U.S.
SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-KSB
(Mark
one)
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x
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Annual
Report Under Section 13 or 15(d) of the Securities Exchange Act of
1934
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For
the Fiscal Year Ended December 31, 2007
or
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o
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Transition
Report Under Section 13 or 15(d) of the Securities Exchange Act of
1934
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Commission
File Number 000-1357459
Neuralstem,
Inc.
(Name
of small business issuer in its charter)
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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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9700
Great Seneca Highway
Rockville,
Maryland
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20850
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(Address
of principal executive offices)
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(Zip
Code)
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Issuer’s
telephone number: 301-366-4841
Securities
registered under Section 12(b) of the Exchange Act:
None
Securities
registered under Section 12(g) of the Exchange Act:
Common
Stock
Check
whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the Registrant was required to file such reports),
and
(2) has been subject to such filing requirements for the past 90
days. Yes
x
No
o
Check
if
there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained,
to
the best of registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB.
o
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act) Yes
o
No
x
The
issuer’s revenues for its most recent fiscal year is $306,057.
The
aggregate market value of the voting and non-voting common equity held by
non-affiliates of the registrant, based upon the closing bid price of the
Common
Stock on February 27, 2008 was approximately $65,000,000. Shares of Common
Stock
held by officers and directors and their affiliated entities have been excluded
in that such persons may be deemed to be affiliates. This determination of
affiliate status is not necessarily conclusive for other purposes.
The
number of shares outstanding of Registrant’s common stock, $0.01 par value at
March 18, 2008 was 32,075,875.
Transitional
Small Business Disclosure Format (check
one): Yes
o
No
x
Table
of
Contents
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Page
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Recent
Development
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Forward
Looking Statements
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2
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Risk
Factors
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2
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Our
Business
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10
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Properties
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20
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Legal
Proceedings
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20
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Submission
of Matters to a Vote of the Security Holders
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20
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Market
for Registrants Common Equity and Related Stockholder
Matters
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21
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Market
Information
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21
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Holders
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21
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Dividends
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21
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Management
Discussion and Analysis of Financial Condition and Result of
Operations
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22
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Result
of Operations
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25
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Liquidity
and Capital Resources
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27
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Management
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27
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Executive
Compensation
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29
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Outstanding
Equity Awards at Fiscal Year-End
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31
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Compensation
of Directors
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32
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33
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Audit
Committee
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34
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Nominating
Committee
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34
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Section
16(a) Beneficial Ownership Reporting Compliance
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35
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Code
of Ethics
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35
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Equity
Compensation Plan Information
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35
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Controls
and Procedures
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36
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Principal
Stockholders
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38
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Transactions
and Business Relationships with Management and Principal
Shareholders
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38
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Financial
Statements
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39
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Changes
in and Disagreements with Accounting on Accounting and Financial
Disclosure
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39
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Recent
Sale of Unregistered Securities
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40
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Exhibits
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43
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Principal
Accounting Fees and Services
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45
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Recent
Development
On
February 19, 2008, CJ CheilJedang Corporation (KSE: CJ CheilJedang hereafter
"CJ") purchased an option to negotiate for the exclusive license to Neuralstem’s
stem cell-products and technology after the company completes a successful
human
clinical trial. As part of the agreement, CJ purchased $2.5 million worth
of Neuralstem common stock at $4.063 per share. The terms of the license
will be negotiated after the first successful human trial. CJ
’
s potential
exclusive markets will include: Korea, Indonesia, Philippines, Malaysia,
Singapore and Vietnam, with a first right of negotiation for China and Japan.
Neuralstem is planning to begin human clinical trials in 2008 with its
stem cell products. Please refer to our Current Report filed on form 8-K
on
February 25, 2008 for a further description of the transaction.
FORWARD
LOOKING STATEMENTS
In
this
annual report we make a number of statements, referred to as “forward-looking
statements”, within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934 (the "Exchange Act"),
which
are intended to convey our expectations or predictions regarding the occurrence
of possible future events or the existence of trends and factors that may
impact
our future plans and operating results. These forward-looking statements
are
derived, in part, from various assumptions and analyses we have made in the
context of our current business plan and information currently available
to use
and in light of our experience and perceptions of historical trends, current
conditions and expected future developments and other factors we believe
are
appropriate in the circumstances. You can generally identify forward looking
statements through words and phrases such as
“believe”,
“expect”, “seek”, “estimate”, “anticipate”, “intend”, “plan”, “budget”,
“project”, “may likely result”, “may be”, “may continue”
and
other similar expressions.
When
reading any forward-looking statement you should remain mindful that actual
results or developments may vary substantially from those expected as expressed
in or implied by such statement for a number of reasons or factors, including
but not limited to:
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our
ability to develop a
product
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whether
or not a market for our product develops and, if a market develops,
the
rate at which it develops;
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our
ability to successfully sell our products if a market
develops;
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our
ability to attract and retain qualified personnel to implement
our growth
strategies;
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our
ability to develop sales, marketing, and distribution
capabilities;
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our
ability to obtain reimbursement from third party payers for the
products
that we sell;
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the
accuracy of our estimates and
projections;
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our
ability to fund our short-term and long-term financing
needs;
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changes
in our business plan and corporate strategies;
and
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other
risks and uncertainties discussed in greater detail in the section
captioned “Risk Factors”
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Each
forward-looking statement should be read in context with and in understanding
of
the various other disclosures concerning our company and our business made
elsewhere in this report as well as our public filings with the Securities
and
Exchange Commission. You should not place undue reliance on any forward-looking
statement as a prediction of actual results or developments. We are not
obligated to update or revise any forward-looking statements contained in
this
report or any other filing to reflect new events or circumstances unless
and to
the extent required by applicable law.
RISK
FACTORS
An
investment in Neuralstem, Inc. involves significant risks. You should read
these
risk factors carefully before deciding whether to invest in our company.
The
following is a description of what we consider our key challenges and
risks.
We
have
described below a number of uncertainties and risks which, in addition to
uncertainties and risks presented elsewhere in this annual report, may adversely
affect our business, operating results and financial condition. The
uncertainties and risks enumerated below as well as those presented elsewhere
in
this annual report should be considered carefully in evaluating our company
and
our business and the value of our securities.
Risks
Relating to the Company's Stage of Development
Since
the Company has a limited operating history and has significantly shifted
its
operations and strategies since inception, you cannot rely upon the Company's
limited historical performance to make an investment
decision.
Since
inception in 1996 and through December 31, 2007, the Company has recorded
accumulated losses totaling $45,655,997. On December 31, 2007, the Company
had a
working capital surplus of $6,517,757 and stockholders' equity of $6,809,354.
Our net losses for the two most recent fiscal years have been ($7,603,272)
and
($3,147,487) for 2007 and 2006 respectively. Revenues for the twelve months
ended December 31, 2007 were $306,057.
The
Company's ability to generate revenues and achieve profitability depends
upon
its ability to complete the development of its stem cell products, obtain
the
required regulatory approvals, manufacture, and market and sell its products.
In
part because of the Company’s past operating results, no assurances can be given
that the Company will be able to accomplish all or any these goals.
Although
the Company has generated some revenue to date, the Company has not generated
any revenue from the commercial sale of its proposed stem cell products.
Since
inception, the Company has engaged in several related lines of business and
has
discontinued operations in certain areas. For example, in 2002, the Company
lost
a material contract with the Department of Defense and was forced to close
its
principal facility and lay off almost all of its employees in an attempt
to
focus the Company’s strategy on its stem cell technology. This limited and
changing history may not be adequate to enable you to fully assess the Company's
current ability to develop and commercialize its technologies and proposed
products, obtain approval from the U.S. Food and Drug Administration (“FDA”),
achieve market acceptance of its proposed products and respond to competition.
No assurances can be given as to exactly when, if at all, the Company will
be
able to fully develop, commercialize market, sell and derive material revenues
from its proposed products in development.
The
Company
will
need to raise additional capital to continue operations, and failure to do
so
will impair the Company's ability to fund operations, develop its technologies
or promote its products.
The
Company has relied almost entirely on external financing to fund operations.
Such financing has historically come primarily from the sale of common and
preferred stock and convertible debt to third parties, the exercise of investor
warrants and to a lesser degree from grants, loans and revenue from license
and
royalty fees. The Company anticipates, based on current proposed plans and
assumptions relating to its operations (including the timetable of, and costs
associated with, new product development) and financings the Company has
undertaken prior to the date of this annual report, that its current working
capital will be sufficient to satisfy contemplated cash requirements for
approximately 12 months, assuming that the Company does not engage in an
extraordinary transaction or otherwise face unexpected events or contingencies,
any of which could affect cash requirements. As of December 31, 2007, the
Company had cash and cash equivalents on hand of $7,403,737. Presently, the
Company has a monthly cash burn rate of approximately $400,000. Accordingly,
the
Company will need to raise additional capital to fund anticipated operating
expenses and future expansion after such period. Among other things, external
financing will be required to cover the further development of the Company's
technologies and products and other operating costs. The Company cannot assure
you that financing whether from external sources or related parties will
be
available if needed or on favorable terms. If additional financing is not
available when required or is not available on acceptable terms, the Company
may
be unable to fund operations and planned growth, develop or enhance its
technologies, take advantage of business opportunities or respond to competitive
market pressures. Any negative impact on the Company's operations may make
capital raising more difficult and may also resulting a lower price for the
Company's securities.
The
Company may have difficulty raising needed capital in the future as a result
of,
among other factors, the Company's limited operating history and business
risks
associated with the Company.
The
Company's business currently generates limited amounts of cash which will
not be
sufficient to meet its future capital requirements. The Company's management
does not know when this will change. The Company has expended and will continue
to expend substantial funds in the research, development and clinical and
pre-clinical testing of the Company's stem cell technologies and products.
The
Company will require additional funds to conduct research and development,
establish and conduct clinical and pre-clinical trials, commercial-scale
manufacturing arrangements and to provide for the marketing and distribution.
Additional funds may not be available on acceptable terms, if at all. If
adequate funds are unavailable from any available source, the Company may
have
to delay, reduce the scope of or eliminate one or more of its research,
development or commercialization programs or product launches or marketing
efforts which may materially harm the Company's business, financial condition
and results of operations.
The
Company's long term capital requirements are expected to depend on many factors,
including:
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continued
progress and cost of its research and development
programs;
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progress
with pre-clinical studies and clinical
trials;
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time
and costs involved in obtaining regulatory
clearance;
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costs
involved in preparing, filing, prosecuting, maintaining and enforcing
patent claims;
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costs
of developing sales, marketing and distribution channels and its
ability
to sell the Company's stem cell
products;
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costs
involved in establishing manufacturing capabilities for commercial
quantities of its products;
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competing
technological and market
developments;
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market
acceptance of its stem cell
products;
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costs
for recruiting and retaining employees and consultants;
and
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costs
for educating and training physicians about its stem cell
products.
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The
Company may consume available resources more rapidly than currently anticipated,
resulting in the need for additional funding. The Company may seek to raise
any
necessary additional funds through the exercising of warrants, options, equity
or debt financings, collaborative arrangements with corporate partners or
other
sources, which may be dilutive to existing stockholders or otherwise have
a
material effect on the Company's current or future business prospects. If
adequate funds are not available, the Company may be required to significantly
reduce or refocus its development and commercialization efforts.
The
Company relies on stem cell technologies that it may not be able to commercially
develop, which will prevent the Company from generating revenues, operating
profitably or providing investors any return on their
investment.
The
Company has concentrated its research on its stem cell technologies, and
the
Company's ability to generate revenue and operate profitably will depend
on it
being able to develop these technologies for human applications. These are
emerging technologies with, as yet, limited human applications. The Company
cannot guarantee that it will be able to develop its stem cell technologies
or
that such development will result in products or services with any significant
commercial utility. The Company anticipates that the commercial sale of such
products or services, and royalty/licensing fees related to its technology,
will
be the Company’s primary sources of revenues. If the Company is unable to
develop its technologies, investors will likely lose their entire
investment.
Inability
to complete pre-clinical and clinical testing and trials will impair the
viability of the Company.
The
Company is in its development stage and has not yet applied for approval
by the
FDA to conduct clinical trials. Even if the Company successfully files an
Investigational New Drug Application (IND) and receives approval from the
FDA to
commence trials, the outcome of pre-clinical, clinical and product testing
of
the Company's products is uncertain, and if the Company is unable to
satisfactorily complete such testing, or if such testing yields unsatisfactory
results, the Company will be unable to commercially produce its proposed
products. Before obtaining regulatory approvals for the commercial sale of
any
potential human products, the Company's products will be subjected to extensive
pre-clinical and clinical testing to demonstrate their safety and efficacy
in
humans. No assurances can be given that the clinical trials of the Company's
products, or those of licensees or collaborators, will demonstrate the safety
and efficacy of such products at all, or to the extent necessary to obtain
appropriate regulatory approvals, or that the testing of such products will
be
completed in a timely manner, if at all, or without significant increases
in
costs, program delays or both, all of which could harm the Company's ability
to
generate revenues. In addition, the Company's proposed products may not prove
to
be more effective for treating disease or injury than current therapies.
Accordingly, the Company may have to delay or abandon efforts to research,
develop or obtain regulatory approval to market its proposed products. Many
companies involved in biotechnology research and development have suffered
significant setbacks in advanced clinical trials, even after promising results
in earlier trials. The failure to adequately demonstrate the safety and efficacy
of a therapeutic product under development could delay or prevent regulatory
approval of the product and could harm the Company's ability to generate
revenues, operate profitably or produce any return on an investment in the
Company.
At
present, the Company is not able to finance it operations through the sales
of
its product. Accordingly, the Company will be required to secure additional
financing. If the Company is able to obtain such additional financings such
financing may be dilutive to current shareholders. The Company has the authority
to issue additional shares of common stock and preferred stock, as well as
additional classes or series of ownership interests or debt obligations which
may be convertible into any one or more classes or series of ownership
interests. The Company is authorized to issue 75,000,000 shares of common
stock
and 7,000,000 shares of preferred stock. Such securities may be issued without
the approval or other consent of the Company's stockholders.
Risks
Relating to Intellectual Property and Government
Regulation
The
Company may not be able to withstand challenges to its intellectual property
rights, such as patents, should contests be initiated in court or at the
U.S
Patent and Trademark Office
.
The
Company relies on its intellectual property, including its issued and applied
for patents, as the foundation of its business. The intellectual property
rights
of the Company may come under challenge, and no assurances can be given that,
even though issued, the Company's current and potential future patents will
survive claims commencing in the court system alleging invalidity or
infringement on other patents. For example, in 2005, the Company's neural
stem
cell technology was challenged in the U.S. Patent and Trademark Office by
a
competitor. Although the Company prevailed in this particular matter upon
re-examination by the patent office, these cases are complex, lengthy and
expensive, and could potentially be adjudicated adversely to the Company,
removing the protection afforded by an issued patent. The viability of the
Company's business would suffer if such patent protection were limited or
eliminated. Moreover, the costs associated with defending or settling
intellectual property claims would likely have a material adverse effect
on the
Company.
The
Company may not be able to adequately protect against piracy of intellectual
property in foreign jurisdictions.
Considerable
research in the area of stem cell therapies is being performed in countries
outside of the United States, and a number of the Company's competitors are
located in those countries. The laws protecting intellectual property in
some of those countries may not provide protection for the Company's trade
secrets and intellectual property adequate to prevent its competitors from
misappropriating the Company's trade secrets or intellectual property. If
the Company's trade secrets or intellectual property are misappropriated
in
those countries, the Company may be without adequate remedies to address
the
issue.
The
Company's products may not receive FDA approval, which would prevent the
Company
from commercially marketing its products and producing
revenues.
The
FDA
and comparable government agencies in foreign countries impose substantial
regulations on the manufacture and marketing of pharmaceutical products through
lengthy and detailed laboratory, pre-clinical and clinical testing procedures,
sampling activities and other costly and time-consuming procedures. Satisfaction
of these regulations typically takes several years or more and varies
substantially based upon the type, complexity and novelty of the proposed
product. The Company cannot yet accurately predict when it might first submit
any Investigational New Drug, or IND, application to the FDA, or whether
any
such IND application would be granted on a timely basis, if at all, nor can
the
Company assure you that it will successfully complete any clinical trials
in
connection with any such IND application. Further, the Company cannot
yet predict when it might first submit any product license application for
FDA approval or whether any such product license application would be granted
on
a timely basis, if at all. As a result, the Company cannot assure you that
FDA approvals for any products developed by it will be granted on a timely
basis, if at all. Any such delay in obtaining, or failure to obtain, such
approvals could have a material adverse effect on the marketing of the Company's
products and its ability to generate product revenue.
Because
the Company or its collaborators must obtain regulatory approval to market
its
products in the United States and other countries, the Company cannot predict
whether or when it will be permitted to commercialize its
products.
Federal,
state and local governments and agencies in the United States (including
the
FDA) and governments in other countries have significant regulations in place
that govern many of the Company's activities. The Company is or may become
subject to various federal, state and local laws, regulations and
recommendations relating to safe working conditions, laboratory and
manufacturing practices, the experimental use of animals and the use and
disposal of hazardous or potentially hazardous substances used in connection
with its research and development work. The preclinical testing and clinical
trials of the products that the Company or its collaborators develop are
subject
to extensive government regulation that may prevent the Company from creating
commercially viable products from its discoveries. In addition, the sale
by the
Company or its collaborators of any commercially viable product will be subject
to government regulation from several standpoints, including manufacturing,
advertising and promoting, selling and marketing, labeling, and distributing.
If, and to the extent that, the Company is unable to comply with these
regulations, its ability to earn revenues will be materially and negatively
impacted.
Risks
Relating to Competition
The
biotechnology industry is characterized by intense competition. The Company
competes against numerous companies, many of which have substantially greater
financial and other resources than it has. Several such enterprises have
initiated cell therapy research programs and/or efforts to treat the same
diseases targeted by the Company. Companies such as Geron Corporation, Genzyme
Corporation, StemCells, Inc., Advanced Cell Technology, Inc., Aastrom
Biosciences, Inc. and Viacell, Inc., as well as others, have substantially
greater resources and experience in the Company's fields than it does, and
are
well situated to compete with us effectively. Of course, any of the world's
largest pharmaceutical companies represent a significant actual or potential
competitor with vastly greater resources than the Company's.
Risks
Relating to the Company's Reliance on Third Parties
The
Company's outsource model depends on collaborators, non-employee consultants,
research institutions, and scientific contractors to help it develop and
test
its proposed products. Our ability to develop such relationships could impair
or
delay our ability to develop products.
The
Company's strategy for the development, clinical testing and commercialization
of its proposed products is based on an outsource model. This model requires
that the Company enter into collaborations with corporate partners, research
institutions, scientific contractors and licensors, licensees and others
in
order to further develop its technology and develop products. In the event
the
Company is not able to enter into such relationships in the future, our:
ability
to develop products may be seriously hindered; or we would be required to
expend
considerable money and research to bring such research and development functions
in house. Either outcome could result in our inability to develop a commercially
feasible product or in the need for substantially more working capital to
complete the research in-house. Also, we are currently dependent on
collaborators for a substantial portion of our research and development.
Although our collaborative agreements do not impose any duties or obligations
on
us other than the licensing of our technology, the failure of any of these
collaborations may hinder our ability to develop products in a timely fashion.
By way of example, our collaboration with John Hopkins University, School
of
Medicine yielded findings that contributed to our patent application entitled
Transplantation of Human Cells for Treatment of Neurological Disorder. Had
the
collaboration not have existed, our ability to apply for such patent would
have
been greatly hindered. As we are under no financial obligation to provide
additional funding under any of our collaborations, our primary risk is that
no
results are derived from the research.
We
intend to rely upon the third-party FDA-approved manufacturers for our stem
cells. Should these manufacturers fail to perform as expected, we will need
to
develop or procure other manufacturing sources, which would cause delays
or
interruptions in our product supply and result in the loss of significant
sales
and customers.
We
currently have no internal manufacturing capability, and will rely extensively
on FDA-approved licensees, strategic partners or third party contract
manufacturers or suppliers. We current have an agreement with Charles River
Laboratories for the manufacturing and storage of our cells. The agreement
is a
paid for services agreement and does not require us to purchase a minimum
amount
of cells. In the event Charles River Laboratories fails to provide suitable
cells, we would be forced to either manufacture the cells ourselves or seek
other third party vendors. Should we be forced to manufacture our stem cells,
we
cannot give you any assurance that we will be able to develop an internal
manufacturing capability or procure third party suppliers. In the event we
must
seek alternative third party suppliers, they may require us to purchase a
minimum amount of cells, could be significantly more expensive than our current
supplier, or could require other unfavorable terms. Any such event would
materially impact our prospects and could delay our development. Moreover,
we
cannot give you any assurance that any contract manufacturers or suppliers
we
procure will be able to supply our product in a timely or cost effective
manner
or in accordance with applicable regulatory requirements or our
specifications
General
Risks Relating to the Company's Business
The
Company may be subject to litigation that will be costly to defend or pursue
and
uncertain in its outcome.
The
Company's business may bring it into conflict with its licensees, licensors,
or
others with whom it has contractual or other business relationships or with
its
competitors or others whose interests differ from the Company's. If the Company
is unable to resolve those conflicts on terms that are satisfactory to all
parties, the Company may become involved in litigation brought by or against
it.
That litigation is likely to be expensive and may require a significant amount
of management's time and attention, at the expense of other aspects of the
Company's business. The outcome of litigation is always uncertain, and in
some
cases could include judgments against us that require the Company to pay
damages, enjoin it from certain activities, or otherwise affect its legal
or
contractual rights, which could have a significant adverse effect on its
business.
The
Company may not be able to obtain third-party patient reimbursement or favorable
product pricing, which would reduce its ability to operate
profitably.
The
Company's ability to successfully commercialize certain of its proposed products
in the human therapeutic field may depend to a significant degree on patient
reimbursement of the costs of such products and related treatments at acceptable
levels from government authorities, private health insurers and other
organizations, such as health maintenance organizations. The Company cannot
assure you that reimbursement in the United States or foreign countries will
be
available for any products it may develop or, if available, will not be
decreased in the future, or that reimbursement amounts will not reduce the
demand for, or the price of, its products with a consequent harm to the
Company's business. The Company cannot predict what additional regulation
or
legislation relating to the health care industry or third-party coverage
and
reimbursement may be enacted in the future or what effect such regulation
or
legislation may have on the Company's business. If additional regulations
are
overly onerous or expensive or if health care related legislation makes its
business more expensive or burdensome than originally anticipated, the Company
may be forced to significantly downsize its business plans or completely
abandon
its business model.
The
Company's products may be expensive to manufacture, and they may not be
profitable if the Company is unable to control the costs to manufacture
them.
The
Company's products may be significantly more expensive to manufacture than
most
other drugs currently on the market today due to a fewer number of potential
manufactures, greater level of needed expertise, and other general market
conditions affecting manufacturers of stem cell based products. The
Company would hope to substantially reduce manufacturing costs through process
improvements, development of new science, increases in manufacturing scale
and
outsourcing to experienced manufacturers. If the Company is not able to make
these, or other improvements, and depending on the pricing of the product,
its
profit margins may be significantly less than that of most drugs on the market
today. In addition, the Company may not be able to charge a high enough price
for any cell therapy product it develops, even if they are safe and effective,
to make a profit. If the Company is unable to realize significant profits
from
its potential product candidates, its business would be materially
harmed.
In
order to secure market share and generate revenues, the Company's proposed
products must be accepted by the health care community, which can be very
slow
to adopt or unreceptive to new technologies and
products.
The
Company's proposed products and those developed by its collaborative partners,
if approved for marketing, may not achieve market acceptance since hospitals,
physicians, patients or the medical community in general may decide not to
accept and utilize these products. The products that the Company is attempting
to develop represents substantial departures from established treatment methods
and will compete with a number of more conventional drugs and therapies
manufactured and marketed by major pharmaceutical companies. The degree of
market acceptance of any of the Company's developed products will depend
on a
number of factors, including:
|
·
|
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.
|
If
the
health care community does not accept the Company's products for any of the
foregoing reasons, or for any other reason, the Company's business would
be
materially harmed.
We
depend on two key employees for our continued operations and future success.
A
loss of either employee could significantly hinder our ability to move forward
with our business plan.
The
loss
of either of our key executive officers, Richard Garr and Karl Johe, would
be
significantly detrimental to us.
|
·
|
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 individual;
|
|
|
|
|
·
|
We
currently
d
o
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.
|
In
addition, the Company's anticipated growth and expansion into areas and
activities requiring additional expertise, such as clinical testing, regulatory
compliance, manufacturing and marketing, will require the addition of new
management personnel and the development of additional expertise by existing
management personnel. There is intense competition for qualified personnel
in
the areas of the Company's present and planned activities, and there can
be no
assurance that the Company will be able to continue to attract and retain
the
qualified personnel necessary for the development of its business. The failure
to attract and retain such personnel or to develop such expertise would
adversely affect the Company's business.
The
Company has entered into long-term contracts with key personnel and
stockholders, with significant anti-termination provisions, which could make
future changes in management difficult or expensive.
Messrs.
Garr and Johe have entered into seven (7) year employment agreements with
the
Company which expire on November 1, 2012 and which include termination
provisions stating that if either employee is terminated for any reason other
than a voluntary resignation, then all compensation due to such employee
under
the terms of the respective agreement shall become due and payable immediately.
These provisions will make the replacement of either of these employees very
costly to the Company, and could cause difficulty in effecting a change in
control of the Company. Termination prior to full term on the contracts would
cost the Company as much as $1,700,000 per contract, and immediate vesting
of
all outstanding options (1,200,000 shares each).
The
Company has no product liability insurance, which may leave it vulnerable
to
future claims that the Company will be unable to
satisfy.
The
testing, manufacturing, marketing and sale of human therapeutic products
entails
an inherent risk of product liability claims, and the Company cannot assure
you
that substantial product liability claims will not be asserted against it.
The
Company has no product liability insurance. In the event the Company is forced
to expend significant funds on defending product liability actions, and in
the
event those funds come from operating capital, the Company will be required
to
reduce its business activities, which could lead to significant
losses.
The
Company cannot assure you that adequate insurance coverage will be available
in
the future on acceptable terms, if at all, or that, if available, the Company
will be able to maintain any such insurance at sufficient levels of coverage
or
that any such insurance will provide adequate protection against potential
liabilities.
The
Company has limited director and officer insurance and commercial insurance
policies. Any significant claim would have a material adverse effect on its
business, financial condition and results of operations. Insurance availability,
coverage terms and pricing continue to vary with market conditions. The Company
endeavors to obtain appropriate insurance coverage for insurable risks that
it
identifies, however, the Company may fail to correctly anticipate or quantify
insurable risks, may not be able to obtain appropriate insurance coverage,
and
insurers may not respond as the Company intends to cover insurable events
that
may occur. The Company has observed rapidly changing conditions in the insurance
markets relating to nearly all areas of traditional corporate insurance.
Such
conditions may result in higher premium costs, higher policy deductibles,
and
lower coverage limits. For some risks, the Company may not have or maintain
insurance coverage because of cost or availability.
Risks
Relating to the Company's Common Stock
Our
common shares are sporadically or “thinly” traded, so you may be unable to sell
at or near ask prices or at all if you need to sell your shares to raise
money
or otherwise desire to liquidate your shares
Our
common shares have historically been sporadically or “thinly” traded, meaning
that the number of persons interested in purchasing our common shares at
or near
ask prices at any given time may be relatively small or non-existent. This
situation is attributable to a number of factors, including the fact that
we are
a small company which is relatively unknown to stock analysts, stock brokers,
institutional investors and others in the investment community that generate
or
influence sales volume, and that even if we came to the attention of such
persons, they tend to be risk-averse and would be reluctant to follow an
unproven development stage company such as ours or purchase or recommend
the
purchase of our shares until such time as we became more seasoned and viable.
As
a consequence, there may be periods of several days or more when trading
activity in our shares is minimal or non-existent, as compared to a seasoned
issuer which has a large and steady volume of trading activity that will
generally support continuous sales without a material reduction in share
price.
We cannot give you any assurance that a broader or more active public trading
market for our common shares will develop or be sustained, or that current
trading levels will be sustained. Due to these conditions, we can give you
no
assurance that you will be able to sell your shares at or near ask prices
or at
all if you need money or otherwise desire to liquidate your shares.
The
market price for our common shares is particularly volatile given our status
as
a relatively unknown company with a small and thinly-traded public float,
limited operating history and lack of revenues or profits to date could lead
to
wide fluctuations in our share price. The price at which you purchase our
common
shares may not be indicative of the price that will prevail in the trading
market. You may be unable to sell your common shares at or above your purchase
price, which may result in substantial losses to you. The volatility in our
common share price may subject us to securities
litigation.
The
market for our common shares is characterized by significant price volatility
when compared to seasoned issuers, and we expect that our share price will
continue to be more volatile than a seasoned issuer. The volatility in our
share
price is attributable to a number of factors. First, as noted above, our
common
shares are sporadically or thinly traded. As a consequence of this lack of
liquidity, the trading of relatively small quantities of shares by our
shareholders may disproportionately influence the price of those shares in
either direction. The price for our shares could, for example, decline
precipitously in the event that a large number of our common shares are sold
on
the market without commensurate demand, as compared to a seasoned issuer which
could better absorb those sales without a material reduction in share price.
Secondly, we are a speculative or “risky” investment due to our limited
operating history and lack of significant revenues to date, and uncertainty
of
future market acceptance for our products if successfully developed. As a
consequence of this enhanced risk, more risk-adverse investors may, under
the
fear of losing all or most of their investment in the event of negative news
or
lack of progress, be more inclined to sell their shares on the market more
quickly and at greater discounts than would be the case with the stock of
a
seasoned issuer. Additionally, in the past, plaintiffs have often initiated
securities class action litigation against a company following periods of
volatility in the market price of its securities. We may in the future be
the
target of similar litigation. Securities litigation could result in substantial
costs and liabilities and could divert management’s attention and
resources.
The
following factors may add to the volatility in the price of our common
shares: actual or anticipated variations in our quarterly or annual
operating results; government regulations, announcements of significant
acquisitions, strategic partnerships or joint ventures; our capital commitments;
and additions or departures of our key personnel. Many of these factors are
beyond our control and may decrease the market price of our common shares,
regardless of our operating performance. We cannot make any predictions or
projections as to what the prevailing market price for our common shares
will be
at any time, including as to whether our common shares will sustain their
current market prices, or as to what effect that the sale of shares or the
availability of common shares for sale at any time will have on the prevailing
market price.
The
Company faces risks related to compliance with corporate governance laws
and
financial reporting standards.
The
Sarbanes-Oxley Act of 2002, as well as related new rules and regulations
implemented by the Securities and Exchange Commission and the Public Company
Accounting Oversight Board, require changes in the corporate governance
practices and financial reporting standards for public companies. These new
laws, rules and regulations, including compliance with Section 404 of the
Sarbanes-Oxley Act of 2002 relating to internal control over financial reporting
(“Section 404”), will materially increase the Company's legal and financial
compliance costs and made some activities more time-consuming and more
burdensome. Starting in 2007, Section 404 of the Sarbanes-Oxley Act of 2002
will
require that the Company's management assess the Company's internal control
over
financial reporting annually and include a report on its assessment in its
filings with the SEC.
The
Company has identified significant weaknesses with regard to its financial
control procedures.
We
have not remediated material weaknesses and significant deficiencies in our
internal control over financing reporting.
We
have
made improvements to our internal control procedures, nevertheless, we continue
to have material weaknesses and significant deficiencies in our internal
control
over financial reporting. We have hired additional personnel and are attempting
to address these weaknesses and deficiencies, but until these are resolved,
there is a greater risk of material error with respect to our financial
reporting. In addition, costs of compliance with Sarbanes-Oxley and the level
of
effort required to remediate these material weaknesses may materially impact
our
results of operations, as well as distract management and employees from
performing their regular activities.
While
we have reviewed the design effectiveness of our internal controls over the
accuracy of our financial statements, we have not tested the operating
effectiveness of our internal controls over financing reporting. In the event
the controls are not operating as designed, the risk exists that the financial
statements are materially misstated.
As
further explained in the section of this report entitled “Controls and
Procedures”, a review of the process level controls was completed during the
year, resulting in significant changes, including the outsourcing of the
majority of the accounting and financial reporting functions. New controls
and
procedures were created and most were implemented. However there was not
sufficient time to completely test these new process level controls. Management
believes, assuming operational effectiveness, the existing controls 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.
Additionally,
a review of entity-level controls was completed by management, and based
on
management’s evaluation of the control environment; the size of the company; and
the use of a third-party for the majority of financial and accounting
activities; management considers the design of the entity-level controls
to be
sufficient, although the operational effectiveness has not been completely
tested.
The
Company does not intend to pay cash dividends on its common stock in the
foreseeable future
.
Any
payment of cash dividends will depend upon the Company's financial condition,
results of operations, capital requirements and other factors and will be
at the
discretion of the Board of Directors. The Company does not anticipate paying
cash dividends on its common stock in the foreseeable future. Furthermore,
the
Company may incur additional indebtedness that may severely restrict or prohibit
the payment of dividends.
We
are
entitled under our certificate of incorporation to issue up to 75,000,000
common and 7,000,000 “blank check” preferred shares. As of December 31,
2007, we have issued and outstanding 31,410,566 comm
on
shares, 14,359,174 common shares reserved for issuance upon the exercise
of
current outstanding options and warrants, 949,371 common shares reserved
for
issuances of additional grants under our 2005 incentive stock plan, and
6,150,000 shares reserved for issuance of grants under our 2007 stock plan.
Accordingly, we will be entitled to issue up to 22,130,919 additional
common shares and 7,000,000 additional preferred shares. Our board may
generally issue those common and preferred shares, or options or warrants
to
purchase
those shares, without further approval by our shareholders based upon such
factors as our board of directors may deem relevant at that time. Any preferred
shares we may issue shall have such rights, preferences, privileges and
restrictions as may be designated from time-to-time by our board, including
preferential dividend rights, voting rights, conversion rights, redemption
rights and liquidation provisions. It is likely that we will be required
to
issue a large amount of additional securities to raise capital to further
our
development and marketing plans. It is also likely that we will be required
to
issue a large amount of additional securities to directors, officers, employees
and consultants as compensatory grants in connection with their services,
both
in the form of stand-alone grants or under our various stock plans. We cannot
give you any assurance that we will not issue additional common or preferred
shares, or options or warrants to purchase those shares, under circumstances
we
may deem appropriate at the time.
OUR
BUSINESS
We
are a
biotechnology company focused on developing and commercializing human neural
stem cell technology in the emerging field of regenerative
medicine.
Our
History
We
were
incorporated in 1997 in the state of Maryland and re-incorporated in the
state
of Delaware in 2001. From 1997 until 2003, our research focused on:
Genomics,
which is
the study of genes and their functions;
Drug
Discovery,
which
consists of the identification of molecules with desired biological effects
that
have promise as new therapeutic drugs; and
Cell
Therapy,
which
consists of treatments in which cells are administered to patients in order
to
repair damaged or depleted tissues.
In
2001,
we were paid a licensing fee of $7.5 million by Gene Logic, Inc., payable
over
three years, to create a database using our technology. Also, in 2001, the
Company received a Defense Department contract to do drug screening using
the
cells derived from its technology in the amount of $2.5 million over 18 months.
Finally, during this period, we pursued our own research into transplanting
cells derived from our technology to cure disease. We reached a high of roughly
50 employees in early 2000, mostly involved in the infrastructure involved
with
the Gene Logic/genomics and drug discovery programs.
In
late
2000 and early 2001, as a result of the decline in biotech funding markets
and
the accompanying devaluation of the genomics industry, our genomics program
was
no longer commercially viable. Additionally, in late 2002, the Department
of
Defense cancelled the program which funded our drug discover efforts. As
a
result, by the end of 2003, the Company made the strategic decision to lay
off
its employees involved in the genomic and drug discovery programs and focus
entirely on transplantation of its neural stem cells to treat diseases in
patients.
The
Company spent 2004 restructuring its capitalization and creating an “outsourced”
model of product development by having the research conducted at various
universities and research labs and having all other functions outsourced.
In
November of 2004 we completed a ten-for-three reverse stock split.
In
2005,
the Company continued to operate under this model, with all accounting, legal,
facility, manufacturing, transplantation experimentation and regulatory
functions outsourced, under the supervision of Richard Garr, the Company's
President and Chief Executive Officer, and Dr. Johe, the Company's Chairman
and
Chief Scientific Officer.
Overview
In
2004,
we refocused our research efforts to concentrate primarily in the field of
Cell
Therapy. Specifically, we are focused on the development and commercialization
of treatments based on transplanting human neural stem cells.
We
have
developed and maintain a portfolio of patents and patent applications that
form
the proprietary base for our research and development efforts in the area
of
neural stem cell research, and related technologies. We believe our technology
base, in combination with our know-how, and collaborative projects with major
research institutions provides a competitive advantage and will facilitate
the
successful development and commercialization of products for use in treatment
of
a wide array of neurodegenerative conditions and in regenerative repair of
acute
disease.
This
is a
young and emerging field. There can be no assurances that our intellectual
property portfolio will ultimately produce viable commercialized products
and
processes. Even if we are able to produce a commercially viable product,
there
are strong competitors in this field and our product may not be able to
successfully compete against them.
All
of
our research efforts to date are at the level of basic research or in the
pre-clinical stage of development. We are focused on leveraging our key assets,
including our intellectual property, our scientific team, our facilities
and our
capital, to accelerate the advancement of our stem cell technologies. In
addition, we are pursuing strategic collaborations with members of academia.
We
are currently headquartered in Rockville, Maryland.
The
Field of Regenerative Medicine
The
emerging field of treatment called "regenerative medicine" or "cell therapy"
refers to treatments that are founded on the concept of producing new cells
to
replace malfunctioning or dead cells as a vehicle to treat disease and injury.
Many significant and currently untreatable human diseases arise from the
loss or
malfunction of specific cell types in the body. Our focus is the development
of
effective methods to generate replacement cells from neural stem cells. We
believe that replacing damaged or malfunctioning or dead neural cells with
fully
functional ones may be a useful therapeutic strategy in treating many diseases
and conditions of the central nervous system (CNS) including: Alzheimer's
disease, Parkinson's disease, Multiple Sclerosis, Amyotrophic Lateral Sclerosis
(ALS, or Lou Gehrig's Disease), depression, and injuries to the spinal
cord.
Stem
Cell Therapy Background
Cells
maintain normal physiological function in healthy individuals by secreting
or
metabolizing substances, such as sugars, amino acids, neurotransmitters and
hormones, which are essential to life. When cells are damaged or destroyed,
they
no longer produce, metabolize or accurately regulate those substances. Cell
loss
or impaired cellular functions are leading causes of degenerative diseases,
and
some of the specific substances or proteins that are deficient in some of
these
diseases have been identified. Although administering these substances or
proteins has some advantages over traditional pharmaceuticals, such as
specificity, there is no existing technology that can deliver them precisely
to
the sites of action, under the appropriate physiological regulation, in the
appropriate quantity, nor for the duration required to cure the degenerative
condition. Cells, however, may do all this naturally. Thus, where failing
cells
are no longer producing needed substances or proteins or where there has
been
irreversible tissue damage or organ failure, transplantation of stem or
progenitor cells may enable the generation of new functional cells, thus
potentially restoring organ function and the patient's health.
Stem
cells have two defining characteristics: (i) they produce all the kinds of
mature cells making up the particular organ; and (ii) they self
renew — that is, some of the cells developed from stem cells are
themselves new stem cells, thus permitting the process to continue again
and
again. Stem cells are known to exist for a number of systems of the human
body,
including the blood and immune system, the central and peripheral nervous
systems (including the brain), the skin, bone, and even hair. They are thought
to exist for many others, including the liver and pancreas endocrine systems,
gut, muscle, and heart. Stem cells are responsible for organ regeneration
during
normal cell replacement and, to a greater or lesser extent, after
injury.
Stem
cells are rare and only available in limited supply, whether from the patients
themselves or from donors. Also, cells can often be obtained only through
significant surgical procedures. Therefore, in order to develop stem cell
therapeutics, three key challenges must be overcome: (i) identifying the
stem or progenitor cells of a particular organ and testing them for therapeutic
potential; (ii) creating processes to enable use of these rare cells in
clinical applications, such as expanding and banking them in sufficient
quantities to transplant into multiple patients; and (iii) demonstrating
the safety and efficacy of these potential therapeutics in human clinical
trials.
The
Potential of Our Tissue-Derived Stem Cell-Based
Therapy
We
believe that, if successfully developed, stem cell therapeutics have the
potential to provide a broad therapeutic approach comparable in importance
to
traditional pharmaceuticals and genetically engineered biologics. With respect
to the human neural stem cells we have developed proprietary and reproducible
processes to identify, isolate, expand, purify
1
and
control the cells differentiation in mature functioning human
neurons
2
and
glia
3
and
bank
human neural stem cells from brain tissue. Because the cells are purified normal
human neural stem cells, they may be better suited for transplantation and
may
provide a safer and more effective alternative to therapies that are based
on
cells derived from cancer cells, animal derived cells or are an unpurified
mix
of many different cell types.
1
Purification
of
our cells is the process whereby we separate “raw” donor tissue into our cells.
During the process, we monitor the division of the neural stems cells
and remove
or “weed out” any cells which have failed to divide after a predetermined period
of time. We repeat this process 3 to 4 times until the cells remaining
have been
“purified” in our estimation.
2
Neurons
are
a major class of cells in the nervous system. Neurons are sometimes called
nerve
cells, though this term is technically imprecise since many neurons do
not form
nerves. In vertebrates, they are found in the brain, the spinal cord
and in the
nerves and ganglia of the peripheral nervous system, and their primary
role is
to process and transmit neural information. One important characteristic
of
neurons is that they have excitable membranes which allow them to generate
and
propagate electrical signals.
3
Glia
cells,
commonly called neuroglia or simply glia, are non-neuronal cells that
provide
support and nutrition, maintain homeostasis, form myelin, and participate
in
signal transmission in the nervous system. In the human brain, glia are
estimated to outnumber neurons by as much as 50 to 1.
Potential
Markets
We
believe that, if successfully developed, neural stem cell-based therapies
have
the potential to treat a broad range of diseases and injuries of the CNS.
We
believe the potential applications of our technologies given our current
research focus includes developing neural cell therapies to treat Parkinson's
disease, Amyotrophic Lateral Sclerosis (ALS), and injuries to the spinal
cord.
We
believe the potential markets for regenerative medicine based on our neural
stem
cell therapies are large. The table below summarizes the potential United
States
patient populations which we believe may be amenable to neural cell
transplantation and represent potential target markets for our
products:
POTENTIAL
U.S. PATIENT POPULATIONS
FOR
NEURAL CELL-BASED THERAPIES
|
Medical
Condition
|
|
Number
of Patients
*
|
|
Parkinson's
Disease
|
|
1
million
|
|
Spinal-cord
injuries
|
|
0.25
million
|
|
Amyotrophic
Lateral Sclerosis
|
|
0.03
million
|
*
These
estimates are based on the most current patient estimates published by the
following organizations as of April 2006; the Parkinson's Disease Foundation,
the Parkinson's Action Network, the Foundation for Spinal Cord Injury
Prevention, Care and Cure, and the Amyotrophic Lateral Sclerosis
Association.
Our
Technology
Our
technology is the ability to isolate human neural stem cells from most areas
of
the developing human brain and spinal cord and our technology includes the
ability to grow them into physiologically relevant human neurons of all types.
Our two issued core patents entitled
Isolation,
Propagation, and Directed Differentiation of Stem Cell from Embryonic and
Adult
Central Nervous System of Mammals
and
In
Vitro Generation of Differentiated Neurons from Cultures of Mammalian
Multi-potential CNS Stem Cell
contain
claims which cover the process of deriving the cells and the cells created
from
such process.
Our
technology is the ability to isolate human neural stem cells from most areas
of
the developing human brain and spinal cord and to grow them into physiologically
relevant human neurons of all types. Our core patents entitled:
|
|
|
Isolation,
Propagation, and Directed Differentiation of Stem Cell from Embryonic
and
Adult Central Nervous System of Mammal;
and
|
|
|
|
In
Vitro Generation of Differentiated Neurons from Cultures of Mammalian
Multi-potential CNS Stem Cell
|
contain
claims which cover the details of this process and the culture of cells created.
What differentiates our stem cell technology from others is that our patented
processes do not require us to “push” the cells towards a certain fate by adding
specific growth factors. Our cells actually “become” the type of cell they are
fated to be. We believe this process and the resulting cells create a technology
platform that allows for the efficient isolation and ability to produce,
in
commercially reasonable quantities, neural stem cells from the human brain
and
spinal cord.
Our
technology allows for cells to grow in cultured dishes, also known as
in
vitro
growth,
without mutations or other adverse events that would compromise their
usefulness. We believe this provides for two distinct advantages:
|
·
|
First,
the growth or expansion of the cells in vitro occurs while the
cells are
still in their “stem cell” or blank state which allows for the creation of
commercially reasonable quantities of neural stem cells. Once a
sufficient
number of blank cells have been grown, our technology allows us
to program
or differentiate the cells into either neurons or glia;
and
|
|
·
|
Secondly,
we have the ability to sample the cells while still
in
vitro
in
order to confirm that the cells are differentiating in the desired
cell
type.
|
Our
technology also has ancillary uses with respect to drug development. Our
ability
to grow and differentiate neural cells
in
vitro
, gives
us the ability to analyze the potential biological effects of molecules on
these
cells. This has resulted in the identification of a group of small molecule
compounds with the potential to enhance the survival of the endogenous cells
residing in the hippocampus
4
region
on
the brain.
Business
Strategy
We
are
seeking to develop and commercialize stem cell therapeutics to treat, and
possibly cure, a range of human diseases. Our strategy has been to be the
first
to identify, isolate and patent important human neural stem and progenitor
cells
derived from human tissue with therapeutic and commercial importance; to
develop
techniques which enable the expansion and banking of those cells; and then
to
take them into clinical development as transplantable therapeutics.
A
central
element of our business strategy is to obtain patent protection for the
compositions, processes and uses of these multiple types of cells that would
make the commercial development of neural stem cell therapeutics financially
feasible. We have obtained rights to certain inventions relating to stem
cells
and progenitor through our own research and from academic collaborators.
We
expect to continue to expand our search for, and to seek to acquire rights
from
third parties where relevant relating to, neural stem and progenitor cells,
and
to further develop our intellectual property positions with respect to these
cells in-house and through research at commercial and scholarly
institutions.
Our
Grants
In
August
of 2005 we were awarded a two year, $500,000 Small Business Innovation Research
non competitive grant from the National Institute of Health (NIH), to further
our research with regard to depression. Under the terms of the grant, we
submit
an annual budget of $250,000 to be used for the purpose of testing our compounds
in various models of depression. Any changes or modifications to the submitted
budget must be approved by case manager. After we incur expenses, we submit
those expenses to the NIH for reimbursement. The grant covers salary, wages,
personnel costs, supplies, travel costs, and consortium/contractual costs
with
regard to the research.
The
only
conditions to full funding of the grant are that we use the proceeds to further
or research regarding depression and that we use the funds as budgeted.
Notwithstanding, in the event of a budget variance, we can seek approval
of such
variance from the case manager and such variance would be funded provided
the
aggregate funding does not exceed the amount of the grant. We received an
aggregate of $532,814 pursuant to this grant. All work has been
completed.
Our
Research and Programs
We
have
devoted substantial resources to our research programs to isolate and develop
a
series of neural stem cell banks that we believe can serve as a basis for
therapeutic products. Our efforts to date have been directed at methods to
identify, isolate and culture large varieties of stem cells of the human
nervous
system, and to develop therapies utilizing these stem cells. This research
is
conducted both internally and through the use of third party laboratory
consulting companies under our direct supervision.
In
addition to research which we conduct internally or under our direct
supervision, we conduct research and development through research
collaborations. These collaborations, or programs, are undertaken with both
commercial and scholarly institutes pursuant to the terms and conditions of our
standard material transfer agreement.
4
The
hippocampus region of the brain plays a part in memory and navigation.
We
believe that this ability to enhance the survival rate of the endogenous
cells
may result in the development of drugs or compounds that could be used
to treat
a variety of central nervous system diseases.
The
material terms of our standard material transfer agreement requires us to
provide our research partner or collaborator with access to our technology
or
“research materials,” which are comprised of our neurological stem cells, for a
specific pre-defined purpose. As part of the agreement, we agree to provide
sufficient research materials and technical assistance to accomplish the
purpose
of the program. The determination of sufficiency is determined at our sole
discretion. As part of these agreements, we are entitled to certain reporting
rights and the right to have patentable discoveries presented to us prior
to
publication in order for us to file applicable patents. In the event we choose
to file a patent, we will either be responsible for all filing and maintenance
fees or we will split the fees with our research partner depending on the
type
of patent to be filed. The agreements also provide for us to receive a fully
paid up, royalty free, non-exclusive license to any inventions made by our
partner with respect to our technologies and their interest in any intellectual
property jointly developed and first right to negotiate an exclusive license.
The agreements also provide confidentiality between the parties. Generally
each
party is responsible for its own expense, there are no milestone payment or
royalty payment requirements and the duration of these agreements is for
a three
year term which can be terminated by either party with 90 days written
notice.
The
only
agreement which varies from our general terms is the agreement pertaining
to our
work with the University of California San Diego. In addition to the general
terms, the agreement also required us to provide a grant of $13,680, which
we
have already paid. We have no other payment obligations under any of our
current
material transfer agreements unless the studies result in findings which
we
choose to patent. We will then incur the costs associated with the filing
and
maintenance of such patent.
Examples
of such projects include:
University
of California San Diego, San Diego, CA
: In May
of 2002, we initiated a research project with the University of California
in
San Diego for the purpose of researching the applicability of our technology
to
the treatment of Ischemic Spastic Paraplegia and traumatic spinal cord injury.
The project is ongoing. The research yielded findings that contributed to
our
filing of patent entitled Transplantation of Human Cells for Treatment of
Neurological Disorders.
John
Hopkins University, School of Medicine, Baltimore, MD
: In
March of 2001 we initiated a research project with John Hopkins University,
School of Medicine for the purpose of researching the applicability of our
technology to the treatment of Amyotrophic Lateral Sclerosis and traumatic
spinal cord injury. The project is ongoing. The research yielded findings
that
contributed to our filing of patent entitled Transplantation of Human Cells
for
Treatment of Neurological Disorders.
University
of Southern Florida, Tampa, FL
: In
September of 2005 we initiated a research project with the University of
Southern Florida for the purpose of researching the applicability of our
technology to the treatment of Parkinson's Disease. The project is
ongoing.
University
of Central Florida, Orlando, FL
: In
March of 2006 we initiated a research project with the University of Central
Florida for the purpose of researching the applicability of our technology
to
the treatment of spinal cord injuries. The project is ongoing.
University
of Pennsylvania
whereby
we have entered into an agreement with the university to assist us in developing
“A Feasibility and Safety Study of human Spinal Stem Cell Transplantation
for
the Treatment of Ischemic Spastic Paraplegia Due to Spinal Cord
Ischemia.
Albany
Molecular Research, Inc
.,
whereby we have contracted with Albany to assist us in manufacturing small
molecule neurogenises treatment using “Good Manufacturing Practice procedures.
Ricera
Biosciences, LLC
,
whereby
we have entered into an agreement whereby Ricera will assist us in performing
toxicity tests on small molecule neurgenisis treatments.
The
forgoing is not exhaustive and is only meant to provide a brief overview
of the
types of projects we are undertaking with third parties.
Manufacturing
We
currently manufacture our cells both in-house and on an outsource basis.
We
manufacture cells in-house which are not required to meet stringent FDA
requirements. We use these cells in our research grant and collaborative
programs. We outsource all the manufacturing and storage of our stem cells
to be
used in pre-clinical works, and which are accordingly subject to the higher
FDA
requirements, to Charles River Laboratories, Inc., of Wilmington, Massachusetts.
The Charles River facility has the capacity to be used for cell processing
under
the FDA determined Good Manufacturing Practices (GMP) in quantities sufficient
for our current pre-trial and anticipated future clinical trial needs. We
believe the facility has sufficient capacity to provide for our needs in
the
near to intermediate term. We have no quantity or volume commitment with
Charles
River Laboratories and our cells are ordered and manufactured on an as needed
basis.
Products
& Marketing
Because
of the early stage of our programs, we have yet to identify any specific
product
and we have not yet addressed questions of channels of distribution and
marketing of potential future products. We are however focusing our efforts
on
applications of our technology to diseases that affect the central nerve
system.
Our
Intellectual Property
Our
research and development is supported by our intellectual property. We currently
own or have exclusive licenses to 4 patents and 13 patent applications pending
worldwide in the field of regenerative medicine and stem cell
therapy.
Our
success will likely depend upon our ability to preserve our proprietary
technologies and operate without infringing the proprietary rights of other
parties. However, we may rely on certain proprietary technologies and know-how
that are not patentable. We protect our proprietary information, in part,
by the
use of confidentiality agreements with our employees, consultants and certain
of
our contractors.
When
appropriate, we seek patent protection for inventions in our core technologies
and in ancillary technologies that support our core technologies or which
we
otherwise believe will provide us with a competitive advantage. We accomplish
this by filing patent applications for discoveries we make, either alone
or in
collaboration with scientific collaborators and strategic partners. Typically,
although not always, we file patent applications both in the United States
and
in select international markets. In addition, we plan to obtain licenses
or
options to acquire licenses to patent filings from other individuals and
organizations that we anticipate could be useful in advancing our research,
development and commercialization initiatives and our strategic business
interests.
The
following table identifies the issued and pending patents we own that we
believe
currently support our technology platform.
Patents
Pending
|
Number
|
|
Country
|
|
Filing
Date
|
|
Issue
Date
|
|
Expiration
Date
|
|
Title
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2257068
|
|
CA
|
|
5/7/1997
|
|
N/A
|
|
N/A
|
|
ISOLATION,
PROPOGATION, AND DIRECTED DIFFERENTIATION OF STEM CELLS FROM
CENTRAL
NERVOUS SYSTEM OF MAMMALS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2343571
|
|
CA
|
|
9/20/1999
|
|
N/A
|
|
N/A
|
|
STABLE
NEURAL STEM CELL LINES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
99948396.9
|
|
EP
|
|
9/20/1999
|
|
N/A
|
|
N/A
|
|
STABLE
NEURAL STEM CELL LINES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2000-574224
|
|
JP
|
|
9/20/1999
|
|
N/A
|
|
N/A
|
|
STABLE
NEURAL STEM CELL LINES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10/047,352
|
|
US
|
|
1/14/2002
|
|
N/A
|
|
N/A
|
|
STABLE
NEURAL STEM CELLS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3790356.4
|
|
EP
|
|
12/5/2003
|
|
N/A
|
|
N/A
|
|
METHOD
FOR DISCOVERING NEUROGENIC AGENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10/914,460
|
|
US
|
|
8/9/2004
|
|
N/A
|
|
N/A
|
|
USE
OF FUSED IMIDAZOLES,
AMINOPYRIMIDINES,
ISONICOTINAMIDES, AMINOMETHYL PHENOXYPIPERIDINES AND ARYLOXYPIPERIDINES
TO
PROMOTE AND DETECT ENDOGENOUS NEUROGENESIS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11/281,640
|
|
US
|
|
11/17/2005
|
|
N/A
|
|
N/A
|
|
TRANSPLANTATION
OF HUMAN NEURAL CELLS FOR TREATMENT OF NEUROLOGICAL
DISORDERS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
200580039450
|
|
CN
|
|
11/17/2005
|
|
N/A
|
|
N/A
|
|
TRANSPLANTATION
OF HUMAN NEURAL CELLS FOR TREATMENT OF NEUROLOGICAL
DISORDERS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5851748.3
|
|
EP
|
|
11/17/2005
|
|
N/A
|
|
N/A
|
|
TRANSPLANTATION
OF HUMAN NEURAL CELLS FOR TREATMENT OF NEUROLOGICAL
DISORDERS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2613/CHENP/2007
|
|
IN
|
|
11/17/2005
|
|
N/A
|
|
N/A
|
|
TRANSPLANTATION
OF HUMAN NEURAL CELLS FOR TREATMENT OF NEUROLOGICAL
DISORDERS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
183092
|
|
IL
|
|
11/17/2005
|
|
N/A
|
|
N/A
|
|
TRANSPLANTATION
OF HUMAN NEURAL CELLS FOR TREATMENT OF NEUROLOGICAL
DISORDERS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007-543219
|
|
JP
|
|
11/17/2005
|
|
N/A
|
|
N/A
|
|
TRANSPLANTATION
OF HUMAN NEURAL CELLS FOR TREATMENT OF NEUROLOGICAL
DISORDERS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10-2007-7012097
|
|
KR
|
|
11/17/2005
|
|
N/A
|
|
N/A
|
|
TRANSPLANTATION
OF HUMAN NEURAL CELLS FOR TREATMENT OF NEUROLOGICAL
DISORDERS
|
|
Number
|
|
Country
|
|
Filing
Date
|
|
Issue
Date
|
|
Expiration
Date
|
|
Title
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1-2007-501016
|
|
PH
|
|
11/17/2005
|
|
N/A
|
|
N/A
|
|
TRANSPLANTATION
OF HUMAN NEURAL CELLS FOR TREATMENT OF NEUROLOGICAL
DISORDERS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007122507
|
|
RU
|
|
11/17/2005
|
|
N/A
|
|
N/A
|
|
TRANSPLANTATION
OF HUMAN NEURAL CELLS FOR TREATMENT OF NEUROLOGICAL
DISORDERS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
200703490-3
|
|
SG
|
|
11/17/2005
|
|
N/A
|
|
N/A
|
|
TRANSPLANTATION
OF HUMAN NEURAL CELLS FOR TREATMENT OF NEUROLOGICAL
DISORDERS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1-2007-01216
|
|
VN
|
|
11/17/2005
|
|
N/A
|
|
N/A
|
|
TRANSPLANTATION
OF HUMAN NEURAL CELLS FOR TREATMENT OF NEURODEGENERATIVE
CONDITIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20073078
|
|
NO
|
|
11/17/2005
|
|
N/A
|
|
N/A
|
|
TRANSPLANTATION
OF HUMAN NEURAL CELLS FOR TREATMENT OF NEUROLOGICAL
DISORDERS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11/852,922
|
|
US
|
|
9/10/2007
|
|
N/A
|
|
N/A
|
|
Method
for Discovering Neurogenic Agents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11/932,923
|
|
US
|
|
10/31/2007
|
|
N/A
|
|
N/A
|
|
TRANSPLANTATION
OF HUMAN NEURAL CELLS FOR TREATMENT OF NEUROLOGICAL
DISORDERS
|
Patents
Issued
|
Number
|
|
Country
|
|
Filing
Date
|
|
Issue
Date
|
|
Expiration
Date
|
|
Title
|
|
5,753,506
|
|
US
|
|
9/25/1996
|
|
5/19/1998
|
|
9/25/2016
|
|
ISOLATION
PROPAGATION AND DIRECTED DIFFERENTIATION OF STEM CELLS FROM EMBRYONIC
AND
ADULT CENTRAL NERVOUS SYSTEM OF MAMMALS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,040,180
|
|
US
|
|
5/7/1997
|
|
3/21/2000
|
|
5/7/2017
|
|
IN
VITRO GENERATION OF DIFFERENTIATED NEURONS FROM CULTURES OF MAMMALIAN
MULTIPOTENTIAL CNS STEM CELLS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,284,539
|
|
US
|
|
10/9/1998
|
|
9/4/2001
|
|
10/9/2018
|
|
METHOD
FOR GENERATING DOPAMINERGIC CELLS DERIVED FROM NEURAL
PRECURSORS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
755849
|
|
AU
|
|
9/20/1999
|
|
4/3/2003
|
|
9/20/2019
|
|
STABLE
NEURAL STEM CELL LINES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
915968
|
|
EP
|
|
5/7/1997
|
|
7/25/2007
|
|
5/7/2017
|
|
ISOLATION,
PROPOGATION, AND DIRECTED DIFFERENTIATION OF STEM CELLS FROM
CENTRAL
NERVOUS SYSTEM OF MAMMALS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
915968
|
|
ES
|
|
5/7/1997
|
|
7/25/2007
|
|
5/7/2017
|
|
ISOLATION,
PROPAGATION AND DIRECTED DIFFERENTIATION OF STEM CELLS FROM EMBRYONIC
AND
ADULT CENTRAL NERVOUS SYSTEM OF MAMMALS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
915968
|
|
FR
|
|
5/7/1997
|
|
7/25/2007
|
|
5/7/2017
|
|
ISOLATION,
PROPAGATION AND DIRECTED DIFFERENTIATION OF STEM CELLS FROM EMBRYONIC
AND
ADULT CENTRAL NERVOUS SYSTEM OF MAMMALS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
915968
|
|
GB
|
|
5/7/1997
|
|
7/25/2007
|
|
5/7/2017
|
|
ISOLATION,
PROPAGATION AND DIRECTED DIFFERENTIATION OF STEM CELLS FROM EMBRYONIC
AND
ADULT CENTRAL NERVOUS SYSTEM OF MAMMALS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
915968
|
|
IE
|
|
5/7/1997
|
|
7/25/2007
|
|
5/7/2017
|
|
ISOLATION,
PROPAGATION AND DIRECTED DIFFERENTIATION OF STEM CELLS FROM EMBRYONIC
AND
ADULT CENTRAL NERVOUS SYSTEM OF MAMMALS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
915968
|
|
SE
|
|
5/7/1997
|
|
7/25/2007
|
|
5/7/2017
|
|
ISOLATION,
PROPAGATION AND DIRECTED DIFFERENTIATION OF STEM CELLS FROM EMBRYONIC
AND
ADULT CENTRAL NERVOUS SYSTEM OF
MAMMALS
|
Our
policy is to require our employees, consultants and significant scientific
collaborators and sponsored researchers to execute confidentiality agreements
upon the commencement of an employment or consulting relationship with us.
These
agreements generally provide that all confidential information developed
or made
known to the individual by us during the course of the individual's relationship
with us is to be kept confidential and not disclosed to third parties except
in
specific circumstances. In the case of employees and consultants, the agreements
generally provide that all inventions conceived by the individual in the
course
of rendering services to us shall be our exclusive property.
The
patent positions of pharmaceutical and biotechnology companies, including
ours,
are uncertain and involve complex and evolving legal and factual questions.
The
coverage sought in a patent application can be denied or significantly reduced
before or after the patent is issued. Consequently, we do not know whether
any
of our pending applications will result in the issuance of patents, or if
any
existing or future patents will provide significant protection or commercial
advantage or will be circumvented by others. Since patent applications are
secret until the applications are published (usually eighteen months after
the
earliest effective filing date), and since publication of discoveries in
the
scientific or patent literature often lags behind actual discoveries, we
cannot
be certain that we were the first to make the inventions covered by each
of our
pending patent applications or that we were the first to file patent
applications for such inventions. There can be no assurance that patents
will
issue from our pending or future patent applications or, if issued, that
such
patents will be of commercial benefit to us, afford us adequate protection
from
competing products, or not be challenged or declared invalid.
In
the
event that a third party has also filed a patent application relating to
inventions claimed in our patent applications, we may have to participate
in
interference proceedings declared by the United States Patent and Trademark
Office to determine priority of invention, which could result in substantial
uncertainties and cost for us, even if the eventual outcome is favorable
to us.
There can be no assurance that our patents, if issued, would be held valid
by a
court of competent jurisdiction.
A
number
of pharmaceutical, biotechnology and other companies, universities and research
institutions have filed patent applications or have been issued patents relating
to cell therapy, stem cells and other technologies potentially relevant to
or
required by our expected products. We cannot predict which, if any, of such
applications will issue as patents or the claims that might be
allowed.
If
third
party patents or patent applications contain claims infringed by our technology
and such claims are ultimately determined to be valid, there can be no assurance
that we would be able to obtain licenses to these patents at a reasonable
cost,
if at all, or be able to develop or obtain alternative non-infringing
technology. If we are unable to obtain such licenses or develop or obtain
alternative non-infringing technology at a reasonable cost, we may not be
able
to develop certain products commercially. There can be no assurance that
we will
not be obliged to defend ourselves in court against allegations of infringement
of third party patents. Patent litigation is very expensive and could consume
substantial resources and create significant uncertainties. An adverse outcome
in such a suit could subject us to significant liabilities to third parties,
require us to seek licenses from third parties, or require us to cease using
such technology.
Competition
The
biotechnology industries are characterized by rapidly evolving technology
and
intense competition. Our competitors include major multinational pharmaceutical
companies, specialty biotechnology companies and chemical and medical products
companies operating in the fields of regenerative medicine, cell therapy,
tissue
engineering and tissue regeneration. Many of these companies are
well-established and possess technical, research and development, financial
and
sales and marketing resources significantly greater than ours. In addition,
certain smaller biotech companies have formed strategic collaborations,
partnerships and other types of joint ventures with larger, well established
industry competitors that afford these companies potential research and
development and commercialization advantages. Academic institutions,
governmental agencies and other public and private research organizations
are
also conducting and financing research activities which may produce products
directly competitive to those we are developing. Moreover, many of these
competitors may be able to obtain patent protection, obtain FDA and other
regulatory approvals and begin commercial sales of their products before
we
do.
In
the
general area of cell-based therapies, we compete with a variety of companies,
most of whom are specialty biotechnology companies. Some of these, such as
Geron
Corporation, Genzyme Corporation, StemCells, Inc., Aastrom
Biosciences, Inc. and Viacell, Inc., are well-established and have
substantial technical and financial resources compared to us. However, as
cell-based products are only just emerging as medical therapies, many of
our
direct competitors are smaller biotechnology and specialty medical products
companies. These smaller companies may become significant competitors through
rapid evolution of new technologies. Any of these companies could substantially
strengthen their competitive position through strategic alliances or
collaborative arrangements with large pharmaceutical or biotechnology
companies.
The
diseases and medical conditions we are targeting have no effective long-term
therapies. Nevertheless, we expect that our technologies and products will
compete with a variety of therapeutic products and procedures offered by
major
pharmaceutical companies. Many pharmaceutical and biotechnology companies
are
investigating new drugs and therapeutic approaches for the same purposes,
which
may achieve new efficacy profiles, extend the therapeutic window for such
products, alter the prognosis of these diseases, or prevent their onset.
We
believe that our products, when and if successfully developed, will compete
with
these products principally on the basis of improved and extended efficacy
and
safety and their overall economic benefit to the health care system.
Competition
for any stem cell products that we may develop may be in the form of existing
and new drugs, other forms of cell transplantation, surgical procedures,
and
gene therapy. We believe that some of our competitors are also trying to
develop
similar stem cell-based technologies. We expect that all of these products
will
compete with our potential stem cell products based on efficacy, safety,
cost
and intellectual property positions. We may also face competition from companies
that have filed patent applications relating to the use of genetically modified
cells to treat disease, disorder or injury. In the event our therapies should
require the use of such genetically modified cells, we may be required to
seek
licenses from these competitors in order to commercialize certain of our
proposed products, and such licenses may not be granted.
Government
Regulation
Regulation
by governmental authorities in the United States and other countries is a
significant factor in our research and development and will be a significant
factor in the manufacture and marketing of our proposed products. The nature
and
extent to which such regulation applies to us will vary depending on the
nature
of any products we may develop. We anticipate that many, if not all, of our
products will require regulatory approval by governmental agencies prior
to
commercialization. In particular, human therapeutic products are subject
to
rigorous preclinical and clinical testing and other approval procedures of
the
U.S. Food and Drug Administration, referred to as the FDA, and similar
regulatory authorities in European and other countries. Various governmental
statutes and regulations also govern or influence testing, manufacturing,
safety, labeling, storage and recordkeeping related to such products and
their
marketing. The process of obtaining these approvals and the subsequent
compliance with appropriate statutes and regulations require the expenditure
of
substantial time and money, and there can be no guarantee that approvals
will be
granted.
FDA
Approval
The
FDA requirements for our potential products to be marketed in the United
States
include the following five steps:
Preclinical
laboratory and animal tests must be conducted. Preclinical tests include
laboratory evaluation of the cells and the formulation intended for use in
humans for quality and consistency. In vivo studies are performed in normal
animals and specific disease models to assess the potential safety and efficacy
of the cell therapy product.
An
investigational new drug application, or IND, must be submitted to the FDA,
and
the IND must become effective before human clinical trials in the United
States
may commence. The IND is submitted to the FDA with the preclinical data,
a
proposed development plan and a proposed protocol for a study in humans. The IND
becomes effective 30 days following receipt by the FDA, provided there are
no questions, requests for delay or objections from the FDA. If the FDA has
questions or concerns, it notifies the sponsor, and the IND will then be
on
clinical hold until a satisfactory response is made by the sponsor.
Adequate
and well-controlled human clinical trials must be conducted to establish
the
safety and efficacy of the product. Clinical trials involve the evaluation
of a
potential product under the supervision of a qualified physician, in accordance
with a protocol that details the objectives of the study, the parameters
to be
used to monitor safety and the efficacy criteria to be evaluated. Each protocol
is submitted to the FDA as part of the IND. The protocol for each clinical
study
must be approved by an independent institutional review board, or IRB, of
the
institution at which the study is conducted, and the informed consent of
all
participants must be obtained. The IRB reviews the existing information on
the
product, considers ethical factors, the safety of human subjects, the potential
benefits of the therapy and the possible liability of the institution. The
IRB
is responsible for ongoing safety assessment of the subjects during the clinical
investigation. Clinical development is traditionally conducted in three
sequential phases.
|
·
|
Phase
1 studies for a cell therapy product are designed to evaluate safety
in a
small number of subjects in a selected patient population by assessing
adverse effects, and may include multiple dose levels. This study
may also
gather preliminary evidence of a beneficial effect on the
disease.
|
|
·
|
Phase
2 may involve studies in a limited patient population to determine
biological and clinical effects of the product and to identify
possible
adverse effects and safety risks of the product in the selected
patient
population.
|
|
·
|
Phase
3 trials would be undertaken to conclusively demonstrate clinical
benefit
or effect and to test further for safety within a broader patient
population, generally at multiple study sites. The FDA continually
reviews
the clinical trial plans and results and may suggest changes or
may
require discontinuance of the trials at any time if significant
safety
issues arise.
|
Marketing
authorization applications must be submitted to the FDA. The results of the
preclinical studies and clinical studies are submitted to the FDA in the
form of
marketing approval authorization applications.
The
FDA
must approve the applications prior to any commercial sale or practice of
the
technology or product. Biologic product manufacturing establishments located
in
certain states also may be subject to separate regulatory and licensing
requirements. The testing and approval process will require substantial time,
effort and expense. The time for approval is affected by a number of factors,
including relative risks and benefits demonstrated in clinical trials, the
availability of alternative treatments and the severity of the disease, and
animal studies or clinical trials that may be requested during the FDA review
period.
Our
research and development is based largely on the use of human stem and
progenitor cells. The FDA has initiated a risk-based approach to regulating
human cell, tissue and cellular and tissue-based products and has published
current Good Tissue Practice regulations. As part of this approach, the FDA
has
published final rules for registration of establishments that engage in the
recovery, screening, testing, processing, storage or distribution of human
cells, tissues, and cellular and tissue-based products, and for the listing
of
such products. While the Company believes that it is in compliance with all
such
practices and regulations; we are not required to register until we apply
for
licensure from the FDA for our product, subject to successful completion
of
human trials. In addition, the FDA has published rules for making
suitability and eligibility determinations for donors of cells and tissue
and
for current good tissue practice for manufacturers using them, which have
recently taken effect. We cannot now determine the full effects of this
regulatory initiative, including precisely how it may affect the clarity
of
regulatory obligations and the extent of regulatory burdens associated with
our
stem cell research and the manufacture and marketing of stem cell
products.
European
and Other Regulatory Approval
Approval
of a product by regulatory authorities comparable to the FDA in Europe and
other
countries will likely be necessary prior to commencement of marketing a product
in any of these countries. The regulatory authorities in each country may
impose
their own requirements and may refuse to grant approval, or may require
additional data before granting approval, even though the relevant product
has
been approved by the FDA or another authority. The regulatory authorities
in the
European Union, or EU, and other developed countries have lengthy approval
processes for pharmaceutical products. The process for gaining approval in
particular countries varies, but is generally similar to the FDA approval
process. In Europe, the European Committee for Proprietary Medicinal Products
provides a mechanism for EU-member states to exchange information on all
aspects
of product licensing. The EU has established a European agency for the
evaluation of medical products, with both a centralized community procedure
and
a decentralized procedure, the latter being based on the principle of licensing
within one member country followed by mutual recognition by the other member
countries.
Other
Regulations
In
addition to safety regulations enforced by the FDA, we are also subject to
regulations under the Occupational Safety and Health Act, the Environmental
Protection Act, the Toxic Substances Control Act and other present and potential
future and federal, state, local, and foreign regulations.
Outside
the United States, we will be subject to regulations that govern the import
of
drug products from the United States or other manufacturing sites and foreign
regulatory requirements governing human clinical trials and marketing approval
for our products. The requirements governing the conduct of clinical trials,
product licensing, pricing and reimbursements vary widely from country to
country.
The
United States Congress, several states and foreign countries have considered
legislation banning or restricting human application of stem cell-based and
nuclear transfer based technologies. No assurance can be given regarding
future
restrictions or prohibitions that might affect our technology and business.
In
addition, we cannot assure you that future judicial rulings with respect
to
nuclear transfer technology or human stem cells will not have the effect
of
delaying, limiting or preventing the use of nuclear transfer technology or
stem
cell-based technology or delaying, limiting or preventing the sale, manufacture
or use of products or services derived from nuclear transfer technology or
stem
cell-derived material. Any such legislative or judicial development would
harm
our ability to generate revenues and operate profitably.
For
additional information about governmental regulations that will affect our
planned and intended business operations, see "RISK FACTORS" beginning on
page 2.
Employees
As
of
December 31, 2007, we had 7 full-time employees.. Of these employees three
work
on Research and development and four in administration. We also use the services
of numerous outside consultants in business and scientific matters. We believe
that we have good relations with our employees and consultants.
PROPERTIES
We
currently lease two facilities.
Our
executive offices and primary research facilities are located at 9700 Great
Seneca Highway, Rockville MD, 20850. We lease these facilities consisting
of
approximately 2,500 square feet for $7,940 per month. The term of our lease
expires on January 31, 2009.
We
have
recently entered into a lease to secure approximately 900 square feet of
research space in San Diego California at a monthly lease rate of $3,346.
The
lease terminates in August of 2009.
The
aforesaid properties are in good condition and we believe they will be suitable
for our purposes for the next 12 months. There is no affiliation between
us or
any of our principals or agents and our landlords or any of their principals
or
agents.
LEGAL
PROCEEDINGS
As
of the
date of this annual report, there are no material pending legal or
governmental proceedings relating to our company or properties to which we
are a
party, and to our knowledge there are no material proceedings to which any
of
our directors, executive officers or affiliates are a party adverse to us
or
which have a material interest adverse to us, other than the
following:
On
July
28, 2006, StemCells, Inc. and StemCells California, Inc. (collectively
“Stemcells”) of Palo Alto, California, filed suit against Neuralstem, Inc. in
U.S. District Court in Maryland, alleging that Neuralstem has been infringing,
contributing to the infringement of, and or inducing the infringement of
four
patents owned by or exclusively licensed to StemCells relating to stem cell
culture compositions, genetically modified stem cell cultures, and methods
of
using such cultures.
In
October 2006, Neuralstem filed a motion to dismiss, or in the alternative
for
summary judgment, arguing that its preclinical research activities are covered
under the “safe harbor” provision of 35 U.S.C. § 271(e)(1) (the ‘“safe harbor”
defense’). The parties agreed to stay substantive discovery in the case pending
resolution of Neuralstem’s motion to dismiss based on the “safe harbor” defense.
While limited discovery was on-going on the “safe harbor” defense, in response
to submissions from Neuralstem, the Patent Office ordered reexamination of
all
four of the patents-in-suit owned by StemCells. The Patent Office found that
there were “substantial new questions of patentability” with each claim of those
patents.
In
view
of the reexamination proceedings, both parties agreed that a stay of the
entire
lawsuit was warranted. On June 25, 2007, Judge Alexander Williams, Jr. entered
an order staying the entire litigation pending the outcome of the reexamination
proceedings. It is not known when nor on what basis this matter will be
concluded.
On
September 19, 2007 the Company received notice that the United States Patent
and
Trademark Office (USPTO) has issued its first ruling in the reexamination
of the
four StemCells, Inc. patents requested by Neuralstem. The Patent Office issued
an official rejection of each of the claims in all four of the patents that
Stem
Cell, Inc. attempted to assert against Neuralstem in its law suit. The Patent
Office is rejecting the Stem Cell, Inc. patents based on additional prior
art
references that were not the focus of the Company’s reexamination
request
‘SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
We
did
not submit any matters to a shareholder vote in the last quarter of 2007.
MARKET
FOR REGISTRANT'S COMMON EQUITY
AND
RELATED
SHAREHOLDER MATTERS
Market
Information
Our
common stock is traded in the American Stock Exchange under the symbol
"CUR"
The
following table sets forth the range of high and low prices for our common
stock
as reported by the NASDAQ website for the period that our stock has been
trading. These prices represent reported transactions that do not include
retail
markups, markdowns or commissions, and may not necessarily represent actual
transactions.
|
|
|
Price
|
|
|
Period
|
|
High
|
|
Low
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
Fourth
Quarter
|
|
$
|
3.95
|
|
$
|
2.25
|
|
|
Third
Quarter
(2)
|
|
$
|
3.45
|
|
$
|
2.20
|
|
|
Second
Quarter
|
|
$
|
4.17
|
|
$
|
2.75
|
|
|
First
Quarter
|
|
$
|
3.36
|
|
$
|
2.25
|
|
|
2006:
|
|
|
|
|
|
|
|
|
Fourth
Quarter
(1)
|
|
$
|
3.01
|
|
$
|
1.25
|
|
|
(1)
|
Our
Common Stock was first quoted on December 20, 2006 on the over
the Counter
Bulletin Board.
|
|
|
|
|
(2)
|
On
August 27, 2007, our Common Stock began trading on the American
Stock
Exchange under the ticker symbol
“CUR”
|
As
of
March 18, 2008, the reported closing prices of our common stock was
$2.38.
Holders
As
of
February 6, 2008 our common stock was held by approximately 820 record holders.
Notwithstanding, we believe our actual number of shareholders may be
significantly higher as 13,148,951 shares are currently being held in street
name.
Dividends
We
have
not paid any cash dividends to date, and we have no plans to do so in the
immediate future.
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF
FINANCIAL
CONDITION, RESULTS OF OPERATIONS AND PLAN OF OPERATION
General
The
following discussion of our financial condition and results of operations should
be read in conjunction with our audited annual financial statements and
explanatory notes for the year ended December 31, 2007 as filed with
the SEC, and as it may be amended.
This
annual report contains forward-looking statements that involve risks and
uncertainties. See
"
Risk
Factors
"
set
forth
on page 2
of
this
report for a more complete discussion of these factors. Readers are cautioned
not to place undue reliance on these forward-looking statements, which speak
only as of the date that they are made. We undertake no obligation to publicly
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise.
Overview
Neuralstem
is focused on the development and commercialization of treatments based on
transplanting human neural stem cells.
We
have
developed and maintain a portfolio of patents and patent applications that
form
the proprietary base for our research and development efforts in the area of
neural stem cell research. We own or exclusively license four (4) issued patents
and twelve (12) patent pending applications in the field of regenerative
medicine and related technologies. We believe our technology base, in
combination with our know-how, and collaborative projects with major research
institutions provides a competitive advantage and will facilitate the successful
development and commercialization of products for use in the treatment of a
wide
array of neurodegenerative conditions and in regenerative repair of acute
disease.
This
is a
young and emerging field. There can be no assurances that our intellectual
property portfolio will ultimately produce viable commercialized products and
processes. Even if we are able to produce a commercially viable product, there
are strong competitors in this field and our product may not be able to
successfully compete against them.
All
of
our research efforts to date are at the level of basic research or in the
pre-clinical stage of development. We are focused on leveraging our key assets,
including our intellectual property, our scientific team, our facilities and
our
capital, to accelerate the advancement of our stem cell technologies. In
addition, we are pursuing strategic collaborations with members of academia.
We
are headquartered in Rockville, Maryland.
In
addition to our core tissue based technology we have begun developing a
Small-Molecule compound. The company has performed preliminary
in
vitro
and
in
vivo
tests
on
the compound with regard to neurogenesis. Based on the results of these tests
we
have applied for a U.S. patent on the compound.
Technology
Our
technology is the ability to isolate human neural stem cells from most areas
of
the developing human brain and spinal cord and our technology includes the
ability to grow them into physiologically relevant human neurons of all types.
Our two issued core patents entitled: (i)
Isolation, Propagation, and Directed Differentiation of Stem Cell from Embryonic
and Adult Central Nervous System of Mammals
;
and
(ii)
In
Vitro Generation of Differentiated Neurons from Cultures of Mammalian
Multi-potential CNS Stem Cell
contain
claims which cover the process of deriving the cells and the cells created
from
such process.
What
differentiates our stem cell technology from others is that our patented
processes do not require us to “push” the cells towards a certain fate by adding
specific growth factors. Our cells actually “become” the type of cell they are
fated to be. We believe this process and the resulting cells create a technology
platform that allows for the efficient isolation and ability to produce, in
commercially reasonable quantities, neural stem cells from the human brain
and
spinal cord.
Our
technology allows for cells to grow in cultured dishes, also known as
in
vitro
growth,
without mutations or other adverse events that would compromise their
usefulness.
Research
We
have
devoted substantial resources to our research programs in order to isolate
and
develop a series of neural stem cell banks that we believe can serve as a basis
for therapeutic products. Our efforts to date have been directed at methods
to
identify, isolate and culture large varieties of stem cells of the human nervous
system, and to develop therapies utilizing these stem cells. This research
is
conducted both internally and through the use of third party laboratory
consulting companies under our direct supervision.
Trends
& Outlook
Revenue:
Our
revenue is currently derived primarily from grant reimbursements and licensing
fees. As our focus is now on pre-clinical work in anticipation of entering
clinical trials in 2008, we are not concentrated on increasing revenue.
Long-term,
we anticipate that grant revenue as a percentage of overall revenue will
decrease and our revenue will be derived primarily from licensing fees and
the
sale of our cell therapy products. At present, we are in our pre-clinical stage
of development and as a result, we can not accurately predict when or if we
will
be able to produce a product for commercialization. Accordingly, we cannot
accurately estimate when such a change in revenue composition will occur or
if
it will ever occur.
Research
& Development Expense:
Our
research and development expenses consist primarily of costs associated with
basic and pre-clinical research, exclusively in the field of human neural stem
cell therapies and regenerative medicine, related to our clinical cell therapy
candidates. These expenses represent both pre-clinical development costs and
costs associated with non-clinical support activities such as quality control
and regulatory processes. The cost of our research and development personnel
is
the most significant category of expense. However, we also incur expenses with
third parties, including license agreements, third-party contract services,
sponsored research programs and consulting expenses.
We
do not
segregate research and development costs by project because our research is
focused exclusively on human stem cell therapies as a unitary field of study.
Although we have different areas of focus for our research, these areas are
completely intertwined and have not yet matured to the point where they are
separate and distinct projects. The intellectual property, scientists and other
resources dedicated to these efforts are not separately allocated to individual
projects, but rather are conducting our research on an integrated
basis.
We
expect
that research and development expenses will continue to increase in the
foreseeable future as we add personnel, expand our pre-clinical research (animal
surgeries, manufacturing of cells, and in vitro characterization of cells which
includes testing and cell quality control), begin clinical trial activities,
increase our regulatory compliance capabilities, and ultimately begin
manufacturing.
In
2006
we retained Quintiles, Inc. to assist with regulatory compliance, preparation
of
our first IND application, and patient enrollment for our first human trial.
While recruitment for the trial cannot commence until we have received an FDA
approved protocol, much of the infrastructure required must be developed and
in
place well in advance. For instance, we can begin to identify, contact, and
educate prospective patients as well as the treatment community prior to
commencing these trials.
Additionally,
we anticipate hiring 2 additional senior technical personnel to assist with
various grant and collaborative work. With regard to material and personnel
costs, as the industry continues to mature and grow, we have seen increased
demand for qualified personnel and suitable materials. Notwithstanding, we
feel
that our outsource model will provide us with some protection regarding
fluctuating pricing.
Although
we feel the above increase in personnel will be sufficient for our short term
needs, the amount of monetary increases stemming from increased personnel and
expenses as we move from pre-clinical to clinical state is difficult to predict
due to the uncertainty inherent in the timing and extent of progress in our
research programs, and initiation of clinical trials. In addition, the results
from our basic research and pre-clinical trials, as well as the results of
trials of similar therapeutics underdevelopment by others, will influence the
number, size and duration of planned and unplanned trials. As our research
efforts mature, we will continue to review the direction of our research based
on an assessment of the value of possible commercial applications emerging
from
these efforts. Based on this continuing review, we expect to establish discrete
research programs and evaluate the cost and potential for cash inflows from
commercializing products, partnering with others in the biotechnology industry,
or licensing the technologies associated with these programs to third
parties.
We
believe that it is not possible at this stage to provide a meaningful estimate
of the total cost to complete our ongoing projects and bring any proposed
products to market. The use of human stem cells as a therapy is an emerging
area
of medicine, and it is not known what clinical trials will be required by the
FDA in order to gain marketing approval. The costs to complete such clinical
trials could vary substantially depending upon the projects selected for
development, the number of clinical trials required and the number of patients
needed for each study. At a minimum, we estimate that a trial for an individual
indication such as Ischemic Spastic Paraplegia will require at least 10 to
12
patients at an estimated cost of $100,000 to $150,000 per patient. It is
possible that the completion of these studies could be delayed for a variety
of
reasons, including difficulties in enrolling patients, delays in manufacturing,
incomplete or inconsistent data from the pre-clinical or clinical trials, and
difficulties evaluating the trial results. Any delay in completion of a trial
would increase the cost of that trial, which would harm our operating results.
Due to these uncertainties, we cannot reasonably estimate the size, nature,
nor
timing of the costs to complete, or the amount or timing of the net cash inflows
from our current activities. Until we obtain further relevant pre-clinical
and
clinical data, we will not be able to estimate our future expenses related
to
these programs or when, if ever, and to what extent, we will receive cash
inflows from resulting products.
General
and Administrative Expenses:
Our
general and administrative expenses consist of the general costs, expenses
and
salaries for the operation and maintenance of our business. We anticipate that
general and administrative expenses will increase as we progress from
pre-clinical to a clinical phase.
On
August
27, 2007, our common stock became listed on the American Stock Exchange (“AMEX”)
under the ticker symbol “CUR”. As a result of the listing, and the additional
costs associated with Sarbanes Oxley compliance, we anticipate an increase
in
our historical general and administrative expenses relating to professional
services (legal, accounting, audit) as well as internal costs associated with
such compliance.
We
anticipate that General and Administrative Expense related to our core business
will increase at a slower rate than that of similar companies making such
transition do in large part to our outsourcing model.
Critical Accounting
Policies
Our
financial statements have been prepared in accordance with accounting principles
generally accepted in the United States of America. The preparation of these
financial statements requires management to make estimates and assumptions
that
affect the reported amounts of assets, liabilities, revenues and expenses.
Note 1
of
the
Notes to Financial Statements describes the significant accounting policies
used in the preparation of the financial statements. Certain of these
significant accounting policies are considered to be critical accounting
policies, as defined below.
A
critical accounting policy is defined as one that is both material to the
presentation of our financial statements and requires management to make
difficult, subjective or complex judgments that could have a material effect
on
our financial condition and results of operations. Specifically, critical
accounting estimates have the following attributes: (1) we are required to
make assumptions about matters that are highly uncertain at the time of the
estimate; and (2) different estimates we could reasonably have used, or
changes in the estimate that are reasonably likely to occur, would have a
material effect on our financial condition or results of
operations.
Estimates
and assumptions about future events and their effects cannot be determined
with
certainty. We base our estimates on historical experience and on various other
assumptions believed to be applicable and reasonable under the circumstances.
These estimates may change as new events occur, as additional information is
obtained and as our operating environment changes. These changes have
historically been minor and have been included in the financial statements
as
soon as they became known. Based on a critical assessment of our accounting
policies and the underlying judgments and uncertainties affecting the
application of those policies, management believes that our financial statements
are fairly stated in accordance with accounting principles generally accepted
in
the United States, and present a meaningful presentation of our financial
condition and results of operations. We believe the following critical
accounting policies reflect our more significant estimates and assumptions
used
in the preparation of our financial statements:
Use
of Estimates
—These
financial statements have been prepared in accordance with accounting principles
generally accepted in the United States and, accordingly, require management
to
make estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts
of
revenues and expenses during the reporting period. Specifically, our management
has estimated the expected economic life and value of our licensed technology,
our net operating loss for tax purposes and our stock option and warrant
expenses related to compensation to employees and directors, consultants and
investment banks. Actual results could differ from those estimates.
Cash
and Cash Equivalents
—Cash
and
cash equivalents are comprised of certain highly liquid investments with
maturity of three months or less when purchased. We maintain our cash in bank
deposit accounts, which at times, may exceed federally insured limits. We have
not experienced any losses in such account.
Revenue
Recognition
—Our
revenues, to date, has been derived primarily from providing treated samples
for
gene expression data from stem cell experiments and from providing services
as a
subcontractor under federal grant programs. Revenue is recognized when there
is
persuasive evidence that an arrangement exists, delivery of goods and services
has occurred, the price is fixed and determinable, and collection is reasonably
assured.
Intangible
and Long-Lived Assets
—We
follow SFAS No. 144, "Accounting for Impairment of Disposal of Long-Lived
Assets," which established a "primary asset" approach to determine the cash
flow
estimation period for a group of assets and liabilities that represents the
unit
of accounting for a long lived asset to be held and used. Long-lived assets
to
be held and used are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The carrying amount of a long-lived asset is not recoverable if
it
exceeds the sum of the undiscounted cash flows expected to result from the
use
and eventual disposition of the asset. Long-lived assets to be disposed of
are
reported at the lower of carrying amount or fair value less cost to sell. During
the period ended December 31, 2007 no impairment losses were
recognized.
Research
and Development Costs
—Research
and development costs consist of expenditures for the research and development
of patents and technology, which are not capitalizable and charged to operations
when incurred. Our research and development costs consist mainly of payroll
and
payroll related expenses, research supplies and costs incurred in connection
with specific research grants.
Stock
Based Compensation
—
The
Company accounts for equity instruments issued to non-employees in accordance
with EITF 96-18,
“Accounting
for Equity Instruments that are Issued to Other Than Employees for Acquiring,
or
in Conjunction with Selling Goods or Services.”
Accordingly, the estimated fair value of the equity instrument is recorded
on
the earlier of the performance commitment date or the date the services required
are completed.
Beginning
in 2006, we adopted SFAS No. 123R “Share Based Payment” which superseded APB
Opinion No. 25. SFAS No. 123R requires compensation costs related to share-based
payment transactions to be recognized in the financial statements.
We recognized $1,575,120 and $359,926 in Stock-based compensation expense
for the years ended December 31, 2007 and 2006, respectively.
RESULTS
OF OPERATIONS
Summary
Income Statement for the Years ending December 31, 2007 and
2006
|
|
|
Year
Ending December 31,
|
|
|
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
306,057
|
|
$
|
265,759
|
|
|
Operating
Expenses
|
|
|
6,673,629
|
|
|
3,427,369
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Loss
|
|
|
(6,367,572
|
)
|
|
(3,161,610
|
)
|
|
|
|
|
|
|
|
|
|
|
Non
operating income
|
|
|
193,451
|
|
|
14,123
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(6,174,121
|
)
|
$
|
(3,147,487
|
)
|
Result
of Operations for the Twelve Months ending December 31, 2007 and
2006
Revenues
for the twelve months ended December 31, 2007 was $
306,057
compared
to $
265,759
for
the
twelve months ended and December 31, 2006. These amounts relate primarily
to grants, tissue sales and license fees. Revenue increased because there were
no licensing or tissue revenues in 2006.
Research
and development expenses for the twelve months ended December 31, 2007 were
$3,440,129 compared to $
1,660,321
for
the
twelve months ended December 31, 2006. The increase in expenses in the most
recent twelve month period, consists mainly of payroll and payroll related
expenses, research supplies and costs incurred to prepare the FDA application
to
begin human trials.
General,
selling and administrative expenses for the twelve months ended
December 31, 2007 were $3,201,443 compared to $
1,715,125
for
the
twelve months ended December 31, 2006. The principal increase in expenses in
2007 versus 2006 is a result of the costs of patent litigation, its new listing
on the American Stock Exchange, consequent costs to improve financial
infrastructure, and comply with Sarbanes- Oxley regulations..
Other
income for the twelve months ended December 31, 2007 was $193,451 compared
to $56,320 for the twelve months ended December 31, 2006. Increased interest
incomes on higher cash balances were responsible for the increase in
2007.
Net
loss
for the twelve months ended December 31, 2007 was $ (6,174,121) compared to
$
(3,147,487)
for
the
twelve months ended December 31, 2006. The increased loss in the current periods
is the result of the foregoing factors discussed.
Significant
New Accounting Pronouncements
In
September 2006, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards (“SFAS”) 157,
“Fair
Value Measurements.”
SFAS 157
defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles, and expands disclosures about fair
value measurements. SFAS 157 is effective for financial statements issued
for
fiscal years beginning after November 15, 2007 and interim periods within
those
years. We do not expect the implementation of SFAS 157 to have a material
impact
on our financial statements.
In
June
2006, the FASB issued FASB Interpretation No. 48,
“Accounting
for Uncertainty in Income Taxes”
(“FIN
48”). FIN 48 clarifies when tax benefits should be recorded in financial
statements, requires certain disclosure of uncertain tax matters and indicates
how any tax reserves should be classified in a balance sheet. On January
1,
2007, the Company adopted FIN 48. We have determined that adoption of FIN
48 did
not have any impact on our financial condition or results of operations.
It is
our policy to recognize interest and penalties related to unrecognized tax
liabilities within income tax expense in the statements of
operations.
In
February 2007, the FASB issued SFAS 159,
“The
Fair Value Option for Financial Assets and Liabilities.”
SFAS 159
permits entities to measure many financial instruments and certain other
items
at fair value. The objective is to improve financial reporting by providing
entities with the opportunity to mitigate volatility in reported earnings
caused
by measuring related assets and liabilities differently without having to
apply
complex hedge accounting provisions. This pronouncement is effective as of
the
beginning of an entity’s first fiscal year beginning after November 15, 2007. We
do not expect the implementation of SFAS 159 to have a material impact on
our
financial position or results of operations.
In
June
2007, the FASB ratified a consensus opinion reached by the Emerging Issue
Task
Force (“EITF”) on EITF Issue 07-3,
“Accounting
for Nonrefundable Advance Payments for Goods or Services Received for Use
in
Future Research and Development Activities.”
The
guidance in EITF Issue 07-3 requires use to defer and capitalize nonrefundable
advance payments made for goods or services to be use in research and
developments activities until the goods have been delivered or the related
services have been performed. If the goods are no longer expected to be
delivered nor the services expected to be performed, we would be required
to
expense the related capitalized advance payments. The consensus in EITF Issue
07-3 is effective for fiscal years, and interim periods within those fiscal
years, beginning after December 15, 2007 and is to be applied prospectively
to
new contracts entered into on or after December 15, 2007. Early adoption
is not
permitted. Retrospective application of EITF Issue 07-3 is also not permitted.
We intend to adopt EITF Issue 07-3 effective January 1, 2008. The impact
of
applying this consensus will depend on the terms of the our future research
and
development contractual arrangements entered into on or after December 15,
2007.
In
December 2007, the FASB ratified a consensus reached by the EITF on Issue
07-1,
“Accounting
for Collaborative Arrangements.”
The EITF
concluded on the definition of a collaborative arrangement and that revenues
and
costs incurred with third parties in connection with collaborative arrangements
would be presented gross or net based on the criteria in EITF 99-19 and
other
accounting literature. Based on the nature of the arrangement, payments
to or
from collaborators would be evaluated and its terms, the nature of the
entity’s
business, and whether those payments are within the scope of other accounting
literature would be presented. Companies are also required to disclose
the
nature and purpose of collaborative arrangements along with the accounting
policies and the classification and amounts of significant financial-statement
amounts related to the arrangements. Activities in the arrangement conducted
in
a separate legal entity should be accounted for under other accounting
literature; however required disclosure under EITF 07-1 applies to the
entire
collaborative agreement. EITF 07-1 is effective for us January 1, 2008
and is to
be applied retrospectively to all periods presented for all collaborative
arrangements existing as of the effective date. We do not expect the adoption
of
EITF 07-1 to have a material impact on our financial statements.
In
December 2007, the FASB issued SFAS 141, Revised 2007 (SFAS 141R),
“Business
Combinations.”
SFAS
141R’s objective is to improve the relevance, representational faithfulness,
and
comparability of the information that a reporting entity provides in its
financial reports about a business combination and its effects. SFAS 141R
applies prospectively to business combinations for which the acquisition
date is
on or after December 15, 2008. We do not expect the implementation of SFAS
141R
to have a material impact on our financial statements.
In
December 2007, the FASB issued SFAS 160,
“Noncontrolling
Interests in Consolidated Financial Statements.”
SFAS
160’s objective is to improve the relevance, comparability, and transparency
of
the financial information that a reporting entity provides in its consolidated
financial statements by establishing accounting and reporting standards
for the
noncontrolling interest in a subsidiary and for the deconsolidation of
a
subsidiary. SFAS 160 shall be effective for fiscal years and interim periods
within those fiscal years, beginning on or after December 15, 2008. We
do not
expect the implementation of SFAS 160 to have a material impact on our
financial
statements.
We
are
financing our operations primarily with the proceeds from the private placement
of our securities and the exercise of investor warrants. During the twelve
months ended December 31, 2007, we raised $5,614,600, through the private
placement offering as described in Note 2 to our Financial Statements. In
addition, we raised an additional $4,567,008 as a result of warrant exercises
from our current investors. To a substantially lesser degree, financing of
our
operations is provided through grant funding, payments received under license
agreements, sales of our cells (tissue), and interest earned on cash and cash
equivalents. Payments received by way of our grants, cell sales and licensing
agreements were $306,057, for the twelve months ended December 31, 2007.
Interest earned on cash and cash equivalents equaled $193,451.
We
have
incurred substantial net losses each year since inception as a result of
research and development and general and administrative expenses in support
of
our operations. We anticipate incurring substantial net losses in the future.
Cash,
cash equivalents, and cash held at February 29. 2008 was $8,792,144. Cash,
cash
equivalents, and cash at December 31, 2007 was $
7,043,737
.
The
increase in the current period is the result of the above described factors,
net
of amounts spent for payment of notes and accounts payable, increased legal
and
accounting fees, fees paid to the placement agent, and increases in other
research and development and general and administrative expenses.
Our
cash
and cash equivalents are limited. We expect to require substantial additional
funding. Our future cash requirements will depend on many factors, including
the
pace and scope of our research and development programs, the costs involved
in
filing, prosecuting, maintaining and enforcing patents and other costs
associated with commercializing our potential products. We intend to seek
additional funding primarily through public or private financing transactions,
and, to a lesser degree, new licensing or scientific collaborations, grants
from
governmental or other institutions, and other related transactions. If we are
unable to raise additional funds, we will be forced to either scale back our
business efforts or curtail our business activities entirely. Our currently
monthly cash burn rate is $400,000. We anticipate that our available cash and
expected income will be sufficient to finance most of our current activities
for
at least the next 14 months from December 31, 2007, although certain of these
activities and related personnel may need to be reduced.
Additionally,
in the event we are able to file a successful Investigative New Drug Application
(“IND”) with the FDA, we anticipate we will enter clinical trials in the second
Quarter of 2008. In the event of such trials, we would incur additional expenses
associated with such trials which are estimated to exceed $1,000,000. Assuming
our current monthly cash burn rate of $400,000, the increased expense from
regulatory compliance and personnel required for the pre-trial and clinical
trial work, as well as the estimated cost of the trial, our cash on hand is
sufficient to finance our current operations, pre-clinical and clinical work
for
at least 12 months from December 31, 2007. We cannot assure you that public
or private financing or grants will be available on acceptable terms, if at
all.
Several factors will affect our ability to raise additional funding, including,
but not limited to, the volatility of our common shares.
MANAGEMENT
The
following table sets forth the name, age and position of each of our directors,
executive officers and significant employees as of March 1, 2008. Except as
noted below each director will hold office until the next annual meeting of
our
stockholders or until his or her successor has been elected and qualified.
Our
executive officers are appointed by, and serve at the discretion of, the Board
of Directors.
|
Name
|
|
Age
|
|
Position
|
|
|
|
|
|
|
|
I.
Richard Garr
|
|
55
|
|
Chief
Executive Officer, President, General Counsel and
Director
|
|
|
|
|
|
|
|
Karl
Johe, Ph.D.
|
|
47
|
|
Chief
Scientific Officer, Chairman of the Board, and
Director
|
|
Scott
V. Ogilvie
|
|
53
|
|
Director
|
|
|
|
|
|
|
|
William
Oldaker
|
|
66
|
|
Director
|
|
|
|
|
|
|
|
John
Conron
|
|
57
|
|
Chief
Financial Officer
|
Mr.
I. Richard Garr, JD
has been
our Chief Executive Office, President, Board Director & Co-Founder since
1996. Mr. Garr was previously an attorney with Beli, Weil & Jacobs, the
B&G Companies, and Circle Management Companies. Mr. Garr is a graduate of
Drew University (1976) and the Columbus School of Law, The Catholic University
of America (1979). Additionally, he was a founder and current Board member
of
the First Star Foundation, a children's charity focused on abused children's
issues; a founder of The Starlight Foundation Mid Atlantic chapter, which
focuses on helping seriously ill children; and is a past Honorary Chairman
of
the Brain Tumor Society.
Mr.
Karl Johe, Ph.D.
has been
our Chief Scientific Officer, Chairman & Co-Founder since 1996. Dr. Johe has
over 15 years of research and laboratory experience. Dr. Johe is the sole
inventor of Neuralstem's granted stem cell patents and is responsible for
strategic planning and development of the Company's therapeutic products. Dr.
Johe received his Bachelor of Arts Degree in Chemistry from the University
of
Kansas. Dr. Johe also received a Master's Degree from the University of Kansas
and his doctorate was received from the Albert Einstein College of Medicine.
From 1993 to January 1997, Dr. Johe served as a Staff Scientist at the
Laboratory of Molecular Biology of the National Institute of Neurological
Disease and Stroke in Bethesda, Maryland. While holding this position, Dr.
Johe
conducted research on the isolation of neural stem cells, the elucidation of
mechanisms directing cell type specification of central nervous system stem
cells and the establishment of an in vitro model of mammalian
neurogenesis.
Mr.
Scott V. Ogilvie
,
has
served on our board of directors since April 12, 2007. Mr. Ogilvie serves as
CEO
and President of Gulf Enterprises International, Ltd.. Gulf Enterprises
International, Ltd, through its United States and Gulf Cooperative Counsel
(“GCC”) operating partners and strategic shareholders, brings GCC regional as
well as U.S. and international expertise, investment capital and operating
platforms to the Middle East and North Africa markets in areas such as
Infrastructure, Industrial, IT, Energy, Entertainment, Health Care and Real
Estate. Mr. Ogilvie is also Managing Director & COO of CIC Group. Formed in
1995, CIC Group is a privately owned international financial services and
investment holding company.
Mr.
Ogilvie began his career as a corporate and securities lawyer with Hill, Farrer
& Burrill. Mr. Ogilvie has extensive public and private corporate board
experience in finance, real estate, and technology companies. He is a founding
member of the board of directors of the American Kuwaiti Alliance, a U.S. non
profit corporation comprised of prominent Kuwaiti and U.S. companies and
institutions. Mr. Ogilvie received his BSBA-Finance degree from the University
of Denver and holds his JD from the University of California, Hastings College
of Law.
Mr.
William Oldaker,
has
served on our board of directors since April 12, 2007. Mr. Oldaker is a founder
and partner in the Washington, D.C. law firm of Oldaker, Biden & Belair,
LLP. Prior to founding the firm in 1993, Mr. Oldaker was a partner in the
Washington office of the law firm of Manatt, Phelps and Phillips from 1987
to
1993. In 2004, Mr. Oldaker was a founder of WashingtonFirstBank in Washington,
D.C. and serves as a member of the board of directors. He previously served
as a
director of Century National Bank, from 1982 until its acquisition in 2001.
Mr.
Oldaker was appointed by President Clinton to serve as a commissioner on the
National Bioethics Advisory Commission, a post he held until 2001. He is a
member of the Colorado, D.C. and Iowa Bar Associations, the Bar Association
for
the Court of Appeals, D.C., and the Bar of the United States Supreme Court.
He
is also a partner in The National Group, a consulting firm.
Mr.
John Conron
has
served as our Chief Financial Officer effective April 1, 2007. Mr. Conron,
a
Certified Public Accountant, joins the Company after 30 plus years in the field
of corporate finance. Since 2003, Mr. Conron has been consulting early stage
companies by providing critical outsource CFO functions such as implementation
of accounting systems, creation and monitoring of internal controls, Sarbanes
Oxley compliance, audit preparation, financial modeling and strategic planning.
Prior to his work as a consultant, Mr. Conron worked for Cyberstar, Inc., a
wholly owned subsidiary of Loral Space & Communications, Inc., where he held
the position of CFO from 2000 to 2003. Mr. Conron joined Cyberstar from
Transworld Telecommunications, Inc., a Qualcom spin-off which offered
telecommunication services in Russia, where he served as CFO.
Mr.
Conron also served as CFO and on the board of directors of Mercury
Communications in London. Mercury is a European subsidiary of Cable &
Wireless.
EXECUTIVE
COMPENSATION
Summary
Compensation Table
The
following table sets forth information for our last two most recent completed
fiscal year concerning the compensation of (i) the Principal Executive
Officer and (ii) all other executive officers of Neuralstem, Inc. who
earned over $100,000 in salary and bonus during the last two most recently
completed fiscal year ended December 31, 2007 and December 31, 2006 (together
the “Named Executive Officers”).
|
Name
and
principal
position
(a)
|
|
Year
(b)
|
|
Salary
($)
(c)
|
|
Bonus
($)
(d)
|
|
Stock
Awards
($)
(e)
|
|
Option
Award
($)
(f)(2)
|
|
Nonequity
Incentive
Plan
compensation
($)
(g)
|
|
Non-qualified
deferred
compensation
earning
($)
(h)
|
|
All
other
Compensation
($)
(i)(1)
|
|
Total
($)
(j)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
I.
Richard Garr
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chief
Executive
Officer
(Principal
Executive
Officer)
|
|
|
2007
|
|
$
|
357,000
|
|
|
26,750
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
33,384
|
|
|
417,134
|
|
|
|
|
|
2006
|
|
$
|
336,750
|
(3)
|
|
186,146
|
(5)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
31,614
|
|
|
554.510
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dr.
Karl Johe
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chief
Scientific
Officer
|
|
|
2007
|
|
$
|
345,000
|
(6)
|
|
26,750
|
|
|
-
|
|
|
570,478
|
(8)
|
|
-
|
|
|
-
|
|
|
207,384
|
(7)
|
|
636,612
|
|
|
|
|
|
2006
|
|
$
|
425,250
|
(4)
|
|
186,146
|
(5)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
31,614
|
|
|
643,010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John
Conron
Chief
Financial
Officer
|
|
|
2007
|
|
$
|
80,000
|
|
|
10,000
|
|
|
-
|
|
|
315,000
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
405,000
|
|
|
|
|
|
2006
|
|
$
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Merrill
Solomon
|
|
|
2007
|
|
$
|
141,000
|
|
|
11,750
|
|
|
-
|
|
|
|
|
|
-
|
|
|
-
|
|
|
26,655
|
|
|
179,405
|
|
|
|
|
|
2006
|
|
$
|
132,000
|
|
|
-
|
|
|
-
|
|
|
|
|
|
-
|
|
|
-
|
|
|
31,614
|
|
|
163,614
|
|
|
(1)
Includes
automobile allowance, perquisites and other personal
benefits.
|
|
(2)
For
additional information regarding the valuation of Option Awards,
refer to
Note 2 of our financial statements in the section captioned “
Stock
Options.
”
|
|
(3)
Includes $312,750 paid pursuant to employment agreement and $24,000
of
1099 income for partial year service as general counsel.
|
|
(4)
Includes $300,750 paid pursuant to employment agreement and $124,500
of
1099 of income for certain additional work performed in connection
with
our grants.
|
|
(5)
Includes bonus for 2005 and 2006 in the amounts of $60,000 and $126,146
respectively.
|
|
(6)
Includes $321,000 paid pursuant to employment agreement and $24,000
of
1099 income for certain additional work performed in connection with
our
grants.
|
|
(7)
Includes $150,000 paid
in
connection to termination of Hi-Med Licensure Agreement and assignment
of
intellectual property residual rights.
|
|
(8)
Includes 333,333 options awarded on September 20, 2007. This item
does not
include warrants granted in connection with the termination of Hi-Med
Licensure Agreement and assignment of intellectual property residual
rights.
|
AND
CHANGE-IN-CONTROL ARRANGEMENTS
Employment
Agreement with I. Richard Garr
On
November 1, 2005, we entered into an amendment to the employment agreement
with
Richard Garr, our Chief Executive Officer and President. The agreement provides
for annual compensation in the amount of $240,000 and extends his term of
employment until October 31, 2012. Additionally, the agreement provides for
a
$500 monthly automobile allowance and the reimbursement of reasonable business
expenses. The agreement also provides for an industry standard bonus upon the
formation of a compensation committee by the company.
In
January of 2006, we amended the terms of the agreement to include the duties
of
General Counsel for which Mr. Garr is paid an additional $36,000. In April
of
2006, we again amended Mr. Garr's agreement to provide an additional raise
to
his base salary. After taking into account both amendments, Mr. Garr's annual
salary is $357,000. All other terms of the agreement remained the
same.
On
January 16, 2008, our Compensation Committee approved the amendment of Mr.
Garr’s employment agreement with the Company. Effective January 1, 2008, Mr.
Garr’s annual salary was increased to $407,000. In additional, the Compensation
Committee approved a bonus award of up to 85% of Mr. Johe’s base salary for the
year ending on December 31, 2008 in the event certain objectives are achieved.
The
agreement also provides for severance (“Termination Provisions”) in an amount
equal to the greater of: (i) the aggregate compensation remaining on his
contract; or (ii) $1,000,000, in the event Mr. Garr is terminated for any
reason. In the event of termination, the agreement also provides for the
immediate vesting of 100% of stock options granted to Mr. Garr during his term
of employment. These termination provisions apply whether employee is terminated
for “cause” or “without cause.” Additionally, in the event employee voluntarily
terminates his employment following a change in control and material
reassignment of duties, he will also be entitled to the termination provisions
under the contract. In the event of early termination, the Termination
Provisions will require us to make a substantial payment to the employee. By
way
of example, such payments would be approximately as follows:
|
Termination
Date
|
|
Amount
of
Payment
(1)
|
|
|
|
|
|
|
|
October
31, 2008
|
|
$
|
1,628,000
|
|
|
|
|
|
|
|
|
October
31, 2009
|
|
$
|
1,221,000
|
|
|
|
|
|
|
|
|
October
31, 2010 until the end of Contract
|
|
$
|
1,000,000
|
|
|
(1)
|
Assumes
payment of annual salary of $407,000 and a monthly automobile allowance
of
$500.00. Does not include health benefits, bonuses or increase in
annual
salary.
|
Mr.
Garr's agreement contains non-solicitation, and confidentiality and
non-competition covenants. The agreement may be terminated by either party
with
or without cause and without prior notice subject to the termination provisions
as discussed.
Employment
Agreement with Karl Johe, Ph.D
.
On
November 1, 2005, we entered into an amendment to the employment agreement
with
Karl Johe, Ph.D., our Chief Scientific Office and Chairman of the Board. The
agreement provides for a minimum annual compensation in the amount of $240,000
and in no event less than the salary of the Chief Executive Officer. The
agreement also extends his term of employment until October 31, 2012.
Additionally, the agreement provides for a $500 monthly automobile allowance
and
the reimbursement of reasonable business expenses. The agreement also provides
for an industry standard bonus upon the formation of a compensation committee
by
the company.
In
April
of 2006, we amended Dr. Johe's employment agreement to provide for a base salary
of $321,000. All other terms of the agreement remained the same.
On
January 16, 2008, our Compensation Committee approved the amendment of Mr.
Johe’s employment agreement with the Company. Effective January 1, 2008, Mr.
Johe’s annual salary was increased to $396,000. In additional, the Compensation
Committee approved a bonus award of up to 85% of Mr. Johe’s base salary for the
year ending on December 31, 2008 in the event certain objectives are achieved.
The
agreement also provides for severance (“Termination Provisions”) in an amount
equal to the greater of: (i) the aggregate compensation remaining on his
contract; or (ii) $1,000,000, in the event Mr. Johe is terminated for any
reason. In the event of termination, the agreement also provides for the
immediate vesting of 100% of stock options granted to Mr. Johe during his term
of employment. These termination provisions apply whether employee is terminated
for “cause” or “without cause.” Additionally, in the event employee voluntarily
terminates his employment following a change in control and material
reassignment of duties, he will also be entitled to the termination provisions
under the contract. In the event of early termination, the Termination
Provisions will require us to make a substantial payment to the employee. By
way
of example, such payments would be approximately as follows:
|
Termination
Date
|
|
Amount of
Payment
(1)
|
|
|
|
|
|
|
|
October
31, 2008
|
|
$
|
1,584,000
|
|
|
|
|
|
|
|
|
October
31, 2009
|
|
$
|
1,188,000
|
|
|
|
|
|
|
|
|
October
31, 2010 until end of Contract
|
|
$
|
1,000,000
|
|
|
(1)
|
Assumes
payment of annual salary of $396,000 and a monthly automobile allowance
of
$500.00. Does not include health benefits, bonuses or increase in
annual
salary.
|
Dr.
Johe's agreement contains non-solicitation, and confidentiality and
non-competition covenants. The agreement may be terminated by either party
with
or without cause and without prior notice subject to the termination provisions
as discussed.
Employment
Agreement with John Conron.
On
April
12, 2007, we entered into a one year part-time employment agreement with Mr.
Conron
.
The
agreement provides for a monthly compensation in the amount of $10,000. As
part
of the agreement, we granted Mr. Conron options to purchase 100,000 common
shares. The options vest as follows: (i) 25,000 immediately; and (ii) 75,000
vest quarterly over the year. The agreement also provides for acceleration
of
the options in the event Mr. Conron is terminated without cause or in the event
of a change in control. The agreement also contains non-solicitation,
confidentiality and non-competition covenants.
On
January 16, 2008, our Compensation Committee approved the amendment of Mr.
Conron’s employment agreement with the Company. Effective April 1, 2008, Mr.
Conron’s annual salary will increase to $225,000 and he will be entitled to a
monthly automobile allowance of $500. In additional, the Compensation Committee
approved a bonus award of up to 35% of Mr. Conron’s base salary for the year
ending on December 31, 2008 in the event certain objectives are
achieved.
OUTSTANDING
EQUITY AWARDS AT FISCAL YEAR-END
The
following table provides information concerning unexercised options; stock
that
has not vested; equity incentive; and awards for each Named Executive Officer
outstanding as of the end of the last completed fiscal year.
|
Name
(a)
|
|
Number of
securities
underlying
unexercised
options
(#)
exercisable
(b)
|
|
Number of
securities
underlying
unexercised
options
(#)
unexercisable
(c)
|
|
Equity
incentive
plan
awards:
Number of
securities
underlying
unexercised
unearned
options
(#)
(d)
|
|
Option
exercise
price
($)
(e)
|
|
Option
expiration
date
(f)
|
|
Number
of shares
or units
of stock
that have
not
vested
(#)
(g)
|
|
Market
value of
shares of
units of
stock that
have not
vested
($)
(h)
|
|
Equity
incentive
plan
award:
Number
of un-
earned
shares,
units or
other
rights that
have not
vested
(#)
(i)
|
|
Equity
incentive
plan
awards:
Market or
payout
value of
unearned
shares,
units or
other
rights that
have not
vested
($)
(j)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
I.
Richard Garr
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chief
Executive &
Financial Officer
(Principal Executive
&General
Council)
|
|
|
600,000
|
|
|
|
|
|
600,000
|
(1)
|
$
|
.50
|
|
|
7/28/15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Karl
Johe
(3)
|
|
|
|
|
|
|
|
|
333,333
|
(4)
|
$
|
3.01
|
|
|
9/20/17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
600,000
|
|
|
|
|
|
600,000
|
(1)
|
$
|
.50
|
|
|
7/28/15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John
Conron
Chief
Financial
Officer
|
|
|
81,250
|
|
|
|
|
|
18,750
|
(2)
|
$
|
3.15
|
|
|
4/1/15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
The
Options were granted pursuant to our 2005 Stock Plan. The options vest annual
at
a rate of 300,000 per year. The applicable vesting dates are July 28, 2006,
2007, 2008 and 2009.
(2)
The
Options were granted pursuant to our 2005 Stock Plan. 25,000 options vest on
April 1, 2007 and the remaining 75,000 options vest at a quarterly rate of
18,750 per quarter. The applicable vesting dates are July 1, 2007,October 1,
2007, January 1, 2008 and April 1, 2008.
(3)
Outstanding
equity awards for Mr. Johe do not include warrants to purchase an aggregate
of
3,000,000 shares of the issuers common stock that were issued on June 5, 2007.
For a further description of the warrants, please refer to the section of this
report entitled “
Transactions
and Business Relationships with Management and Principal
Shareholders
.”
(4)
On
September 20, 2007, our Compensation Committee granted Karl Johe, our Chairman
and Chief Scientific Officer, options to purchase an aggregate of 333.333 shares
of our common stock at a price per share of $3.01 pursuant to our 2005 Stock
Plan. The options expire 5 years from the date when they become exercisable.
Additionally, the options will become immediately exercisable upon an event
which would result in an acceleration of Mr. Johe’s stock options granted under
his employment agreement. The options vest on October 31, 2010. The Option
have a value of $570,478.
COMPENSATION
OF DIRECTORS
Fiscal
Year Ended December 31, 2007
For
the
fiscal year ended December 31, 2007, we have adopted a compensation plan for
individuals serving on our board of directors. Pursuant to the plan, each
eligible director shall receive:
|
|
·
|
Options
to purchase 20,000 shares of common stock upon joining the board.
The
options shall vest as follows: (i) 10,000 shall vest on the one month
anniversary of joining the Board; and (ii) 10,000 shall vest quarterly
over a one year period commencing on the date such Director joins
the
Board;
|
|
|
·
|
Each
Director will receive, starting on their first year anniversary of
service
and each subsequent anniversary thereafter, options to purchase 10,000
shares of common stock. These annual stock option awards will vest
quarterly during the year; and
|
|
|
·
|
Each
Director will receive options to purchase an additional 5,000 shares
for
each committee on which he or she serves. These special grant options
will
vest quarterly during the year.
|
The
exercise price for the options to be granted to the directors shall be the
market price of the stock on each applicable grant date.
Fiscal
Year Ending December 31, 2008
Commencing
on January 1, 2008, the compensation committee has revised director compensation
plan. Starting January 1, 2008, each eligible director shall
receive:
Option
Grants
First
Year Grant
:
Upon
joining the board, individual will receive options to purchase 45,000 common
shares. The options shall vest as follows: (i) 25,000 shall vest on the one
month anniversary of joining the Board; and (ii) 20,000 shall vest quarterly
over a one year period commencing on the date such Director joins the Board.
For
purpose of the First Year option grant, all current eligible directors will
be
considered “First Year” directors and be eligible for such grant;
Annual
Grant
.
starting on the first year anniversary of service, and each subsequent
anniversary thereafter, each eligible director will be granted options to
purchase 20,000 shares of common stock. These Annual Grants will vest quarterly
during the year; and
Committee
Grant
.
Each
Director will receive options to purchase an additional 5,000 shares for each
committee on which he or she serves. These Committee Grants will vest quarterly
during the year.
Cash
Compensation
Board
Retention Amount
.
Each
director shall receive $20,000 annual as a board retainer. The retainer shall
be
payable quarterly commencing on January 1, 2008.
Committee
Retainer.
In
addition to the Board Retention Amount, each director serving on a committee
shall receive an additional $5,000 per committee on which he serves.
SUMMARY
NON-EMPLOYEE DIRECTOR COMPENSATION TABLE
The
following table summarizes the compensation for our non-employee board of
directors for the fiscal year ended December 31, 2007:
|
Name
|
|
Fees Earned
or
Paid in
Cash
($)
|
|
Stock
Awards
($)
|
|
Option
Awards
($)
|
|
Non-Equity
Incentive Plan
Compensation
($)
|
|
Nonqualified
Deferred
Compensation
Earnings
($)
|
|
All
Other
Compensation
($)
|
|
Total
($)
|
|
|
(a)
|
|
(b)
|
|
(c)
|
|
(d)
|
|
(e)
|
|
(f)
|
|
(g)
|
|
(h)
|
|
|
William
Oldaker
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Independent
Director(1)
|
|
|
|
|
|
|
|
$
|
22,756
|
|
|
|
|
|
|
|
|
|
|
$
|
22,756
|
|
|
Audit
Committee(2)
|
|
|
|
|
|
|
|
$
|
7,174
|
|
|
|
|
|
|
|
|
|
|
$
|
7,174
|
|
|
Compensation
Committee(2)
|
|
|
|
|
|
|
|
$
|
7,174
|
|
|
|
|
|
|
|
|
|
|
$
|
7,174
|
|
|
Nomination
Committee(2)
|
|
|
|
|
|
|
|
$
|
7,174
|
|
|
|
|
|
|
|
|
|
|
$
|
7,174
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Scott
Ogilvie
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Independent
Director(1)
|
|
|
|
|
|
|
|
$
|
22,756
|
|
|
|
|
|
|
|
|
|
|
$
|
22,756
|
|
|
Audit
Committee(2)
|
|
|
|
|
|
|
|
$
|
7,174
|
|
|
|
|
|
|
|
|
|
|
$
|
7,174
|
|
|
Compensation
Committee(2)
|
|
|
|
|
|
|
|
$
|
7,174
|
|
|
|
|
|
|
|
|
|
|
$
|
7,174
|
|
|
Nomination
Committee(2)
|
|
|
|
|
|
|
|
$
|
7,174
|
|
|
|
|
|
|
|
|
|
|
$
|
7,174
|
|
|
|
(1)
|
On
April 12, 2007, pursuant to our adopted director compensation plan,
we
issued to each of Messrs Ogilvie and Oldaker options to purchase
20,000
shares of our common stock. The options were issued pursuant to our
2005 Stock Plan. The exercise price per share is $3.30 and will
expire 7 years from the date of grant. The individual grants vest as
follows: (i) 10,000 options vest upon the one month anniversary of
joining
the board; and (ii) 10,000 options vest quarterly through the year.
|
|
|
(2)
|
On
May 16, 2007, pursuant to our adopted director compensation plan,
we
issued to each of Messrs Ogilvie and Oldaker, options to purchase
15.000
shares of our common stock (5,000 shares per each committee on which
they
serve). The options were issued pursuant to our 2005 Stock Plan.
The
exercise price per share is $3.83 and the options vest quarterly
over the
year.
|
CORPORATE
GOVERNANCE
In
compliance with the listing requirements of the American Stock Exchange, we
have
established 3 corporate governance committees comprising of the: (i) Audit
Committee; (ii) Compensation Committee; and (iii) Nomination Committee.
AUDIT
COMMITTEE
The
Company has established a designated standing audit committee in accordance
with
section 3(a)(58)(A) of the Exchange Act. The members of the Audit Committee
are
Messrs Ogilvie and Oldaker. The Audit Committee of the Board of Directors
assists the Board of Directors in fulfilling its responsibility for oversight
of
the quality and integrity of the accounting, auditing, and reporting practices
of the Company, and such other duties as directed by the Board. The Committee's
purpose is to oversee the accounting and financial reporting processes of the
Company, the audits of the Company's financial statements, the qualifications
of
the public accounting firm engaged as the Company's independent auditor to
prepare or issue an audit report on the financial statements of the Company,
and
the performance of the Company's internal audit function and independent
auditor. The Committee reviews and assesses the qualitative aspects of financial
reporting to shareholders, the Company's processes to manage business and
financial risk, and compliance with significant applicable legal, ethical,
and
regulatory requirements. The Committee is directly responsible for the
appointment (subject to shareholder ratification), compensation, retention,
and
oversight of the independent auditor.
Our
board
of directors has determined that Mr.
Ogilvie
is an
“audit committee financial expert” within the meaning of SEC rules. An
audit committee financial expert is a person who can demonstrate the following
attributes: (1) an understanding of generally accepted
accounting principles and financial statements; (2) the ability to assess
the general application of such principles in connection with the accounting
for
estimates, accruals and reserves; (3) experience preparing, auditing,
analyzing or evaluating financial statements that present a breadth and level
of
complexity of accounting issues that are generally comparable to the breadth
and
complexity of issues that can reasonably be expected to be raised by the
company’s financial statements, or experience actively supervising one or more
persons engaged in such activities; (4) an understanding of internal
controls and procedures for financial reporting; and (5) an understanding
of audit committee functions.
COMPENSATION
COMMITTEE
The
Compensation Committee's role is to discharge the Board's responsibilities
relating to compensation of the Company's executives and to oversee and advise
the Board on the adoption of policies that govern the Company's compensation
and
benefit programs. Messrs Ogilvie and Oldaker are the members of the Compensation
Committee.
NOMINATING
COMMITTEE
The
Nomination and Corporate Governance Committee reviews and evaluates the
effectiveness of the Company's executive development and succession planning
processes, as well as providing active leadership and oversight of these
processes, and oversight of the Company's corporate governance policies.
The
Nomination and Corporate Governance Committee also evaluates and recommends
nominees for membership on the Company's board of directors and its committees.
Messrs
Ogilvie and Oldaker are the members of the Nomination
Committee.
INDEPENDENT
DIRECTORS
Our
board
of directors has determined that Messrs Ogilvie and Oldaker are each
“independent” as that term is defined by the American Stock Exchange
(“
AMEX
”).
Under the AMEX definition, an independent director is a person who
(1) is not currently (or whose immediate family members are not currently),
and has not been over the past three years (or whose immediate family members
have not been over the past three years), employed by the company; (2) has
not (or whose immediate family members have not) been paid more
than $60,000 by the company during the current or past three fiscal years;
or (3) has not (or whose immediately family has not) been a partner in or
controlling shareholder or executive officer of an organization which the
company made, or from which the company received, payments in excess of the
greater of $200,000 or 5% of that organizations consolidated gross
revenues, in any of the most recent three fiscal years. Messrs Ogilvie
and Oldaker are the sole members of our: (i) Audit Committee; (ii) Compensation
Committee; and (iii) Nomination Committee. The Company has determined that
both Mr. Ogilvie and Mr. Oldaker are independent
directors.
CLASSIFICATION
OF DIRECTORS AND CHANGE OF CONTROL
Our
Board
of Directors consists of four members. On July 16, 2007, the Company amended
its
bylaws to provide for a staggered board. Commencing in 2008, all directors
shall
serve for staggered three-year terms and are elected for a new three-year term
at the annual meeting of the stockholders.
Pursuant
to amended bylaws, we have a classified board of directors divided into three
classes with staggered three-year terms. Only one class of directors may be
elected each year, while the directors in the other classes continue to hold
office for the remainder of their three-year terms. Each class of the Board
is
required to have approximately the same number of directors. The Board may,
on
its own, determine the size of the exact number of directors on the Board and
may fill vacancies on the Board. The procedure for electing and removing
directors on a classified board of directors generally makes it more difficult
for stockholders to change control of the Company by replacing a majority of
the
classified Board at any one time, and the classified board structure may
discourage a third party tender offer or other attempt to gain control of the
Company and may maintain the incumbency of directors. In addition, under our
amended bylaws, directors may only be removed by from office by a vote of the
majority of the shares then outstanding and eligible to vote.
The
bylaws contain advance notice procedures with respect to stockholder proposals
and further limit stockholder rights to nominate candidates for election as
directors. These provisions may discourage stockholders from nominating
directors or bringing any other business at a particular meeting if the
stockholders do not follow the proper procedures. In addition, the procedures
may
SECTION 16(a) BENEFICIAL
OWNERSHIP
REPORTING
COMPLIANCE
Section 16(a) of
the Exchange Act requires our officers and directors, and stockholders owning
more than ten percent of a registered class of our equity securities, to
file reports of ownership and changes in ownership with the Securities and
Exchange and are required by SEC regulations to furnish us with copies of
all
forms they file pursuant to these requirements. Based solely on our review
of
Form 3, 4 and 5’s, the following table provides information regarding any of the
reports which were filed late during the fiscal year ended December 31,
2007:
|
Name
of Reporting Person
|
|
Type
of Report Filed Late
|
|
No.
of Transactions
Reported
Late
|
|
William
Oldaker
|
|
Form
3 - Initial Statement of Beneficial Ownership
|
|
1
|
|
|
|
|
|
|
|
Karl
Johe
|
|
Form
4 - Statement of Change in Beneficial Ownership
|
|
2
|
CODE
OF ETHICS
We
have
adopted a "Code of Ethics for Directors, Officers and Employees" that applies
to
all employees, including our executive officers. A copy of our code can be
viewed on our website at
www.neuralstem.com
.
EQUITY
COMPENSATION PLAN INFORMATION
The
following table sets forth information with respect to our 2005 & 2007 Stock
Plans as of December 31, 2007.
|
|
|
(a)
|
|
(b)
|
|
(c)
|
|
|
|
|
Number of Securities
to be Issued
upon Exercise
of
Outstanding
Options,
Warrants
and Rights
|
|
Weighted-Average
Exercise Price of
Outstanding
Options,
Warrants
and
Rights
|
|
Number of Securities
Remaining Available or
Future
Issuance
under
Equity Compensation Plans
(Excluding
Securities
Reflected in
Column (a))
|
|
|
Equity
compensation plans approved by security holders
|
|
|
|
|
|
|
|
|
2005
Stock Plan, as amended
|
|
|
3,200,659
|
|
$
|
1.19
|
|
|
799,344
|
|
|
2007
Stock Plan
|
|
|
0
|
|
|
N/A
|
|
|
6,150,000
|
|
|
Equity
compensation plans not approved by security holders
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
|
Total
|
|
|
3,200,659
|
|
$
|
2.59
|
|
|
6,949,344
|
|
2005
Stock Plan as amended
Our
board
of directors adopted the 2005 Stock Plan on July 27, 2005, and it was
subsequently approved by our stockholders. The 2005 Stock Plan provides for
the
grant of stock options or stock to our employees, directors, and consultants
of
up to 4,000,000 common shares. On June 26, 2008, the Company’s board of
directors approved an amendment to the Company’s 2005 Stock Plan. The primary
effect of the amendment was to: (i) provide for the ability of the compensation
committee to make stock grants; (ii) to prohibit the issuance of stock options
below the market price on the date of issuance; and (iii) to clarify the
procedure with regard to the exercise of options granted under the plan. On
July
31, 2007 the Company’s shareholders ratified the amendment. As of February 29,
2008 options to purchase a total of 3,200,659 shares of common stock were
outstanding under the 2005 Stock Plan at a weighted average exercise price
of
$1.19 per share. At February 29, 2008, 2,749,344 shares of our common stock
remained available for future issuance under our 2005 Stock Plan.
2007
Stock Plan
:
On
June
26, 2008, the Company’s board of directors adopted the 2007 Stock Plan. The 2007
Stock Plan provides for issuances of: (i) restricted stock grants; (ii) options;
(iii) stock appreciation rights; and (iv) stock bonuses to our officers,
directors, employees and consultants. Pursuant to the plan, all grants must
be
made at no less than the fair market value on the day of grant. The Company
reserved 6,150,000 common shares for issuance under the plan. On July 31, 2007,
the Company’s shareholders ratified the amendment.
Evaluation
of Disclosure Controls and Procedures
Our
management, with the participation of our Chief Executive Officer, who is our
principal executive officer, and our Chief Financial Officer, who is our
principal financial officer, has evaluated the effectiveness of our disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under
the Securities Exchange Act of 1934) as of December 31, 2007. Based on that
evaluation, our Chief Executive Officer and Chief Financial Officer have
concluded that, as of December 31, 2007, our disclosure controls and
procedures were not effective.
A
review
of the process level controls was completed, resulting in the identification
of
control design gaps. New controls and procedures were implemented by December
31, 2007 to mitigate the identified design gaps except as described below;
however, there was not sufficient time to test our newly implemented process
level controls. Management believes that together with the newly implemented
controls, assuming operational effectiveness, the controls provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with U.S. generally
accepted accounting principles.
In
light
of the material weaknesses described below, in preparing our financial
statements at and for the fiscal year ended December 31, 2007, we performed
additional procedures in an attempt to ensure that such financial statements
were fairly presented in all material respects in accordance with generally
accepted accounting principles. Notwithstanding the material weaknesses
described below, management believes that the financial statements included
in
this Form 10-K fairly present, in all material respects, the Company’s
financial condition, results of operations and cash flows for the periods and
dates presented.
1.
Wire
payment transaction controls –
Based
on
the process design for completing wire payment transactions, it was possible
that unauthorized wire transactions could have been completed without a
preventative control in place. In addition, approval forms and supporting
documentation were not consistently maintained during the year. Detective
controls, such as bank reconciliations, were in place and we believe that no
unauthorized wires were made during 2007 and the process is being redesigned
in
2008.
2.
Lack
of qualified personnel to separately prepare and review all journal
entries
–
Much effort was undertaken in 2007 to make sure appropriate segregation of
duties were in place for key accounting functions, including the contracting
with a third-party provider to process accounting transactions and maintain
the
accounting systems. However, some more complicated transactions could only
be
completed by the CFO as the most qualified person to prepare the journal
entries. This left the CFO as both the preparer and reviewer of these
transactions.
Changes
in Internal Control over Financial Reporting
During
the fiscal year ended December 31, 2007, management took the following
actions:
|
·
|
The
Company instituted a number of entity level controls during the year
including appointment of independent directors, establishment of
Audit,
Compensation and Nominating Committees (composed of independent
directors), adoption of Ethics Codes, and creation of an independent
Compliance Officer. In addition the Board instituted a formal Internal
Control policy and Compensation Policy.
|
|
·
|
The
company contracted with an outside service provider to process financial
transactions, operate its financial systems, prepare payroll, and
provide
accounting support.
|
|
·
|
The
Company has implemented procedures whereby all changes to computer
master
files are reviewed and approved by
Management.
|
|
·
|
The
Company has replaced its financial software to improve the safety
and
integrity of its financial information, enable control of its master
files, and provide enhanced management
reporting.
|
|
·
|
The
company has assessed and documented its financial reporting
procedures.
|
|
·
|
The
company replaced its IT infrastructure and turned over its operation
to a
third party.
|
Management
completed a review of the design effectiveness of the process control
improvements that were implemented. Although the company was unable to assess,
as of and prior to December 31, 2007, the operating effectiveness of these
control improvements, Management believes, assuming operational effectiveness,
the controls are designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with U.S. generally accepted accounting
principles.
Other than the aforementioned changes during fiscal year 2007, there have
been
no changes in our internal control over financial reporting that have materially
affected, or are reasonably likely to materially affect, our internal control
over financial reporting.
MANAGEMENT’S
REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management
of Neuralstem, Inc. is responsible for establishing and maintaining adequate
internal control over financial reporting, as defined in Rules 13a-15(f)
and 15d-15(f) under the Securities Exchange Act of 1934. Internal control
over
financial reporting is a process designed by, or under the supervision of,
the
Company’s principal executive and principal financial officers to provide
reasonable assurance to the Company’s management and board of directors
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted
accounting principles. Internal control over financial reporting includes
those
policies and procedures that:
|
|
·
|
pertain
to the maintenance of records that in reasonable detail accurately
and
fairly reflect the transactions and dispositions of the assets
of the
Company;
|
|
|
·
|
provide
reasonable assurance that transactions are recorded as necessary
to permit
preparation of financial statements in accordance with generally
accepted
accounting principles, and that receipts and expenditures of the
Company
are being made only in accordance with authorizations of management
and
directors of the Company; and
|
|
|
·
|
provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the Company’s assets that
could have a material effect on the financial
statements.
|
Because
of inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Projections of any evaluation of effectiveness
to future periods are subject to the risks that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate. A control system, no matter how well
designed and operated, can provide only reasonable, but not absolute, assurance
that the control system’s objectives will be met. The design of a control system
must reflect the fact that there are resource constraints, and the benefits
of
controls must be considered relative to their costs.
Management
assessed the effectiveness of the Company’s internal control over financial
reporting as of December 31, 2007. In making this assessment, management
used the criteria set forth in
Internal
Control-Integrated Framework
issued
by
the Committee of Sponsoring Organizations of the Treadway Commission
(“COSO
”)
as a
guide. However, due to the timing of many of the changes to the processes
and
internal controls, management’s assessment was limited to a risk assessment and
a review of the design effectiveness of the entity level and financial reporting
controls. Accordingly, while management’s assessment is that the design of
controls is adequate, except as noted herein, since the controls were not
completely tested in accordance with the COSO standards. We have determined
that
our controls over financial reporting were ineffective.
Based
on
this assessment, management identified the following material weaknesses
in the
Company’s internal control as of December 31, 2007:
·
Wire
payment transaction controls -
Based
on
the process design for completing wire payment transactions, it was possible
that unauthorized wire transactions could have been completed without a
preventative control in place. In addition, approval forms and supporting
documentation were not consistently maintained during the year. Detective
controls, such as bank reconciliations, were in place and we believe that
no
unauthorized wires were made during 2007 and the process is being redesigned
in
2008.
·
Lack
of qualified personnel to separately prepare and review all journal
entries
- Much
effort was undertaken in 2007 to make sure appropriate segregation of duties
were in place for key accounting functions, including the contracting with
a
third-party provider to process accounting transactions and maintain the
accounting systems. However, some more complicated transactions could only
be
completed by the CFO as the most qualified person to prepare the journal
entries. This left the CFO as both the preparer and reviewer of these
transactions.
PRINCIPAL
STOCKHOLDERS
The
following tables set forth certain information regarding the beneficial
ownership of our common stock. Beneficial ownership is determined in accordance
with the applicable rules of the Securities and Exchange Commission and includes
voting or investment power with respect to shares of our common stock. The
information set forth below is not necessarily indicative of beneficial
ownership for any other purpose, and the inclusion of any shares deemed
beneficially owned in this table does not constitute an admission of beneficial
ownership of those shares. Unless otherwise indicated, to our knowledge, all
persons named in the table have sole voting and investment power with respect
to
their shares of common stock, except, where applicable, to the extent authority
is shared by spouses under applicable state community property
laws.
The
following table sets forth information regarding beneficial ownership of our
capital stock as of February 20, 2008 by:
|
·
|
each
person, or group of affiliated persons, known to us to be the beneficial
owner of more than 5% of the outstanding shares of our common
stock;
|
|
·
|
each
of our directors and named executive officers;
and
|
|
·
|
all
of our directors and executive officers as a
group.
|
|
|
|
Common
Stock
|
|
|
Name
|
|
Amount
(1)
|
|
%
|
|
|
Karl
Johe (2)
|
|
|
2,369,484
|
|
|
7.39
|
|
|
Stanley
Westreich (3)
|
|
|
2,231,404
|
|
|
6.96
|
|
|
Merrill
Solomon (4)
|
|
|
2,177,097
|
|
|
6.79
|
|
|
Richard
Garr (5)
|
|
|
1,973,084
|
|
|
6.15
|
|
|
William
Oldaker (6)
|
|
|
132,200
|
|
|
0.41
|
|
|
John
Conron (7)
|
|
|
110,000
|
|
|
0.34
|
|
|
Scott
Ogilvie (8)
|
|
|
35,000
|
|
|
0.11
|
|
|
|
|
|
|
|
|
|
|
Executives
Officers and Directors as a Group
|
|
|
6,796,865
|
|
|
21.19
|
|
|
(1)
|
Pursuant
to Rules 13d-3 and 13d-5 of the Exchange Act, beneficial ownership
includes any shares as to which a shareholder has sole or shared
voting
power or investment power, and also any shares which the shareholder
has
the right to acquire within 60 days, including upon exercise of common
shares purchase options or warrant. There are 32,075,875 shares of
common
stock issued and outstanding as of March 18, 2008.
|
|
(2)
|
Includes 1,769,484
common shares and 600,000 vested options.
|
|
(3)
|
Includes
2,031,404 common shares and 200,000 vested options
|
|
(4)
|
Includes
2,057,097 common shares and 120,000 vested options.
|
|
(5)
|
Includes1,373,084
common shares and 600,000 vested options
|
|
(6)
|
Includes
37,200 common shares, 88,750 vested options, and 6,250 options will
vest
in the next 60 days
|
|
(7)
|
Includes
10,000 common shares, 81,250 vested options and 18,750 options will
vest
in the next 60 days
|
|
(8)
|
Includes
28,750 vested options, and 6,250 options will vest in the next 60
days
|
TRANSACTIONS
AND BUSINESS RELATIONSHIPS WITH
MANAGEMENT
AND PRINCIPAL SHAREHOLDERS
Summarized
below are certain transactions and business relationships between Neuralstem
and
persons who are or were an executive officer, director or holder of more than
five percent of any class of our securities since January 1, 2007 or which
have
been proposed since December 31, 2007:
|
|
·
|
On
April 1, 2007, in consideration for the services to be rendered by
John
Conron, our Chief Financial Officer, we granted Mr. Conron stock
options
to purchase 100,000 shares of our common stock. The exercise price
per
share is $3.15 and will expire on April 1, 2015. The stock options
will vest as follows:
|
|
|
i.
|
25,000
options shall vest immediately; and
|
|
|
ii.
|
the
remaining 75,000 shall vest at the end of each quarter from the date
of
grant so that 100% of the options shall be vested in 12 months subject
to
Executive continued employment.
|
|
|
·
|
On
April 12, 2007, pursuant to our adopted director compensation plan,
we
issued to each of Messrs Ogilvie and Oldaker options to purchase
20,000
shares of our common stock. The options were issued pursuant to our
2005 Stock Plan. The exercise price per share is $3.30 and will
expire 7 years from the date of grant. The individual grants vest as
follows:
|
|
|
i.
|
10,000
options vest upon the one month anniversary of joining the board;
and
|
|
|
ii.
|
10,000
options vest quarterly through the year.
|
|
|
·
|
On
May 16, 2007, pursuant to our adopted director compensation plan,
we
issued to each of Messrs Ogilvie and Oldaker, options to purchase
15.000
shares of our common stock (5,000 shares per each committee on which
they
serve). The options were issued pursuant to our 2005 Stock Plan.
The
exercise price per share is $3.83 and the options vest quarterly
over the
year.
|
|
|
·
|
On
June 5, 2007, in exchange for: (i) the acquisition of certain residual
rights; and (ii) the cancellation of the Hi Med Technologies, Inc.
licensing agreement, we issued Karl Johe, our Chairman and Chief
Scientific Officer, warrants to purchase an aggregate of 3,000,000
shares
of our common stock at a price per share of $3.01 and expire 5 years
from
the date when they become exercisable. Additionally, the warrants
will become immediately exercisable upon an event which would result
in an
acceleration of Mr. Johe’s stock options granted under his employment
agreement. The warrants vest as
follows:
|
|
|
i.
|
1,000,000
warrants vest on October 31, 2010;
and
|
|
|
ii.
|
2,000,000
warrants vest on October 31, 2011.
|
In addition to the warrants, we also made a one-time cash payment to Mr. Johe
in
the amount of $150,000.
|
|
·
|
On
September 20, 2007, our Compensation Committee granted Karl Johe,
our
Chairman and Chief Scientific Officer, options to purchase an aggregate
of
333.333 shares of our common stock at a price per share of $3.01
pursuant
to our 2005 Stock Plan. The options expire 5 years from the date
when they become exercisable. Additionally, the options will become
immediately exercisable upon an event which would result in an
acceleration of Mr. Johe’s stock options granted under his employment
agreement. The option vests on October 31,
2010.
|
|
|
·
|
On
January 21, 2008 the Compensation Committee approved a new board
compensation plan effective January 1, 2008. Please refer to the
section
entitled “
Compensation
of Directors
”
contained herein for a description of such plan.
|
|
|
·
|
On
January 21, 2008, the Compensation Committee approved to amend the
employment contracts of Messrs, Garr, Johe and Conron. The amendment
for
Messrs Garr and Johe are effective as of January 1, 2008. The amendment
of
Mr. Conron is effective on April 1, 2008. For a further description
of
such amendments, please refer to the section of this report entitled
“
Employment
Agreements and Change in Control Arrangements
.”
|
|
|
·
|
On
January 21, 2008, pursuant to our 2007 Stock Plan, the Compensation
Committee approved the issuance of the following:
|
Karl
Johe, Chairman and Chief Science Officer
–
options to purchase 2.1 million shares of common stock at a price of $3.66
per
share. The options vest over 3.5 years with the vesting period commencing on
January 1, 2008 with 700,000 options vesting on each of
February
28, 2009, April 30, 2010, and June 30, 2011
. The option expire on January
1, 2018.
Richard
Garr, Chief Executive Officer and General Council
–
options to purchase 2.1 million shares of common stock at a price of $3.66
per
share. The options vest over 3.5 years with the vesting period commencing on
January 1, 2008 with 700,000 options vesting on each of
February
28, 2009, April 30, 2010, and June 30, 2011
. The option expire on January
1, 2018.
John
Conron, Chief Financial Officer
–
options to purchase 1 million shares of common stock at a price of $3.66 per
share. The options vest over 3 years effective April 1, 2008 with 333,333
options vesting on each of March 31, 2009, 2010 and 2011.
FINANCIAL
STATEMENTS
Our
audited financial statements appear beginning on page F-1 of this
report.
CHANGES
IN AND DISAGREEMENTS
WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
During
the past two fiscal years, we have not had any disagreements with our principal
independent accountants.
RECENT
SALES OF UNREGISTERED SECURITIES
The
following information is given with regard to unregistered securities sold
during the preceding three years, to February 19,
2008:
|
|
·
|
In
early 2005, we completed the exchange of all our outstanding preferred
shares (Series A, B & C) into shares of common stock. The exchange
ratio was as follows:
|
|
Series
|
|
Conversion Ratio
|
|
Common Shares Issued
|
|
|
Preferred
A
|
|
|
1-for-0.3
|
|
|
314,276
|
|
|
Preferred
B
|
|
|
1-for-0.3
|
|
|
215,969
|
|
|
Preferred
C
|
|
|
1-for
-3
|
|
|
13,652,154
|
|
After
the
exchange, there were no shares of preferred stock outstanding.
|
|
·
|
On
March 21, 2005, we issued Thomas Freeman, M.D. an option to purchase
49,000 common shares at $.05 per shares pursuant to a scientific
advisory
letter of agreement. These options vest as follows: (i) 25,000
options
vest immediately; and (ii) 24,000 options vest monthly at a rate
of 2,000
per month for so long as Mr. Freeman continues to provide us services.
The
option will expire if not exercised within 12 years. The advisory
letter
of agreement also provides that if Mr. Freeman is still proving
services
as of August 28, 2006 and the agreement has not been terminated,
he will
receive an additional 2,000 common shares per month. As of August
28,
2006, the agreement is still effective. Accordingly, Mr. Freeman
has
received an additional 6,000 shares pursuant thereto.
|
|
|
|
|
|
|
·
|
On
March 22, 2005, we converted a note payable to Stanley Westreich
in the
amount of $60,000, and all accrued interest thereon, into 120,000
shares
of our common stock.
|
|
|
|
|
|
|
·
|
On
May 23, 2005, we granted Richard A. Hull, PhD warrants to purchase
100,000
common shares at $2.00 per share as consideration for services
to be
provided pursuant to a business advisory services contract. The
warrants
allow for cashless exercise and contain certain anti-dilution and
price
adjustment provisions for stock splits, dividends and recapitalizations.
The warrants are fully vested on the grant date and expire if not
exercised 10 years after the Company's securities start trading
on a
national exchange or over the counter.
|
|
|
|
|
|
|
·
|
On
July 28, 2005, we issued to Karl Johe, our Chief Scientific Officer,
options to purchase 1,200,000 common shares at $.50 per share.
These
options vest annually at a rate of 300,000 per year and will expire
if not
exercised within ten years. Additionally, these options are subject
to
certain accelerated vesting conditions more fully described in
Mr. Johe's
employment agreement attached as an exhibit to this annual
report.
|
|
|
|
|
|
|
·
|
On
July 28, 2005, we issued to I. Richard Garr, our Chief Executive
Officer,
options to purchase 1,200,000 common shares at $.50 per share.
These
options vest annually at a rate of 300,000 per year and will expire
if not
exercised within ten years. Additionally, these options are subject
to
certain accelerated vesting conditions more fully described in
Mr. Garr's
employment agreement attached as an exhibit to this annual
report.
|
|
|
|
|
|
|
·
|
On
September 15, 2005, we issued Regal One Corporation, 1,845,287
shares of
our common stock and a warrant to purchase an additional 1,000,000
common
shares at $5.00 per share. The shares and warrant were issued in
exchange
for services as well as Regal One Corporation's commitment to finance
certain costs and expense relating to our funding and the filing
of this
registration statement.
|
|
|
|
|
|
|
·
|
On
September 26, 2005, we completed the private placement of 1,272,000
common
shares to a group of investors at a per share price of $.50. Gross
proceeds from the offering totaled $636,000.
|
|
|
|
|
|
|
·
|
On
October 15, 2005, we granted the J.D. Group, LLC warrants to purchase
1,000,000 common shares at $.50 per share as consideration for
services to
be provided pursuant to a business advisory services contract.
The
warrants allow for cashless exercise and contain certain anti-dilution
and
price adjustment provisions for stock splits, dividends and
recapitalizations. The warrants are fully vested on the granted
date and
expire 9 months after the Company's common shares begin trading
on a
national exchange or over the
counter.
|
|
|
·
|
On
November 1, 2005, we issued Equity Communications, LLC a
warrant to purchase 330,000 common shares at $.50 per share pursuant
to an amended financial public relations service agreement. This
warrant vest immediately and expire if not exercised by November 1,
2010.
|
|
|
|
|
|
|
·
|
On
November 7, 2005, we issued to a consultant 120,000 shares of our
common
stock in fully satisfaction of consulting fees earned and not paid,
including interest thereon, in the amount of $60,000. As additional
consideration, we also issued the consultant a warrant to
purchase 120,000 shares at $.50 per share. The warrant is fully
vested and
expires three years from the grant date if not
exercised.
|
|
|
|
|
|
|
·
|
On
November 7, 2005, we converted a note in the amount of $100,000
to 200,000
shares of our common stock. As additional consideration, we also
issued
the note holder a warrant to purchase 200,000 shares at $.50 per
share. The warrant is fully vested and expires three years from the
grant date if not exercised. As a result of an oversight, the shares
were
not physically issued until the 2
nd
quarter of 2006.
|
|
|
|
|
|
|
·
|
On
November 14, 2005, we issued Einhorn Associates 78,000 common shares
pursuant to a settlement agreement related to fees and services
performed.
|
|
|
|
|
|
|
·
|
On
December 23, 2005, we completed the private placement of 1,000,000
common
shares to a group of investors at a per share price of $.50. Gross
proceeds from the offering totaled $500,000. As a result of an
oversight,
a portion of the shares were not physically issued until the 2
nd
quarter of 2006.
|
|
|
|
|
|
|
·
|
On
March 3, 2006, we completed a private placement through T.R. Winston
&
Company pursuant to which we sold 5,000,000 units to 64 investors
at a
price of $1.00 per unit, for gross proceeds of $5,000,000. Each
unit sold
consists of:
|
1
common
share;
½
class
“A” warrant to purchase common shares; and
½
class
“B” warrant to purchase common shares.
|
|
|
In
total, we issued 5,000,000 common shares and 2,500,000 class “A” warrants
and 2,500,000 class “B” warrants. The class “A” warrants are exercisable
at $1.50 per share and the class “B” warrants are exercisable at $2.00 per
share. Both class “A” and “B” warrants are redeemable by the company upon
the occurrence of certain events.
|
|
|
|
|
|
|
·
|
On
March 3, 2006, under the terms of our selling agent agreement with
T.R.
Winston & Company, we issued a placement agent warrant to purchase
800,000 common shares at $1.10 per share.
|
|
|
|
|
|
|
·
|
On
February 16, 2007, issued 69,000 common shares to a Thomas Freeman
in
connection with the exercise of an option to purchase 69,000 common
shares
at an exercise price of $.05 per share.
|
|
|
|
|
|
|
·
|
On
March 15, 2007, we completed a private placement through T.R. Winston
& Company, LLC of 2,054,000 units to 15 institutional investors.
The
units were priced at $2.50 each and resulted in gross proceeds
to the
Company of $5,135,000.00. The units consist of:
|
|
|
|
|
|
|
|
1
common stock; and
|
|
|
|
|
|
|
|
½
common stock purchase warrant.
|
|
|
|
|
|
|
|
An
aggregate of 2,054,000 common shares and warrants to purchase an
additional 1,027,000 common shares were issued. The units were
priced at
$2.50 each and resulted in gross proceeds to the Company of $5,135,000.00.
The investors also received certain registration rights with regard
to the
underlying securities. The exercise price of the warrants is $3.00.
|
|
|
|
|
|
|
·
|
On
March 15, 2007, in connection with the private placement of the
sate date,
the Company paid fees and expenses totaling $431,000.00 and issued
a
warrant to purchase 246,480 common shares at $3.00 to T.R. Winston
&
Company, LLC.
|
|
|
·
|
On
March 27, 2007, we sold an additional 400,000 units for $1,000,000
pursuant to our March 15, 2007 private placement in. In connection
with
the sale of such additional units, we paid fees and expenses totaling
$80,300 and issued a warrant to purchase an additional 48,000 common
shares at $3.00 to T.R. Winston & Company, LLC.
|
|
|
|
|
|
|
·
|
On
April 1, 2007, granted John Conron options to purchase 100,000
common
shares. The options vest as follows: (i) 25,000 vest immediately;
and
(iii) 75,000 vest quarterly over the year. The options have an
exercise
price of $3.15 and expire on April 1, 2015.
|
|
|
|
|
|
|
·
|
On
June 5, 2007, in exchange for: (i) the acquisition of certain residual
rights; and (ii) the cancellation of the Hi Med Technologies, Inc.
licensing agreement, we issued Karl Johe, our Chairman and Chief
Scientific Officer, warrants to purchase an aggregate of 3,000,000
shares
of our common stock at a price per share of $3.01 and expire 5
years from
the date when they become exercisable. Additionally, the warrants
will
become immediately exercisable upon an event which would result
in an
acceleration of Mr. Johe’s stock options granted under his employment
agreement. The warrants vest as follows:
|
|
|
|
|
|
|
|
i.
1,000,000 warrants vest on October 31, 2010; and
|
|
|
|
ii.
2,000,000 warrants vest on October 31, 2011.
|
|
|
|
|
|
|
·
|
On
June 28, 2007, pursuant to our adopted director compensation plan,
we
issued to each of Messrs Ogilvie and Oldaker, options to purchase
15.000
shares of our common stock (5,000 shares per each committee on
which they
serve). The options were issued pursuant to our 2005 Stock Plan.
The
exercise price per share is $2.77 and the options vest quarterly
over the
year.
|
|
|
|
|
|
|
·
|
On
September 20, 2007, our Compensation Committee granted Karl Johe,
our
Chairman and Chief Scientific Officer, options to purchase an aggregate
of
333.333 shares of our common stock at a price per share of $3.01
pursuant
to our 2005 Stock Plan. The options expire 5 years from the date
when they
become exercisable. Additionally, the options will become immediately
exercisable upon an event which would result in an acceleration
of Mr.
Johe’s stock options granted under his employment agreement. The option
vests on October 31, 2010.
|
|
|
|
|
|
|
·
|
On
September 24, 2007, we issued 13,000 share of our common stock
to Rubicon
Global Holdings as partial payment for services rendered. The shares
were
issued in exchange for services valued at $39,000. We also granted
Rubicon
Global Holdings piggy back registration rights on any registration
statement filed by the Company (excluding any registration statement
filed
on form S-8).
|
|
|
|
|
|
|
·
|
On
October 31, 2007, the Company issued warrant to purchase 1,227,000
shares
of common stock at a per share price of $2.75 to investors who
participated in the Company’s March 2007 offering which was previously
disclosed on the current report filed on Form 8-K with the Securities
and
Exchange Commission on March 16, 2007. The warrants have a term
of 5 years
and are substantially identical to those warrants previously issued
in the
March 2007 offering. The Company agreed to include the common shares
underlying the warrants in the Company’s next registration statement. The
warrants were granted as an inducement for the investors to exercise
their
prior warrants as well as the waiver of certain anti-dilutive and
participation rights provisions contained March 2007 stock purchase
agreement and warrants. The Company hereby incorporates by reference
the
stock purchase agreement and form of warrant contained in the Company’s
current report filed on Form 8-K on March 16, 2007. The Company
relied on
the exception from registration provided for in section 4(2) of
the
Securities Act.
|
|
|
|
|
|
|
·
|
On
November 15, 2007, our Compensation Committee granted employee
Margaret
McElroy options to purchase 15,000 shares of our common stock at
a price
per share of $2.71 pursuant to our 2005 Stock Plan. The options
are fully
vested and expire 10 years from the grant date.
|
|
|
|
|
|
|
·
|
On
January 21, 2008, we issued an aggregate of 5.1 million options
to
purchase common stock to our executive management pursuant to our
2007
Stock Plan. For a further description of the grant, please refer
to the
section of this report entitled “
Transactions
and Business Relationships with Management and Principal
Shareholders
.”
|
|
|
·
|
On
February 19, 2008, we entered into an agreement with CJ CheilJedang
Corporation (KSE: CJ CheilJedang) for the purchase of $2.5 million
worth
of Neuralstem common stock at $4.063 per share. Please refer to
our
Current Report filed on form 8-K on February 25, 2008 for a further
description of the transaction.
|
The
following exhibits are included as part of this Report of form 10-ksb.
References to "the Company" in this Exhibit List mean Neuralstem, Inc., a
Delaware corporation.
|
Exhibit
Number
|
|
Description
|
|
3.1
|
1
|
Articles
of Incorporation of Neuralstem, Inc., as amended
|
|
|
|
|
|
3.2
|
1
|
Corporate
Bylaws for Neuralstem, Inc.
|
|
|
|
|
|
3.2(i)
|
5
|
Amended
and Restated Bylaws of Neuralstem, Inc. adopted on July 16,
2007
|
|
|
|
|
|
4.1
|
1
|
Option
& Promissory Note Agreement between Neuralstem, Inc. and Stanley
Westreich, dated October 6, 2003
|
|
|
|
|
|
4.2
|
1
|
2005
Stock Option Plan
|
|
|
|
|
|
4.2(i)
|
5
|
Amended
and Restated 2005 Stock Plan adopted on June 28, 2007
|
|
|
|
|
|
4.3
|
1
|
Form
of Stock Lockup Agreement
|
|
|
|
|
|
4.4
|
1
|
Non-qualified
Stock Option Agreement between Neuralstem, Inc. and Richard Garr,
dated
July 28, 2005
|
|
|
|
|
|
4.5
|
1
|
Non-qualified
Stock Option Agreement between Neuralstem, Inc. and Karl Johe, dated
July
28, 2005
|
|
|
|
|
|
4.7
|
1
|
Form
of $5.00 Option
|
|
|
|
|
|
4.8
|
1
|
September
2005 Stock Subscription Agreement
|
|
|
|
|
|
4.9
|
1
|
Consulting
Fee Conversion Agreement and Stock Option Grant between Neuralstem,
Inc.
and Merrill Solomon, dated November 7, 2005
|
|
|
|
|
|
4.10
|
1
|
Debt
Conversion Agreement and Stock Option Grant between Neuralstem, Inc.
and
Stanley Westreich
,
dated November 7, 2005.
|
|
|
|
|
|
4.11
|
1
|
Common
Stock Purchase Agreement between Neuralstem, Inc. and High Tide,
LLC and
Steven B. Dunn, dated December 23, 2005
|
|
|
|
|
|
4.12
|
1
|
March
5, 2006 Private Placement Memorandum
|
|
|
|
|
|
4.13
|
1
|
Form
of Placement Agent Warrant
|
|
|
|
|
|
4.14
|
1
|
Form
of $1.50 Warrant (Series “A”)
|
|
|
|
|
|
4.15
|
1
|
Form
of $2.00 Warrant (Series “B”)
|
|
|
|
|
|
4.16
|
2
|
Subscription
Agreement for the March 2006 Private Placement
|
|
|
|
|
|
4.17
|
3
|
Equity
Investment and Share Purchase Agreement between Neuralstem, Inc.
and Regal
One Corporation, effective June 22, 2005 and amended September 15,
2005
|
|
|
|
|
|
4.18
|
3
|
Securities
Purchase Agreement dated March 15, 2007
|
|
|
|
|
|
4.19
|
3
|
Common
Stock Purchase Warrant dated March 15,
2007
|
|
4.20
|
3
|
Registration
Rights Agreement dated March 15, 2007
|
|
|
|
|
|
4.21
|
5
|
Neuralstem,
Inc. 2007 Stock Plan adopted on June 28, 2007
|
|
|
|
|
|
4.22
|
*
|
Form
of Johe warrant issued on June 5, 2007
|
|
|
|
|
|
10.1
|
1
|
Employment
Agreement between CNS Stem Cell Technology, Inc. and I. Richard Garr,
dated January 1, 1997 and Amendment, dated November 1,
2005
|
|
|
|
|
|
10.2
|
1
|
Employment
Agreement between CNS Stem Cell Technology, Inc. and Karl Johe, dated
January 1, 1997 and Amendment, dated November 1, 2005
|
|
|
|
|
|
|
1
|
Material
Transfer and Research Agreement between Neuralstem, Inc. and the
Regents
of the University of John Hopkins, dated March 2, 2001
|
|
|
|
|
|
10.4
|
1
|
Research
Agreement between Neuralstem, Inc. and the Regents of the University
of
California, San Diego, dated May 15, 2002
|
|
|
|
|
|
10.5
|
1
|
License
Agreement between Neuralstem, Inc. and the Maryland Economic Development
Corporation, dated February 1, 2004, and Amendment, dated March 14,
2004
|
|
|
|
|
|
10.6
|
1
|
Non-Exclusive
Limited License and Material Transfer Agreement between Neuralstem,
Inc.
and A-T Children's Project, dated December 22, 2004
|
|
|
|
|
|
10.7
|
1
|
Exclusive
License Agreement between Neuralstem, Inc. and Biomedical Research
Models,
Inc., dated February 7, 2005 and Amendment, dated May 20,
2006
|
|
|
|
|
|
10.8
|
1
|
Scientific
Advisory Letter & Stock Option Agreement between Neuralstem, Inc. and
Thomas Freemen, dated March 21, 2005
|
|
|
|
|
|
10.9
|
1
|
Laboratory
Services and Confidentiality Agreement between Neuralstem, Inc. and
Biopharmaceutical Services, a division of Charles River Laboratories,
dated May 11, 2005
|
|
|
|
|
|
10.10
|
1
|
Business
Advisory Services and Warrant Agreement between Neuralstem, Inc.
and
Richard A. Hull, PhD, dated May 23, 2005
|
|
|
|
|
|
10.11
|
1
|
Limited
Exclusive License Agreement between Neuralstem, Inc. and High Med
Technologies, Inc., dated July 7, 2005
|
|
|
|
|
|
10.12
|
1
|
Consulting
Agreement for Financial Public Relations Services and Non-Qualified
Stock
Option as Amended between Neuralstem, Inc. and Equity Communications,
LLC,
dated August 29, 2005 and November 1, 2005
|
|
|
|
|
|
10.13
|
1
|
Research
Agreement between Neuralstem, Inc. and the Regents of the University
of
Southern Florida, dated September 21, 2005
|
|
|
|
|
|
|
1
|
Business
Advisory Services and Warrant Agreement between Neuralstem, Inc.
and the
J.D. Group, LLC, dated October 15, 2005
|
|
|
|
|
|
10.15
|
1
|
Consulting
Fee Conversion Agreement between Neuralstem, Inc. and Einhorn Associates,
Inc., dated November 14, 2005
|
|
|
|
|
|
10.16
|
1
|
Lease
of Vivarium Room between Neuralstem Inc. and Perry Scientific, dated
February 14, 2006
|
|
|
|
|
|
10.17
|
1
|
Research
Agreement between Neuralstem, Inc. and the Regents of the University
of
Central Florida, dated March 1, 2006
|
|
|
|
|
|
10.18
|
6
|
Exclusive
Option Agreement dated February 19, 2008
|
|
|
|
|
|
10.19
|
6
|
Securities
Purchase Agreement dated February 19, 2008
|
|
|
|
|
|
10.20
|
6
|
Registration
Rights Agreement dated February 19, 2008
|
|
|
|
|
|
14.1
|
1
|
Neuralstem
Code of Ethics
|
|
|
|
|
|
14.2
|
4
|
Neuralstem
Financial Code of Professional Conduct adopted May 16,
2007
|
|
|
|
|
|
23
(a)
|
*
|
Consent
of Stegman & Company
|
|
|
|
|
|
23
(b)
|
*
|
Consent
of David Banerjee, CPA
|
|
|
|
|
|
31.1
|
*
|
Certification
of the Principal Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
|
|
|
|
|
|
31.2
|
*
|
Certification
of the Principal Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
|
|
|
|
|
|
32.1
|
*
|
Certification
of Principal Executive Officer Pursuant to 18 U.S.C
§
1350
|
|
|
|
|
|
32.2
|
*
|
Certification
of Principal Financial Officer Pursuant to 18 U.S.C
§
1350
|
|
|
|
|
|
99.1
|
1
|
Grant
Number 1 R43 MH071958-01A2 from the National Institute of Mental
Health to
Neuralstem, Inc., issued September 30,
2005
|
|
99.2
|
1
|
Grant
Number 3 R43 MH071958-01A2S1 from the National Institute of Mental
Health
to Neuralstem, Inc., issued November 22, 2005
|
|
|
|
|
|
99.3
|
1
|
Award
Conditions and Information for National Institute of Health
Grants
|
1.
Filed
as
an exhibit to Issuers SB-2/A filed on June 21, 2006
2.
Filed
as
an exhibit to Issuers SB-2/A filed on July 26, 2006
3.
Filed
as
an exhibit to the Current Report Filed on Form 8-K on March 16,
2007
4.
Filed
as
an exhibit to the Current Report Filed on Form 8-K on June 6, 2007
5.
Filed
as
an exhibit to Issuers quarterly report filed on form 10-QSB on August 18,
2007
6.
Filed
as an exhibit to the Current Report Filed on Form 8-K on February 25,
2008
Summary
of Fees
The
following table summarizes the approximate aggregate fees billed to us or
expected to be billed to us by our independent auditors for our 2007 and 2006
fiscal years:
|
|
|
|
|
|
|
|
Type
of Fees
|
|
2007
|
|
2006
|
|
|
Audit
Fees
|
|
|
|
|
|
|
Stegman
& Company
|
|
|
47,000
|
|
|
-
|
|
|
Dave
Banerjee
|
|
|
18,152
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
Audit
Related Fees
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Tax
Fees
|
|
|
|
|
|
|
|
|
Stegman
& Company
|
|
|
5,500
|
|
|
-
|
|
|
Dave
Banerjee
|
|
|
-
|
|
|
4,050
|
|
|
|
|
|
|
|
|
|
|
|
All
Other Fees
|
|
|
|
|
|
|
|
|
Total
Fee's
|
|
|
70,652
|
|
|
29,050
|
|
Pre-Approval
of Independent Auditor Services and Fees
Our
board
of directors reviewed and pre-approved all audit and non-audit fees for services
provided by Stegman & Company and has determined that the provision of such
services to us during fiscal 2007 is compatible with and did not impair
independence. It is the practice of the audit committee to consider and approve
in advance all auditing and non-auditing services provided to us by our
independent auditors in accordance with the applicable requirements of the
Securities and Exchange Commission. Stegman & Company did not provide us
with any
services,
other than those listed above.
SIGNATURES
In
accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the
undersigned, thereunto duly authorized.
|
|
|
|
|
|
|
NEURALSTEM,
INC
|
|
|
|
|
|
|
Dated:
March 27, 2008
|
|
|
|
By:
|
|
/S/
I Richard Garr
|
|
|
|
|
|
|
|
|
|
I
Richard Garr
President
and Chief Executive
Officer
|
POWER
OF ATTORNEY
KNOW
ALL MEN BY THESE PRESENTS that each person whose signature appears below
constitutes and appoints I. Richard Garr and John Conron and each of them,
as
his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead,
in
any and all capacities, to sign any and all amendments to this Annual Report
on
Form 10-KSB, and to file the same with all exhibits thereto, and other
documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys- in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite and
necessary
to be done in and about the premises, as fully to all intents and purposes
as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or either of them, or their or his substitute
or
substitutes, may lawfully do or cause to be done by virtue hereof.
OFFICERS
AND DIRECTORS
|
|
|
|
|
|
|
Name
|
|
Title
|
|
Date
|
|
|
|
|
|
/s/
I. Richard Garr
I.
Richard Garr
|
|
President,
Chief Executive Officer and Director (Principal executive
officer)
|
|
March
27, 2008
|
|
|
|
|
|
/s/
John Conron
John
Conron
|
|
Chief
Financial Officer (Principal financial and accounting
officer)
|
|
March
27, 2008
|
|
|
|
|
|
/s/
Karl Johe
Karl
Johe
|
|
Chairman
of the Board and Director
|
|
March
27, 2008
|
|
|
|
|
|
/s/
William Oldaker
William
Oldaker
|
|
Director
|
|
March
27, 2008
|
|
|
|
|
|
/s/
Scott Ogilvie
Scott
Ogilvie
|
|
Director
|
|
March
27, 2008
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the
Board of Directors and Stockholders
Neuralstem,
Inc.
Rockville,
Maryland
We
have
audited the accompanying balance sheet of Neuralstem, Inc. as of December
31,
2007, and the related statements of operations, stockholders’ equity and
cash flows the year ended December 31, 2007. Neuralstem, Inc.’s management is
responsible for these financial statements. Our responsibility is to express
an
opinion on these financial statements based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that
we plan
and perform the audit to obtain reasonable assurance about whether the
financial
statements are free of material misstatement. Neuralstem, Inc. is not required
to have, nor were we engaged to perform, an audit of its internal control
over
financial reporting. Our audit included consideration of internal control
over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for expressing an opinion on
the
effectiveness of Neuralstem, Inc.’s internal control over financial reporting.
Accordingly, we express no such opinion. An audit includes examining, on
a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In
our
opinion, the financial statements referred to above present fairly, in
all
material respects, the financial position of Neuralstem, Inc. as of December
31,
2007, and the results of its operations and its cash flows for the year
then
ended in conformity with accounting principles generally accepted in the
United
States of America.
Baltimore,
Maryland
March
26,
2008
DAVE
BANERJEE, CPA
An
Accountancy Corporation - Member AICPA and PCAOB
6301
Owensmouth Ave, Ste 750, Woodland Hills, CA 91367
l
PH
(818)
657-0288
l
FAX
(818)
657-0299
l
CELL
(818)
312-3283
EMAIL
dave@finracompliance.com
l
WEB
www.davebanerjee.com
To
the
Board of Directors
Neuralstem,
Inc.
We
have
audited the accompanying balance sheet of Neuralstem, Inc. as of December
31,
2006 and the related statements of operations, stockholders’ equity (deficit),
and cash flows for the year then ended. These financial statements are
the
responsibility of the Company's management. Our responsibility is to
express an
opinion on these financial statements based on our audit. We did not
audit the
financial statements of Neuralstem, Inc. for the year ended December
31, 2005.
Those statements were audited by other auditors whose report has been
furnished
to us, and our opinion, insofar as it relates to the amounts included
in the
year ended December 31, 2005, is based solely on the report of the
auditors.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that
we plan
and perform the audit to obtain reasonable assurance about whether the
financial
statements are free of material misstatement. An audit includes examining,
on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that my audit provide a
reasonable
basis for our opinion.
In
our
opinion, the financial statements referred to above present fairly, in
all
material respects, the financial position of Neuralstem, Inc. as of December
31,
2006 and the results of its operations, stockholders’ equity (deficit) and cash
flows for the year then ended, in conformity with U.S. generally accepted
accounting principles.
/s/
Dave
Banerjee, CPA, An Accountancy Corp.
Dave
Banerjee CPA, An Accountancy Corp.
Woodland
Hills, California
March
30,
2007
Neuralstem,
Inc.
Balance
Sheets
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
CURRENT
ASSETS
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
7,403,737
|
|
$
|
1,807,041
|
|
|
Prepaid
expenses
|
|
|
130,719
|
|
|
32,848
|
|
|
Other
assets
|
|
|
-
|
|
|
6,043
|
|
|
Total
current assets
|
|
|
7,534,456
|
|
|
1,845,932
|
|
|
|
|
|
|
|
|
|
|
|
PROPERTY
AND EQUIPMENT, NET
|
|
|
136,920
|
|
|
32,515
|
|
|
OTHER
ASSETS
|
|
|
43,271
|
|
|
35,940
|
|
|
INTANGIBLE
ASSETS, NET
|
|
|
111,406
|
|
|
18,239
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
7,826,053
|
|
$
|
1,932,626
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
$
|
1,016,699
|
|
$
|
351,962
|
|
|
Current
portion of Notes payable
|
|
|
-
|
|
|
7,816
|
|
|
Total
current liabilities
|
|
|
1,016,699
|
|
|
359,778
|
|
|
|
|
|
|
|
|
|
|
|
LONG-TERM
LIABILITIES -
|
|
|
|
|
|
|
|
|
Note
payable, long-term portion
|
|
|
-
|
|
|
20,579
|
|
|
Total
liabilities
|
|
|
1,016,699
|
|
|
380,357
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS'
EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock, $0.10 par value, 75 million shares authorized, 31,410,566
and
26,011,605 shares outstanding in 2007 and 2006
|
|
|
314,106
|
|
|
260,116
|
|
|
Additional
paid-in capital
|
|
|
52,151,245
|
|
|
39,734,878
|
|
|
Common
stock payable
|
|
|
-
|
|
|
150,000
|
|
|
Accumulated
deficit
|
|
|
(45,655,997
|
)
|
|
(38,592,725
|
)
|
|
Total
stockholders' equity
|
|
|
6,809,354
|
|
|
1,552,269
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders' equity
|
|
$
|
7,826,053
|
|
$
|
1,932,626
|
|
See
notes
to financial statements.
Neuralstem,
Inc.
Statements
of Operations
|
|
|
|
Years
nded December 31,
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
306,057
|
|
$
|
265,759
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
Research
and development
|
|
|
3,440,129
|
|
|
1,660,321
|
|
|
General,
selling and administrative expenses
|
|
|
3,201,443
|
|
|
1,715,125
|
|
|
Depreciation
and amortization
|
|
|
32,057
|
|
|
51,923
|
|
|
|
|
|
6,673,629
|
|
|
3,427,369
|
|
|
Operating
loss
|
|
|
(6,367,572
|
)
|
|
(3,161,610
|
)
|
|
|
|
|
|
|
|
|
|
|
Nonoperating
income (expense):
|
|
|
|
|
|
|
|
|
Interest
|
|
|
194,753
|
|
|
79,904
|
|
|
Interest
expense
|
|
|
(1,302
|
)
|
|
(9,461
|
)
|
|
Other
income (expense)
|
|
|
-
|
|
|
(56,320
|
)
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
(6,174,121
|
)
|
|
(3,147,487
|
)
|
|
|
|
|
|
|
|
|
|
|
Deemed
Dividend – Repriced Warrants
|
|
|
(889,151
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss atributable to Common Shareholders
|
|
$
|
(7,063,272
|
)
|
$
|
(3,147,487
|
)
|
|
|
|
|
|
|
|
|
|
|
Net
loss per share, basic
|
|
$
|
(0.24
|
)
|
$
|
(0.13
|
)
|
|
|
|
|
|
|
|
|
|
|
Average
number of shares of common stock outstanding
|
|
|
29,012,858
|
|
|
24,898,448
|
|
See
notes
to financial statements.
Neuralstem,
Inc.
Statements
of Cash Flows
|
|
|
|
Years
ended December 31,
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Cash
Flows From Operating Activities:
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(6,174,121
|
)
|
$
|
(3,147,487
|
)
|
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
32,056
|
|
|
51,923
|
|
|
Stock
and warrant based compensation
|
|
|
1,575,120
|
|
|
359,929
|
|
|
Changes
in operating assets and liabilities
|
|
|
|
|
|
|
|
|
Prepaid
expenses
|
|
|
(97,871
|
)
|
|
(32,848
|
)
|
|
Other
assets
|
|
|
(1,288
|
)
|
|
(41,983
|
)
|
|
Accounts
payable and accrued expenses
|
|
|
664,737
|
|
|
(331,841
|
)
|
|
Deferred
compensation
|
|
|
-
|
|
|
(192,620
|
)
|
|
Net
cash used in operating activities
|
|
|
(4,001,368
|
)
|
|
(3,334,927
|
)
|
|
|
|
|
|
|
|
|
|
|
Cash
Flows From Investing Activities:
|
|
|
|
|
|
|
|
|
Capital
outlay for intangible assets
|
|
|
(95,721
|
)
|
|
(5,565
|
)
|
|
Purchase
of property and equipment
|
|
|
(133,906
|
)
|
|
(53,647
|
)
|
|
Net
cash used in investing activities
|
|
|
(229,627
|
)
|
|
(59,212
|
)
|
|
|
|
|
|
|
|
|
|
|
Cash
Flows From Financing Activities:
|
|
|
|
|
|
|
|
|
Issuance
of common stock
|
|
|
9,856,036
|
|
|
4,650,000
|
|
|
Proceeds
from common stock payable
|
|
|
-
|
|
|
150,000
|
|
|
Payments
on notes payable
|
|
|
(28,345
|
)
|
|
(125,201
|
)
|
|
Net
cash provided by financing activities
|
|
|
9,827,691
|
|
|
4,674,799
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase in cash
|
|
|
5,596,696
|
|
|
1,280,660
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalent, beginning of period
|
|
|
1,807,041
|
|
|
526,381
|
|
|
Cash
and cash equivalent, end of period
|
|
$
|
7,403,737
|
|
$
|
1,807,041
|
|
|
Supplemental
disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
$
|
1,302
|
|
$
|
9,461
|
|
|
Cash
paid for taxes
|
|
|
-
|
|
|
-
|
|
|
Supplemental
schedule of non cash investing and financing
activites:
|
|
|
|
|
|
|
|
|
Issuance
shares of common stock to satisfy common stock payable
commitment
|
|
|
150,000
|
|
|
113,000
|
|
|
Conversion
of 6,254,402 shares of preferred stock to 14,182,399 shares of common
stock
|
|
|
-
|
|
|
62,544
|
|
See
notes
to financial statements.
Neuralstem,
Inc.
Statements
of
Shareholders' Equity
For
the years ended December 31, 2007 and
2006
|
|
|
Common
Stock
|
|
|
|
|
|
Accum.
|
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Payable
|
|
Capital
|
|
Deficit
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2005
|
|
|
20,608,272
|
|
$
|
206,083
|
|
$
|
113,000
|
|
$
|
34,665,982
|
|
$
|
(35,445,238
|
)
|
$
|
(460,173
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for cash proceeds of $4,550,000 (net of offering
expense
of
$450,000),
$1.00 per share
|
|
|
5,000,000
|
|
|
50,000
|
|
|
-
|
|
|
4,500,000
|
|
|
-
|
|
|
4,550,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock related to
satisfaction
of stock payable
|
|
|
226,000
|
|
|
2,260
|
|
|
(113,000
|
)
|
|
110,740
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock related to
exercise
of warrants, $0.50 per share
|
|
|
200,000
|
|
|
2,000
|
|
|
-
|
|
|
98,000
|
|
|
-
|
|
|
100,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock payable related to exercise
of
warrants for 300,000 shares of common
stock,
$0.50 per share
|
|
|
-
|
|
|
-
|
|
|
150,000
|
|
|
-
|
|
|
-
|
|
|
150,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vesting
of officer stock options for 600,000
shares
of common stock, $0.49 fair value per
share
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
293,529
|
|
|
-
|
|
|
293,529
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vesting
of warrants for 24,000 shares of
common
stock, $0.42 fair value per share
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
10,080
|
|
|
-
|
|
|
10,080
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Penalty
for late filing of registration statement
related
to private placement offering
|
|
|
28,333
|
|
|
283
|
|
|
-
|
|
|
56,037
|
|
|
-
|
|
|
56,320
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return
of shares related to penalty assessed on placement agent for
late filing
of registration
statements
related to private placement
|
|
|
(51,000
|
)
|
|
(510
|
)
|
|
-
|
|
|
510
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss, December 31, 2006
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(3,147,487
|
)
|
|
(3,147,487
|
)
|
|
Balance
at December 31, 2006
|
|
|
26,011,605
|
|
$
|
260,116
|
|
$
|
150,000
|
|
$
|
39,734,878
|
|
$
|
(38,592,725
|
)
|
$
|
1,552,269
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for satisfaction of common stock
payable
|
|
|
300,000
|
|
|
3,000
|
|
|
(150,000
|
)
|
|
147,000
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock related to exercise of warrants, $0.05 exercise
price per
share
|
|
|
69,000
|
|
|
690
|
|
|
|
|
|
2,760
|
|
|
|
|
|
3,450
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock related to exercise of warrants, $0.50 exercise
price per
share
|
|
|
100,000
|
|
|
1,000
|
|
|
|
|
|
49,000
|
|
|
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock related to exercise of warrants related to Private
Placement Offering, $1.50 exercise price per share
|
|
|
201,500
|
|
|
2,015
|
|
|
|
|
|
300,235
|
|
|
|
|
|
302,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock related to exercise of warrants related to Private
Placement Offering, $2.00 exercise price per share
|
|
|
25,000
|
|
|
250
|
|
|
|
|
|
49,750
|
|
|
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock related to Private Placement Offering, net of $440,100
in
offering related expenses, $2.50 per share
|
|
|
2,054,000
|
|
|
20,540
|
|
|
|
|
|
4,674,360
|
|
|
|
|
|
4,694,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock related to Private Placement Offering, net of $80,300
in
offering related expenses, $2.50 per share
|
|
|
400,000
|
|
|
4,000
|
|
|
|
|
|
915,700
|
|
|
|
|
|
919,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vesting
of officer/directors stock options for 395,128 shares of common
stock,
$1.08 fair value per share
|
|
|
-
|
|
|
-
|
|
|
|
|
|
427,099
|
|
|
|
|
|
427,099
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vesting
of warrants for 19,789 shares of common stock, $2.33 fair value
per
share
|
|
|
-
|
|
|
-
|
|
|
|
|
|
46,224
|
|
|
|
|
|
46,224
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock related to exercise of warrants related to Private
Placement Offering, $1.50 exercise price per share
|
|
|
56,000
|
|
|
560
|
|
|
|
|
|
83,440
|
|
|
|
|
|
84,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock related to exercise of warrants related to Private
Placement Offering, $0.05 exercise price per share
|
|
|
4,000
|
|
|
40
|
|
|
|
|
|
160
|
|
|
|
|
|
200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock related to exercise of warrants related to Private
Placement Offering, $1.10 exercise price per share
|
|
|
19,245
|
|
|
193
|
|
|
|
|
|
20,977
|
|
|
|
|
|
21,170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock related to exercise of warrants related to Private
Placement Offering, $2.20 exercise price per share
|
|
|
50,000
|
|
|
500
|
|
|
|
|
|
99,500
|
|
|
|
|
|
100,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock related to exercise of warrants related to Private
Placement Offering, $0.50 exercise price per share
|
|
|
330,000
|
|
|
3,300
|
|
|
|
|
|
161,700
|
|
|
|
|
|
165,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock related to exercise of warrants related to Private
Placement Offering, $2.00 exercise price per share
|
|
|
50,000
|
|
|
500
|
|
|
|
|
|
99,500
|
|
|
|
|
|
100,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock related to exercise of warrants related to Private
Placement of warrants, net cash exercise
|
|
|
339,394
|
|
|
3,394
|
|
|
|
|
|
(3,394
|
)
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock related to exercise of warrants related to Private
Placement Offering, $3.00 exercise price per share
|
|
|
13,000
|
|
|
130
|
|
|
|
|
|
38,870
|
|
|
|
|
|
39,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vesting
of officer/directors stock options for Quarter III
|
|
|
-
|
|
|
-
|
|
|
|
|
|
372,238
|
|
|
|
|
|
372,238
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock related to exercise of warrants related to Private
Placement Offering, $1.50 exercise price per share
|
|
|
15,000
|
|
|
150
|
|
|
|
|
|
22,350
|
|
|
|
|
|
22,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock related to exercise of warrants related to Private
Placement Offering, $2.75 exercise price per share
|
|
|
1,227,000
|
|
|
12,270
|
|
|
|
|
|
3,034,778
|
|
|
|
|
|
3,047,048
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On
October 26, 2007, the Company agreed to reduce the exercise price
of the
warrants issued in connection with the Company’s March 2007 offering by
$.25 per share. As a result of the discounted exercise price
we recorded a
a deemed divident charge of $889,151 for the warrants that were
so
exercised.
|
|
|
-
|
|
|
-
|
|
|
|
|
|
889,151
|
|
|
(889,151
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock related to exercise of warrants related to Private
Placement Offering, $1.50 exercise price per share
|
|
|
72,911
|
|
|
729
|
|
|
|
|
|
108,637
|
|
|
-
|
|
|
109,367
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock related to exercise of warrants related to Private
Placement Offering, $2.00 exercise price per share
|
|
|
72,911
|
|
|
729
|
|
|
|
|
|
145,093
|
|
|
-
|
|
|
145,822
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vesting
of officer/directors stock options for Quarter IV
|
|
|
|
|
|
|
|
|
|
|
|
731,239
|
|
|
-
|
|
|
731,239
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
-
|
|
|
|
|
|
-
|
|
|
(6,174,121
|
)
|
|
(6,174,121
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2007
|
|
|
31,410,566
|
|
$
|
314,106
|
|
$
|
0
|
|
$
|
52,151,245
|
|
$
|
(45,655,997
|
)
|
|
6,809,354
|
|
See
notes
to financial statements.
NEURALSTEM,
INC.
NOTES
TO FINANCIAL STATEMENTS
Note
1.
Nature
of Business and Significant Accounting Policies
Nature
of business:
Neuralstem,
Inc. (“Company”) is a biopharmaceuticals company that is utilizing its
proprietary human neural stem cell technology to create a comprehensive platform
for the treatment of central nervous system diseases. The Company will
commercialize this technology as a tool for use in the next generation of
small-molecule drug discovery and to create cell therapy biotherapeutics to
treat central nervous system diseases for which there are no cures. The Company
was founded in 1997 and currently occupies lab and office space in Gaithersburg,
Maryland.
Inherent
in the Company’s business are various risks and uncertainties, including its
limited operating history, the fact that Neuralstem’s technologies are new and
may not allow the Company or its customers to develop commercial products,
regulatory requirements associated with drug development efforts and the intense
competition in the genomics industry. The Company’s success depends, in part,
upon successfully raising additional capital, prospective product development
efforts, the acceptance of the Company’s solutions by the marketplace, and
approval of the Company’s solutions by various governmental
agencies.
A
summary of the Company’s significant accounting policies is as
follows:
Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Cash
and Equivalents
For
the
Statements of Cash Flows, all highly liquid investments with maturity of three
months or less are considered to be cash equivalents.
NEURALSTEM,
INC.
NOTES
TO FINANCIAL STATEMENTS
Note
1. Nature of Business and Significant Accounting Policies
(continued)
Property
and Equipment
Property
and equipment is stated at cost and depreciated on a straight-line basis over
the estimated useful lives ranging from three to eight years. Expenditures
for
maintenance and repairs are charged to operations as incurred.
Recoverability
of Long-Lived Assets and Identifiable Intangible Assets
Long-lived
assets and certain identifiable intangible assets to be held and used are
reviewed for impairment when events or changes in circumstances indicate that
the carrying amount of such assets may not be recoverable. Determination of
recoverability is based on an estimate of undiscounted future cash flows
resulting from the use of the asset and its eventual disposition. In the event
that such cash flows are not expected to be sufficient to recover the carrying
amount of the assets, the assets are written down to their estimated fair
values. Long-lived assets and certain identifiable intangible assets to be
disposed of are reported at the lower of carrying amount or fair value less
cost
to sell.
Fair
Value of Financial Instruments
The
fair
values of financial instruments are estimated based on market rates based upon
certain market assumptions and information available to management. The
respective carrying value of certain on-balance-sheet financial instruments
approximated their fair values. These financial instruments include cash,
accounts payable and notes payable. Fair values were assumed to approximate
carrying values for cash and payables due to the short-term nature or that
they
are payable on demand.
Revenue
Recognition
To
date,
revenue has been derived primarily from providing treated samples for gene
expression data from stem cell experiments and from providing services under
a
federal grant program approximating $306,057 and $265,759 in 2007 and 2006,
respectively. Revenue is recognized when there is persuasive evidence that
an
arrangement exists, delivery of goods and services has occurred, the price
is
fixed and determinable, and collection is reasonably assured.
Research
and Development
Research
and development costs are charged to operations when incurred.
NEURALSTEM,
INC.
NOTES
TO FINANCIAL STATEMENTS
Note
1. Nature of Business and Significant Accounting Policies
(continued)
Income
taxes
Income
taxes are provided for using the liability method of accounting in accordance
with SFAS No. 109
“Accounting
for Income Taxes.”
A
deferred tax asset or liability is recorded for all temporary differences
between financial and tax reporting. Temporary differences are the differences
between the reported amounts of assets and liabilities and their tax basis.
Deferred tax assets are reduced by a valuation allowance when, in the opinion
of
management, it is more likely than not that some portion or all of the deferred
tax assets will not be realized. Deferred tax assets and liabilities are
adjusted for the effect of changes in tax laws and rates on the date of
enactment.
Stock
- Based Compensation
We
have
granted stock-based compensation awards to employees and board members.
Awards may consist of common stock, or stock options. Our stock
options and warrants have a ten year life. The stock options or warrants
vest either upon the grant date or over varying periods of time. The stock
options we grant provide for option exercise prices equal to or greater than
the
fair market value of the common stock at the date of the
grant.
During
the year ended December 31, 2007 we granted 718,333 options. In the year
ended December 31, 2006 we granted no options. We accrue related
compensation expenses as our options vest in accordance with
SFAS123(R),
Share-Based Payment.
We
recognized $1,575,120 and $359,926 stock-based compensation expense during
the
year ended December 31, 2007 and 2006, respectively, from the vesting of stock
options.
A
summary
of stock option activity during the year ended December 31, 2007 and related
information is included in the table below:
|
|
|
Number
of
Options
|
|
Weighted-
Average
Exercise
Price
|
|
Weighted-
Average
Remaining
Contractual
Life
(in years)
|
|
Aggregate
Intrinsic
Value
|
|
|
Outstanding
at January 1, 2006
|
|
|
2,482,326
|
|
$
|
0.66
|
|
8.5
|
|
$
|
-
|
|
|
Granted
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at December 31, 2006
|
|
|
2,482,326
|
|
|
0.66
|
|
7.5
|
|
|
|
|
|
Granted
|
|
|
718,333
|
|
|
3.04
|
|
7.8
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at December 31, 2007
|
|
|
3,200,659
|
|
$
|
1.19
|
|
6.8
|
|
$
|
8,256,977
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable
at December 31, 2007
|
|
|
1,504,826
|
|
$
|
1.12
|
|
6.6
|
|
$
|
4,059,427
|
|
|
|
|
Option
Oustanding
|
|
Options
Exercisable
|
|
|
|
|
Number
Outstanding
|
|
Weighted
Average Remaining
Contractural
Life
(in
years)
|
|
Weighted
Average Exercise Price
|
|
Number
Outstanding
|
|
Weighted
Average
Exercise
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$.50
to $3.00
|
|
|
2,465,000
|
|
|
7.5
|
|
$
|
0.54
|
|
|
1,265,000
|
|
$
|
0.59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$3.01
to $4.00
|
|
|
668,275
|
|
|
7.7
|
|
$
|
3.13
|
|
|
172,442
|
|
$
|
3.27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$4.01
to $16.67
|
|
|
67,384
|
|
|
6.9
|
|
$
|
5.64
|
|
|
67,384
|
|
$
|
5.64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,200,659
|
|
|
6.8
|
|
$
|
1.19
|
|
|
1,504,826
|
|
$
|
1.12
|
|
NEURALSTEM,
INC.
NOTES
TO FINANCIAL STATEMENTS
Note
1. Nature of Business and Significant Accounting Policies
(continued)
Comprehensive
Loss
Statement
of Financial Accounting Standard (SFAS) No. 130
“Reporting
Comprehensive Income,”
requires
the presentation of comprehensive income or loss and its components as part
of
the financial statements. For the years ended December 31, 2005 and 2004, the
Company’s net loss reflects comprehensive loss and, accordingly, no additional
disclosure is required.
Significant
New Accounting Pronouncements
In
September 2006, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards (“SFAS”) 157,
“Fair
Value Measurements.”
SFAS 157
defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles, and expands disclosures about fair
value measurements. SFAS 157 is effective for financial statements issued
for
fiscal years beginning after November 15, 2007 and interim periods within
those
years. We do not expect the implementation of SFAS 157 to have a material
impact
on our financial statements.
In
June
2006, the FASB issued FASB Interpretation No. 48,
“Accounting
for Uncertainty in Income Taxes”
(“FIN
48”). FIN 48 clarifies when tax benefits should be recorded in financial
statements, requires certain disclosure of uncertain tax matters and indicates
how any tax reserves should be classified in a balance sheet. On January
1,
2007, the Company adopted FIN 48. We have determined that adoption of FIN
48 did
not have any impact on our financial condition or results of operations.
It is
our policy to recognize interest and penalties related to unrecognized tax
liabilities within income tax expense in the statements of
operations.
In
February 2007, the FASB issued SFAS 159,
“The
Fair Value Option for Financial Assets and Liabilities.”
SFAS 159
permits entities to measure many financial instruments and certain other
items
at fair value. The objective is to improve financial reporting by providing
entities with the opportunity to mitigate volatility in reported earnings
caused
by measuring related assets and liabilities differently without having to
apply
complex hedge accounting provisions. This pronouncement is effective as of
the
beginning of an entity’s first fiscal year beginning after November 15, 2007. We
do not expect the implementation of SFAS 159 to have a material impact on
our
financial position or results of operations.
In
June
2007, the FASB ratified a consensus opinion reached by the Emerging Issue
Task
Force (“EITF”) on EITF Issue 07-3,
“Accounting
for Nonrefundable Advance Payments for Goods or Services Received for Use
in
Future Research and Development Activities.”
The
guidance in EITF Issue 07-3 requires use to defer and capitalize nonrefundable
advance payments made for goods or services to be use in research and
developments activities until the goods have been delivered or the related
services have been performed. If the goods are no longer expected to be
delivered nor the services expected to be performed, we would be required
to
expense the related capitalized advance payments. The consensus in EITF Issue
07-3 is effective for fiscal years, and interim periods within those fiscal
years, beginning after December 15, 2007 and is to be applied prospectively
to
new contracts entered into on or after December 15, 2007. Early adoption
is not
permitted. Retrospective application of EITF Issue 07-3 is also not permitted.
We intend to adopt EITF Issue 07-3 effective January 1, 2008. The impact
of
applying this consensus will depend on the terms of the our future research
and
development contractual arrangements entered into on or after December 15,
2007.
In
December 2007, the FASB ratified a consensus reached by the EITF on Issue
07-1,
“Accounting
for Collaborative Arrangements.”
The EITF
concluded on the definition of a collaborative arrangement and that revenues
and
costs incurred with third parties in connection with collaborative arrangements
would be presented gross or net based on the criteria in EITF 99-19 and other
accounting literature. Based on the nature of the arrangement, payments to
or
from collaborators would be evaluated and its terms, the nature of the entity’s
business, and whether those payments are within the scope of other accounting
literature would be presented. Companies are also required to disclose the
nature and purpose of collaborative arrangements along with the accounting
policies and the classification and amounts of significant financial-statement
amounts related to the arrangements. Activities in the arrangement conducted
in
a separate legal entity should be accounted for under other accounting
literature; however required disclosure under EITF 07-1 applies to the entire
collaborative agreement. EITF 07-1 is effective for us January 1, 2008 and
is to
be applied retrospectively to all periods presented for all collaborative
arrangements existing as of the effective date. We do not expect the adoption
of
EITF 07-1 to have a material impact on our financial statements.
In
December 2007, the FASB issued SFAS 141, Revised 2007 (SFAS 141R),
“Business
Combinations.”
SFAS
141R’s objective is to improve the relevance, representational faithfulness, and
comparability of the information that a reporting entity provides in its
financial reports about a business combination and its effects. SFAS 141R
applies prospectively to business combinations for which the acquisition
date is
on or after December 15, 2008. We do not expect the implementation of SFAS
141R
to have a material impact on our financial statements.
In
December 2007, the FASB issued SFAS 160,
“Noncontrolling
Interests in Consolidated Financial Statements.”
SFAS
160’s objective is to improve the relevance, comparability, and transparency
of
the financial information that a reporting entity provides in its consolidated
financial statements by establishing accounting and reporting standards for
the
noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. SFAS 160 shall be effective for fiscal years and interim periods
within those fiscal years, beginning on or after December 15, 2008. We do
not
expect the implementation of SFAS 160 to have a material impact on our financial
statements.
Note
2. Stockholders’ Equity
Preferred
and Common Stock
The
authorized stock of the Company consists of 7,000,000 shares of preferred stock
with a par value of $0.01 and 75,000,000 shares of common stock with par value
of $0.01. The preferred stock is divided into A, B, and C Series.
NEURALSTEM,
INC.
NOTES
TO FINANCIAL STATEMENTS
Note
2. Stockholders’ Equity (continued)
Preferred
and Common Stock
(continued)
During
the year ended December 31, 2006, the Company sold 5,000,000 shares of common
stock for a total consideration of $4,550,000 (net of offering expenses of
$450,000) through a Limited Offering Memorandum. Each Unit sold consisted of
one
share of common stock, ½ “A” Warrant to Purchase A share of Common Stock at
$1.50 per share, and ½ ‘B” Warrant to Purchase A Share of Common Stock at $1.00
per share. These warrants have a life of 10 years.
During
the year ended December 31, 2007, the Company sold 2,454,000 shares of common
stock for a total consideration of $5,614,600 (net of offering expenses of
$511,300) through a Limited Offering Memorandum. Each Unit sold consisted of
one
share of common stock, ½ Warrant to Purchase A share of Common Stock at $3.00
per share. In addition we gave the underwriter, T.R. Winston & Co 294,280
$3.00 warrants. These warrants have a life of 5 years.
During
the year ended December 31, 2007, the Company also converted 2,644,961 warrants
into common shares raising $4,245,436 net of $327,202 in expenses. In
conjunction with one large conversion we issued and additional 1,227,000 $2.75
warrants with a five year life.
Stock
Options
In
1997,
the Company adopted a stock incentive plan (the Plan) to provide for the
granting of stock awards, such as stock options and restricted common stock
to
employees, directors and other individuals as determined by the Board of
Directors. The Company reserved 2.7 million shares of common stock for issuance
under the Plan. At December 31, 2002, 816,084 options were outstanding with
216,040 options exercisable. During 2003, the Company reduced operations and
terminated employment with all employees. The Plan was discontinued, terminating
all options outstanding.
The
Company did not issue new stock options in 2006.
|
·
|
On
April 1, 2007, granted John Conron options to purchase 100,000
common
shares. The options vest as follows: (i) 25,000 vest immediately;
and
(iii) 75,000 vest quarterly over the year. The options have an
exercise
price of $3.15 and expire on April 1, 2015. These options have
a value of
$118,284.
|
|
·
|
On
June 28, 2007, pursuant to our adopted director compensation plan,
we
issued to each of Messrs Ogilvie and Oldaker, options to purchase
15.000
shares of our common stock (5,000 shares per each committee on
which they
serve). The options were issued pursuant to our 2005 Stock Plan.
The
exercise price per share is $2.77 and the options vest quarterly
over the
year
.
|
|
·
|
On September 20, 2007, our
Compensation
Committee granted Karl Johe, our Chairman and Chief Scientific
Officer,
options to purchase an aggregate of 333.333 shares of our common
stock at
a price per share of $3.01 pursuant to our 2005 Stock Plan. The
options
expire 5 years from the date when they become exercisable. Additionally,
the options will become immediately exercisable upon an event which
would
result in an acceleration of Mr. Johe’s stock options granted under his
employment agreement. The options vest on October 31, 2010. The
Option have a value of $570,478.
|
|
·
|
On November 15, 2007, our Compensation
Committee granted an employee options to purchase an aggregate
of 14,000
shares of our common stock at a price per share of $2.71 pursuant
to our
2005 Stock Plan. The options expire 10 years from the grant date.
The
options are fully vested and have a value of
$11,509.
|
|
·
|
On December 15, 2007, our Compensation
Committee granted a consultant options to purchase an aggregate
of 50,000
shares of our common stock at a price per share of $2.00 pursuant
to our
2005 Stock Plan. The options expire in 2015. The options are fully
vested
and have a value of $54,898.
|
NEURALSTEM,
INC.
NOTES
TO FINANCIAL STATEMENTS
Note
2. Stockholders’ Equity (continued)
Stock
Warrants
(continued)
During
the year ended December 31, 2006, the Company issued warrants to a consultant
for 24,000 shares of common stock with an exercise price $0.50 per share
expiration commencing 2017. The warrants were issued for consulting services
performed which had been valued at approximately $10,000 and expensed for the
year ended December 31, 2006. The warrants were valued using the Black Scholes
option pricing model based on the following assumptions: stock price of at
date
of issuance of $0.50; expected life of 1.5 years; volatility rate of 224%;
and
discount rate of 4.1%.
During
the year ended December 31, 2007 the company issue the following
warrants:
|
On
March 15, 2007, we completed a private placement through T.R. Winston
& Company, LLC of 2,054,000 units to 15 institutional investors. The
units were priced at $2.50 each and resulted in gross proceeds to
the
Company of $5,135,000.00. The units consist of:
1
common stock; and
½
common stock purchase warrant.
An
aggregate of 2,054,000 common shares and warrants to purchase an
additional 1,027,000 common shares were issued. The units were priced
at
$2.50 each and resulted in gross proceeds to the Company of $5,135,000.00.
The investors also received certain registration rights with regard
to the
underlying securities. The exercise price of the warrants is
$3.00.
|
|
On
March 15, 2007, in connection with the private placement of the same
date,
the Company paid fees and expenses totaling $431,000.00 and issued
a
warrant to purchase 246,480 common shares at $3.00 to T.R. Winston
&
Company, LLC.
|
|
On
March 27, 2007, we sold an additional 400,000 warrants to purchase
an
additional 200,000 common shares were issued for $1,000,000 pursuant
to
our March 15, 2007 private placement. In connection with the sale
of such
additional units, we paid fees and expenses totaling $80,300 and
issued a
warrant to purchase an additional 48,000 common shares at $3.00 to
T.R.
Winston & Company, LLC.
|
On
April
1, 2007 we issued warrants for 100,000 shares of our common stock to Richard
Freeman as l payment for services rendered. The warrants have an exercise price
of $3.20 and vest over 18 months. The warrants are valued $124,525.
|
On
June 5, 2007, in exchange for: (i) the acquisition of certain residual
rights; and (ii) the cancellation of the Hi Med Technologies, Inc.
licensing agreement, we issued Karl Johe, our Chairman and Chief
Scientific Officer, warrants to purchase an aggregate of 3,000,000
shares
of our common stock at a price per share of $3.01. The warrants expire
5
years from the date when they become exercisable. Additionally, the
warrants will become immediately exercisable upon an event which
would
result in an acceleration of Mr. Johe’s stock options granted under his
employment agreement. The warrants vest as
follows:
|
|
i.
|
1,000,000
warrants vest on October 31, 2010;
and
|
|
ii.
|
2,000,000
warrants vest on October 31, 2011.
|
|
·
|
On
October 31, 2007, the Company issued warrants to purchase 1,227,000
shares
of common stock at a per share price of $2.75 to investors
who
participated in the Company’s March 2007 offering which was previously
disclosed on the current report filed on Form 8-K with the
Securities and
Exchange Commission on March 16, 2007. The warrants have a
term of 5 years
and are substantially identical to those warrants previously
issued in the
March 2007 offering. The Company agreed to include the common
shares
underlying the warrants in the Company’s next registration statement. The
warrants were granted as an inducement for the investors to
exercise their
prior warrants as well as the waiver of certain anti-dilutive
and
participation rights provisions contained March 2007 stock
purchase
agreement and warrants. The Company hereby incorporates by
reference the
stock purchase agreement and form of warrant contained in the
Company’s
current report filed on Form 8-K on March 16, 2007. The Company
relied on
the exception from registration provided for in section 4(2)
of the
Securities Act.
|
Warrants
to purchase common stock were issued to certain officers, stockholders and
consultants.
|
|
|
Number
of
Warrants
|
|
Weighted-
Average
Exercise
Price
|
|
|
Outstanding
at January 1, 2006
|
|
|
2,899,000
|
|
$
|
2.77
|
|
|
Issued
|
|
|
5,849,602
|
|
$
|
1.66
|
|
|
Exercised
|
|
|
(500,000
|
)
|
$
|
(.50
|
)
|
|
Forfeited
|
|
|
(100,000
|
)
|
$
|
(20.00
|
)
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at December 31, 2006
|
|
|
8,148,602
|
|
$
|
1.90
|
|
|
Issued
|
|
|
5,752,480
|
|
$
|
2.95
|
|
|
Exercised
|
|
|
(2,691,567
|
)
|
$
|
(1.61
|
)
|
|
Forfeited
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at December 31, 2007
|
|
|
11,208,515
|
|
$
|
2.44
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable
at December 31, 2007
|
|
|
8,208,515
|
|
$
|
2.24
|
|
The
following table summarizes information about stock warrants at December 31,
2007
which all are currently exercisable:
|
|
|
Outstanding
|
|
Expiration
|
|
|
Exercise
Price
|
|
Warrants
|
|
Date
|
|
|
$0.50
|
|
|
320,000
|
|
|
2007
|
|
|
$1.10
|
|
|
782,005
|
|
|
2011
|
|
|
$1.50
|
|
|
2,168,765
|
|
|
2011
|
|
|
$2.00
|
|
|
2,316,265
|
|
|
2011
|
|
|
$2.75
|
|
|
1,227,000
|
|
|
2012
|
|
|
$3.00
|
|
|
294,480
|
|
|
2012
|
|
|
$5.00
|
|
|
1,000,000
|
|
|
2016
|
|
|
$2.00
|
|
|
100,000
|
|
|
2016
|
|
|
|
|
|
8,208,515
|
|
|
|
|
Deemed
Dividend
In
October 2007 we offered the holders of 1,227,000 $3.00 warrants to purchase
the
Company’s common shares; the opportunity to exercise those securities for $2.75.
In addition we offered the $3.00 warrant holders one new $2.75 five year warrant
on terms substantially identical to the $3.00 warrants for each share purchased
in the transaction. We issued an aggregate of 1,227,000 common shares and
received $3,374,250 in the transaction.
As
a
result of the discounted exercise price we recorded a deemed dividend charge
of
approximately $889,151 for the warrants that were so exercised.
Valuation
and Expense Information Under SFAS 123R
On
January 1, 2006, we adopted SFAS 123R, which requires the measurement and
recognition of compensation expense for all share-based payment awards made
to
employees service providers, and directors, including employee stock options
and
warrant awards.
The
following table summarizes the stock-based compensation expense related to
share-based payment awards under SFAS 123R for the year ended December 31,
2007
and 2006 which was allocated as follows:
|
|
|
Year
Ended
|
|
Year
Ended
|
|
|
|
|
December 31, 2007
|
|
December
31, 2006
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
$
|
1,167,172
|
|
$
|
147,605
|
|
|
General
and administrative
|
|
|
407,948
|
|
|
147,605
|
|
|
Stock-based
compensation expense included in operating expenses
|
|
$
|
1,575,120
|
|
$
|
195,210
|
|
The
fair value of options granted in fiscal years 2007 and 2006 reported above
has
been estimated at the date of grant using the Black Scholes option-pricing
model
with the following assumptions:
|
|
|
|
2007
|
|
|
|
Dividend
yield
|
|
|
0
|
%
|
|
|
Expected
volatility range
|
|
|
47%
to 82
|
%
|
|
|
Risk-free
interest rate range
|
|
|
3.09
to 4.73
|
%
|
|
|
Expected
life
|
|
|
2
to 6.5 yrs
|
|
|
We
have not used the historical volatility of our stock since we began public
trading in December 2006 and consequently do have sufficient trading history
to
forecast volatility for the expected life of our options. Instead to estimate
expected volatility we use a market capitalization weighted average of the
historical trading of other companies in our industry. The expected term of
options is two years beyond the vesting date. This is an estimate based on
management ‘s judgment and corresponds with its experience with Equity Warrants.
The risk-free interest rate is based on the Daily Treasury Yield Curve Rates
as
published by the US Treasury for the expected term in effect on the date of
grant. We grant options under our equity plans to employees, non-employee
directors, and consultants for whom the vesting period is between
imediate and 4.5 years.
As
stock-based compensation expense recognized in the statements of operations
for
the year ended December 31, 2007 is based on awards ultimately expected to
vest,
it has been reduced for estimated forfeitures but at a minimum, reflects the
grant-date fair value of those awards that actually vested in the period. SFAS
123R requires forfeitures to be estimated at the time of grant and revised,
if
necessary, in subsequent periods if actual forfeitures differ from those
estimates. Forfeitures were estimated based management judgment.
Based on the Black Scholes option-pricing model, the weighted average estimated
fair value of employee stock options granted during the year ended December
31,
2007 was $1.48 per share.
Earnings
Per Share
Net
loss
per share is calculated in accordance with SFAS No. 128, “
Earnings
Per Share.
”
The
weighted-average number of common shares outstanding during each period is
used
to compute basic loss per share. Diluted loss per share is computed using the
weighted averaged number of shares and dilutive potential common shares
outstanding. Dilutive potential common shares are additional common shares
assumed to be exercised. Dilutive loss per share is excluded from the
calculation because the effect would be anti-dilutive.
NEURALSTEM,
INC.
NOTES
TO FINANCIAL STATEMENTS
Note
2. Stockholders’ Equity (continued)
Common
stock payable for 300,000 unissued shares of common stock at December 31,
2006
During
the year ended December 31, 2006, the Company received $150,000 related to
exercise of warrants for 300,000 shares of common stock at $0.50 per share.
As
of December 31, 2006, the Company had not issued any of the 300,000 shares
of
common stock. However, the 300,000 shares of common stock have been included
in
the net loss per share computation in the accompanying statements of operations.
The Company issued these shares in February 2007.
Note
3. Property and Equipment
The
major
classes of property and equipment
consist
of the following:
|
|
|
2007
|
|
2006
|
|
|
Furniture
and Fixtures
|
|
$
|
5,289
|
|
$
|
336,487
|
|
|
Computers
and office equipment
|
|
|
39,181
|
|
|
307,778
|
|
|
Lab
equipment
|
|
|
132,530
|
|
|
567,091
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
177,000
|
|
$
|
1,211,356
|
|
|
Less
accumulated depreciation and amortization
|
|
|
(40,080
|
)
|
|
(1,178,841
|
)
|
|
Property
and equipment, net
|
|
$
|
136,920
|
|
$
|
32,515
|
|
Depreciation
expense for the years ended December 31, 2007 and 2006 was $32,056 and $51,923,
respectively. In 2007 we retired $1,139,411 of fully depreciated equipment
that
was no longer being used by the company.
NEURALSTEM,
INC.
NOTES
TO FINANCIAL STATEMENTS
Note
4. Intangible Assets
The
Company holds patents related to its stem cell research. Patent filing costs
were capitalized and are being amortized over the life of the patents. The
company has determined that the intangibles purchased have a seventeen year
useful life. The provisions of SFAS No. 144
“Accounting
for the Impairment or Disposal of Long-Lived Assets”
are followed in
determining if there is any impairment.
The
Company determined that no impairment to the assigned values had occurred.
The
Company’s intangible assets and accumulated amortization consisted of the
following at December 31, 2007 and 2006:
|
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
Gross
|
|
|
|
Gross
|
|
Amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patent
filing fees
|
|
$
|
126,083
|
|
$
|
(14,677
|
)
|
$
|
24,796
|
|
$
|
(6,557
|
)
|
Amortization
expense for the years ended December 31, 2007 and 2006 was $8,120 and $1,653,
respectively.
Note
5. Notes payable
In
April
2005, the Company received a notice from the Department of Economic Development
(“DED”) from Montgomery County, Maryland, whereby provisions of a $40,000 grant
received in 2001 were not fully satisfied. As a result, the Company is required
to return the grant. In 2004, the Company recorded an accrued liability for
this
amount. In 2005, the Company reclassified the accrued liability as a note
payable since the notice from DED provided provisions for the grant funds to
be
returned over a five year period, in monthly payments of both principal and
interest, interest rate of 5% and maturing in May 2010. In December of 2007
the
Company paid the full remaining balance of the note. As of December 31, 2007
there was no amount owed on the note compared with a December 31, 2006 balance
of $28,395.
In
November 2001, the Company entered into an agreement with a bank to borrow
$625,000. The note was renegotiated in May 2002 to require principal payments
of
$25,000 per month beginning August 2002 and to accrue interest at the prime
rate
plus 1.5% with the balance of principal and accrued interest due on December
9,
2002. The note was renegotiated in December 2002 to require principal payments
of $25,000 per month through February 2003, increasing to $40,000 per month
starting March 2003, and to accrue interest at the prime rate plus 1.5% with
the
balance of principal and accrued interest due on June 20, 2003. Substantially
all of the Company’s assets provide collateral for the borrowings. The note was
fully paid as of December 31, 2006.
NEURALSTEM,
INC.
NOTES
TO FINANCIAL STATEMENTS
Note
5. Notes payable (continued)
Notes
payable at December 31, 2007 and 2006 are as follows:
|
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
$
|
-
|
|
|
|
|
|
Current
portion of note payable
|
|
|
-
|
|
|
(7,816
|
)
|
|
|
|
|
|
|
|
|
|
|
Long-term
portion of note payable
|
|
$
|
|
|
|
20,579
|
|
Note
6. Income Taxes
We
did
not provide any current or deferred U.S. federal income tax provision or benefit
for any of the periods presented because we have experienced operating losses
since inception. We provided a full valuation allowance on the net deferred
tax
asset, consisting of net operating loss carryforwards, because management has
determined that it is more likely than not that we will not earn income
sufficient to realize the deferred tax assets during the carryforward
period.
The
tax
effects of significant temporary differences representing deferred tax
assets as of December 31, 2007 and 2006:
|
|
|
2007
|
|
2006
|
|
|
Net
operating loss carry-forwards
|
|
$
|
12,795,157
|
|
$
|
10,749,822
|
|
|
Valuation
allowance
|
|
|
(12,795,157
|
)
|
|
(10,749,822
|
)
|
|
Net
deferred tax assests
|
|
$
|
-
|
|
$
|
-
|
|
At
December 31, 2007, the Company has net operating loss carryforwards of
approximately $32.4 million. The Company has also reported certain other tax
credits, the benefit of which has been deferred. The Company’s NOL carryforwards
and credits will begin to expire in the tax year 2012. The timing and manner
in
which these net operating loss carryforwards and credits may be utilized in
any
year by the Company will be limited to the Company’s ability to generate future
earnings and also may be limited by certain provision of the U.S. tax
code.
NEURALSTEM,
INC.
NOTES
TO FINANCIAL STATEMENTS
Note
7. Commitments and Contingencies
We
currently lease two facilities. Our executive offices and primary research
facilities are located at 9700 Great Seneca Highway, Rockville MD, 20850.
We
lease these facilities consisting of approximately 2,500 square feet for
$7,940
per month. The term of our lease expires on January 31, 2009.
We
have
recently entered into a lease to secure approximately 900 square feet of
research space in San Diego California at a monthly lease rate of $3,346.
The
lease expires in August of 2009.
On
November 1, 2005, the Company amended and extended its employment agreements
dated January 1, 1997 with Richard Garr and Karl Johe for an additional seven
(7) years which includes a base salary of $240,000 per year for each officer.
On
July 28, 2005, the Company granted both Mr. Garr and Mr. Johe stock options
for
1,200,000 shares of the Company’s common stock each vesting annually over a four
year period with an exercise price of $0.50 per share. Termination prior to
full
term on the contracts would cost the Company $240,000 per year unserved, or
as
much as $1,680,000 per contract, and immediate vesting of all outstanding
options.
Note
8.
Subsequent
Event
CJ
CheilJedang Corporation (KSE: CJ CheilJedang hereafter "CJ") has purchased
an
option to negotiate for the exclusive license to Neuralstem’s stem cell-products
and technology after the company completes a successful human clinical trial.
As
part of the agreement, CJ has purchased $2.5 million worth of Neuralstem stock
at $4.063 per share. The terms of the license will be negotiated after the
first
successful human trial. CJ exclusive markets will include: Korea, Indonesia,
Philippines, Malaysia, Singapore and Vietnam, with a first right of negotiation
for China and Japan. Neuralstem is planning to begin human clinical trials
this
year with its stem cell products.
TO
PURCHASE SHARES OF COMMON STOCK
of
NEURALSTEM,
INC
A
Delaware Corporation
THIS
WARRANT HAS BEEN, AND THE SHARES OF COMMON STOCK WHICH MAY BE PURCHASED PURSUANT
TO THE EXERCISE OF THIS WARRANT (THE “WARRANT SHARES”) WILL BE, ACQUIRED SOLELY
FOR INVESTMENT AND NOT WITH A VIEW TO, OR FOR RESALE IN CONNECTION WITH, ANY
DISTRIBUTION THEREOF. NEITHER THIS WARRANT OR THE WARRANT SHARES (TOGETHER,
THE
“SECURITIES”) HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE “SECURITIES ACT”), OR ANY STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE
SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF SUCH
REGISTRATION OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY AND ITS
COUNSEL THAT SUCH DISPOSITION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS
DELIVERY REQUIREMENTS OF THE SECURITIES ACT AND OF ANY APPLICABLE STATE
SECURITIES LAWS. THIS WARRANT MUST BE SURRENDERED TO THE COMPANY OR ITS TRANSFER
AGENT AS A CONDITION PRECEDENT TO THE SALE, PLEDGE OR OTHER TRANSFER OF ANY
INTEREST IN ANY OF THE SHARES REPRESENTED BY THIS WARRANT.
|
Warrant
No.: [_______]
|
June
6, 2007
|
THIS
CERTIFIES THAT, for value received, Karl Johe (the “Holder”) is entitled to
subscribe for and purchase from NEURALSTEM, INC, INC., a Delaware corporation
(the “Company”), [______] ([_______]) shares of the Company's Common Stock (as
adjusted pursuant to Section 2 hereof) (the “Warrant Shares”) at the purchase
price of $3.01 per share (as adjusted pursuant to Section 2 hereof) (the
“Exercise Price”), upon the terms and subject to the conditions hereinafter set
forth:
Exercise
Rights
.
(a)
Cash
Exercise.
The
purchase rights represented by this Warrant may be exercised by the Holder
at
any time during the term hereof, as defined in sections 1(f), in whole or in
part, by surrender of this Warrant and delivery of a completed and duly executed
Notice of Cash Exercise, in the form attached as
Exhibit
A
hereto,
accompanied by payment to the Company of an amount equal top the Exercise Price
then in effect multiplied by the number of Warrant Shares to be purchased by
the
Holder in connection with such cash exercise of this Warrant, which amount
may
be paid, at the election of the Holder, by wire transfer, delivery of a check
payable to the order of the Company or delivery of a promissory note made by
the
Company for whole or partial cancellation, or any combination of the foregoing,
to the principal offices of the Company. The exercise of this Warrant shall
be
deemed to have been effected on the day on which the Holder surrenders this
Warrant to the Company and satisfies all of the requirements of this Section
1.
Upon such exercise, the Holder will be deemed a shareholder of record of those
Warrant Shares for which the Warrant has been exercised with all rights of
a
shareholder (including, without limitation, all voting rights with respect
to
such Warrant Shares and all rights to receive any dividends with respect to
such
Warrant Shares). If this Warrant is to be exercised in respect of less than
all
of the Warrant Shares covered hereby, the Holder shall be entitled to receive
a
new warrant covering the number of Warrant Shares in respect of which this
Warrant shall not have been exercised and for which it remains subject to
exercise. Such new warrant shall be in all other respects identical to this
Warrant.
(b)
Net
Issue Exercise
.
(i)
In
lieu
of exercising the purchase rights represented by this Warrant on a cash basis
pursuant to Section 1(a) hereof, the Holder may elect to exercise such rights
represented by this Warrant at any time during the term hereof, in whole or
in
part, on a net-issue basis by electing to receive the number of Warrant Shares
which are equal in value to the value of this Warrant (or any portion thereof
to
be canceled in connection with such net-issue exercise) at the time of any
such
net-issue exercise, by delivery to the principal offices of the Company this
Warrant and a completed and duly executed Notice of Net-Issue Exercise, in
the
form attached as
Exhibit
B
hereto,
properly marked to indicate (A) the number of Warrant Shares to be delivered
to
the Holder in connection with such net-issue exercise, (B) the number of Warrant
Shares with respect to which the Warrant is being surrendered in payment of
the
aggregate Exercise Price for the Warrant Shares to be delivered to the Holder
in
connection with such net-issue exercise, and (C) the number of Warrant
Shares which remain subject to the Warrant after such net-issue exercise, if
any
(each as determined in accordance with Section 1(b)(ii) hereof).
(ii)
In
the
event that the Holder shall elect to exercise the rights represented by this
Warrant in whole or in part on a net-issue basis pursuant to this Section 1(b),
the Company shall issue to the Holder the number of Warrant Shares determined
in
accordance with the following formula:
X
=
Y
(A-B)
A
|
X
|
=
|
the
number of Warrant Shares to be issued to the Holder in connection
with
such net-issue exercise.
|
|
|
|
|
|
Y
|
=
|
the
number of Warrant Shares subject to this Warrant.
|
|
|
|
|
|
A
|
=
|
the
Fair Market Value (as defined below) of one share Common Stock
on the date
of exercise.
|
|
|
|
|
|
B
|
=
|
the
Exercise Price in effect as of the date of such net-issue exercise
(as
adjusted pursuant to Section 2
hereof).
|
(c)
Fair
Market Value
.
For
purposes of this warrant, the “Fair Market Value” of the Common Stock shall have
the following meanings:
(i)
If
the
Common Stock is not listed for trading on a national securities exchange or
admitted for trading on a national market system, the then Fair Market Value
of
a share of Common Stock shall be as determined in good faith by the Board of
Directors (the “Board of Directors”).
(ii)
If
the
Common Stock is listed for trading on a national securities exchange or admitted
for trading on a national market system, then the Fair Market Value of Common
Stock shall be deemed to be the closing price quoted on the principal securities
exchange on which the Common Stock is listed for trading, or if not so listed,
the average of the closing bid and asked prices for Common Stock quoted on
the
national market system on which Common Stock is admitted for trading, each
as
published in the Western Edition of
The
Wall Street Journal
,
in each
case for the ten trading days prior to the date of exercise pursuant to
clause (b) of Fair Market Value for Common Stock in accordance
herewith.
(d)
Additional
Conditions to Exercise of Warrant
.
Unless
there is a registration statement declared or ordered effective by the
Securities and Exchange Commission (the “Commission”) under the Securities Act
which includes the Warrant Shares to be issued upon the exercise of the rights
represented by this Warrant, such rights may not be exercised unless and
until:
(i)
the
Company shall have received an Investment Representation Statement, in the
form
attached as
Exhibit C
hereto,
certifying that, among other things, the Warrant Shares to be issued upon the
exercise of the rights represented by this Warrant are being acquired for
investment and not with a view to any sale or distribution thereof;
and
(ii)
each
certificate evidencing the Warrant Shares to be issued upon the exercise of
the
rights represented by this Warrant shall be stamped or imprinted with a legend
substantially in the following form:
THE
SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND
NOT
FOR DISTRIBUTION, AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933,
AS AMENDED (THE “SECURITIES ACT”) OR ANY STATE SECURITIES LAWS. SUCH SHARES MAY
NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED, OR OTHERWISE TRANSFERRED
IN THE ABSENCE OF SUCH REGISTRATION OR AN OPINION OF COUNSEL SATISFACTORY TO
THE
COMPANY AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE
SECURITIES ACT. COPIES OF THE AGREEMENTS COVERING THE PURCHASE OF THESE SHARES
AND RESTRICTING THEIR TRANSFER MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST
MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE SECRETARY OF THE COMPANY
AT THE PRINCIPAL EXECUTIVE OFFICE OF THE COMPANY. THIS CERTIFICATE MUST BE
SURRENDERED TO THE COMPANY OR ITS TRANSFER AGENT AS A CONDITION PRECEDENT TO
THE
SALE, PLEDGE OR OTHER TRANSFER OF ANY INTEREST IN ANY OF THE SHARES REPRESENTED
BY THIS CERTIFICATE.
THE
SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON TRANSFER
CONTAINED IN AN AGREEMENT BETWEEN THE COMPANY AND THE SHAREHOLDER, A COPY OF
WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY.
(e)
Fractional
Shares.
Upon
the
exercise of the rights represented by this Warrant, the Company shall not be
obligated to issue fractional shares of Common Stock, and in lieu thereof,
the
Company shall pay to the Holder an amount in cash equal to the Fair Market
Value
per share of Common Stock immediately prior to such exercise multiplied by
such
fraction (rounded to the nearest cent).
(f)
Term
of Warrant
.
This
Warrant shall be exercisable at any time on or after October 31, [______].
Notwithstanding the fogoing, upon the occurance of an event which would result
in an acceleratin of vesting under the Holders current employment agreement
with
the Company, this Warrant shall become immediately exercisable. This warrant
shall expire on the earlier of: (i) five (5) years from the date it become
exercisable; and (ii) the day Holders is no longer employed by the Company.
(g)
Record
Ownership of Warrant Shares.
The
Warrant Shares shall be deemed to have been issued, and the person in whose
name
any certificate representing Warrant Shares shall be issuable upon the exercise
of the rights represented by this Warrant (as indicated in the appropriate
Notice of Exercise) shall be deemed to have become the holder of record of
(and
shall be treated for all purposes as the record holder of) the Warrant Shares
represented thereby, immediately prior to the close of business on the date
or
dates upon which the rights represented by this Warrant are exercised in
accordance with the terms hereof.
(h)
Stock
Certificates
.
In
the
event of any exercise of the rights represented by this Warrant, certificates
for the Warrant Shares so purchased pursuant hereto shall be delivered to the
Holder promptly and, unless this Warrant has been fully exercised or has
expired, a new Warrant representing the Warrant Shares with respect to which
this Warrant shall not have been exercised shall also be issued to the Holder
within such time.
(i)
Issue
Taxes
.
The
issuance of certificates for shares of stock upon the exercise of the rights
represented by this Warrant shall be made without charge to the Holder for
any
issuance tax in respect thereof;
provided
,
however
,
that
the Company shall not be required to pay any tax which may be payable in respect
of any transfer involved in the issuance and delivery of any certificate in
a
name other than that of the Holder of the Warrant.
(j)
Conditional
Exercise
.
The
Holder of this Warrant shall have the right to submit a notice of exercise
of
this Warrant conditional upon the an acquisition of the Company. If such
transaction upon which such exercise is conditioned is not consummated, such
notice of exercise shall be deemed of no further force or effect. For the
purposes hereof, the Fair Market Value for the purposes of Section 1(b)
hereto shall be the value of the consideration payable or issuable to the
holders of the Company's Common Stock.
(k)
Stock
Fully Paid; Reservation of Shares
.
All
Warrant Shares that may be issued upon the exercise of the rights represented
by
this Warrant, upon issuance, will be duly and validly issued, will be fully
paid
and nonassessable, will not violate any preemptive rights or rights of first
refusal, will be free from restrictions on transfer other than restrictions
on
transfer imposed by applicable federal and state securities laws, will be issued
in compliance with all applicable federal and state securities laws, and will
have the rights, preferences and privileges described in the Company's
Certificate of Incorporation, as amended; and the Warrant Shares will be free
of
any liens or encumbrances, other than any liens or encumbrances created by
or
imposed upon the Holder through no action of the Company. During the period
within which the rights represented by the Warrant may be exercised, the Company
will at all times have authorized and reserved for the purpose of issuance
upon
exercise of the purchase rights evidenced by this Warrant, a sufficient number
of shares of Common Stock to provide for the exercise of the right represented
by this Warrant.
2.
Adjustment
Rights
.
(a)
Right
to Adjustment
.
The
number of Warrant Shares purchasable upon the exercise of the rights represented
by this Warrant, and the Exercise Price therefor, shall be subject to adjustment
from time to time upon the occurrence of certain events, as follows:
(i)
Merger.
If
at any
time there shall be a merger or consolidation of the Company with or into
another corporation when the Company is not the surviving corporation, then,
as
a part of such merger or consolidation, lawful provision shall be made so that
the holder of this Warrant shall thereafter be entitled to receive upon exercise
of this Warrant, during the period specified herein and upon payment of the
aggregate Exercise Price then in effect, the number of shares of stock or other
securities or property of the successor corporation resulting from such merger
or consolidation, to which a holder of the stock deliverable upon exercise
of
this Warrant would have been entitled in such merger or consolidation if this
Warrant had been exercised immediately before such merger or consolidation.
In
any such case, appropriate adjustment shall be made in the application of the
provisions of this Warrant with respect to the rights and interests of the
Holder after the merger or consolidation.
(ii)
Stock
Splits, Dividends, Combinations and Consolidations
.
In
the
event of a stock split, stock dividend or subdivision of or in respect of the
outstanding shares of Common Stock, the number of Warrant Shares issuable upon
the exercise of the rights represented by this Warrant immediately prior to
such
stock split, stock dividend or subdivision shall be proportionately increased
and the Exercise Price then in effect shall be proportionately decreased,
effective at the close of business on the date of such stock split, stock
dividend or subdivision, as the case may be. In the event of a reverse stock
split, consolidation, combination or other similar event of or in respect of
the
outstanding shares of Common Stock, the number of Warrant Shares issuable upon
the exercise of the rights represented by this Warrant immediately prior to
such
reverse stock split, consolidation, combination or other similar event shall
be
proportionately decreased and the Exercise Price shall be proportionately
increased, effective at the close of business on the date of such reverse stock
split, consolidation, combination or other similar event, as the case may
be.
(b)
Adjustment
Notices
.
Upon any
adjustment of the Exercise Price, and any increase or decrease in the number
of
Warrant Shares subject to this Warrant, in accordance with this Section 2,
the Company, within 30 days thereafter, shall give written notice thereof to
the
Holder at the address of such Holder as shown on the books of the Company,
which
notice shall state the Exercise Price as adjusted and, if applicable, the
increased or decreased number of Warrant Shares subject to this Warrant, setting
forth in reasonable detail the method of calculation of each such adjustment.
3.
Transfer
of Warrant
.
(a)
Conditions.
This
Warrant and the rights represented hereby are not transferable, except in
accordance with the conditions set forth in this Section 3. In order to
effect any transfer of all or a portion of this Warrant, the Holder hereof
shall
deliver to the Company a completed and duly executed Notice of Transfer, in
the
form attached as
Exhibit D
hereto.
Once the Warrant is exercised, the Warrant Shares shall be transferable in
accordance with the Investor Rights Agreement.
(b)
Additional
Conditions to Transfer of Warrant
.
Unless
there is a registration statement declared or ordered effective by the
Commission under the Securities Act which includes this Warrant, this Warrant
may not be transferred unless and until:
(i)
the
Company receives an Investment Representation Statement, in the form attached
as
Exhibit E
hereto,
certifying that, among other things, this Warrant is being acquired for
investment and not with a view to any sale or distribution thereof;
and
(ii)
the
Company receives a written notice from the Holder which describes the manner
and
circumstances of the proposed transfer accompanied by a written opinion of
Holder’s legal counsel, in form and substance reasonably satisfactory to the
Company, stating that such transfer is exempt from the registration and
prospectus delivery requirements of the Securities Act and all applicable state
securities laws or with a Commission “no-action” letter stating that future
transfers of such securities by the transferor or the contemplated transferee
would be exempt from registration under the Securities Act or such securities
may be transferred in accordance with Rule 144(k). Upon receipt of the
foregoing, the Company shall, or shall instruct its transfer agent to, promptly,
and without expense to the Holder issue new securities in the name of the Holder
not bearing the legends required under Section 1(c)(ii). In addition, new
securities shall be issued without such legend if such legends may be properly
removed under the terms of Rule 144(k).
4.
No
Shareholder Rights
.
The
Holder of this Warrant (and any transferee hereof) shall not be entitled to
vote
on matters submitted for the approval or consent of the shareholders of the
Company or to receive dividends declared on or in respect of shares of Common
Stock, or otherwise be deemed to be the holder of Common Stock or any other
capital stock or other securities of the Company which may at any time be
issuable upon the exercise of the rights represented hereby for any purpose,
nor
shall anything contained herein be construed to confer upon the Holder (or
any
transferee hereof) any of the rights of a shareholder of the Company or any
right to vote for the election of directors or upon any matter submitted for
the
approval or consent of the shareholders, or to give or withhold consent to
any
corporate action (whether upon any recapitalization, issuance of stock,
reclassification of stock, merger or consolidation, conveyance, or otherwise)
or
to receive notice of meetings, or to receive dividends or subscription rights
or
otherwise until this Warrant shall have been exercised as provided herein.
No
provision of this Warrant, in the absence of the actual exercise of such Warrant
or any part thereof into Common Stock issuable upon such exercise, shall give
rise to any liability on the part of such Holder as a shareholder of the
Company, whether such liability shall be asserted by the Company or by creditors
of the Company.
5.
Company Registration.
(a)
Notice
of Registration
.
If at
any time after the date of this Warrant the Company shall determine to register
any of its equity securities, either for its own account or the account of
a
security holder or holders, other than a registration relating solely to
employee benefit plans, (ii) a registration relating solely to a Rule 145
transaction, the Company will:
(a)
promptly
give the Holder written notice thereof; and
(b)
include
in such registration (and any related qualification under blue sky laws or
other
compliance), and in any underwriting involved therein, all the Warrant Shares
specified in a written request or requests, made within ten (10) business days
after receipt of such written notice from the Company, by the
Holder.
(b)
Underwriting
.
If the
registration of which the Company gives notice is for a registered public
offering involving an underwriting, the Company shall so advise the Holder
as a
part of the written notice given pursuant to Section 5. In such event the
right of any Holder to registration pursuant to this Section 5 shall be
conditioned upon such the Holder's participation in such underwriting, including
the exercise by Holder of any market stand off agreements, cut back in the
amount of securities to be registered or any other condition reasonably
requested by the underwriter.
6.
Miscellaneous
.
(a)
Governing
Law
.
This
Warrant will be construed in accordance with, and governed in all respects
by,
the laws of the State of Delaware, as applied to agreements entered into, and
to
be performed entirely in such state, between residents of such
state.
(b)
Dispute
Resolution.
(i)
Negotiation.
In
the
event of any dispute, controversy or claim arising out of or relating to this
Warrant, representatives of the parties will meet in a location chosen by the
party initiating the negotiation not later than ten business days after written
notice from one party to the other of such dispute and will enter into good
faith negotiations aimed at resolving the dispute. If they are unable to resolve
the dispute in a mutually satisfactory manner within 30 business days from
the
date of such notice, the matter may be submitted by either party to arbitration
as provided for in Section 5(b)(ii), below.
(ii)
Arbitration.
(a)
Any
dispute, controversy or claim between or among any of the parties hereto arising
out of or relating to this Warrant or the breach, termination or invalidity
thereof, including any dispute as to whether any dispute is subject to
arbitration, which has not been resolved after good faith negotiations pursuant
to subsection 5(b)(i) hereof will be settled by binding arbitration
administered by the American Arbitration Association in accordance with its
then
current Commercial Arbitration Rules except as provided herein.
(b)
Any
arbitration will be conducted in a location in the metropolitan area of the
party responding to the action by a three person arbitration panel. The three
person arbitration panel will consist of one party arbitrator selected by the
Company, one party arbitrator selected by the Holder, each of whom will be
named
within ten business days of the demand for arbitration, and one neutral
arbitrator selected by the first two arbitrators. If the two party appointed
arbitrators cannot agree on the neutral arbitrator within ten business days
of
the selection of the last party appointed arbitrator, the American Arbitration
Association will appoint the neutral arbitrator, who will act as chairperson.
In
the event of a vacancy with respect to an arbitrator, the vacancy will be filled
within ten business days of notice of the vacancy in the same manner and subject
to the same requirements as are provided for in the original appointment to
that
position. If the vacancy is not filled within ten business days, the American
Arbitration Association will make the appointment.
It
is the
intent of the parties to avoid the appearance of impropriety due to bias or
partiality on the part of the neutral arbitrator. Accordingly, prior to his
or
her appointment, such neutral arbitrator will disclose to the parties and the
other members of the tribunal, any financial, fiduciary, kinship or other
relationship between the neutral arbitrator and any party or its counsel. Any
party will have the right to challenge in writing the appointment of the neutral
arbitrator on the basis of and within five days of such disclosure. In the
event
of a challenge, the American Arbitration Association will uphold or dismiss
the
challenge and its decision will be conclusive.
(c)
The
law
applicable to the validity of the arbitration clause, the conduct of the
arbitration, including the resort to a court for interim relief, enforcement
of
the award or any other question of arbitration law or procedure will be the
United States' Federal Arbitration Act, 9 U.S.C. § 1
et
seq
.
The
parties shall be entitled to engage in reasonable discovery including requests
for the production of all relevant documents and a reasonable number of
depositions. The arbitration panel shall have the sole discretion to determine
the reasonableness of any requested document production or deposition. It is
the
intent of the parties that a substantive hearing be held as soon as practicable
after the appointment of the neutral arbitrator or the rejection of a challenge
thereto, whichever occurs later. The presentation of evidence will be governed
by the federal Rules of Evidence. A stenographic record of all witness testimony
will be made.
(d)
Any
award, including any interim award, made will be made by a majority of the
arbitrators applying the substantive law of Delaware and will (i) be in
writing and state the arbitration panel's findings of fact and conclusions
of
law, (ii) be made promptly, and in any event within 60 days after the
conclusion of the arbitration hearing; and (iii) be binding against the
parties involved and may be entered for enforcement in any court of competent
jurisdiction.
(e)
Fifty
percent of the costs of any arbitration proceeding (e.g., arbitrators, court
reporter and room rental fees) will be borne by the Company with the remaining
50% to paid by the other party to the dispute. However, each party will pay
its
own expense, including attorneys' and other professionals' fees and
disbursements.
(f)
The
arbitration provision set forth in this Section 5(b)(ii) will be a complete
defense to any suit, action or proceeding instituted in any court with respect
to any matter arbitrable under this Warrant, except that judicial intervention
may be sought in accordance with Section 5(b)(iii) hereof.
(iii)
No
Waivers; Interim Relief
.
The
parties mutually acknowledge that an award of damages may be inadequate to
remedy any breach hereof and that injunctive relief may be required. Therefore,
(i) a party may request a court of competent jurisdiction to provide interim
injunctive relief in aid of arbitration or to prevent a violation of this
Warrant pending arbitration, and any such request will not be deemed a waiver
or
breach of the obligations to arbitrate set forth herein and (ii) the arbitrators
may order equitable relief where they deem it appropriate and the parties agree
that any interim relief ordered by the arbitrators may be immediately and
specifically enforced by a court otherwise having jurisdiction over the
parties.
(c)
Successors
and Assigns
.
Subject
to the restrictions on transfer described in Section 3, the rights and
obligations of the Company and Holder of this Warrant shall be binding upon
and
benefit the successors, assigns, heirs, administrators and transferees of the
parties.
(d)
Waiver
and Amendment
.
Any
provision of this Warrant may be amended, waived or modified upon the written
consent of the Company and the Holder.
(e)
Notices.
All
notices and other communications required or permitted hereunder will be in
writing and will be sent by telecopier or mailed by first-class mail, postage
prepaid, or delivered either by hand or by messenger, addressed (a) if to
the Holder, at the address indicated on the Company's books, or at such other
address and telecopier number as Holder will have furnished to the Company
in
writing, or (b) if to the Company, at 9700 Great Seneca Highway, Rockville,
Maryland 20850 Attn: Chief Financial Officer, or at such other address and
telecopier number as the Company will have furnished to the Holder and each
such
other holder in writing.
Each
such
notice or other communication will for all purposes of this Agreement be treated
as effective or having been given when delivered if delivered personally or
by
messenger, or, if sent by mail, at the earlier of its receipt or 72 hours after
the same has been deposited in a regularly maintained receptacle for the deposit
of the United States mail addressed and mailed as aforesaid.
(f)
Severability
.
In case
any provision of this Warrant will be invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining provisions will not
in
any way be affected or impaired thereby.
(g)
Lost
Warrant
.
Upon
receipt from the Holder of written notice or other evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
the
Warrant and, in the case of any such loss, theft or destruction, upon receipt
of
an unsecured indemnity agreement and an affidavit of lost warrant, or in the
case of any such mutilation upon surrender and cancellation of the Warrant,
the
Company, at the Company's expense, will make and deliver a new Warrant in lieu
of the lost, stolen, destroyed or mutilated Warrant carrying the same rights
and
obligations as the original Warrant. The Company will also pay the cost of
all
deliveries of the Warrant upon any exchange thereof.
[Remainder
of Page Intentionally Left Blank]
IN
WITNESS WHEREOF, the Company has caused this Warrant to be signed by its duly
authorized officer as of the date first written above.
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NEURALSTEM,
INC, INC.
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a
Delaware corporation
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By:
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I.
Richard Garr
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President
and Chief Executive Officer
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EXHIBIT
A
NOTICE
OF CASH EXERCISE
TO:
[_________]
1.
The
undersigned hereby elects to purchase ____________ shares of Common Stock of
Neuralstem, Inc, Inc., a Delaware corporation (the “Company”), pursuant to the
terms of Warrant No. [______], issued June 6, 2007 to and in the name of Karl
Johe, a copy of which is attached hereto (the “Warrant”), and tenders herewith
full payment of the aggregate Exercise Price for such shares in accordance
with
the terms of the Warrant.
2.
Please
issue a certificate or certificates representing said shares of ____________
Stock in such name or names as specified below:
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(Name)
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(Name)
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(Address)
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(Address)
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3.
The
undersigned hereby represents and warrants that the aforesaid shares of stock
are being acquired for the account of the undersigned for investment and not
with a view to, or for resale in connection with, the distribution thereof,
and
that the undersigned has no present intention of distributing or reselling
such
shares. The undersigned has executed an Investment Representation Statement
with
certain representations and warranties, in the form attached as
Exhibit
C
to the
Warrant, concurrently herewith.
|
Date:
___________
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Karl
Johe
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By:
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(Signature
must conform in all respects to name of the Holder as set forth on
the
face of the Warrant)
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EXHIBIT
B
NOTICE
OF NET-ISSUE EXERCISE
TO:
[_________]
1.
The
undersigned hereby elects to purchase ____________ shares of Common Stock of
Neuralstem, Inc, Inc., a Delaware corporation (the “Company”), on a net-issue
basis pursuant to the terms of Warrant No. [______], issued June 6, 2007 to
and
in the name of Karl Johe, a copy of which is attached hereto (the
“Warrant”).
2.
Net-Issue
Information:
(a)
Number
of
Shares of ____________
Stock to
be Delivered:__________________
(b)
Number
of
Shares Subject to the Warrant Surrendered:______________________
(c)
Number
of
Shares Remaining Subject to Warrant:__________________________
3.
Please
issue a certificate or certificates representing said shares of
____________
Stock in
such name or names as specified below:
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(Name)
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(Name)
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(Address)
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(Address)
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4.
The
undersigned hereby represents and warrants that the aforesaid shares of stock
are being acquired for the account of the undersigned for investment and not
with a view to, or for resale in connection with, the distribution thereof,
and
that the undersigned has no present intention of distributing or reselling
such
shares. In support thereof, the undersigned has executed an Investment
Representation Statement, in the form attached as
Exhibit
C
to the
Warrant, concurrently herewith.
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Date:
___________
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Karl
Johe
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By:
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(Signature
must conform in all respects to name of the Holder as set forth on
the
face of the Warrant)
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EXHIBIT
C
INVESTMENT
REPRESENTATION STATEMENT
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PURCHASER
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:
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Karl
Johe
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SELLER
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:
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[_________]
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COMPANY
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:
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Neuralstem,
Inc, Inc.
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SECURITY
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:
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COMMON
STOCK ISSUED UPON THE EXERCISE OF WARRANT NO. [______], ISSUED
ON June 6,
2007
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AMOUNT
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:
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____________
SHARES
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DATE
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________________________
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The
undersigned hereby represents and warrants to Neuralstem, Inc, Inc., a Delaware
corporation (the “Company”), as follows:
1.
I
am
aware of the business affairs, financial condition and results of operations
of
the Company and have acquired sufficient information about the Company to reach
an informed and knowledgeable investment decision to acquire the Securities.
I
am purchasing the Securities for my own account for investment purposes only
and
not with a view to, or for the resale in connection with, any “distribution”
thereof for purposes of the Securities Act of 1933, as amended (the “Securities
Act”).
2.
I
understand that the Securities have not been registered under the Securities
Act
in reliance upon a specific exemption therefrom, which exemption depends upon,
among other things, the bona fide nature of my investment intent as expressed
herein. I understand that, in the view of the Securities and Exchange Commission
(the “Commission”), the statutory basis for such exemption may be unavailable if
my representation was predicated solely upon a present intention to hold the
Securities for the minimum capital gains period specified under tax statutes,
for a deferred sale, for or until an increase or decrease in the market price
of
the Securities, or for a period of one year or any other fixed period in the
future.
3.
I
further
understand that the Securities must be held indefinitely unless subsequently
registered under the Securities Act or unless an exemption from registration
is
otherwise available. Moreover, I understand that the Company is under no
obligation to register the Securities. In addition, I understand that the
certificate evidencing the Securities will be imprinted with a legend which
prohibits the transfer of the Securities unless they are registered or such
registration is not required in the opinion of counsel for the
Company.
4.
I
am
familiar with the provisions of Rule 144, promulgated under the Securities
Act, which, in substance, permits limited public resale of “restricted
securities” acquired, directly or indirectly, from the issuer thereof, in a
non-public offering subject to the satisfaction of certain
conditions.
5.
I
agree
that, if so requested by the Company or any representative of the underwriters
(the "Managing Underwriter") in connection with any registration of the offering
of any securities of the Company under the Securities Act, I shall not sell
or
otherwise transfer any of the above listed Securities or other securities of
the
Company during the 180-day period (or such other period as may be requested
in
writing by the Managing Underwriter and agreed to in writing by the Company)
(the "Market Standoff Period") following the effective date of a registration
statement of the Company filed under the Securities Act. Such restriction shall
apply only to the first registration statement of the Company to become
effective under the Securities Act that includes securities to be sold on behalf
of the Company to the public in an underwritten public offering under the
Securities Act. The Company may impose stop-transfer instructions with respect
to securities subject to the foregoing restrictions until the end of such Market
Standoff Period.
6.
I
further
understand that in the event all of the applicable requirements of Rule 144
are
not satisfied, registration under the Securities Act, compliance with
Regulation A, or some other registration exemption will be required; and
that, notwithstanding the fact that Rule 144 is not exclusive, the Staff of
the Commission has expressed its opinion that persons proposing to sell private
placement securities other than in a registered offering and otherwise than
pursuant to Rule 144 will have a substantial burden of proof in
establishing that an exemption from registration is available for such offers
or
sales, and that such persons and their respective brokers who participate in
such transactions do so at their own risk.
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Date:
___________
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Karl
Johe
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By:
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(Signature
must conform in all respects to name of the Holder as set forth on
the
face of the Warrant)
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EXHIBIT
D
NOTICE
OF TRANSFER
FOR
VALUE
RECEIVED, the undersigned hereby sells, assigns and transfers unto
______________________________ the right represented by Warrant No. [______],
issued on June 6, 2007 to and in the name of Karl Johe to purchase 1,000,000
shares of Common
Stock
of
Neuralstem, Inc, Inc., a Delaware corporation (the “Company”), a copy of which
is attached hereto (the “Warrant”), and appoints ______________________________
as attorney-in-fact to transfer such right on the books of the Company with
full
power of substitution in the premises.
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Date:
___________
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Karl
Johe
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By:
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(Signature
must conform in all respects to name of the Holder as set forth on
the
face of the Warrant)
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(Address)
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Signed
in the presence of:
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EXHIBIT
E
INVESTMENT
REPRESENTATION STATEMENT
|
PURCHASER
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:
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__________________________
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TRANSFEROR
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:
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Karl
Johe
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COMPANY
|
:
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Neuralstem,
Inc, Inc.
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SECURITY
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:
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Warrant
no. [______] issued on June 6, 2007
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AMOUNT
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:
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__________
SHARES
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DATE
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:
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________________________
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The
undersigned hereby represents and warrants to Neuralstem, Inc, Inc., a Delaware
corporation (the “Company”), as follows:
1.
I
am
aware of the business affairs, financial condition and results of operations
of
the Company, and have acquired sufficient information about the Company to
reach
an informed and knowledgeable investment decision to acquire the Securities.
I
am purchasing the Securities for my own account for investment purposes only
and
not with a view to, or for the resale in connection with, any “distribution”
thereof for purposes of the Securities Act of 1933, as amended (the “Securities
Act”).
2.
I
understand that the Securities have not been registered under the Securities
Act
in reliance upon a specific exemption therefrom, which exemption depends upon,
among other things, the bona fide nature of my investment intent as expressed
herein. I understand that, in the view of the Securities and Exchange Commission
(the “Commission”), the statutory basis for such exemption may be unavailable if
my representation was predicated solely upon a present intention to hold the
Securities for the minimum capital gains period specified under tax statutes,
for a deferred sale, for or until an increase or decrease in the market price
of
the Securities, or for a period of one year or any other fixed period in the
future.
3.
I
further
understand that the Securities must be held indefinitely unless subsequently
registered under the Securities Act or unless an exemption from registration
is
otherwise available. Moreover, I understand that the Company is under no
obligation to register the Securities. In addition, I understand that the
certificate evidencing the Securities will be imprinted with a legend which
prohibits the transfer of the Securities unless they are registered or such
registration is not required in the opinion of counsel for the
Company.
4.
I
am
familiar with the provisions of Rule 144, promulgated under the Securities
Act, which, in substance, permits limited public resale of “restricted
securities” acquired, directly or indirectly, from the issuer thereof, in a
non-public offering subject to the satisfaction of certain
conditions.
5.
I
agree
that, if so requested by the Company or any representative of the underwriters
(the "Managing Underwriter") in connection with any registration of the offering
of any securities of the Company under the Securities Act, I shall not sell
or
otherwise transfer any of the above listed Securities or other securities of
the
Company during the 180-day period (or such other period as may be requested
in
writing by the Managing Underwriter and agreed to in writing by the Company)
(the "Market Standoff Period") following the effective date of a registration
statement of the Company filed under the Securities Act. Such restriction shall
apply only to the first registration statement of the Company to become
effective under the Securities Act that includes securities to be sold on behalf
of the Company to the public in an underwritten public offering under the
Securities Act. The Company may impose stop-transfer instructions with respect
to securities subject to the foregoing restrictions until the end of such Market
Standoff Period.
6.
I
further
understand that in the event all of the applicable requirements of Rule 144
are
not satisfied, registration under the Securities Act, compliance with
Regulation A, or some other registration exemption will be required; and
that, notwithstanding the fact that Rule 144 is not exclusive, the Staff of
the Commission has expressed its opinion that persons proposing to sell private
placement securities other than in a registered offering and otherwise than
pursuant to Rule 144 will have a substantial burden of proof in
establishing that an exemption from registration is available for such offers
or
sales, and that such persons and their respective brokers who participate in
such transactions do so at their own risk.
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Date:
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By:
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Name:
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