10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2009

OR

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

For the transition period from                                          to                                           

Commission File Number 0-6533

ALSERES PHARMACEUTICALS, INC.

(Exact Name of Registrant as Specified in Its Charter)

Delaware	87-0277826
(State or Other Jurisdiction of	(IRS Employer
Incorporation or Organization)	Identification No.)
239 South Street, Hopkinton, Massachusetts	01748
(Address of Principal Executive Offices)	(Zip Code)

(508) 497-2360
(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 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	Smaller reporting company þ
		(Do not check if a smaller reporting company)

     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 November 12, 2009, there were 25,555,695 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 September 30, 2009 and December 31, 2008		3
Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2009 and 2008, and for the period from inception (October 16, 1992) to September 30, 2009		4
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2009 and 2008, and for the period from inception (October 16, 1992) to September 30, 2009		5
Notes to Condensed Consolidated Financial Statements		6
Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations		17
Item 3 Quantitative and Qualitative Disclosures About Market Risk		26
Item 4T Controls and Procedures		26
Part II OTHER INFORMATION
Item 1 Legal Proceedings		26
Item 1A Risk Factors		26
Item 6 Exhibits		28
SIGNATURES
EX-10.3 Securities Purchase Agreement dated August 11, 2009
EX-31.1 Section 302 Certification of Chief Executive Officer
EX-31.2 Section 302 Certification of Chief Financial Officer
EX-32.1 Section 906 Certification of Chief Executive Officer
EX-32.2 Section 906 Certification of Chief Financial Officer

     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™, Cethrin^®, Altropane^® and Fluoratec™. All other trade names, trademarks or service marks appearing in this Quarterly Report on Form 10-Q are the property of their respective owners and are not the property of Alseres Pharmaceuticals, Inc. or any of our subsidiaries.

2

Part I — FINANCIAL INFORMATION

Item 1 — Financial Statements

Alseres Pharmaceuticals, Inc.
(A Development Stage Enterprise)
Condensed Consolidated Balance Sheets

	(Unaudited)
	September 30,			December 31,
	2009			2008
ASSETS
Current assets:
Cash and cash equivalents	$	195,179		$	73,974
Security deposits		54,624			79,728
Prepaid expenses and other current assets		285,537			163,706
Total current assets		535,340			317,408
Fixed assets, net		122,378			178,643
Indemnity fund		115,749			115,462
Security deposits and other assets		184,976			233,737
Total assets	$	958,443		$	845,250
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable and accrued expenses	$	3,938,770		$	4,895,799
Notes payable (Note 5)		1,000,000			—
Accrued lease (Note 6)		46,390			45,425
Total current liabilities		4,985,160			4,941,224
Convertible notes payable (Note 5)		33,974,789			33,456,374
Accrued interest payable (Note 5)		3,621,087			2,313,090
Accrued lease, excluding current portion (Note 6)		111,427			147,923
Total liabilities		42,692,463			40,858,611
Commitments and contingencies (Note 8)
Series F convertible redeemable preferred stock, $.01 par value; 200,000 shares designated; 196,000 and 0 shares issued and outstanding at September 30, 2009 and December 31, 2008, respectively (liquidation preference of $4,900,000 at September 30, 2009)		4,980,464			—
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 September 30, 2009 and December 31, 2008, respectively		—			—
Common stock, $.01 par value; 80,000,000 shares authorized; 23,055,645 and 21,399,123 shares issued and outstanding at September 30, 2009 and December 31, 2008, respectively		230,556			213,991
Additional paid-in capital		145,979,032			143,671,984
Deficit accumulated during development stage		(192,924,072	)		(183,899,336	)
Total stockholders’ deficit		(46,714,484	)		(40,013,361	)
Total liabilities and stockholders’ deficit	$	958,443		$	845,250

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

3

Alseres Pharmaceuticals, Inc.
(A Development Stage Enterprise)

Condensed Consolidated Statements of Operations
(Unaudited)

													From Inception
													(October 16, 1992)
	Three Months Ended September 30,						Nine Months Ended September 30,						to
	2009			2008			2009			2008			September 30, 2009
Revenues	$	—		$	—		$	—		$	—		$	900,000
Operating expenses:
Research and development		720,505			2,818,398			3,441,041			9,107,664			115,221,089
General and administrative		705,904			1,703,609			3,768,972			5,906,849			63,270,226
Purchased in-process research and development		—			—			—			—			12,146,544
Total operating expenses		1,426,409			4,522,007			7,210,013			15,014,513			190,637,859
Loss from operations		(1,426,409	)		(4,522,007	)		(7,210,013	)		(15,014,513	)		(189,737,859	)
Other income (expense)		—			—			65,000			—			(1,517,878	)
Interest expense, net		(634,679	)		(609,817	)		(1,883,730	)		(1,610,314	)		(9,367,631	)
Investment income		788			20,509			6,007			72,788			7,701,295
Net loss		(2,060,300	)		(5,111,315	)		(9,022,736	)		(16,552,039	)		(192,922,073	)
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		(2,060,300	)		(5,111,315	)		(9,022,736	)		(16,552,039	)		(202,214,374	)
Basic and diluted net loss attributable to common stockholders per share	$	(0.09	)	$	(0.25	)	$	(0.39	)	$	(0.80	)
Weighted average common shares outstanding		23,306,250			20,811,819			22,942,538			20,808,966

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

4

Alseres Pharmaceuticals, Inc.
(A Development Stage Enterprise)

Condensed Consolidated Statements of Cash Flows
(Unaudited)

							From Inception
							(October 16,
							1992) to
	Nine Months Ended September 30,						September 30,
	2009			2008			2009
Cash flows from operating activities:
Net loss	$	(9,022,736	)	$	(16,552,039	)	$	(192,922,073	)
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		531,242			469,019			3,039,807
Non-cash charges related to options, warrants and common stock		1,427,265			1,266,161			11,007,060
Amortization and depreciation		56,265			33,502			2,775,211
Changes in operating assets and liabilities:
(Increase) decrease in prepaid expenses and other current assets		(121,831	)		569,456			437,029
(Decrease ) increase in accounts payable and accrued expenses		(1,001,520	)		423,842			3,121,615
Increase in accrued interest payable		1,352,488			1,136,672			3,665,578
(Decrease) increase in accrued lease		(35,531	)		(29,729	)		157,817
Net cash used for operating activities		(6,814,358	)		(12,683,116	)		(152,720,912	)
Cash flows from investing activities:
Cash acquired through Merger		—			—			1,758,037
Purchases of fixed assets		—			(144,057	)		(1,652,114	)
Decrease (increase) in security deposits and other assets		61,038			(4,331	)		(435,459	)
(Increase) in indemnity fund		(287	)		—			(115,749	)
Purchases of marketable securities		—			—			(132,004,923	)
Sales and maturities of marketable securities		—			1,231,233			132,004,923
Net cash provided by (used for) investing activities		60,751			1,082,845			(445,285	)
Cash flows from financing activities:
Proceeds from issuance of common stock		1,000,000			2,541			65,731,339
Proceeds from issuance of preferred stock		4,900,000			—			39,922,170
Preferred stock conversion inducement		—			—			(600,564	)
Proceeds from issuance of promissory notes		1,000,000			10,000,000			52,585,000
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		6,874,812			10,002,541			153,361,376
Net increase (decrease) in cash and cash equivalents		121,205			(1,597,730	)		195,179
Cash and cash equivalents, beginning of period		73,974			2,933,292			—
Cash and cash equivalents, end of period	$	195,179		$	1,335,562		$	195,179
Supplemental cash flow disclosures:
Non-cash transactions (see Notes 5 and 7)
Cash paid for interest	$	—		$	—		$	628,406

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

5

Alseres Pharmaceuticals, Inc.
(A Development Stage Enterprise)

Notes to Condensed Consolidated Financial Statements (Unaudited)
September 30, 2009

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, 2008.

     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 September 30, 2009, the Company has experienced total net losses since inception of approximately $192,922,000, stockholders’ deficit of approximately $46,714,000 and a net working capital deficit of approximately $4,450,000. For the foreseeable future, the Company expects to experience continuing operating losses and negative cash flows from operations as the Company’s management executes its current business plan. The cash and cash equivalents available at September 30, 2009 will not provide sufficient working capital to meet the Company’s anticipated expenditures for the next twelve months. The Company believes that the approximate $483,000 in cash and cash equivalents available at November 12, 2009 combined with additional operating capital committed by its lead investor and its ability to control certain costs, including those related to clinical trial programs, preclinical activities, and certain general and administrative expenses will enable the Company to meet its anticipated cash expenditures into December 2009. The Company must immediately raise additional funds in order to continue operations.

     In order to continue as a going concern, the Company will therefore 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. The Company is currently engaged in fundraising efforts. There can be no assurance that the Company will be successful in its fundraising efforts or that additional funds will be available on acceptable terms, if at all. The Company also cannot be sure that it will be able to obtain additional credit from, or effect additional sales of debt or equity securities to the Purchasers (Note 5). If the Company is unable to raise additional or sufficient capital or if it violates a debt covenant or defaults under the March 2008 Amended Purchase Agreement or the June 2008 Purchase Agreement (Note 5), it will need to cease operations or reduce, cease or delay one or more of its research or development programs and/or adjust its 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 could have an adverse affect on our ability to obtain future financing and could adversely impact our stock price and the liquidity of our common stock.

     In connection with the common stock financing completed by the Company in March 2005 (the “March 2005 Financing”), the Company agreed with the purchasers in such financing, including Robert Gipson, Thomas Gipson and Arthur Koenig (the “March 2005 Investors”) that, subject to certain exceptions, it would not issue any shares of its common stock at a per share price less than $2.50 without the prior consent of the March 2005 Investors holding at least a majority of the shares issued in the March 2005 Financing. The failure to receive the requisite waiver or consent of the March 2005 Investors could have the effect of delaying or preventing the consummation of a financing by the Company should the price per share in such financing be set at less than $2.50.

6

Reclassification

     Certain amounts in the prior period condensed consolidated financial statements have been reclassified to conform with the 2009 presentation.

2. Net Loss Per Share

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

     Stock options and warrants to purchase approximately 4.0 million and 4.2 million shares of common stock were outstanding at September 30, 2009 and 2008, 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 September 30, 2009 could potentially dilute earnings per share in the future.

3. Comprehensive Loss

     The Company had a total comprehensive loss of $2,060,300 and $5,111,315 for the three months ended September 30, 2009 and 2008, respectively. For the nine months ended September 30, 2009 and 2008, total comprehensive loss was $9,022,736 and $16,561,349, respectively. The difference between total comprehensive loss and net loss in the 2008 period is due to unrealized gains and losses on marketable securities.

4. Accounting for Stock-Based Compensation

     The Company has one stock option plan under which it can issue both nonqualified and incentive stock options to employees, officers, consultants and scientific advisors of the Company. At September 30, 2009, 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 the Company’s common stock. The 2005 Plan contains a provision that allows for an annual increase in the number of shares available for issuance under the 2005 Plan on the first day of each of the Company’s fiscal years during the period beginning in fiscal year 2006 and ending on the second day of fiscal year 2014. The annual increase in the number of shares shall be equal to the lowest of 400,000 shares; 4% of the Company’s outstanding shares on the first day of the fiscal year; and an amount determined by the Board of Directors. On January 1, 2009, the number of shares available for issuance under the 2005 Plan was increased by 400,000 shares.

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

     The Company’s 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. The Company has outstanding options with performance conditions which, if met, would accelerate vesting upon achievement of the applicable milestones.

     In January 2009, the Company’s Board of Directors approved the cancellation of options to purchase an aggregate of 2,617,000 shares of the Company’s common stock and the re-grant of options to purchase an aggregate of 2,562,500 shares of the Company’s common stock. The per share exercise prices of the cancelled options ranged from $1.96 to $4.06, with a weighted average exercise price of $2.92. These cancellations were effected under the 2005 Plan and inducement grants pursuant to Nasdaq Marketplace Rule 4350, each of which expressly permitted option exchanges and all re-grants were affected under the 2005 Plan. Each of the re-granted options contains the following terms: (i) an exercise price equal to the fair market value on the grant date which was the last sale price on January 14, 2009 which was $1.15 per share; (ii) exercisable through January 31, 2014; and (iii) 50% vesting on the date of grant, 25% vesting on February 28, 2009, and 25% vesting on March 31, 2009.

7

     Stock-based employee compensation expense recorded during the three and nine months ended September 30, 2009 and 2008 is as follows:

	Three months ended						Nine months ended
	September 30,						September 30,
	2009			2008			2009			2008
Research and development	$	—		$	122,819		$	447,612		$	398,517
General and administrative		56,085			242,536			779,654			782,501
	$	56,085		$	365,355		$	1,227,266		$	1,181,018
Impact on basic and diluted net loss attributable to common stockholders per share	$	(0.00	)	$	(0.02	)	$	(0.05	)	$	(0.06	)

     The Company uses 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 nine months ended September 30, 2009 and 2008 was calculated using the following estimated weighted-average assumptions:

	Three months ended				Nine months ended
	September 30,				September 30,
	2009		2008		2009			2008
Expected term		—		—	5 years			5 years
Risk-free interest rate		—		—		1.36	%		2.5% — 3.7%
Stock volatility		—		—		90	%		76%
Dividend yield		—		—		0	%		0%

     Expected term — The Company 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 — The Company’s expected stock-price volatility assumption is based on historical volatilities of the underlying stock which is obtained from public data sources.

     Expected dividend yield — The Company has never declared or paid any cash dividends on its common stock and does not expect to do so in the foreseeable future. Accordingly, the Company uses an expected dividend yield of zero to calculate the grant-date fair value of a stock option.

     As of September 30, 2009, there remained approximately $108,000 of compensation costs related to non-vested stock options to be recognized as expense over a weighted-average period of approximately 0.53 years.

     A summary of the Company’s outstanding stock options for the nine months ended September 30, 2009 and 2008 is presented below.

	Nine months ended September 30,
	2009					2008
				Weighted-					Weighted-
				Average					Average
				Exercise					Exercise
	Shares			Price		Shares			Price
Outstanding at beginning of year		4,184,403		$	2.90		4,457,965		$	3.37
Granted		2,732,500			1.15		78,000			2.39
Exercised		—			—		(1,100	)		2.31
Forfeited and expired		(3,214,103	)		2.87		(334,656	)		8.99
Outstanding at end of period		3,702,800		$	1.63		4,200,209		$	2.90
Options exercisable at end of period		3,495,300		$	1.65		2,900,799		$	2.99

8

     The weighted-average fair value of options granted was $0.80 and $1.52 during the nine months ended September 30, 2009 and 2008, respectively.

     The following table summarizes information about stock options outstanding at September 30, 2009:

	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	4.6 years	$	1.15		2,523,000	4.4 years	$	1.15
$2.00 — $3.00		684,197	5.6 years		2.32		684,197	5.6 years		2.31
$3.10 — $4.65		255,363	7.0 years		3.40		237,863	6.9 years		3.42
$4.99 — $6.96		28,500	4.3 years		5.47		28,500	4.3 years		5.47
$8.95 — $13.06		8,740	2.0 years		10.55		8,740	2.0 years		10.55
$15.62 — $22.36		13,000	0.6 years		17.09		13,000	0.6 years		17.09
		3,702,800	4.9 years	$	1.63		3,495,300	4.8 years	$	1.65

     The was no intrinsic value of outstanding options and exercisable options as of September 30, 2009. The intrinsic value of options vested during the nine months ended September 30, 2009 was $0. The intrinsic value of options exercised during the nine months ended September 30, 2009 and 2008 was $0 and $759, respectively.

As of September 30, 2009, 378,617 shares were available for grant under the 2005 Plan.

5. Notes Payable and Debt

Convertible Notes Payable to Significant Stockholders

     In August 2006, the Company issued to Robert Gipson an unsecured promissory note (the “RG Note”), pursuant to which the Company could borrow up to an aggregate principal amount of $3,000,000 from Robert Gipson. In October 2006, the Company issued an amended and restated unsecured promissory note (the “Amended RG Note”) to Robert Gipson to replace the RG Note. Under the Amended RG Note, (i) the aggregate principal amount that could be borrowed by the Company was increased from $3,000,000 to $4,000,000, and (ii) one of the dates triggering repayment under the definition of Maturity Date (as discussed below) was moved from December 31, 2007 to September 30, 2007.

     In October 2006, the Company issued to Thomas Gipson (together with Robert Gipson, the “Lenders”) an unsecured promissory note, pursuant to which the Company could borrow up to an aggregate principal amount of $4,000,000 (the “TG Note,” together the with Amended RG Note, the “First Amended Notes”). The Company borrowed a total of $8,000,000 pursuant to the First Amended Notes. The outstanding principal amount borrowed under the First Amended Notes was due and payable upon the earliest to occur of: (i) September 30, 2007; (ii) the date on which the Company consummates an equity financing in which the gross proceeds to the Company total at least $10,000,000; and (iii) the date on which a Lender declares an event of default (as defined in the Notes), the first of these three events to occur referred to as the “Maturity Date.” Interest accrued on the outstanding principal amount under the First Amended Notes was initially payable on the Maturity Date at a rate of 9% per annum from the date of the advance to the Maturity Date.

     In February 2007, the Company issued amended and restated unsecured promissory notes to the Lenders to replace the First Amended Notes (the “Second Amended Notes”). Under the Second Amended Notes, the aggregate principal amount that could be collectively borrowed by the Company was increased from $8,000,000 to $10,000,000. The Company borrowed an additional $2,000,000 from the Lenders, or $10,000,000 in the aggregate, pursuant to the Second Amended Notes.

     In March 2007, the Company issued an amended and restated unsecured promissory note of $5,000,000 to each of the Lenders (the “Amended Notes”). The Amended Notes eliminated all outstanding principal and accrued interest due under the Second Amended Notes and the Company’s right to prepay any portion of the Amended Notes. The Amended Notes also required the Lenders to effect a conversion of the outstanding principal under the Amended Notes into shares of the Company’s common stock at a conversion price of $2.50 per share (the “Amended Notes Conversion”) upon approval by the Company’s stockholders of the conversion. The Company recorded a gain related to the forgiveness of interest of approximately $273,000 to net interest expense on the Company’s Consolidated Statement of Operations during the year ended December 31, 2007. On June 7, 2007, the Company’s stockholders approved the Amended Notes Conversion. On June 15, 2007, the Lenders converted the outstanding principal under the Amended Notes into 4,000,000 shares of the Company’s common stock.

9

March 2008 Amended Purchase Agreement

     In March 2007, the Company entered into a convertible promissory note purchase agreement (the “March 2007 Purchase Agreement”) with Robert Gipson, Thomas Gipson and Arthur Koenig (the “Purchasers” and also referred to as the “March 2007 Note Holders”) pursuant to which the Company could borrow up to $15,000,000 from the March 2007 Note Holders prior to December 31, 2007. In March 2007, the Company issued convertible promissory notes to the March 2007 Note Holders (the “March Notes”) in the aggregate principal amount of $9,000,000 pursuant to the March 2007 Amended Purchase Agreement. Certain of the material terms of the convertible promissory notes are described below.

     In May 2007, the Company amended and restated the March 2007 Purchase Agreement (the “May 2007 Amended Purchase Agreement”) to (i) eliminate the requirement for the March 2007 Note Holders to make further advances under the March 2007 Purchase Agreement and (ii) add Highbridge as a Purchaser. In May 2007, the Company issued a convertible promissory note to Highbridge (the “Highbridge Note”) in the aggregate principal amount of $6,000,000 pursuant to the May 2007 Amended Purchase Agreement.

     In August 2007, the Company amended and restated the May 2007 Amended Purchase Agreement (the “August 2007 Amended Purchase Agreement”) to (i) increase the amount the Company could borrow by $10,000,000 to $25,000,000 and (ii) add Ingalls & Snyder Value Partners LP (“ISVP”) as a Purchaser. In August 2007, the Company issued a convertible promissory note to ISVP (the “2007 ISVP Note”) in the aggregate principal amount of $10,000,000 pursuant to the August 2007 Amended Purchase Agreement.

     In March 2008, the Company amended and restated the August 2007 Amended Purchase Agreement (the “March 2008 Amended Purchase Agreement”) to (i) increase the amount the Company could borrow by $5,000,000 to $30,000,000 and (ii) provide that the Company may incur up to an additional $5,000,000 of indebtedness from the Purchasers upon the same terms and conditions as the March 2008 Amended Purchase Agreement. In March 2008, the Company issued a convertible promissory note to Robert Gipson (the “March 2008 RG Note”) in the aggregate principal amount of $5,000,000 pursuant to the March 2008 Amended Purchase Agreement.

     All terms of the cumulative $30,000,000 in convertible promissory notes remain as originally agreed to. These amounts borrowed by the Company under the March 2008 Amended Purchase Agreement bear interest at the rate of 5% per annum and may be converted, at the option of the Purchasers, into (i) shares of the Company’s common stock at a conversion price per share of $2.50, (ii) the right to receive future payments related to the Company’s molecular imaging products (including Altropane and FLUORATEC) in amounts equal to 2% of the Company’s pre-commercial revenue related to such products plus 0.5% of future net sales of such products for each $1,000,000 of outstanding principal and interest that a Purchaser elects to convert into future payments, or (iii) a combination of (i) and (ii). Any outstanding notes that are not converted into the Company’s common stock or into the right to receive future payments will become due and payable by the earlier of December 31, 2010 or the date on which a Purchaser declares an event of default (as defined in the March 2008 Amended Purchase Agreement). However, each Purchaser is prohibited from effecting a conversion if at the time of such conversion the common stock issuable to such Purchaser, when taken together with all shares of common stock then held or otherwise beneficially owned by such Purchaser exceeds 19.9%, or 9.99% for Highbridge and ISVP, of the total number of issued and outstanding shares of the Company’s common stock immediately prior to such conversion unless and until the Company’s stockholders approve the conversion of all of the shares of common stock issuable thereunder.

June 2008 Amended Purchase Agreement

     In June 2008, the Company entered into a convertible promissory note purchase agreement (the “June 2008 Purchase Agreement”) with Robert Gipson pursuant to which the Company could borrow up to $5,000,000. In June 2008, the Company issued a convertible promissory note to Robert Gipson (the “June 2008 RG Note”) in the aggregate principal amount of $5,000,000 pursuant to the June 2008 Purchase Agreement. The terms of the June 2008 Purchase Agreement are consistent with those of the March 2008 Amended Purchase Agreement described above.

Beneficial Conversion Features

     The Highbridge Note was issued with a conversion price of $2.50 which was below the market price of the Company’s common stock on the date the May 2007 Amended Purchase Agreement was entered into. The Company recorded a beneficial conversion feature (“BCF”) of $480,000 (the “Highbridge BCF”) which was recognized as a decrease in the carrying value of the Highbridge Note and an increase to additional paid-in capital. The value of the Highbridge BCF is being recognized as interest expense using the

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effective interest method through December 31, 2010. The Company recorded interest expense related to the Highbridge BCF in the accompanying Condensed Consolidated Statement of Operations of approximately $33,000 and $97,000 during the three and nine months ended September 30, 2009, respectively. The Company recorded interest expense of approximately $31,000 and $92,000 during the three and nine months ended September 30, 2008, respectively.

     The 2007 ISVP Note was issued with a conversion price of $2.50 which was below the market price of the Company’s common stock on the date the August 2007 Amended Purchase Agreement was entered into. Accordingly, the Company recorded a BCF of $1,400,000 (the “ISVP BCF”) which was recognized as a decrease in the carrying value of the 2007 ISVP Note and an increase to additional paid-in capital. The ISVP BCF is being recognized as interest expense using the effective interest method through December 31, 2010. The Company recorded interest expense related to the ISVP BCF in the accompanying Condensed Consolidated Statement of Operations of approximately $110,000 and $321,000 during the three and nine months ended September 30, 2009, respectively. The Company recorded interest expense of approximately $99,000 and $290,000 during the three and nine months ended September 30, 2008, respectively.

     The March 2008 RG Note was issued with a conversion price of $2.50 which was below the market price of the Company’s common stock on the date the March 2008 Amended Purchase Agreement was entered into. Accordingly, the Company recorded a BCF of $380,000 (the “2008 RG BCF”) which was recognized as a decrease in the carrying value of the March 2008 RG Note and an increase to additional paid-in capital. The 2008 RG BCF is being recognized as interest expense using the effective interest method through December 31, 2010. The Company recorded interest expense related to the 2008 RG BCF in the accompanying Condensed Consolidated Statements of Operations of approximately $34,000 and $100,000 during the three and nine months ended September 30, 2009, respectively. The Company recorded interest expense of approximately $31,000 and $67,000 during the three and nine months ended September 30, 2008, respectively.

     In September 2008, Highbridge converted $120,000 of outstanding principal under the Highbridge Note into 48,000 shares of the Company’s common stock. In connection with the conversion, the Company recorded additional interest expense of approximately $6,300 during the year ended December 31, 2008 related to the unamortized portion of the Highbridge BCF.

     At September 30, 2009, the aggregate carrying value of the Highbridge Note, the March Notes, the 2007 ISVP Note, the March 2008 RG Note and the June 2008 RG Note of $33,974,789 and the related accrued interest was classified as a long-term liability.

     The Company is subject to certain debt covenants pursuant to the March 2008 Amended Purchase Agreement and the June 2008 Purchase Agreement (the “Purchase Agreements”). If the Company (i) fails to pay the principal or interest due under the Purchase Agreements, (ii) files a petition for action for relief under any bankruptcy or similar law or (iii) an involuntary petition is filed against the Company, all amounts borrowed under the Purchase Agreements may become immediately due and payable by the Company. In addition, without the consent of the Purchasers, the Company may not (i) create, incur or otherwise, permit to be outstanding any indebtedness for money borrowed, (ii) declare or pay any cash dividend, or make a distribution on, repurchase, or redeem, any class of the Company’s stock, subject to certain exceptions or sell, lease, transfer or otherwise dispose of any of the Company’s material assets or property or (iii) dissolve or liquidate.

Subsidiary Promissory Note

     In February 2009, Neurobiologics, Inc. (the “Subsidiary”), a subsidiary of the Company, issued to Robert Gipson an unsecured promissory note, pursuant to which the Subsidiary borrowed an aggregate principal amount of $1,000,000 (the “Subsidiary Note”). Interest on the Subsidiary Note accrues at the rate of 7% per annum and all principal and accrued interest is due and payable on demand of Mr. Gipson.

     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 30, 2009, Thomas Gipson beneficially owned approximately 29.0% of the outstanding common stock of the Company on December 31, 2008. According to a Schedule 13G/A filed with the SEC on January 30, 2009, Arthur Koenig beneficially owned approximately 9.7% of the outstanding common stock of the Company on December 31, 2008. According to a Schedule 13G filed with the SEC on January 30, 2009, ISVP owned approximately 16.5% of the outstanding common stock of the Company on December 31, 2008. According to a Schedule 13G filed with the SEC on February 10, 2009, Highbridge beneficially owned approximately 9.50% of the outstanding common stock of the Company on December 31, 2008.

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6. Exit Activities

Office Relocation

     In September 2005, the Company relocated its headquarters to office space in Hopkinton, Massachusetts. In addition, the Company amended its Lease Agreement (the “Lease Amendment”), dated as of January 28, 2002 by and between the Company and Brentwood Properties, Inc. (the “Landlord”) relating to the Company’s 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, the Company agreed to increase its security deposit provided for under the Lease Agreement from $250,000 to $388,600 subject to periodic reduction pursuant to a predetermined formula. At September 30, 2009, the security deposit under the Lease Agreement was approximately $140,000.

     As a result of the Company’s relocation, an expense was recorded for the cost associated with the exit activity at its fair value in the period in which the liability is 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 the Company 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 September 30, 2009, is as follows:

			Cash
			Payments,		Accrual at
	Accrual at		Net of Sublease		September 30,
	December 31, 2008		Receipts 2009		2009
Lease Amendment	$	193,348	$	35,531	$	157,817
Short-term portion of lease accrual		45,425				46,390
Long-term portion of lease accrual	$	147,923			$	111,427

     During the three and nine months ended September 30, 2009, the Company recorded approximately $6,200 and $19,800, 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 nine months ended September 30, 2008, the Company recorded approximately $8,100 and $26,700, 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.

Terminations

     In January 2009, the Company decided to streamline operations and terminated seven employees in order to address its existing cash constraints. Termination benefits were awarded in accordance with each employee’s respective employment arrangement. The Company recognized approximately $81,000 related to one-time termination benefits in the accompanying condensed consolidated statements of operations during the nine months ended September 30, 2009.

7. Stockholders’ Deficit

Common Stock

     In November 2008, the Company completed a private placement with Robert Gipson of 543,478 shares of its common stock which raised $1,000,000 in gross proceeds. In connection with the November 2008 private placement, the Company also issued warrants (the “November 2008 Warrants”) to purchase 543,478 additional shares of common stock that were exercisable at $1.84 per share between six months and two years after the closing. In connection with the private placement, the Company agreed with Mr. Gipson (the “Letter Agreement”) that if the Company sold shares of its common stock at a price below $1.84, subject to certain exceptions, prior to December 31, 2009, Mr. Gipson would be entitled to receive, for no additional consideration, additional shares of common stock and warrants in accordance with a pre-determined formula. In addition, Dawson James Securities, Inc., (“Dawson James”) in its capacity as agent for the private placement, was entitled to a warrant to purchase 38,043 shares of common stock (the “Agent Warrant”). The Agent Warrant had a term of five years and was exercisable at a price equal to $1.84. In February 2009, Dawson James gave up its right to the Agent Warrant.

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     In January 2009, the Company completed a private placement with Robert Gipson of 1,000,000 shares of its common stock which raised $1,000,000 in gross proceeds. In addition, the Company issued an additional 456,522 shares of its common stock to Mr. Gipson pursuant to a Letter Agreement. In connection with the January 2009 private placement, Mr. Gipson agreed to the cancellation of the November 2008 Warrants.

     In February 2009, the Company entered into a private placement with Cato Holding Company (“Cato”) of 200,000 shares of its common stock at a purchase price of $1.00 per share. In connection with the February 2009 private placement, the Company agreed with Cato that if the Company sells shares of its common stock, or securities convertible into common stock, prior to September 30, 2009, and the purchaser of such securities receives warrants to purchase additional shares of common stock (a “Qualified Financing”), subject to certain exceptions, Cato shall be entitled to receive, for no additional consideration, a warrant to purchase shares of common stock with the same terms and conditions as those provided to a purchaser in a Qualified Financing.

     In November 2009, the Company entered into a private placement with Robert Gipson of 2,500,000 shares of its common stock which raised $1,000,000 in gross proceeds.

Preferred Stock

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

Convertible Preferred Stock

     The Company completed the following sales of Series F Stock to Robert Gipson:

	Number of Shares
Date of Issuance	Issued		Gross Proceeds
March 19, 2009		20,000	$	500,000
March 31, 2009		20,000		500,000
April 16, 2009		20,000		500,000
May 12, 2009		40,000		1,000,000
June 10, 2009		20,000		500,000
July 9, 2009		12,000		300,000
July 23, 2009		12,000		300,000
August 11, 2009		12,000		300,000
August 26, 2009		12,000		300,000
September 10, 2009		12,000		300,000
September 28, 2009		16,000		400,000
		196,000	$	4,900,000

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

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

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

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

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

     Redemption. At any time after September 1, 2011, any holder of Series F Stock may elect to have some or all of such shares redeemed by the Company at a price equal to the aggregate of (i) $25 per share (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization affecting such shares), (the “Original Issue Price”), plus (ii) all declared but unpaid dividends thereon, plus (iii) an amount computed at a rate per annum of 7% of the Original Issue Price from the Original Issue Date until the redemption date.

     The April 2009 Series F Stock issuance was issued with a conversion price below the market price of the Company’s common stock. Accordingly, the Company recorded $2,000 as a deemed dividend and an increase in additional paid-in capital related to the total of the intrinsic value of the beneficial conversion feature.

     The terms of the Series F Stock contain provisions that may require redemption in circumstances that are beyond the Company’s control. Therefore, the shares have been recorded, net of issuance costs of approximately $25,000, as convertible, redeemable stock outside of permanent equity. The Series F Stock was recorded at fair value on the date of issuance. As of September 30, 2009, the Company recorded approximately $106,000 in accretion on the Series F Stock.

8. Commitments and Contingencies

     The Company recognizes and discloses commitments when it enters into executed contractual obligations with third parties. The Company accrues contingent liabilities when it is probable that future expenditures will be made and such expenditures can be reasonably estimated.

License Agreements

     The Company has entered into 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.

     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 and CMCC generally provide for royalty payments equal to specified percentages of product sales, annual license maintenance fees and continuing patent prosecution costs.

     In December 2006, the Company entered into a license agreement (the “Cethrin License”) with BioAxone Therapeutic Inc., a Canadian corporation (“BioAxone”), pursuant to which the Company was granted an exclusive, worldwide license to develop and commercialize specified compounds including, but not limited to, Cethrin, as further defined in the Cethrin License. Under the Cethrin License, the Company agreed to pay $10,000,000 in up-front payments, of which it paid BioAxone $2,500,000 upon execution of the Cethrin License and $7,500,000 in March 2007. The Company has also agreed to pay BioAxone up to $25,000,000 upon the achievement of certain milestone events and royalties based on the worldwide net sales of licensed products, subject to specified minimums, in each calendar year until either the expiration of a valid claim covering a licensed product or a certain time period after the launch of a licensed product, in each case applicable to the specific country. The Cethrin License provides for a series of performance milestones any of which, if not achieved by the Company in the timeframes agreed in the Cethrin License, could form

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the basis of a claim for compensation to BioAxone and possibly the termination of some or all of the Company’s rights under the Cethrin License. The Cethrin License further provides the Company with relief from its performance obligations in the event that such performance is effectively rendered impossible due to safety or efficacy issues with Cethrin during its development. Additionally, the Cethrin License provides a warranty that all of the clinical materials provided to the Company in connection with the Cethrin License were manufactured in accordance with current Good Manufacturing Practices.

     On April 24, 2009, the Company entered into an agreement, (the “Amendment Agreement”), with BioAxone pursuant to which the Cethrin License was amended to provide that during a specified period, the SubLicense Period, the Company will use reasonable commercial efforts to enter into a sublicense agreement for the technology licensed to us under the Cethrin License. The Amendment Agreement further provides that all of the pre-commercial financial milestones, and the performance-related milestones contained in the Cethrin License are eliminated and replaced with a formula-based approach to sharing any and all sublicense income with BioAxone. The Amendment Agreement provides that, in the event the Company executes a sublicense agreement within the SubLicense Period that meets certain specified minimum terms, the Company will be entitled to receive a fixed percentage of all sublicense consideration in any and all forms and the remainder will be paid to BioAxone. If the Company fails to execute a sublicense agreement during the SubLicense Period, the Cethrin License and the Company’s right to sublicense it will terminate and the Company will instead be entitled to receive a lower fixed percentage of any and all income received by BioAxone if and when they enter into a future third party license agreement for the Cethrin technology. The Amendment Agreement includes a mutual release of all of the claims that each party had previously alleged against the other under the Cethrin License. Certain terms of the Amendment Agreement for which the Company has been granted Confidential Treatment are not disclosed herein. Under the terms of the Amendment Agreement, our right to sublicense Cethrin has expired. BioAxone has not indicated whether or not an extension of this right is or could be available.

Contingencies

     The Company is subject to legal proceedings in the ordinary course of business. One such matter involves a contract manufacturing organization (the “CMO”) for the Cethrin product. The Company was not satisfied with the services rendered by the CMO. The two companies have had a number of meetings to resolve the issues but have been unsuccessful. The Company informed the CMO that the agreement between the parties is considered terminated as the Company believes the CMO materially breached the agreement. Based on the terms of the agreement, the Company requested that the advance payment held by the CMO be offset by the amount payable for work performed to date. The CMO responded claiming they do not believe they breached the agreement and therefore does not accept the termination. In addition, the CMO has demanded the Company pay them for the work performed to date. As of September 30, 2009, no amounts under the agreement with the CMO are accrued in the accompanying Condensed Consolidated Balance Sheet relating to a potential settlement of this matter. Included in the accompanying Condensed Consolidated Balance Sheet is approximately $561,000 payable to the CMO for work performed as of December 31, 2008. The Company expensed the advance payment of $592,000 during the year ended December 31, 2008. The Company was informally notified in June 2009 that the CMO had ceased operations and terminated its staff. The Company has received no formal notification of such closure or any kind of demand for payment from the CMO or any successor in interest to its assets. The Company is prepared to continue negotiations with the CMO but there can be no assurance as to the outcome of this matter.

     On January 9, 2009, we announced that Frank Bobe, Executive Vice President and Chief Business Officer, left our employ. On March 4, 2009, Mr. Bobe filed a lawsuit in the state Superior Court in Middlesex County, Massachusetts naming us as defendant alleging breach of his employment agreement. The complaint alleges damages in the amount of $349,063 for severance and other benefits, plus additional attorney’s fees. On November 4, 2009, the Company entered into a Settlement and Release Agreement with Mr. Bobe pursuant to which all claims of Mr. Bobe against the Company and all claims of the Company against Mr. Bobe were released in exchange for a cash payment from the Company to Mr. Bobe, the amount of which is subject to the confidentiality provisions of the Settlement and Release Agreement. The Company adjusted its accrued liabilities in the accompanying statements of operations at September 30, 2009 to reflect the outcome of this matter. In addition, included in prepaid expenses and other current assets on the accompanying balance sheet at September 30, 2009 includes amounts due from the Company’s insurance company representing reimbursement for a portion of the settlement and legal fees.

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, 2005 through December 31, 2008. However, because we are carrying forward income tax attributes, such as net operating losses from 2004

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and earlier tax years, these attributes can still be audited when utilized on returns filed in the future. There are currently no tax audits that have commenced with respect to income tax returns in any jurisdiction. The Company’s practice is to recognize interest and penalties related to income tax matters in income tax expense. The Company has no accrual for interest and penalties as of September 30, 2009.

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 table sets forth our financial assets that were measured at fair value on a recurring basis at September 30, 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 at September 30, 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.

			Fair Value Measurement at Reporting Date Using
			Quoted Prices in
			Active Markets for		Significant Other		Significant
	Carrying Value at		Identical Assets		Observable Inputs		Unobservable Inputs
Description	September 30, 2009		(Level 1)		(Level 2)		(Level 3)
Assets:
Money market funds — current assets	$	189,511	$	189,511	$	—	$	—
Money market funds — long term assets		115,749		115,749		—		—
Total	$	305,260	$	305,260	$	—	$	—

     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 $0.75 as of September 30, 2009.

11. New Accounting Pronouncements

     In April 2009, FASB issued FASB ASC 825-10-65, “Interim Disclosures about Fair Value of Financial Instruments.” ASC 825-10-65 amends ASC 825-10 to require disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. The ASC requires a publicly traded company to include disclosures about the fair value of its financial instruments whenever it issues summarized financial information for interim reporting periods. Such entity is required to disclose in the body or in the accompanying notes of its summarized financial information for interim reporting periods and in its financial statements for annual reporting periods the fair value of all financial instruments for which it is practicable to estimate that value, whether recognized or not recognized in the statement of financial position. Fair value information disclosed in

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the notes must be presented together with the related carrying amount in a form that makes it clear whether the fair value and carrying amount represent assets or liabilities and how the carrying amount relates to what is reported in the statement of financial position. Such entity also must disclose the methods and significant assumptions used to estimate the fair value of financial instruments and describe changes in methods and significant assumptions during the period. This FSP is effective for interim reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. The Company adopted this ASC for the quarter ended June 30, 2009 and the adoption did not have a material impact on the Company’s consolidated results of operations and financial position.

     In April 2009, FASB issued ASC 820-10-65, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly.” This ASC provides additional guidance for estimating fair value in accordance with ASC 820, “Fair Value Measurements,” when the volume and level of activity for the asset or liability have significantly decreased. This ASC also includes guidance on identifying circumstances that indicate a transaction is not orderly. This ASC emphasizes that even if there has been a significant decrease in the volume and level of activity for the asset or liability and regardless of the valuation technique(s) used, the objective of a fair value measurement remains the same. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. This ASC is effective for interim and annual reporting periods ending after June 15, 2009, and will be applied prospectively. The Company adopted this ASC for the quarter ended June 30, 2009 and the adoption did not have a material impact on the Company’s consolidated results of operations and financial position.

     In May 2009, the FASB issued ASC 855-10, “Subsequent Events” to establish accounting and disclosure standards for events that occur after the balance sheet date but before financial statements are issued or are available to be issued. It defines financial statements as available to be issued, requiring the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date, whether it be the date the financial statements were issued or the date they were available to be issued. The Company adopted this pronouncement upon issuance. This standard had no material impact on the Company’s financial position, results of operations or cash flows.

     In June 2009, the FASB issued ASC 105-10, “The FASB Accounting Standards Codification (the “Codification”) and the Hierarchy of Generally Accepted Accounting Principles,” as the single source of authoritative nongovernmental Generally Accepted Accounting Principles in the United States. The Codification is effective for interim and annual periods ending after September 15, 2009. Upon the effective date, the Codification will be the single source of authoritative accounting principles to be applied by all nongovernmental U.S. entities. All other accounting literature not included in the Codification will be nonauthoritative. The adoption of the Codification had no material impact on the Company’s financial position or results of operations.

12. Subsequent Events

     The Company evaluated subsequent events through November 16, 2009, when the financial statements were issued.

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 engaged in 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 three 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;

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• 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; and

• Neurodegenerative disease program focused on treating the symptoms of PD and slowing or stopping the progression of PD.

     At September 30, 2009, we were considered a “development stage enterprise” as defined in Financial Accounting Standards Board Accounting Standards Codification Topic 915, OR ASC 915.

     As of September 30, 2009, we have experienced total net losses since inception of approximately $192,922,000, stockholders’ deficit of approximately $46,714,000 and a net working capital deficit of approximately $4,450,000. The cash and cash equivalents available at September 30, 2009 will not provide sufficient working capital to meet our anticipated expenditures for the next twelve months. We believe that the approximate $483,000 in cash and cash equivalents available at November 12, 2009 combined with additional operating capital committed from its lead investor and its 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 into December 2009. We must immediately raise additional funds in order to continue operations.

     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. If we violate a debt covenant or default under the March 2008 Amended Purchase Agreement or the June 2008 Purchase Agreement (described below in Liquidity and Capital Resources) we may 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 could have an adverse affect on our ability to obtain future financing and could adversely impact our stock price and the liquidity of our common stock. See the risk factor entitled “Our common stock has been delisted from the NASDAQ Capital Market.”

     In connection with the common stock financing completed by us in March 2005, or the March 2005 Financing, we agreed with the purchasers in such financing, including Robert Gipson, Thomas Gipson, and Arthur Koenig, or the March 2005 Investors, that, subject to certain exceptions, we would not issue any shares of our common stock at a per share price less than $2.50 without the prior consent of the March 2005 Investors holding at least a majority of the shares issued in the March 2005 Financing. On November 12, 2009, the closing price of our common stock was $0.37. The failure to receive the requisite waiver or consent of the March 2005 Investors could have the effect of delaying or preventing the consummation of a financing by us should the price per share in such financing be set at less than $2.50.

     Our ability to continue to advance our clinical programs, including the development of Altropane and Cethrin, is affected by the availability of financial resources to fund each program. Financial considerations have caused us to cease or significantly delay planned development activities for our clinical programs and we have decided to suspend development of our preclinical programs until we are able to secure additional working capital. If we are not able to raise additional capital, we will not have sufficient funds to complete the clinical trial programs for the Altropane molecular imaging agent or Cethrin.

Cost Reduction

     In light of current conditions in the global financial markets and our severe cash constraints we have taken steps to reduce our on-going cash expenses. In January and September 2009, we terminated a total of ten employees, reduced the salary of most of the remaining employees and cut back certain employee benefits. The costs related to these actions consist primarily of one-time termination costs. The terminations and salary reductions are expected to reduce compensation costs by approximately $1,500,000 annually.

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Product Development

Molecular Imaging Program

     The Altropane molecular imaging agent is being developed for the differential diagnosis of PS, including PD, and non-PS in patients with an upper extremity tremor. In July 2007, we completed enrollment in a study that optimized Altropane’s image acquisition protocol which we believe will enhance Altropane’s commercial use. After a series of discussions with the U.S. Food and Drug Administration, or FDA, and our expert advisors, the POET-2 program was designed as a two-part Phase III program using the optimized Altropane image acquisition protocol. The first part of the program enrolled 54 subjects in a multi-center clinical study to acquire a set of Altropane images which will be used to train the expert readers, as is the customary process for clinical trials of molecular imaging agents. Enrollment in the first part of POET-2 was completed in January 2009. In April 2009 we reached agreement with the FDA under the Special Protocol Assessment, or SPA, process for the second part of the Phase III clinical trial program of Altropane. A SPA is a process by which sponsors and the FDA reach an agreement on the size, design and analysis of clinical trials that will form the primary basis of approval. The Phase III program is designed to confirm the diagnostic utility of the agent in anticipation of drug registration. The second portion of the Phase III, POET-2 program consists of two clinical trials in up to 480 subjects in total to be conducted in parallel at up to 40 medical facilities throughout the US. The subjects to be tested will be 40-80 years of age and have had a tremor in their hand(s) or arm(s) for less than three years. Each subject will be assessed by a general neurologist, an Altropane imaging procedure and a Movement Disorder Specialist considered the “gold standard”. The success of the trial will be determined by measuring the diagnostic efficacy of the neurologist diagnosis compared with the diagnosis determined by the Altropane scan versus the MDS gold standard diagnosis.

     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.

     Our lead product candidate for nerve repair is Cethrin. Cethrin contains a proprietary protein which studies indicate inactivates a key enzyme called Rho resulting in the promotion of nerve repair. Cethrin is currently being investigated to determine its effectiveness in facilitating the restoration of movement and sensory function following a major injury to the spinal cord. After an SCI, approximately two-thirds of patients undergo decompression/stabilization surgery. During surgery, Cethrin is delivered in a single application to the injured region of the spinal cord using a fibrin sealant as a carrier.

     In April 2009 we announced that we entered into an Amendment Agreement, or the Amendment, with BioAxone Therapeutic, Inc., pursuant to which the license agreement between the Company and BioAxone originally executed in December 2006, or the Cethrin License, was amended. The Amendment replaces all of the pre-commercial financial and performance-related milestones contained in the Cethrin License with a formula-based approach to sharing of any and all income under a sub-license. The Amendment establishes provisions under which we would use reasonable commercial efforts to enter into a Sub-license Agreement for the technology covered by the Cethrin License. The Amendment also provides for the mutual release of claims that each party had previously alleged against the other under the Cethrin License. Current development for Cethrin, including the manufacturing of additional Cethrin drug product, has been suspended until such time that we have secured a strategic partnership for the program. We have ceased our clinical development effort for Cethrin. Our efforts are focused on identifying and negotiating with appropriate sublicensing candidates. We may not be able to sublicense Cethrin during the time period under, or on terms compliant with, the Amendment Agreement, in either of which events we will not be entitled to any sublicense income as provided for in the Amendment Agreement. Under the terms of the Amendment Agreement, our right to sublicense Cethrin has expired. BioAxone has not indicated whether or not an extension of this right is or could be available. In the event that no such extension is possible, it is unclear if or when BioAxone will license the Cethrin technology to a third party, so we may not realize any revenue at all under the Amendment Agreement.

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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 $30,169,000 on a cumulative basis.

	For the Three			For the Nine		From Inception
	Months Ended			Months Ended		(October 16, 1992) to
Program	September 30, 2009			September 30, 2009		September 30, 2009
Molecular imaging	$	125,000		$	627,000	$	27,278,000
Regenerative therapeutics	$	(30,000	)	$	306,000	$	28,892,000
Neurodegenerative disease	$	—		$	20,000	$	1,131,000

     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.

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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 September 30, 2009, 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

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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.

Marketable Securities

     From time to time, we invest in marketable securities. These marketable securities consist exclusively of investments in United States agency bonds and corporate debt obligations. These marketable securities are adjusted to fair value on the Condensed Consolidated Balance Sheet through other comprehensive income. If a decline in the fair value of a security is considered to be other than temporary, the investment is written down to a new cost basis and the unrealized loss is removed from accumulated other comprehensive loss and recorded in the Condensed Consolidated Statements of Operations. We evaluate whether a decline in fair value is other than temporary based on factors such as the significance of the decline, the duration of time for which the decline has been in existence and our ability and intent to hold the security to maturity. To date, we have not recorded any other than temporary impairments related to our marketable securities. These marketable securities are classified as current assets because they are highly liquid and are available, as required, to meet working capital and other operating requirements.

     Results of Operations

Three Months Ended September 30, 2009 and 2008

     Our net loss and net loss attributable to common stockholders was $2,060,300 during the three months ended September 30, 2009 as compared with $5,111,315 during the three months ended September 30, 2008. Net loss attributable to common stockholders totaled $0.09 per share for the 2009 period as compared to $0.25 per share for the 2008 period. The decrease in net loss in the 2009 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 2009 period was primarily due to the decrease in net loss in 2009 and an increase in weighted average shares outstanding of approximately 2,494,000 shares in 2009, which was primarily the result of the common stock issuances in November 2008 and January 2009.

     Research and development expenses were $720,505 during the three months ended September 30, 2009 as compared with $2,818,398 during the three months ended September 30, 2008. The decrease in the 2009 period was primarily attributable to our decision to scale back operations specifically resulting in (i) lower costs of approximately $1,161,000 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; (ii) lower costs of approximately $464,000 associated with our molecular imaging program primarily related to decreased Altropane clinical costs and (iii) lower compensation and related costs of approximately $402,000 primarily related to lower headcount and lower stock-compensation expense. Subject to our ability to raise additional capital, we are currently planning for an increase in our research and development expenses over the next twelve months although there may be significant fluctuations on a quarterly basis. This expected increase is primarily related to higher Altropane clinical costs. Our working capital constraints may limit our planned expenditures.

     General and administrative expenses were $705,904 during the three months ended September 30, 2009 as compared with $1,703,609 during the three months ended September 30, 2008. The decrease in the 2009 period was primarily related to (i) lower compensation and related costs of approximately $738,000 primarily related to decreased headcount and lower stock-compensation expense, and (ii) lower commercialization and communication costs of approximately $147,000. We currently anticipate that our general and administrative expenses will decrease over the next twelve months primarily related to reduced headcount, although there may be significant fluctuations on a quarterly basis.

     Interest expense was $634,679 during the three months ended September 30, 2009 as compared with $609,817 during the three months ended September 30, 2008. The increase in the 2009 period was primarily attributable to the issuance of $10,000,000 in convertible promissory notes during 2008, which bear interest at the rate of 5% per annum.

     Investment income was $788 during the three months ended September 30, 2009 as compared with $20,509 during the three months ended September 30, 2008. The decrease in the 2009 period was primarily due to lower average cash and cash equivalent balances during the 2009 period.

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Nine Months Ended September 30, 2009 and 2008

     Our net loss and net loss attributable to common stockholders was $9,022,736 during the nine months ended September 30, 2009 as compared with $16,552,039 during the nine months ended September 30, 2008. Net loss attributable to common stockholders totaled $0.39 per share for the 2009 period as compared to $0.80 per share for the 2008 period. The decrease in net loss in the 2009 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 2009 period was primarily due to the decrease in net loss in 2009 and an increase in weighted average shares outstanding of approximately 2,162,000 shares in 2009, which was primarily the result of the common stock issuances in November 2008 and January 2009.

     Research and development expenses were $3,441,041 during the nine months ended September 30, 2009 as compared with $9,107,664 during the nine months ended September 30, 2008. The decrease in the 2009 period was primarily attributable to our decision to scale back operations specifically resulting in (i) lower costs of approximately $3,961,000 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; (ii) lower costs of approximately $744,000 associated with our molecular imaging program primarily related to decreased Altropane clinical costs and (iii) lower compensation and related costs of approximately $818,000 primarily related to lower headcount.

     General and administrative expenses were $3,768,972 during the nine months ended September 30, 2009 as compared with $5,906,849 during the nine months ended September 30, 2008. The decrease in the 2009 period was primarily related to (i) lower compensation and related costs of approximately $1,183,000 primarily related to decreased headcount; (ii) lower commercialization and communication costs of approximately $400,000 (iii) lower legal, patent and consulting costs of approximately $294,000 primarily related to slowdowns in operations and resolution of the dispute with BioAxone.

     Other income was $65,000 during the nine months ended September 30, 2009 as compared with $0 during the nine months ended September 30, 2008. 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 $1,883,730 during the nine months ended September 30, 2009 as compared with $1,610,314 during the nine months ended September 30, 2008. The increase in the 2009 period was primarily attributable to the issuance of $10,000,000 in convertible promissory notes during 2008, which bear interest at the rate of 5% per annum.

     Investment income was $6,007 during the nine months ended September 30, 2009 as compared with $72,788 during the nine months ended September 30, 2008. The decrease in the 2009 period was primarily due to lower average cash and cash equivalent balances during the 2009 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 has adversely affected 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 $6,814,358 during the nine months ended September 30, 2009 as compared to $12,683,116 during the nine months ended September 30, 2008. The decrease in cash used during the 2009 period is primarily related to the decrease in net loss. Net cash provided by investing activities totaled $60,751 during the nine months ended September 30, 2009 as compared to $1,082,845 during the nine months ended September 30, 2008. The decrease in cash provided by investing activities is primarily associated with the sale of marketable securities used to fund operations during the 2008 period. Net cash provided by financing activities totaled $6,874,812 during the nine months ended September 30, 2009 as compared to $10,002,541 during the nine months ended September 30, 2008. The decrease during the 2009 period primarily reflects the decrease in promissory notes payable issued in the 2009 period partially offset by the issuance of 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.

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     A summary of financings completed during the three years ended September 30, 2009 is as follows:

		Securities or Debt
Date	Net Proceeds Raised	Instrument Issued
September 2009	$0.7 million	Convertible Preferred Stock
August 2009	$0.6 million	Convertible Preferred Stock
July 2009	$0.6 million	Convertible Preferred Stock
June 2009	$0.5 million	Convertible Preferred Stock
May 2009	$1.0 million	Convertible Preferred Stock
April 2009	$0.5 million	Convertible Preferred Stock
March 2009	$1.0 million	Convertible Preferred Stock
February 2009	$0.2 million	Common Stock
February 2009	$1.0 million	Promissory Notes
January 2009	$1.0 million	Common Stock
November 2008	$1.0 million	Common Stock
June 2008	$5.0 million	Convertible Promissory Notes
March 2008	$5.0 million	Convertible Promissory Notes
August 2007	$10.0 million	Convertible Promissory Notes
May 2007	$6.0 million	Convertible Promissory Notes
March 2007	$9.0 million	Convertible Promissory Notes
February 2007	$2.0 million	Convertible Promissory Notes(1)
October 2006	$6.0 million	Convertible Promissory Notes(1)

(1) Converted to shares of our common stock in June 2007.

     In November 2009, we sold 2,500,000 shares of our common stock for gross proceeds of $1,000,000.

     During the nine months ended September 30, 2009, 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 September 30, 2009, we have experienced total net losses since inception of approximately $192,922,000, stockholders’ deficit of approximately $46,714,000 and a net working capital deficit of approximately $4,450,000. The cash and cash equivalents available at September 30, 2009 will not provide sufficient working capital to meet our anticipated expenditures for the next twelve months. At November 12 2009, we had cash and cash equivalents of approximately $483,000 which combined with 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 into December 2009. We must immediately raise additional funds in order to continue operations.

     In order to continue as a going concern, we will need to raise additional capital through one or more of the following: a debt financing, an equity offering, or a collaboration, merger, acquisition or other transaction with one or more pharmaceutical or biotechnology companies. We are currently engaged in fundraising efforts. There can be no assurance that we will be successful in our fundraising efforts or that additional funds will be available on acceptable terms, if at all. We also cannot be sure that we will be able to obtain additional credit from, or effect additional sales of debt or equity securities to certain of our existing investors (described below). If we are unable to raise additional or sufficient capital or if we violate a debt covenant or default under the March 2008 Amended Purchase Agreement or the June 2008 Purchase Agreement (described below) we may need to cease operations or reduce, cease or delay one or more of our research or development programs and/or adjust our current business plan and in any such event may not be able to continue as a going concern. Additionally, our common stock was delisted from trading on the NASDAQ Capital Market as a result of our failure to meet continued listing requirements of NASDAQ. On May 8, 2009 we began trading on the Pink Sheets OTC Market. This delisting could have an adverse affect on our ability to obtain future financing and could adversely impact our stock price and the liquidity of our common stock. See the risk factor entitled “Our common stock has been delisted from, the NASDAQ Capital Market.”

     In connection with the March 2005 Financing, we agreed with the March 2005 Investors, that, subject to certain exceptions, we would not issue any shares of our common stock at a per share price less than $2.50 without the prior consent of the March 2005 Investors holding at least a majority of the shares issued in the March 2005 Financing. On November 12, 2009, the closing price of our common stock was $0.37. The failure to receive the requisite waiver or consent of the March 2005 Investors could have the effect of delaying or preventing the consummation of a financing by us should the price per share in such financing be set at less than $2.50.

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Contractual Obligations and Commitments

     Except as set forth below, the disclosures relating to our contractual obligations in our Annual Report on Form 10-K for the year ended December 31, 2008 have not materially changed since we filed that report.

     On April 24, 2009 we entered into the Amendment Agreement with BioAxone pursuant to which the Cethrin License was amended to provide that during a specified period, the SubLicense Period, we will use reasonable commercial efforts to enter into a Sublicense Agreement for the technology licensed to us under the Cethrin License. The Amendment Agreement further provides that all of the pre-commercial financial milestones, and the performance-related milestones contained in the Cethrin License are eliminated and replaced with a formula-based approach to sharing any and all sublicense income with BioAxone. The Amendment Agreement provides that, in the event we execute a sublicense agreement within the specified SubLicense Period that meets certain specified minimum terms, we will be entitled to receive a fixed percentage of all sublicense consideration in any and all forms and the remainder will be paid to BioAxone. If we fail to execute a sublicense agreement during the specified SubLicense Period, the Cethrin License and our right to sublicense it will terminate and we will instead be entitled to receive a lower fixed percentage of any and all income received by BioAxone if and when they enter into future third party license agreement for the Cethrin technology. The Amendment Agreement includes a mutual release of all of the claims that each party had previously alleged against the other under the Cethrin License. Certain terms of the Amendment Agreement for which we have been granted Confidential Treatment are not disclosed herein. Under the terms of the Amendment Agreement, our right to sublicense Cethrin has expired. BioAxone has not indicated whether or not an extension of this right is or could be available.

Recent Accounting Pronouncements

     In April 2009, the Financial Accounting Standards Board, or FASB, issued FASB Accounting Standards Codification, or ASC, 825-10-65, “Interim Disclosures about Fair Value of Financial Instruments.” ASC 825-10-65 amends ASC 825-10 to require disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as annual financial statements. The ASC requires a publicly traded company to include disclosures about the fair value of its financial instruments whenever it issues summarized financial information for interim reporting periods. Such entity is required to disclose in the body or in the accompanying notes of its summarized financial information for interim reporting periods and in its financial statements for annual reporting periods the fair value of all financial instruments for which it is practicable to estimate that value, whether recognized or not recognized in the statement of financial position. Fair value information disclosed in the notes must be presented together with the related carrying amount in a form that makes it clear whether the fair value and carrying amount represent assets or liabilities and how the carrying amount relates to what is reported in the statement of financial position. Such entity also must disclose the methods and significant assumptions used to estimate the fair value of financial instruments and describe changes in methods and significant assumptions during the period. We adopted this ASC for the quarter ended June 30, 2009 and the adoption did not have a material impact on our consolidated results of operations and financial position.

     In April 2009, FASB issued ASC 820-10-65, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly.” This ASC provides additional guidance for estimating fair value in accordance with ASC 820, “Fair Value Measurements”, when the volume and level of activity for the asset or liability have significantly decreased. This ASC also includes guidance on identifying circumstances that indicate a transaction is not orderly. This ASC emphasizes that even if there has been a significant decrease in the volume and level of activity for the asset or liability and regardless of the valuation technique(s) used, the objective of a fair value measurement remains the same. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. We adopted this ASC for the quarter ended June 30, 2009 and the adoption did not have a material impact on our consolidated results of operations and financial position.

     In May 2009, the FASB issued ASC 855-10, “Subsequent Events” to establish accounting and disclosure standards for events that occur after the balance sheet date but before financial statements are issued or are available to be issued. It defines financial statements as available to be issued, requiring the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date, whether it be the date the financial statements were issued or the date they were available to be issued. We adopted this pronouncement upon issuance. This standard had no material impact on our financial position, results of operations or cash flows.

     In June 2009, the FASB issued ASC 105-10, “The FASB Accounting Standards Codification, or the Codification, and the Hierarchy of Generally Accepted Accounting Principles,” as the single source of authoritative nongovernmental Generally Accepted Accounting Principles in the United States. The Codification is effective for interim and annual periods ending after September 15, 2009. Upon the effective date, the Codification will be the single source of authoritative accounting principles to be applied by all nongovernmental U.S. entities. All other accounting literature not included in the Codification will be nonauthoritative. The adoption of the Codification had no material impact on our financial position or results of operations.

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Item 3 — Quantitative and Qualitative Disclosures About Market Risk

     There have been no material changes in the market risks reported in our Annual Report on Form 10-K for the year ended December 31, 2008.

     We generally maintain a portfolio of cash equivalents, and short-term and long-term marketable securities in a variety of securities which can include commercial paper, certificates of deposit, money market funds and government and non-government debt securities. The fair value of these available-for-sale securities are subject to changes in market interest rates and may fall in value if market interest rates increase. Our investment portfolio includes only marketable securities with active secondary or resale markets to help insure liquidity. We have implemented policies regarding the amount and credit ratings of investments. Due to the conservative nature of these policies, we do not believe we have material exposure due to market risk. We may not have the ability to hold our fixed income investments until maturity, and therefore our future operating results or cash flows could be affected if we are required to sell investments during a period in which increases in market interest rates have adversely affected the value of our securities portfolio. For fixed rate debt, changes in interest rates generally affect the fair market value of the debt instrument, but not earnings or cash flows. We do not have an obligation to prepay any fixed rate debt prior to maturity and, therefore, interest rate risk and changes in the fair market value of fixed rate debt should not have a significant impact on earnings or cash flows until such debt is refinanced, if necessary. The terms related to our fixed rate debt are described in Note 5 to the condensed consolidated financial statements. For variable rate debt, changes in interest rates generally do not impact the fair market value of the debt instrument, but do affect future earnings and cash flows. We did not have any variable rate debt outstanding during the nine months ended September 30, 2009.

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 September 30, 2009. 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 September 30, 2009, 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.

     No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the fiscal quarter ended September 30, 2009 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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.

Item 1A — Risk Factors

     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

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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. The following is an update to our descriptions of risk factors reported in our Annual Report or Form 10-K for the year ended 2008. If any of such risks actually occur, our business, financial condition or results of operations would likely suffer.

Risks Related to our Intellectual Property

WE HAVE AMENDED OUR CETHRIN LICENSE AGREEMENT WITH BIOAXONE AND CONSEQUENTLY WE WILL NOT CLINICALLY DEVELOP CETHRIN AND PURSUANT TO THE TERMS OF THE AMENDMENT WE MAY NOT REALIZE ANY REVENUE FROM A FUTURE LICENSING OF THE CETHRIN TECHNOLOGY.

     We are party to a December 2006 license agreement, the Cethrin License, with BioAxone Therapeutic, Inc., a Canadian corporation, or BioAxone, pursuant to which we were granted an exclusive, worldwide license to develop and commercialize specified compounds including but not limited to Cethrin as further defined in the Cethrin License. On April 24, 2009 we entered into an agreement, the Amendment Agreement, with BioAxone pursuant to which the Cethrin License was amended to provide that during a specified period, the SubLicense Period, we will use reasonable commercial efforts to enter into a sublicense agreement for the technology licensed to us under the Cethrin License. The Amendment Agreement further provides that all of the pre-commercial financial milestones, and the performance-related milestones contained in the Cethrin License are eliminated and replaced with a formula-based approach to sharing any and all sublicense income with BioAxone. The Amendment Agreement provides that, in the event we execute a sublicense agreement within the SubLicense Period that meets certain specified minimum terms, we will be entitled to receive a fixed percentage of all sublicense consideration in any and all forms and the remainder will be paid to BioAxone. If we fail to execute a sublicense agreement during the SubLicense Period, the Cethrin License and our right to sublicense it will terminate and we will instead be entitled to receive a lower fixed percentage of any and all income received by BioAxone if and when they enter into a future third party license agreement for the Cethrin technology.

     We have ceased our clinical development effort for Cethrin. Therefore, we will not realize the attendant benefits under the original in-license from BioAxone. Further clinical development of Cethrin will be conducted, if at all, by a sublicense. We may not be able to sublicense Cethrin during the time period under, or on terms compliant with, the Amendment Agreement, in either of which events we will not be entitled to any sublicense income as provided for in the Amendment Agreement. Under the terms of the Amendment Agreement, our right to sublicense Cethrin has expired. BioAxone has not indicated whether or not an extension of this right is or could be available. It is unclear if or when BioAxone will license the Cethrin technology to a third party, so we may not realize any revenue at all under the Amendment Agreement.

Risks Related to our Stock

OUR COMMON STOCK HAS BEEN DELISTED FROM THE NASDAQ CAPITAL MARKET.

     On January 8, 2009, we received a letter from The NASDAQ Stock Market LLC (“NASDAQ”) advising us that for the last 10 consecutive trading days, the market value of our listed securities was below the minimum $35 million requirement for continued inclusion under NASDAQ Marketplace Rule 4310(c)(3)(B). Pursuant to NASDAQ Marketplace Rule 4310(c)(8)(C), we were provided an initial period of 30 calendar days, or until February 9, 2009, to regain compliance.

     On January 15, 2009, we received further notification from NASDAQ that on January 13, 2009 NASDAQ filed an immediately effective rule change with the Securities and Exchange Commission to extend the compliance period from 30 to 90 calendar days. We could have regained compliance if, at any time before April 8, 2009, the market value of our listed securities was $35 million or more for a minimum of 10 consecutive business days.

     On April 9, 2009, we received a NASDAQ Staff Determination indicating that we had not regained compliance with the minimum $35 million market value of listed securities requirement, and that, accordingly, our common stock would be delisted from The NASDAQ Capital Market unless we requested an appeal of the determination. Although we requested an appeal of the determination by requesting a written hearing before a NASDAQ Listing Qualifications Panel, on May 6, 2009 we withdrew such appeal because we

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believed that it would ultimately be unsuccessful and that the shareholder approval requirements of the Marketplace Rules were inhibiting our ability to complete the financing necessary to fund our development efforts and ongoing operations. The withdrawal of our appeal resulted in the suspension of our stock’s trading on The NASDAQ Capital Market as of May 8, 2009, and we were suspended from trading on The NASDAQ Capital Market on May 8, 2009. On May 8, 2009 we began trading on the Pink Sheets OTC Market. Subsequently, and in keeping with procedure, NASDAQ filed a Form 25 formally removing our shares from listing on the NASDAQ exchange effective on July 27, 2009.

     Delisting from the NASDAQ Capital Market could have an adverse effect on our business, including our ability to obtain future financing, and on the trading of our common stock. Our common stock is now quoted on the Pink Sheets OTC maintained by the National Quotation Bureau, Inc. This alternative is generally considered to be a less liquid and efficient market, and our stock price, as well as the liquidity of our common stock, may be adversely impacted as a result.

Item 6 — Exhibits

10.1	Securities Purchase Agreement dated July 9, 2009, by and between the Company and Robert L. Gipson (filed as Exhibit 10.7 to our Current Report on Form 8-K filed on July 13, 2009 and incorporated herein by reference)
10.2	Securities Purchase Agreement dated July 23, 2009, by and between the Company and Robert L. Gipson (filed as Exhibit 10.7 to our Current Report on Form 8-K filed on July 29, 2009 and incorporated herein by reference)
10.3*	Securities Purchase Agreement dated August 11, 2009, by and between the Company and Robert L. Gipson
10.4	Securities Purchase Agreement dated August 26, 2009, by and between the Company and Robert L. Gipson (filed as Exhibit 10.7 to our Current Report on Form 8-K filed on September 1, 2009 and incorporated herein by reference)
10.5	Securities Purchase Agreement dated September 10, 2009, by and between the Company and Robert L. Gipson (filed as Exhibit 10.7 to our Current Report on Form 8-K filed on September 16, 2009 and incorporated herein by reference)
10.6	Securities Purchase Agreement dated September 28, 2009, by and between the Company and Robert L. Gipson (filed as Exhibit 10.7 to our Current Report on Form 8-K filed on October 2, 2009 and incorporated herein by reference)
31.1*	Certification of the Chief Executive Officer pursuant to Section 1350 of Title 18, United States Code, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*	Certification of the Chief Financial Officer pursuant to Section 1350 of Title 18, United States Code, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*	Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*	Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

* Filed herewith.

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SIGNATURES

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

	ALSERES PHARMACEUTICALS, INC (Registrant)
DATE: November 16, 2009	/s/ Peter G. Savas
	Peter G. Savas
	Chief Executive Officer (Principal Executive Officer)
DATE: November 16, 2009	/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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EX-10.3

Exhibit 10.3

SECURITIES PURCHASE AGREEMENT

     THIS SECURITIES PURCHASE AGREEMENT (this “Agreement”), dated as of August 11, 2009, by and among Alseres Pharmaceuticals, Inc., a Delaware corporation with headquarters located at 239 South Street, Hopkinton, MA 01748 (the “Company”) and each investor identified on the signature pages hereto (individually, an “Investor” and collectively, the “Investors).

PREAMBLE

     A. The Company and each Investor is executing and delivering this Agreement in reliance upon the exemption from registration afforded by Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”), and Rule 506 of Regulation D as promulgated by the United States Securities and Exchange Commission (the “SEC”) under the Securities Act.

     B. Each Investor, severally and not jointly, wishes to purchase, and the Company wishes to sell, upon the terms and conditions stated in this Agreement and for a purchase price of $25 per share, that aggregate number of shares of Series F Convertible Preferred Stock, par value $0.01 per share, of the Company (the “Series F Stock”), set forth on such Investor’s signature page to this Agreement (which aggregate amount for all Investors together shall be up to 100,000 shares of Series F Stock and shall collectively be referred to herein as the “Shares”).

     NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement, and for other good and valuable consideration the receipt and adequacy of which are hereby acknowledged, the Company and the Investors, severally and not jointly, agree as follows:

ARTICLE I
DEFINITIONS

     1.1 Definitions. In addition to the terms defined elsewhere in this Agreement, the following terms have the meanings indicated:

     “Affiliate” means any Person that, directly or indirectly through one or more intermediaries, controls or is controlled by or is under common control with a Person, as such terms are used in and construed under Rule 144 under the Securities Act.

     “Agreement” has the meaning set forth in the Preamble.

     “Business Day” means any day other than Saturday, Sunday, any day which shall be a federal legal holiday in the United States or any day on which banking institutions in The State of New York are authorized or required by law or other governmental action to close.

     “Closing” has the meaning set forth in the in Section 2.1.

     “Closing Date” has the meaning set forth in Section 2.1.

     “Company” has the meaning set forth in the Preamble.

     “Company Counsel” means Wilmer Cutler Pickering Hale and Dorr LLP, counsel to the Company.

     “Common Stock” means shares of common stock, par value $0.01 per share, of the Company.

     “Convertible Securities” means any stock or securities (other than Options) convertible into or exercisable or exchangeable for Common Stock.

     “Disclosure Materials” has the meaning set forth in Section 3.1(e).

     “Exchange Act” means the Securities Exchange Act of 1934, as amended.

     “FINRA” has the meaning set forth in Section 3.2(c).

     “Investor” has the meaning set forth in the Preamble.

     “Lien” means any lien, charge, claim, security interest, encumbrance, right of first refusal or other restriction.

     “Material Adverse Effect” means (i) a material adverse effect on the results of operations, assets, business or financial condition of the Company and its subsidiaries taken as a whole on a consolidated basis or (ii) material and adverse impairment of the Company’s ability to perform its obligations under this Agreement, provided, that none of the following alone shall be deemed, in and of itself, to constitute a Material Adverse Effect: (i) a change in the market price or trading volume of the Common Stock or (ii) changes in general economic conditions or changes affecting the industry in which the Company operates generally (as opposed to Company-specific changes) so long as such changes do not have a disproportionate effect on the Company and its subsidiaries taken as a whole.

     “Options” means any outstanding rights, warrants or options to subscribe for or purchase Common Stock or Convertible Securities.

     “Restricted Shares” has the meaning set forth in Section 4.1(a).

     “SEC” has the meaning set forth in the Preamble.

     “SEC Reports” has the meaning set forth in Section 3.1(e).

     “Series F Stock” has the meaning set forth in the Preamble.

     “Shares” has the meaning set forth in the Preamble.

     “Securities Act” has the meaning set forth in the Preamble.

     “Short Sales” has the meaning set forth in Section 3.2(i).

     “Trading Day” means (i) a day on which the Common Stock is traded on a Trading Market (other than the OTC Bulletin Board), or (ii) if the Common Stock is not listed or quoted

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on a Trading Market (other than the OTC Bulletin Board), a day on which the Common Stock is traded in the over-the-counter market, as reported by the OTC Bulletin Board, or (iii) if the Common Stock is not listed or quoted on any Trading Market, a day on which the Common Stock is quoted in the over-the-counter market as reported by the Pink Sheets LLC (or any similar organization or agency succeeding to its functions of reporting prices); provided, that in the event that the Common Stock is not listed or quoted as set forth in (i), (ii) and (iii) hereof, then Trading Day shall mean a Business Day.

     “Trading Market” means whichever of the New York Stock Exchange, the American Stock Exchange, the NASDAQ Global Select Market, the NASDAQ Global Market, the NASDAQ Capital Market or the OTC Bulletin Board on which the Common Stock is listed or quoted for trading on the date in question.

     “Transaction” has the meaning set forth in Section 3.2(i).

     “Transfer Agent” means Continental Stock Transfer & Trust Company, or any successor transfer agent for the Company.

ARTICLE II
PURCHASE AND SALE

     2.1 Closing. The Closing (the “Closing”) of the sale and purchase of the Shares under this Agreement shall take place on the date hereof (the “Closing Date”), at the offices of Company Counsel or remotely via the exchange of documents and signatures.

     2.2 Closing Deliveries.

          (a) At the Closing, the Company shall deliver or cause to be delivered to each Investor evidence of a direct registration account in such Investor’s name as set forth on such Investor’s signature page to this Agreement, and the deposit, by direct registration, into such account of the number of Shares purchased by such Investor.

          (b) At the Closing, each Investor shall deliver or cause to be delivered to the Company the purchase price set forth on such Investor’s signature page to this Agreement in United States dollars and in immediately available funds, by wire transfer to an account designated in writing to such Investor by the Company for such purpose.

ARTICLE III
REPRESENTATIONS AND WARRANTIES

     3.1 Representations and Warranties of the Company. The Company hereby represents and warrants to the Investors as follows:

          (a) Organization and Qualification. The Company is an entity duly organized, validly existing and in good standing under the laws of the State of Delaware, with the requisite power and authority to own and occupy its properties and to carry on its business as currently conducted. The Company is not in violation of any of the provisions of its certificate of incorporation or bylaws. The Company is duly qualified to do business and is in good standing

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as a foreign corporation in each jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as the case may be, would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

          (b) Authorization; Enforcement. The Company has the requisite corporate authority to enter into and to consummate the transactions contemplated by this Agreement and otherwise to carry out its obligations hereunder. The execution and delivery of this Agreement by the Company and the consummation by it of the transactions contemplated hereby have been duly authorized by all necessary corporate action on the part of the Company and no further consent or action is required by the Company, its Board of Directors or its stockholders. This Agreement has been (or upon delivery will be) duly executed by the Company and, assuming the due authorization, execution and delivery by the Investors, is, or when delivered in accordance with the terms hereof, will constitute, the valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally and (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies.

          (c) No Conflicts. The execution, delivery and performance of this Agreement by the Company and the consummation by the Company of the transactions contemplated hereby do not, and will not, (i) conflict with or violate any provision of the Company’s certificate of incorporation or bylaws, (ii) conflict with, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation (with or without notice, lapse of time or both) of, any agreement, credit facility, debt or other instrument (evidencing a Company debt or otherwise) or other agreement to which the Company is a party or by which any property or asset of the Company is bound, or affected, except to the extent that such conflict, default, termination, amendment, acceleration or cancellation right would not reasonably be expected to have a Material Adverse Effect, or (iii) result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which the Company is subject (including, assuming the accuracy of the representations and warranties of the Investors set forth in Section 3.2 hereof, federal and state securities laws and regulations and the rules and regulations of any self-regulatory organization to which the Company or its securities are subject), or by which any property or asset of the Company is bound or affected, except to the extent that such violation would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

          (d) Issuance of Shares and Common Stock. The issuance, sale and delivery of the Shares in accordance with this Agreement, and the issuance and delivery of the shares of Common Stock issuable upon conversion of the Shares, have been duly authorized. The Shares when so issued, sold and delivered against payment therefor in accordance with the provisions of this Agreement, and the shares of Common Stock issuable upon conversion of the Shares, when issued upon such conversion, will be duly and validly issued, fully paid and nonassessable, free and clear of all Liens and will not be subject to preemptive or similar rights of stockholders (other than those provided for in this Agreement). The Company has reserved from its duly

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authorized capital stock the number of shares of Common Stock issuable upon conversion of the Shares.

          (e) SEC Reports. The Company has filed all documents required to be filed by it under the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for the twelve months preceding the date hereof on a timely basis or has received a valid extension of such time of filing and has filed any such documents prior to the expiration of any such extension and has filed all documents required to be filed by it under the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for the two years preceding the date hereof, such documents, together with any materials filed or furnished by the Company under the Exchange Act, whether or not any such reports were required being collectively referred to herein as the “SEC Reports” and, together with this Agreement, the “Disclosure Materials”. As of their respective dates (or, if amended or superseded by a filing prior to the Closing Date, then on the date of such filing), the SEC Reports filed by the Company complied in all material respects with the requirements of the Securities Act and the Exchange Act and the rules and regulations of the SEC promulgated thereunder, and none of the SEC Reports, when filed (or, if amended or superseded by a filing prior to the Closing Date, then on the date of such filing) by the Company, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading.

          (f) Capitalization. The authorized capital stock of the Company (immediately prior to the Closing) consists of 80,000,000 shares of Common Stock, of which 23,055,645 were issued and outstanding as of such date and 1,000,000 shares of preferred stock, $.01 par value per share, of which 25,000 shares are designated as Series A Convertible Preferred Stock, 500,000 shares are designated as Series D Convertible Preferred Stock, 800 shares are designated as Series E Convertible Preferred Stock and 200,000 shares are designated as Series F Stock, of which 144,000 shares were issued and outstanding as of such date. All outstanding shares of capital stock are duly authorized, validly issued, fully paid and nonassessable and have been issued in compliance in all material respects with all applicable securities laws. Except as disclosed in or contemplated the SEC Reports, the Company does not have outstanding any other Options, script rights to subscribe to, calls or commitments relating to, or securities, rights or obligations convertible into or exercisable or exchangeable for, or entered into any agreement giving any Person any right to subscribe for or acquire, any shares of Common Stock, or securities or rights convertible or exchangeable into shares of Common Stock. Except as set forth in the SEC Reports, and except for customary adjustments as a result of stock dividends, stock splits, combinations of shares, reorganizations, recapitalizations, reclassifications or other similar events, there are no anti-dilution or price adjustment provisions contained in any security issued by the Company (or in any agreement providing rights to security holders) and the issuance and sale of the Securities will not obligate the Company to issue shares of Common Stock or other securities to any Person (other than the Investors) and will not result in a right of any holder of the Company’s securities to adjust the exercise, conversion, exchange or reset price under such securities.

          (g) Compliance. Except as would not, individually or in the aggregate, reasonably be expected to have or result in a Material Adverse Effect, (i) the Company is not in default under or in violation of (and no event has occurred that has not been waived that, with

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notice or lapse of time or both, would result in a default by the Company under), nor has the Company received written notice of a claim that it is in default under or that it is in violation of, any indenture, loan or credit agreement or any other agreement or instrument to which it is a party or by which it or any of its properties is bound (whether or not such default or violation has been waived), (ii) the Company is not in violation of any order of any court, arbitrator or governmental body, and (iii) the Company is not in violation of any statute, rule or regulation of any governmental authority.

     3.2 Representations and Warranties of the Investors. Each Investor hereby, as to itself only and for no other Investor, represents and warrants to the Company as follows:

          (a) Organization; Authority. If such Investor is an entity, such Investor is an entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization with the requisite corporate, partnership or other power and authority to enter into and to consummate the transactions contemplated by this Agreement and otherwise to carry out its obligations hereunder. The purchase by such Investor of the Shares hereunder has been duly authorized by all necessary corporate, partnership or other action on the part of such Investor. This Agreement has been duly executed and delivered by such Investor and constitutes the valid and binding obligation of such Investor, enforceable against it in accordance with its terms, except (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law.

          (b) No Public Sale or Distribution. Such Investor is acquiring the Shares and upon conversion of the Shares will acquire the Common Stock issuable upon conversion thereof, for its own account for investment and not with a view towards, or for resale in connection with, the public sale or distribution thereof, and such Investor does not have a present intention to effect any distribution of the Shares or such Common Stock to or through any person or entity; provided, however, that by making the representations herein, such Investor does not agree to hold any of the Shares or such Common Stock for any minimum or other specific term and reserves the right to dispose of the Shares and such Common Stock at any time in accordance with or pursuant to a registration statement or an exemption under the Securities Act.

          (c) Investor Status. At the time such Investor was offered the Shares, it was, and on the date hereof it is, an “accredited investor” as defined in Rule 501(a) under the Securities Act. Such Investor is not a registered broker dealer registered under Section 15(a) of the Exchange Act, nor required to be registered as such, or a member of The Financial Industry Regulatory Authority (“FINRA”) or an entity engaged in the business of being a broker dealer. Such Investor is not affiliated with any broker dealer registered under Section 15(a) of the Exchange Act, or a member of FINRA or an entity engaged in the business of being a broker dealer.

          (d) General Solicitation. Such Investor is not purchasing the Shares as a result of any advertisement, article, notice or other communication regarding the Shares published in any newspaper, magazine or similar media, broadcast over television or radio,

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disseminated over the Internet or presented at any seminar or any other general solicitation or general advertisement.

          (e) Experience of Such Investor. Such Investor, either alone or together with its representatives has such knowledge, sophistication and experience in business and financial matters so as to be capable of evaluating the merits and risks of the prospective investment in the Shares, including the risk of total loss of such Investor’s investment, and has so evaluated the merits and risks of such investment. Such Investor understands that it must bear the economic risk of this investment in the Shares indefinitely, and is able to bear such risk and is able to afford a complete loss of such investment. Such Investor understands that the market price of the Common Stock can be volatile and that no representation is being made as to the future value of the Shares or the Common Stock.

          (f) Access to Information. Such Investor acknowledges that it has reviewed the Disclosure Materials and has been afforded: (i) the opportunity to ask such questions as it has deemed necessary of representatives of the Company concerning the terms and conditions of the offering of the Shares and the merits and risks of investing in the Shares; (ii) access to information about the Company and each of its subsidiaries and their respective financial condition, results of operations, business, properties, management and prospects sufficient to enable it to evaluate its investment; and (iii) the opportunity to obtain such additional information that the Company possesses or can acquire without unreasonable effort or expense that is necessary to make an informed investment decision with respect to the investment. Neither such inquiries nor any other investigation conducted by or on behalf of such Investor or its representatives or counsel shall modify, amend or affect such Investor’s right to rely on the Company’s representations and warranties contained herein. Such Investor acknowledges that no third party has made or will make any representation or warranty to such Investor regarding the adequacy or completeness for such Investor’s purpose of the information such Investor has requested. Such Investor acknowledges receipt of copies of the SEC Reports filed through the date hereof.

          (g) No Governmental Review. Such Investor understands that no United States federal or state agency or any other government or governmental agency has passed on or made any recommendation or endorsement of the Shares or the fairness or suitability of the investment in the Shares nor have such authorities passed upon or endorsed the merits of the offering of the Shares.

          (h) No Conflicts. The execution, delivery and performance by such Investor of this Agreement and the consummation by such Investor of the transactions contemplated hereby will not (i) result in a violation of the organizational documents, if any, of such Investor or (ii) conflict with, or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument to which such Investor is a party, or (iii) result in a violation of any law, rule, regulation, order, judgment or decree (including federal and state securities laws) applicable to such Investor, except in the case of clauses (ii) and (iii) above, for such that are not material and do not otherwise affect the ability of such Investor to consummate the transactions contemplated hereby.

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          (i) Prohibited Transactions; Confidentiality. Such Investor, directly or indirectly, has not and no Person acting on behalf of or pursuant to any understanding with such Investor, has engaged in any purchases or sales in the securities, including derivatives, of the Company (including, without limitation, any Short Sales (a “Transaction”) involving any of the Company’s securities) since the time that such Investor was first contacted by the Company or any other Person regarding the investment in the Company contemplated by this Agreement. Such Investor covenants that neither it nor any Person acting on its behalf or pursuant to any understanding with such Investor will engage, directly or indirectly, in any Transactions in the securities of the Company (including Short Sales) prior to the time the transactions contemplated by this Agreement are publicly disclosed. “Short Sales” include, without limitation, all “short sales” as defined in Rule 200 promulgated under Regulation SHO under the Exchange Act and all types of direct and indirect stock pledges, forward sale contracts, options, puts, calls, short sales, swaps, derivatives and similar arrangements (including on a total return basis), and sales and other transactions through non-U.S. broker-dealers or foreign regulated brokers.

          (j) Restricted Securities. Such Investor understands that the Shares (and the shares of Common Stock into which the Shares are convertible) are characterized as “restricted securities” under the U.S. federal securities laws inasmuch as they are being acquired from the Company in a transaction not involving a public offering and that under such laws and applicable regulations such securities may be resold without registration under the Securities Act only in certain limited circumstances and that the Company is relying upon the truth and accuracy of, and such Investor’s compliance with, representations, warranties, agreements, acknowledgements, understandings of such Investor set forth herein in order to determine the availability of such exemptions of such Investor and the eligibility of such Investor to acquire the Shares.

          (k) Legends. It is understood that, except as provided in Section 4.1(b) of this Agreement, certificates evidencing the Restricted Shares may bear the legend set forth in Section 4.1(c).

          (l) No Legal, Tax or Investment Advice. Such Investor understands that nothing in this Agreement or any other materials presented by or on behalf of the Company to such Investor in connection with the purchase of the Shares constitutes legal, tax or investment advice. Such Investor has consulted such legal, tax and investment advisors as it, in its sole discretion, has deemed necessary or appropriate in connection with his purchase of the Shares.

          (m) Offering Documents. Such Investor understands that other than this Agreement and the SEC Reports, no disclosure or offering document will be provided or prepared in connection with the offer and sale of the Shares contemplated hereby.

          (n) Restrictions on Shares. Such Investor acknowledges that the Company has represented that no action has been or will be taken in any jurisdiction outside the United States by the Company that would permit an offering of the Shares, or possession or distribution of offering materials in connection with the issuance of the Shares, in any jurisdiction outside the United States where action for that purpose is required. If such Investor is located or domiciled outside the United States, it agrees to comply with all applicable laws and regulations in each

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foreign jurisdiction in which it purchases, offers, sells or delivers Shares or has in its possession or distributes any offering material, in all cases at its own expense.

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ARTICLE IV
OTHER AGREEMENTS OF THE PARTIES

     4.1 Transfer Restrictions.

     (a) Restricted Shares. “Restricted Shares” means (a) the Shares, (b) the shares of Common Stock issued or issuable upon conversion of the Shares, and (c) any other shares of capital stock of the Company issued in respect of such shares (as a result of stock splits, stock dividends, reclassifications, recapitalizations or similar events); provided, however, that shares of Common Stock which are Restricted Shares shall cease to be Restricted Shares (x) upon any sale pursuant to a registration statement under the Securities Act, Section 4(1) of the Securities Act or Rule 144 under the Securities Act or (y) at such time as (i) a period of at least one year, as determined in accordance with paragraph (d) of Rule 144 under the Securities Act, has elapsed since the later of the date the Restricted Shares were acquired from the Company or an Affiliate of the Company and (ii) they become eligible for sale under Rule 144(b)(1)(i) under the Securities Act.

     (b) Requirements for Transfer. Restricted Shares shall not be sold or transferred unless either (i) they first shall have been registered under the Securities Act or (ii) the Company first shall have been furnished with an opinion of legal counsel, reasonably satisfactory to the Company, to the effect that such sale or transfer is exempt from the registration requirements of the Securities Act.

     (c) Legend. Each certificate representing Restricted Shares shall bear a legend substantially in the following form:

“THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL SUCH SHARES ARE REGISTERED UNDER SUCH ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY IS OBTAINED TO THE EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED.”

     The foregoing legend shall be removed from the certificates representing any Restricted Shares, at the request of the holder thereof, at such time as (a) a period of at least one year, as determined in accordance with paragraph (d) of Rule 144 under the Securities Act, has elapsed since the later of the date the Restricted Shares were acquired from the Company or an affiliate of the Company, and (b) the Restricted Shares become eligible for resale pursuant to Rule 144(b)(1)(i) under the Securities Act.

     4.2 Furnishing of Information. Until the date that any Investor may sell all of its Shares (or the shares of Common Stock into which the Shares have at such time converted) under Rule 144 of the Securities Act (or any successor provision), the Company covenants to use its reasonable best efforts to timely file (or obtain extensions in respect thereof and file within the applicable grace period) all reports required to be filed by the Company after the date hereof pursuant to the Exchange Act. The Company further covenants that it will take such further

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action as any Investors holding shares (or the shares of Common Stock into which the Shares have at such time converted) may reasonably request, to the extent required from time to time to enable such Investor to sell such Shares (or the shares of Common Stock into which the Shares have at such time converted) without registration under the Securities Act.

     4.3 Integration. The Company shall not, and shall use its reasonable best efforts to ensure that no Affiliate thereof shall, sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security (as defined in Section 2 of the Securities Act) that would be integrated with the offer or sale of the Shares in a manner that would require the registration under the Securities Act of the sale of the Shares to the Investors.

     4.4 Reservation of Securities. At all times during which Shares remain outstanding, the Company shall maintain a reserve from its duly authorized shares of Common Stock for issuance pursuant to this Agreement in such amount as may be required to fulfill its obligations to issue the shares of Common Stock issuable upon the conversion of the Shares. In the event that at any time the then authorized shares of Common Stock are insufficient for the Company to satisfy its obligations to issue such shares of Common Stock, the Company shall promptly take such actions as may be required to increase the number of authorized shares.

     4.5 Treatment of Non-Public Information. Each Investor covenants and agrees with the Company (a) to hold the existence, terms and conditions of the transactions contemplated by this Agreement in confidence and not to disclose the same to any other person until such time as the Company files with the SEC a Current Report on Form 8-K disclosing the offering or publicly announces the offering, and (b) to hold all matters disclosed to it by the Company (other than any matters included in the SEC Reports) in confidence and not to disclose the same to any other person until such time as the Company files with the SEC a report publicly disclosing such information. Each Investor understands that the federal securities laws impose restrictions on trading based on information regarding the transactions contemplated by this Agreement.

ARTICLE V
MISCELLANEOUS

     5.1 Fees and Expenses. Each party hereto shall pay the fees and expenses of its advisers, counsel, accountants and other experts, if any, and all other expenses incurred by such party incident to the negotiation, preparation, execution, delivery and performance of this Agreement. The Investors shall pay, and hold the Company harmless against, any liability, loss or expense (including, without limitation, reasonable attorney’s fees and out-of-pocket expenses) arising in connection with any claim for fees from persons engages by any Investor or their investment advisors arising out of the issuance of the Shares pursuant to this Agreement. The Company shall pay all Transfer Agent fees, stamp taxes and other taxes and duties levied in connection with the sale and issuance of the Securities.

     5.2 Entire Agreement. This Agreement contains the entire understanding of the parties with respect to the subject matter hereof and supersedes all prior agreements and understandings, oral or written, with respect to such matters, which the parties acknowledge have been merged into such document. At or after the Closing, and without further consideration, the

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Company will execute and deliver to the Investors such further documents as may be reasonably requested in order to give practical effect to the intention of the parties under this Agreement.

     5.3 Notices. Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earliest of (a) the date of transmission, if such notice or communication is delivered via facsimile or email at the facsimile number or email address specified in this Section 5.3 prior to 6:30 p.m. (Boston time) on a Trading Day, (b) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile or email at the facsimile number or email address specified in this Section 5.3 on a day that is not a Trading Day or later than 6:30 p.m. (Boston time) on any Trading Day, (c) the Trading Day following the date of deposit with a nationally recognized overnight courier service, or (d) upon actual receipt by the party to whom such notice is required to be given. The addresses, facsimile numbers and email addresses for such notices and communications are those set forth on the signature pages hereof, or such other address or facsimile number as may be designated in writing hereafter, in the same manner, by any such Person.

     5.4 Amendments; Waivers. No provision of this Agreement may be waived or amended except in a written instrument signed, in the case of an amendment, by the Company and the Investors holding a majority of the shares of Common Stock issued or issuable upon conversion of the Shares (voting as a single class and on an as-converted basis) or, in the case of a waiver, by the party against whom enforcement of any such waiver is sought. No waiver of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of any party to exercise any right hereunder in any manner impair the exercise of any such right.

     5.5 Construction. The headings herein are for convenience only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against any party.

     5.6 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns. The Company may not assign this Agreement or any rights or obligations hereunder without the prior written consent of the Investors. Any Investor may assign its rights under this Agreement to any Person to whom such Investor assigns or transfers any Shares (or the shares of Common Stock issued upon conversion of the Shares), provided (a) such transferor agrees in writing with the transferee or assignee to assign such rights, and a copy of such agreement is furnished to the Company after such assignment, (b) the Company is furnished with written notice of (i) the name and address of such transferee or assignee and (ii) the number of Shares (or the shares of Common Stock issued upon conversion of the Shares) being transferred or assigned, (c) following such transfer or assignment, the further disposition of such shares by the transferee or assignee is restricted under the Securities Act and applicable state securities laws, (d) such transferee agrees in writing to be bound, with respect to the transferred Shares (or the shares of Common Stock issued upon conversion of the Shares), by the provisions hereof that apply to the “Investor” and (e) such transfer shall have been made to an “accredited investor” as that term is defined in Rule 501(a)

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of Regulation D of the Securities Act and in accordance with the applicable requirements of this Agreement and with all laws applicable thereto.

     5.7 No Third-Party Beneficiaries. This Agreement is intended for the benefit of the parties hereto and their respective successors and permitted assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other Person.

     5.8 Governing Law; Venue; Waiver of Jury Trial. THE CORPORATE LAWS OF THE STATE OF DELAWARE SHALL GOVERN ALL ISSUES CONCERNING THE RELATIVE RIGHTS OF THE COMPANY AND ITS STOCKHOLDERS. ALL QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY, ENFORCEMENT AND INTERPRETATION OF THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE. THE COMPANY AND THE INVESTORS HEREBY IRREVOCABLY SUBMIT TO THE NON-EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS SITTING IN THE STATE OF DELAWARE FOR THE ADJUDICATION OF ANY DISPUTE BROUGHT BY THE COMPANY OR ANY INVESTOR HEREUNDER, IN CONNECTION HEREWITH OR WITH ANY TRANSACTION CONTEMPLATED HEREBY OR DISCUSSED HEREIN (INCLUDING WITH RESPECT TO THE ENFORCEMENT OF ANY OF THE TRANSACTION DOCUMENTS), AND HEREBY IRREVOCABLY WAIVE, AND AGREE NOT TO ASSERT IN ANY SUIT, ACTION OR PROCEEDING BROUGHT BY THE COMPANY OR ANY INVESTOR, ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF ANY SUCH COURT, OR THAT SUCH SUIT, ACTION OR PROCEEDING IS IMPROPER. EACH PARTY HEREBY IRREVOCABLY WAIVES PERSONAL SERVICE OF PROCESS AND CONSENTS TO PROCESS BEING SERVED IN ANY SUCH SUIT, ACTION OR PROCEEDING BY MAILING A COPY THEREOF VIA REGISTERED OR CERTIFIED MAIL OR OVERNIGHT DELIVERY (WITH EVIDENCE OF DELIVERY) TO SUCH PARTY AT THE ADDRESS IN EFFECT FOR NOTICES TO IT UNDER THIS AGREEMENT AND AGREES THAT SUCH SERVICE SHALL CONSTITUTE GOOD AND SUFFICIENT SERVICE OF PROCESS AND NOTICE THEREOF. NOTHING CONTAINED HEREIN SHALL BE DEEMED TO LIMIT IN ANY WAY ANY RIGHT TO SERVE PROCESS IN ANY MANNER PERMITTED BY LAW. THE COMPANY AND THE INVESTORS HEREBY WAIVE ALL RIGHTS TO A TRIAL BY JURY.

     5.9 Survival. The representations and warranties, agreements and covenants contained herein shall survive the Closing until the date that is one year after the Closing Date (at which time they shall expire and be of no further force or effect).

     5.10 Execution. This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party, it being understood that both parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission or email attachment, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile or email-attached signature page were an original thereof.

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     5.11 Severability. If any provision of this Agreement is held to be invalid or unenforceable in any respect, the validity and enforceability of the remaining terms and provisions of this Agreement shall not in any way be affected or impaired thereby and the parties will attempt to agree upon a valid and enforceable provision that is a reasonable substitute therefor, and upon so agreeing, shall incorporate such substitute provision in this Agreement.

     5.12 Replacement of Certificates. If any certificate or instrument evidencing any Shares or the shares of Common Stock issued upon conversion of the Shares is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be issued in exchange and substitution for and upon cancellation thereof, or in lieu of and substitution therefor, a new certificate or instrument, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction and the execution by the holder thereof of a customary lost certificate affidavit of that fact and an agreement to indemnify and hold harmless the Company for any losses in connection therewith. The applicants for a new certificate or instrument under such circumstances shall also pay any reasonable third-party costs associated with the issuance of such replacement.

[SIGNATURE PAGES FOLLOW]

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     IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.

ALSERES PHARMACEUTICALS, INC.
By:	/s/ Kenneth L. Rice Jr.
	Name: Kenneth L. Rice Jr.
	Title: EVP & CFO
Address for Notice:
239 South Street
Hopkinton, MA 01748
Tel:	(508) 497-2360
Fax:	(508) 497-9964
Attn:	Chief Executive Officer
With a copy to:
Wilmer Cutler Pickering Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109
Tel	(617) 526-6439
Fax:	(617) 526-5000
Attn:	Philip Rossetti, Esq.

Investor Signature Page

     By its execution and delivery of this signature page, the undersigned Investor hereby joins in and agrees to be bound by the terms and conditions of the Securities Purchase Agreement dated as of August 11, 2009 (the “Purchase Agreement”) by and among Alseres Pharmaceuticals, Inc. and the Investors (as defined therein), as to the number of shares of Series F Convertible Preferred Stock (“Shares”) set forth below, and authorizes this signature page to be attached to the Purchase Agreement or counterparts thereof.

Name of Investor:
Robert Gipson
By:	/s/ Robert Gipson
	Name:
	Title:

Address for Notice: 

Telephone No.:

Facsimile No.:

Email Address:

Number of Shares: 12,000

Aggregate Purchase Price: $300,000

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EX-31.1

Exhibit 31.1

CERTIFICATIONS

I, Peter G. Savas, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Alseres Pharmaceuticals, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

DATE: November 16, 2009	/s/ Peter G. Savas
	Peter G. Savas
	Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATIONS

I, Kenneth L. Rice, Jr., certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Alseres Pharmaceuticals, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

DATE: November 16, 2009	/s/ Kenneth L. Rice, Jr.
	Kenneth L. Rice, Jr.
	Executive Vice President Finance and Administration and Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Alseres Pharmaceuticals, Inc. (the “Company”) on Form 10-Q for the quarter ended September 30, 2009 as filed with the Securities and Exchange Commission (the “Report”), I, Peter G. Savas, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

     1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

     2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Peter G. Savas  

Peter G. Savas 

Chief Executive Officer 

Date: November 16, 2009

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Alseres Pharmaceuticals, Inc. (the “Company”) on Form 10-Q for the quarter ended September 30, 2009 as filed with the Securities and Exchange Commission (the “Report”), I, Kenneth L. Rice, Jr., Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

     1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

     2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Kenneth L. Rice, Jr.  

Kenneth L. Rice, Jr. 

Executive Vice President Finance and
Administration and Chief Financial Officer 

Date: November 16, 2009