnings or cash flows until such debt is refinanced, if necessary. The terms related to our fixed rate debt are described in Note 5 to the condensed consolidated financial statements. For variable rate debt, changes in interest rates generally do not impact the fair market value of the debt instrument, but do affect future earnings and cash flows. We did not have any variable rate debt outstanding during the six months ended June 30, 2010.

Item 4T — Controls and Procedures

     Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2010. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of June 30, 2010, our chief executive officer and chief financial officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

     During the quarter ended March 31, 2010, our corporate controller left the company. In light of resource constraints we have no plans to replace this individual with a full time employee. We are utilizing the services of temporary accounting staff and management will continually assess the effectiveness of our internal control over financial reporting during the fiscal year.

Part II — OTHER INFORMATION

Item 1 — Legal Proceedings

     The disclosure contained under the heading “Contingencies” in Note 8 to the condensed consolidated financial statements included in Part I, Item 1 hereof is incorporated herein by reference.

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

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.

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.