x
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Quarterly
Report Under Section 13 or 15(d) of the Securities Exchange Act of
1934
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¨
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Transition
Report Under Section 13 or 15(d) of the Securities Exchange Act of
1934
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Delaware
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52-2007292
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(State
or other jurisdiction
of
incorporation or organization)
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(I.R.S.
Employer
Identification
No.)
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Accelerated
filer ¨
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Non-accelerated
filer ¨
(Do not check if a small reporting company)
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Smaller
reporting company x
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Page
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PART
I -
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FINANCIAL
INFORMATION
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|
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Item
1.
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Financial
Statements
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Balance
Sheets as of September 30, 2008 (Unaudited) and December 31,
2007
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1
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Statements
of Operations (Unaudited)
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Three
and Nine months ended September 30, 2008 and 2007
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2
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Statements
of Changes in Stockholders' Equity (Unaudited)
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3
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For
the period from January 1,
2008 through September 30, 2008
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Statements
of Cash Flows (Unaudited)
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Nine
months ended September 30, 2008 and 2007
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4
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Notes
to Financial Statements (Unaudited)
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5
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Item
2.
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Management's
Discussion and Analysis of Financial Condition and Results
of Operations
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10
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Item
3.
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Quantitative
and Qualitative Disclosures about Market Risk
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15
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Item
4.
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Controls
and Procedures
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15
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PART
II -
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OTHER
INFORMATION
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16
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Item
1.
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Legal
Proceedings
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16
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Item
1A.
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Risk
Factors
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16
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Item
2.
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Unregistered
Sales of Equity Securities and Use of Proceeds
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23
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Item
3.
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Defaults
Upon Senior Securities
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24
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Item
4.
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Submission
of Matters to a Vote of Security Holders.
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24
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Item
5.
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Other
Information
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Item
6.
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Exhibits
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24
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Sept. 30,
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Dec. 31,
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|||||
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2008
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2007
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|||||
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(Unaudited)
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|||||
ASSETS
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|||||||
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|||||||
Cash
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$
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5,249,805
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$
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7,403,737
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|||
Prepaid
expenses
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211,766
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130,719
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|||||
Total
current assets
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5,461,571
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7,534,456
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|||||
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|||||||
Property
and equipment, net
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172,283
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136,920
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|||||
Other
assets
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54,446
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43,271
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|||||
Intangible
assets, net
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162,985
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111,406
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|||||
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|||||||
Total
assets
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$
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5,851,285
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$
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7,826,053
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|||
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|||||||
LIABILITIES
AND STOCKHOLDERS' EQUITY
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|||||||
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|||||||
Accounts
payable and accrued expenses
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$
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1,270,809
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$
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1,016,699
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|||
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|||||||
STOCKHOLDERS'
EQUITY
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|||||||
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|||||||
Preferred
Stock, 7,000,000 shares authorized, zero issued and
outstanding
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—
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—
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|||||
Common
stock, $.01 par value, 150 million shares authorized, 32,151,300
and
31,410,566 shares outstanding in 2008 and 2007
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321,513
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314,106
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|||||
Additional
paid-in capital
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58,325,041
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52,151,245
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|||||
Accumulated
deficit
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(54,066,078
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)
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(45,655,997
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)
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Total
stockholders' equity
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4,580,476
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6,809,354
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|||||
Total
liabilities and stockholders' equity
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$
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5,851,285
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$
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7,826,053
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Three Months Ended Sept. 30,
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Nine Months Ended Sept. 30,
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|||||||||||
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2008
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2007
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2008
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2007
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|||||||||
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|||||||||
Revenues
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$
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-
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$
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45,733
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$
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-
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$
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306,057
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|||||
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|||||||||||||
Operating
expenses:
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|||||||||||||
Research
and development costs
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1,766,040
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672,101
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4,598,611
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2,202,670
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|||||||||
General,
selling and administrative expenses
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1,400,795
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832,348
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3,802,673
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2,359,515
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|||||||||
Depreciation
and amortization
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17,223
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22,403
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46,760
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48,365
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|||||||||
Total
operating expenses
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3,184,058
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1,526,852
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8,448,044
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4,610,550
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|||||||||
Operating
loss
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(3,184,058
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)
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(1,481,119
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)
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(8,448,044
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)
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(4,304,493
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)
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|||||
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|||||||||||||
Non-operating
income (expense):
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|||||||||||||
Interest
income
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6,101
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59,397
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37,963
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136,358
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|||||||||
Interest
expense
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-
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(298
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)
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-
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(968
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)
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|||||||
Total
non-operating income
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6,101
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59,099
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37,963
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135,390
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|||||||||
Net
loss
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$
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(3,177,957
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)
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$
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(1,422,020
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)
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$
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(8,410,081
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)
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$
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(4,169,103
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)
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|||||||||||||
Net
loss per share, basic and diluted
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$
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(0.10
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)
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$
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(0.05
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)
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$
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(0.26
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)
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$
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(0.15
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)
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|||||||||||||
Average
number of shares of common stock outstanding
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32,151,300
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29,372,895
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32,008,533
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28,370,589
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Additional
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|||||||||||||||
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Preferred Stock
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Common Stock
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Paid-In
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Accum.
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|||||||||||||||||
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Shares
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Amount
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Shares
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Amount
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Capital
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Deficit
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Total
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|||||||||||||||
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|||||||||||||||
Balance
at January 1, 2008
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-
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$
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-
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31,410,566
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$
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314,106
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$
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52,151,245
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$
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(45,655,997
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)
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$
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6,809,354
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|||||||||
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|||||||||||||||
Exercise
of Warrants to purchase Common Stock ($1.50 - $2.00 per share), net
of offering costs of $0.15 per share or $20,889.
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-
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-
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125,425
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1,254
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209,957
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-
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211,211
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|||||||||||||||
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|||||||||||||||
Issuance
of common stock though Private
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|||||||||||||||
Placement
($4.06 per share).
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-
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-
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615,309
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6,153
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2,493,847
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-
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2,500,000
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|||||||||||||||
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|||||||||||||||
Share
Based Payment - Employee
|
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|||||||||||||||
Compensation
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-
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-
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-
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-
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3,469,992
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-
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3,469,992
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|||||||||||||||
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|
|
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|
|||||||||||||||
Net
loss
|
-
|
-
|
-
|
-
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-
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(8,410,081
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)
|
(8,410,081
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)
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|||||||||||||
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|
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|
|||||||||||||||
Balance
at September 30, 2008
|
-
|
$
|
-
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32,151,300
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$
|
321,513
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$
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58,325,041
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$
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(54,066,078
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)
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$
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4,580,476
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|
Nine Months Ended September 30,
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||||||
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2008
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2007
|
|||||
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|
|||||
Cash
flows from operating activities:
|
|||||||
Net
loss
|
$
|
(8,410,081
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)
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$
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(4,169,103
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)
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Adjustment
to reconcile net loss to cash used in operating activities:
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|||||||
Depreciation
and amortization
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46,760
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48,365
|
|||||
Share
based compensation
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3,469,992
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845,561
|
|||||
Changes
in assets and liabilities:
|
|||||||
Prepaid
expenses
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(81,047
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)
|
(105,685
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)
|
|||
Other
assets
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(11,175
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)
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(1,289
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)
|
|||
Accounts
payable and accrued expenses
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254,109
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505,513
|
|||||
Net
cash used in operating activities
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(4,731,442
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)
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(2,876,638
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)
|
|||
|
|||||||
Cash
flow from investing activities:
|
|||||||
Capital
outlay for intangible assets
|
(62,247
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)
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(6,890
|
)
|
|||
Purchase
of property and equipment
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(71,454
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)
|
(101,179
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)
|
|||
Net
cash used in investing activities
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(133,701
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)
|
(108,069
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)
|
|||
|
|||||||
Cash
flows from financing activities:
|
|||||||
Issuance
of common stock
|
2,711,211
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6,529,670
|
|||||
Payments
on notes payable
|
-
|
(5,825
|
)
|
||||
Net
cash provided by financing activities
|
2,711,211
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6,523,845
|
|||||
|
|||||||
Net
(decrease) increase in cash
|
(2,153,932
|
)
|
3,539,138
|
||||
|
|||||||
Cash,
beginning of period
|
7,403,737
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1,807,041
|
|||||
|
|||||||
Cash,
ending of period
|
$
|
5,249,805
|
$
|
5,346,179
|
|
Number
of
Options
|
Weighted-
Average
Exercise
Price
|
Weighted-
Average
Remaining
Contractual
Life
(in years)
|
Aggregate
Intrinsic
Value
|
|||||||||
Outstanding
at January 1, 2008
|
3,150,659
|
$
|
1.19
|
6.8
|
|
-
|
|||||||
Granted
|
5,600,000
|
3.34
|
9.3
|
-
|
|||||||||
Exercised
|
-
|
||||||||||||
Forfeited
|
-
|
||||||||||||
|
|||||||||||||
Outstanding
at September 30, 2008
|
8,750,659
|
$
|
2.55
|
8.4
|
$
|
2,094,000
|
|||||||
|
|||||||||||||
Exercisable
at September 30, 2008
|
2,297,326
|
$
|
1.09
|
7.0
|
$
|
1,566,000
|
|
Three Months Ended September 30,
|
||||||
|
2008
|
2007
|
|||||
|
|
|
|||||
Research
and development costs
|
$
|
817,171
|
$
|
59,058
|
|||
General,
selling and administrative expenses
|
491,921
|
312,110
|
|||||
Total
|
$
|
1,309,092
|
$
|
371,168
|
|
Nine Months Ended September 30,
|
||||||
|
2008
|
2007
|
|||||
|
|
|
|||||
Research
and development costs
|
$
|
2,265,846
|
$
|
134,540
|
|||
General,
selling and administrative expenses
|
1,204,146
|
711,021
|
|||||
Total
|
$
|
3,469,992
|
$
|
845,561
|
|
Number of
Warrants
|
Weighted-
Average
Exercise
Price
|
|||||
Outstanding at January 1, 2008
|
11,208,515
|
$
|
2.44
|
||||
Issued
|
—
|
||||||
Exercised
|
125,425
|
1.68
|
|||||
Forfeited
|
—
|
||||||
|
|
|
|||||
Outstanding
at September 30, 2008
|
11,083,090
|
$
|
2.45
|
||||
|
|||||||
Exercisable
at September 30, 2008
|
8,083,090
|
$
|
2.24
|
·
|
the
success of our research and development activities, the development
of a
viable commercial production, and the speed with which regulatory
authorizations and product launches may be achieved;
|
·
|
whether
or not a market for our product develops and, if a market develops,
the
rate at which it develops;
|
·
|
our
ability to successfully sell our products if a market
develops;
|
·
|
our
ability to attract and retain qualified personnel to implement our
growth
strategies;
|
·
|
our
ability to develop sales, marketing, and distribution
capabilities;
|
·
|
our
ability to obtain reimbursement from third party payers for the products
that we sell;
|
·
|
the
accuracy of our estimates and
projections;
|
·
|
our
ability to fund our short-term and long-term financing
needs;
|
·
|
changes
in our business plan and corporate strategies;
and
|
·
|
other
risks and uncertainties discussed in greater detail in the section
of this
report captioned “Risk
Factors”
|
Three Months Ended September 30,
|
Nine Months Ended September 30,
|
||||||||||||
2008
|
|
2007
|
|
2008
|
|
2007
|
|||||||
Revenues
|
-
|
45,733
|
-
|
306,057
|
|||||||||
Operating
expenses
|
3,184,058
|
1,526,852
|
8,448,044
|
4,610,550
|
|||||||||
Operating
loss
|
(3,184,058
|
)
|
(1,481,119
|
)
|
(8,448,044
|
)
|
(4,304,493
|
)
|
|||||
Non-operating
income
|
6,101
|
59,099
|
37,963
|
135,390
|
|||||||||
Net
loss
|
(3,177,957
|
)
|
(1,422,020
|
)
|
(8,410,081
|
)
|
(4,169,103
|
)
|
·
|
On
May 7, 2008, we filed suit against StemCells, Inc., StemCells California,
Inc. and Neurospheres Holding Ltd., (collectively “StemCells”) in U.S.
District Court for the District of Maryland, alleging that U.S. Patent
No.
7,361,505 (the “‘505 patent”), allegedly exclusively licensed to
StemCells, Inc., is invalid, not infringed, and unenforceable.
See Civil Action No. 08-1173. On May 13, we filed an Amended
Complaint seeking declaratory judgment that U.S. Patent No. 7,155,418
(the
“‘418 patent”) is invalid and not infringed and that certain statements
made by Neuralstem’s CEO are not trade libel or do not constitute unfair
competition as alleged by StemCells. On July 15, 2008, StemCells
filed a Motion to Dismiss for Lack of Subject Matter Jurisdiction,
Lack of
Personal Jurisdiction, and Improper Venue or in the Alternative to
Transfer to the Northern District of California. On August 27, 2008,
Judge Alexander Williams, Jr. of the District of Maryland denied
StemCells’ Motion to Dismiss, but granted Neurospheres’ motion to dismiss.
On September 11, 2008, StemCells filed its answer asserting counterclaims
of infringement for the ‘505 patent, the ‘418 patent, and state law claims
for trade libel and unfair competition. On October 1, 2008, Neuralstem
filed a motion to dismiss or strike StemCells’ state law trade libel and
unfair competition claims. It is not known when nor on what basis
will
this matter be concluded.
|
·
|
continued
progress and cost of its research and development
programs;
|
·
|
progress
with pre-clinical studies and clinical
trials;
|
·
|
time
and costs involved in obtaining regulatory
clearance;
|
·
|
costs
involved in preparing, filing, prosecuting, maintaining and enforcing
patent claims;
|
·
|
costs
of developing sales, marketing and distribution channels and its
ability
to sell the Company's stem cell
products;
|
·
|
costs
involved in establishing manufacturing capabilities for commercial
quantities of its products;
|
·
|
competing
technological and market
developments;
|
·
|
market
acceptance of its stem cell
products;
|
·
|
costs
for recruiting and retaining employees and consultants;
and
|
·
|
costs
for educating and training physicians about its stem cell
products.
|
|
·
|
The
University of California, San
Diego;
|
|
·
|
University
of Central Florida;
|
|
·
|
University
of Florida
|
|
·
|
University
of Michigan
|
·
|
the
Company's establishment and demonstration to the medical community
of the
clinical efficacy and safety of its proposed products;
|
·
|
the
Company's ability to create products that are superior to alternatives
currently on the market;
|
·
|
the
Company's ability to establish in the medical community the potential
advantage of its treatments over alternative treatment methods;
and
|
·
|
reimbursement
policies of government and third-party
payors.
|
·
|
We
currently do
not maintain
“key person” life insurance on the life of Mr. Garr. As a result, the
Company will not receive any compensation upon the death or incapacity
of
this key individuals;
|
·
|
We
currently do maintain
“key person” line insurance on the life of Mr. Johe. As a result, the
Company will receive approximately $1,000,000 in the event of his
death or
incapacity.
|
·
|
On
January 21, 2008, we granted the following options pursuant to
our 2007
Stock Plan:
|
·
|
On
February 19, 2008, we entered into an agreement with CJ CheilJedang
Corporation (KSE: CJ CheilJedang) for the sale of $2.5 million of
common
shares at $4.063 per share. Pursuant to the transaction, we issued
an
aggregate of 615,309 common shares to CJ CheilJedang. Please refer
to our
Current Report filed on form 8-K on February 25, 2008 for a further
description of the transaction.
|
· |
On
April 1, 2008, we granted John Conron, our Chief Financial Officer,
compensatory options to purchase an aggregate of 1,050,000 common
shares
at an exercise price of $2.60. The options vest as follows: (i) 50,000
vest immediately; and (ii) 1,000,000 vest annually over the next
three
years so that 100% of the options will be vested on April 1, 2011.
The
options were issued pursuant to our two stock plans as follows: (x)
the
option to purchase 1,000,000 common shares was issued pursuant to
our 2007
Stock Plan; and (y) options to purchase 50,000 common shares was
issued
pursuant to our 2005 Stock Plan.
|
· |
On
May 28, 2008, we granted Scott Ogilvie, a director, options to purchase
an
aggregate of 60,000 common shares at an exercise price of $1.32.
The grant
was made pursuant to our 2007 Stock Plan and in compliance with our
non-executive compensation arrangement. The grant consists of: (i)
an
option purchase 45,000 common shares as compensation for serving
on the
board of directors; (ii) an option to purchase 5,000 common shares
as
compensation for serving on our Audit Committee; (iii) an option
to
purchase 5,000 common shares as compensation for serving on our
Compensation Committee; and (iv) an option to purchase 5,000 common
shares
as compensation for serving on our Governance and Nominating Committee.
The options vest quarterly over the grant year and expire 7 years
from the
date of grant.
|
· |
On
May 28, 2008, we granted William Oldaker, a director, options to
purchase an aggregate of 60,000 common shares at an exercise price
of
$1.32. The grant was made pursuant to our 2007 Stock Plan and in
compliance with our non-executive compensation arrangement. The grant
consists of: (i) an option purchase 45,000 common shares as compensation
for serving on the board of directors; (ii) an option to purchase
5,000
common shares as compensation for serving on our Audit Committee;
(iii) an
option to purchase 5,000 common shares as compensation for serving
on our
Compensation Committee; and (iv) an option to purchase 5,000 common
shares
as compensation for serving on our Governance and Nominating Committee.
The options vest quarterly over the grant year and expire 7 years
from the
date of grant.
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· |
On
August 14, 2008, we granted options to purchase an aggregate of 30,000
common shares at an exercise price of $1.88 to two employees (15,000
each). The grants were made pursuant to our 2005 Stock Plan. The
options
vest as follows: (i) 15,000 on the granted date; and (ii) 15,000
on August
14, 2009. The options expire on August 18, 2018.
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· |
On
August 14, 2008, we granted one of our employee options to purchase
200,000. The grant is effective as of August 11, 2008, the employee’s
start date. The options vest as follows: (i) 40,000 on the effective
date;
and (ii) 40,000 on each of August 11, 2009, 2010, 2011 and 2012.
The grant
was made pursuant to the 2005 Stock Plan. The options have an exercise
price of $1.89 and expire on August 14, 2018.
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Exhibit
Number:
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Description
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31.1
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Certification
of the Chief Executive Officer pursuant to Rule 13a-14(a) and Rule
15d-14(a) of the Securities Exchange Act, as amended
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31.2
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Certification
of the Chief Financial Officer pursuant to Rule 13a-14(a) and Rule
15d-14(a) of the Securities Exchange Act, as amended
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|
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32.1
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Certification
of the Chief Executive Officer Pursuant to 18 U.S.C. 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
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32.2
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Certification
of the Chief Financial Officer Pursuant to 18 U.S.C. 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
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NEURALSTEM,
INC.
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Date: November
13, 2008
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/s/ I.
Richard Garr
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Chief
Executive Officer
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/s/
John Conron
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Chief
Financial Officer
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(Principal
Accounting Officer)
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