UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark one)

 

☒	Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the Quarterly Period Ended September 30, 2016

Or

 

☐	Transition Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934

 

Commission File Number 001-33672

 

NEURALSTEM, INC.

(Exact name of registrant as specified in its charter)

 

Delaware		52-2007292
State or other jurisdiction of		(I.R.S. Employer
incorporation or organization		Identification No.)
20271 Goldenrod Lane
Germantown, Maryland		20876
(Address of principal executive offices)		(Zip Code)

 

Registrant’s telephone number, including area code (301)-366-4841

 

_______________________________________________________________________

 

 

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

 

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

 

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

 

Large accelerated filer ☐	Accelerated filer  ☒
Non-accelerated filer  ☐  (Do not check if a small reporting company)	Smaller reporting company ☒

 

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

 

As of October 31, 2016, there were 114,859,175shares of common stock, $.01 par value, issued and outstanding.

 

Neuralstem, Inc.

 

Table of Contents

 

			Page
PART I -		FINANCIAL INFORMATION	3
Item 1.		Unaudited Condensed Consolidated Financial Statements	3
		Unaudited Condensed Consolidated Balance Sheets as of September 30, 2016 and December 31, 2015	3
		Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss For the three and nine months ended September 30, 2016 and 2015	4
		Unaudited Condensed Consolidated Statements of Cash Flows For the nine months ended September 30, 2016 and 2015	5
		Notes to Unaudited Condensed Consolidated Financial Statements	6
Item 2.		Management's Discussion and Analysis of Financial Condition and Results of Operations	15
Item 3.		Quantitative and Qualitative Disclosures about Market Risk	24
Item 4.		Controls and Procedures	24
PART II -		OTHER INFORMATION	26
Item 1.		Legal Proceedings	26
Item 1A.		Risk Factors	26
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds	39
Item 3.		Defaults Upon Senior Securities	40
Item 4.		Mine Safety Disclosure	40
Item 5.		Other Information	40
Item 6.		Exhibits	40
		Signatures	40
		Certificates

 

PART I

FINANCIAL INFORMATION

 

ITEM 1. UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Neuralstem, Inc.

 

Unaudited Condensed Consolidated Balance Sheets

 

 

See accompanying notes to unaudited condensed consolidated financial statements.      

Neuralstem, Inc.

 

Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss

 

 

See accompanying notes to unaudited condensed consolidated financial statements.        

Neuralstem, Inc.

 

Unaudited Condensed Consolidated Statements of Cash Flows

 

 

See accompanying notes to unaudited condensed consolidated financial statements.      

NEURALSTEM, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2016 AND 2015

 

 

 

 

 

 

 

 

 

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Statements in this Quarterly Report that are not strictly historical are forward-looking statements and include statements about products in development, results and analyses of pre-clinical studies, clinical trials and studies, research and development expenses, cash expenditures, and alliances and partnerships, among other matters. You can identify these forward-looking statements because they involve our expectations, intentions, beliefs, plans, projections, anticipations, or other characterizations of future events or circumstances. These forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties that may cause actual results to differ materially from those in the forward-looking statements as a result of any number of factors. These factors include, but are not limited to, risks relating to our ability to conduct and obtain successful results from ongoing clinical trials, commercialize our technology, obtain regulatory approval for our product candidates, contract with third parties to adequately test and manufacture our proposed therapeutic products, protect our intellectual property rights and obtain additional financing to continue our development efforts. Some of these factors are more fully discussed, as are other factors, in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015, filed with the SEC, as well as in the section of this Quarterly Report entitled “Risk Factors” and elsewhere herein. We do not undertake to update any of these forward-looking statements or to announce the results of any revisions to these forward-looking statements except as required by law.

 

We urge you to read this entire Quarterly Report on Form 10-Q, including the “Risk Factors” section, the financial statements, and related notes. As used in this Quarterly Report, unless the context otherwise requires, the words “we,” “us,” “our,” “the Company,” “Neuralstem” and “Registrant” refers to Neuralstem, Inc. and its subsidiaries. Also, any reference to “common shares,” “common stock,” or “shares” refers to our $.01 par value common stock. The information contained herein is current as of the date of this Quarterly Report (September 30, 2016), unless another date is specified. We prepare our interim financial statements in accordance with U.S. GAAP. Our financials and results of operations for the three- and nine-month periods ended September 30, 2016 are not necessarily indicative of our prospective financial condition and results of operations for the pending full fiscal year ending December 31, 2016. The interim financial statements presented in this Quarterly Report as well as other information relating to our Company contained in this Quarterly Report should be read in conjunction and together with the reports, statements and information filed by us with the United States Securities and Exchange Commission or SEC.

 

Our Management’s Discussion and Analysis of Financial Condition and Results of Operations or MD&A, is provided in addition to the accompanying financial statements and notes to assist readers in understanding our results of operations, financial condition and cash flows. Our MD&A is organized as follows:

 

·

Executive Overview — Discussion of our business and overall analysis of financial and other highlights affecting the Company in order to provide context for the remainder of MD&A.

 

·

Trends & Outlook — Discussion of what we view as the overall trends affecting our business and overall strategy.

 

·

Critical Accounting Policies— Accounting policies that we believe are important to understanding the assumptions and judgments incorporated in our reported financial results and forecasts.

 

·

Results of Operations— Analysis of our financial results comparing the three-month and nine-month periods ended September 30, 2016 to the comparable period of 2015.

 

·

Liquidity and Capital Resources— An analysis of cash flows and discussion of our financial condition and future liquidity needs.

 

Executive Overview

 

We are focused on the research, development and commercialization of central nervous system therapies based on our proprietary human neural stem cells and small molecule compounds discovered from our stem cell-based screening platform. We are headquartered in Germantown, Maryland and have a wholly-owned subsidiary in China, Suzhou Neuralstem Biopharmaceutical Co. Ltd (“Neuralstem China”).

 

Our technology base has produced three primary assets: Our NSI-189 small molecule program, our NSI-566 stem cell therapy program and our novel and proprietary new chemical entity screening platform. We have two product candidates in clinical development in a total of four indications.

 

In the cell therapy program, our patented technology enables the commercial-scale production of multiple types of central nervous system stem cells, which are under development for the potential treatment of various central nervous system diseases and conditions. Our lead product is the spinal cord-derived neural stem cell line, NSI-566, which is being tested for treatment of paralysis due to ALS, spinal cord injury and stroke. In addition, our ability to generate human neural stem cell lines provides a platform for screening and discovery of novel CNS-targeted compounds. This proprietary screening platform led to the discovery of our lead molecule, NSI-189, which is being tested for treatment of major depressive disorder.

 

We have developed and maintain what we believe is a strong portfolio of patents and patent applications that form the proprietary base for our research and development efforts. We own or exclusively license over 20 U.S. issued and pending patents and over 120 foreign issued and pending patents in the field of regenerative medicine, related to our stem cell technologies as well as our small molecule compounds.

 

We believe our technology base, in combination with our expertise, and collaborative projects with major research institutions, could facilitate the development and commercialization of products for use in the treatment of a wide array of central nervous system disorders including neurodegenerative and psychiatric conditions.

 

There can be no assurances that we will ultimately produce any viable products or processes or that our screening platform will lead to the discovery of any additional product candidates. Even if we are able to produce a commercially viable product, there are strong competitors in this field and our products may not be able to successfully compete against them.

 

All of our research efforts to date are at the pre-clinical or clinical stage of development. We are focused on leveraging our key assets, including our intellectual property, proprietary know-how, scientific team and facilities, to advance our technologies and clinical programs. In addition, we are pursuing strategic collaborations with members of academia and industry to further advance and discover additional product candidates.

 

Recent Clinical & Business Highlights

 

·

In May 2016, we enrolled the first subject in our NSI-189 Phase 2 clinical trial for the treatment of major depressive disorder (MDD).

 

·

In June 2016, we announced new NSI-189 preclinical data showing enhancement of mouse long term potentiation (LTP), an in vitro biomarker of memory by NSI-189 in a concentration-dependent and time-dependent manner. We believe that this study not only suggests the cognition enhancing potential of NSI-189, but also contributes toward the understanding of its mechanism of action.

 

·

In September 2016, we entered into a definitive agreement with Tianjin Pharmaceutical Holdings Co., Ltd. for a private placement of common stock and convertible preferred stock for gross proceeds of $20 million. This agreement is expected to close in the fourth quarter of 2016.

 

·

In September 2016, we achieved 50% enrollment in our Phase 2 clinical trial evaluating NSI-189 for the treatment of major depressive disorder (MDD).

 

·

In September 2016, we presented preclinical data which showed that NSI-189 was effective in the prevention and reversal of diabetic neuropathies in Type 1 and Type 2 diabetic mouse models.

 

·

In October 2016, we presented preclinical data which showed NSI-189’s ability to ameliorate radiation-induced cognitive impairment and to protect hippocampal neurogenesis in a mouse model of brain injury due to radiation therapy of brain cancers.

 

Clinical Development Program Review

 

We have devoted substantially all of our efforts to the pre-clinical and clinical development of our small molecule compounds and our stem cell therapeutics. Below is a description of our most advanced clinical programs, their intended indications, current stages of development and our expected future development plans:

 

Clinical Pipeline:

 

 

Pipeline Summary

 

NSI-189 Phase 2 randomized, placebo-controlled, double-blind clinical trial for the treatment of MDD

 

·

In May 2016, we enrolled the first subject in our NSI-189 Phase 2 clinical trial for the treatment of MDD. The Phase 2 trial will randomize 220 patients, in three cohorts (two active doses plus placebo), at 12 select trial sites, under the direction of study principal investigator (PI) Maurizio Fava, MD, Executive Vice Chair, Department of Psychiatry and Executive Director, Clinical Trials Network and Institute, Massachusetts General Hospital. In September 2016, we announced that we had achieved 50% enrollment in the study. We expect to release the results of this study in the second half of 2017.

 

NSI-566 Phase 1 and 2 safety trials for the treatment of Amyotrophic Lateral Sclerosis (ALS)

 

·

In September 2015, the Phase 2 interim data and the Phase 1 and Phase 2 combined interim data were presented at the American Neurological Association Annual Meeting by the principal investigator, Eva Feldman, MD, PhD, Director of the A. Alfred Taubman Medical Research Institute and Director of Research of the ALS Clinic at the University of Michigan Health. The data showed that the intraspinal transplantation of the cells was safe and well tolerated. Subjects from both the Phase 1 and Phase 2 continue to be monitored for long-term follow-up evaluations.

 

NSI-566 Phase 1 safety trial for the treatment of chronic Spinal Cord Injury (cSCI)

 

·

In January 2016, we reported on the interim status of the Phase 1 safety data on all four subjects with thoracic spinal cord injuries; the stem cell treatment demonstrated feasibility and safety. A self-reported ability to contract some muscles below the level of injury was confirmed via clinical and electrophysiological follow-up examinations in one of the four subjects treated. All subjects will be followed for five years. This study is being conducted with support from the University of California, San Diego (UCSD) School of Medicine.

  

NSI-566 Phase 1 safety trial for the treatment of motor deficits in stroke

 

·

In March, 2016, we completed dosing the third planned cohort, for a total of nine subjects, in a Phase 1 clinical trial evaluating safety at BaYi Brain Hospital in Beijing. Subjects are currently being monitored through their 24 month observational follow-up period. The trial is being conducted by Suzhou Neuralstem, a wholly owned subsidiary of Neuralstem in China.

 

Pre-Clinical Development Pipeline

 

We conduct investigational and discovery research on our proprietary neural stem cell lines, neurogenic small molecule screening platform, and neurogenic small molecule portfolio. We believe each of our three proprietary technologies are best in class. Our technologies enable us to identify unique neural stem cell lines for potential transplantation therapies and to utilize these stem cell lines to screen for novel new small molecule drugs. NSI-189 is a result of this screening technology, which we believe will be a significant treatment option for patients with depression or cognitive impairment.

 

Our preclinical research on NSI-189 is focused on elucidating its mechanism of action and investigating its potential utility as a broad neuroregenerative drug that promotes self-repair of various types of central and peripheral nerve degeneration. Recent preclinical data support this perspective on NSI-189 beyond the current indication of MDD. Supportive data include the finding that treatment of mouse brain slices with NSI-189 can cause within a few hours a dose-dependent enhancement of the magnitude of long term potentiation, a measure of synaptic plasticity and an in vitro biomarker of memory. Additionally, NSI-189 treatment of brain slices from mice with Angelman Syndrome-like genetic defect (which in humans leads to inherited mental retardation) restored LTP to normal levels. NSI-189 treatment of rats irradiated to induce brain injury that leads to cognitive impairment protected the brain to normal levels. These results suggest that the potential application of NSI-189 to treat diseases with cognitive impairment could be successful. Furthermore, NSI-189 was effective in the prevention and reversal of peripheral neuropathies due to diabetes in Type 1 or Type 2 diabetic mouse models, which suggest NSI-189’s broad applicability toward treating both central and peripheral neuropathies arising from diverse etiologies. We believe that these data support our future outlook for NSI-189 beyond the ongoing Phase 2 clinical trial for the treatment of MDD and beyond even the potential treatment benefit of residual cognitive impairment in depressed patients.

 

Our Technologies

 

Stem Cells

 

Our technology enables the isolation and large-scale expansion of regionally specific, human neural stem cells from all areas of the developing human brain and spinal cord, thus enabling the generation of physiologically relevant human neurons of all types. We believe that our stem cell technology will assist the body in producing new cells to replace malfunctioning or dead cells as a way 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 protect such cell types and in certain cases to generate replacement cells from neural stem cells. We believe that protecting the healthy cells or replacing damaged, 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. We own or exclusively license over 10 U.S. issued and pending patents and over 70 foreign issued and pending patents related to our stem cell and related medical device technologies.

 

Small Molecule Compounds  

 

The inhibition of adult hippocampal neurogenesis has been implicated in a number of diseases that affect cognition and/or emotion such as major depressive disorder. Utilizing our proprietary stem cell-based screening capability, we have developed and patented a series of small molecule compounds that stimulated neurogenesis in vitro. As part of our research, we focused on small molecule compounds that could enhance the baseline level of neurogenesis in normal healthy young mice in vivo. 

 

Subsequent research indicated that some of the small molecule compounds could stimulate the neurogenesis of hippocampus as well as increase its volume. We believed that a compound that stimulates in vitro neurogenesis, enhances in vivo neurogenesis, increases hippocampal volume, and exerts anti-depressive effects on animals could be well-suited for treating major depressive disorder. During our preclinical research, we identified NSI-189 as the lead candidate that could stimulate all four activities. Pre-clinical testing of this compound at multiple doses showed antidepressant activity at 10, 30, and 100mg/kg doses with rapid bioavailability in the brain. Histology analysis of the mouse brains suggested a bell-shaped dose-response curve, 10mg/kg and 30mg/kg being optimal for pharmacologically active concentrations and with higher doses not necessarily yielding larger biological effects. Our collaborators at Massachusetts General Hospital have presented the human data from the Phase 1b MDD safety study which showed large effect size of clinical improvement in depressive and cognitive scales. This result was unexpected given the small size of the trial and may be indicative of the drug’s promise as a therapeutic agent. We believe that NSI-189 stimulates neurogenesis and synaptogenesis in the human hippocampus.

 

Our portfolio of small molecule compounds which includes NSI-189 are covered by 10 U.S. exclusively owned issued and pending patents and over 60 exclusively owned foreign issued and pending patents related to our small molecule compounds.

 

Targeted Indications

 

Major Depressive Disorder (MDD)

 

NSI-189 is being developed for the treatment of major depressive disorder and other psychiatric and/or cognitive impairment indications associated with hippocampal atrophy. NSI-189 is the lead compound in our neurogenic small molecule drug platform. We believe that NSI-189 may provide an effective treatment for patients suffering from MDD by promoting neurogenesis and an underlying molecular pathway.

 

Major depressive disorder, or MDD (also known as recurrent depressive disorder, clinical depression, major depression, unipolar depression, or unipolar disorder), is a mental disorder characterized by episodes of all-encompassing low mood accompanied by low self-esteem and loss of interest or pleasure in normally enjoyable activities. MDD affects approximately 14.8 million American adults, or about 6.7 percent of the U.S. population age 18 and older in a given year. Additionally, there is a high failure rate with existing therapies. According to the STAR*D^* study, 51% of subjects fail to respond to first-line therapy, 72% fail second-line therapy and 83% fail third line therapy. This creates a large unmet medical need and a significant market opportunity for alternative branded molecules such as NSI-189 for use as mono- or adjunct therapies that may replace or enhance current marketed therapies.

 

^* Sequenced Treatment Alternatives to Relieve Depression (STAR*D) trial (Am J Psychiatry 2006; 163:1905–1917)

 

Amyotrophic Lateral Sclerosis (ALS)

 

Amyotrophic lateral sclerosis, or ALS, is a disease of the nerve cells in the brain and spinal cord that control voluntary muscle movement. ALS is an orphan condition in the U.S. and EU and approximately 6,400 people in the U.S. are diagnosed with the condition each year. The incidence of ALS is two per 100,000 people, and it is estimated that more than 20,000 Americans may be living with ALS at any given time. In ALS, nerve cells (neurons) waste away or die, and can no longer send messages to muscles. This eventually leads to muscle weakening, twitching, and an inability to move the arms, legs, and body. The condition slowly gets worse. When the muscles in the chest area stop working, it becomes hard or impossible to breathe. NSI-566 is under development as a potential treatment for ALS by providing cells designed to nurture and protect the patients’ remaining motor neurons; and possibly repair some motor neurons which have not yet died but which are diseased. Neuralstem received orphan designation by the FDA for NSI-566 in ALS.

 

Chronic Spinal Cord Injury

 

A spinal cord injury, or SCI, generally refers to any injury to the spinal cord that is caused by trauma instead of disease although in some cases, it can be the result of diseases. It is estimated that there are 12,500 new cases of SCI per year and that at any given time, there are between 240,000 and 337,000 people in the United States that are living with SCI. Chronic spinal cord injury generally refers to the phase beginning 6 months after the initial injury. SCIs are most often traumatic, caused by lateral bending, dislocation, rotation, axial loading, and hyperflexion or hyperextension of the cord or cauda equina. Motor vehicle accidents are the most common cause of SCIs, while other causes include falls, work-related accidents, sports injuries, and penetrations such as stab or gunshot wounds. In certain instances, SCIs can also be of a non-traumatic origin, as in the case of cancer, infection, intervertebral disc disease, vertebral injury and spinal cord vascular disease. We believe that NSI-566 may provide an effective treatment for chronic spinal cord injury by “bridging the gap” in the spinal cord circuitry created in traumatic spinal cord injury and providing new cells to help transmit the signal from the brain to points at or below the point of injury.

 

Ischemic Stroke

 

Ischemic strokes, the most common type of stroke, occur as a result of an obstruction within a blood vessel supplying blood to the brain. Approximately 15 million people worldwide suffer stroke of which it is estimated that 87% of all strokes are ischemic strokes. Post-stroke motor deficits include paralysis in arms and legs and can be permanent. We believe that NSI-566 may provide an effective treatment for restoring motor deficits resulting from ischemic stroke by both creating new circuitry in the area of injury and through repairing and or nurturing diseased cells to improve function in patients.

 

Intellectual Property

 

Our research and development is supported by our intellectual property. We own or exclusively license over 20 U.S. issued and pending patents and over 120 foreign issued and pending patents in the field of regenerative medicine, related to our stem cell technologies as well as our small molecule compounds. Our issued patents have expiration dates ranging from 2016 through 2034, based on appropriate Patent Expansions. In our opinion the patents expiring in 2016 and in the near term are not critical to our business.

 

Operating Strategy

 

We generally employ an outsourcing strategy where we outsource our Good Laboratory Practices, or GLP, preclinical development activities and Good Manufacturing Practices, or GMP, Good Tissue Practices, or GTP, if applicable, and clinical development activities to contract research organizations or CROs and contract manufacturing organizations or CMOs as well as all non-critical corporate functions. Manufacturing is also outsourced to organizations with approved facilities and manufacturing practices. This outsource model allows us to better manage cash on hand and minimize non-vital expenditures. It also allows for us to operate with relatively fewer employees and lower fixed costs than that required by other companies conducting similar business.

 

Employees

 

As of September 30, 2016, we had 11 full-time employees. Of these full-time employees, 7 work on research and development and clinical operations and 4 work in administration. We also use the services of numerous outside consultants in business and scientific matters.

 

Our Corporate Information

 

We were incorporated in Delaware in 2001. Our principal executive offices are located at 20271 Goldenrod Lane, Germantown, Maryland 20876, and our telephone number is (301) 366-4841. Our website is located at www.neuralstem.com.

 

We have not incorporated by reference into this report the information in, or that can be accessed through, our website or social media channels, and you should not consider it to be a part of this report.

Trends & Outlook

Revenue

 

We generated no revenues from the sale of our proposed therapies for any of the periods presented. We are mainly focused on successfully managing our current clinical trials related to our small molecule compounds and seeking potential partnerships for our stem cell product candidates. We are also pursuing pre-clinical studies on other central nervous system indications in preparation for potential future clinical trials.

 

During the nine months ended September 30, 2016 and 2015, we recognized approximately $8,000 of revenue in each period related to ongoing fees pursuant to certain licenses of our intellectual property to third parties.

 

On a long-term basis, we anticipate that our revenue will be derived primarily from licensing fees and sales of our small molecule compounds and licensing fees and royalties from our cell based therapies. Because we are at such an early stage in the clinical trials process, we are not yet able to accurately predict when we will have a product ready for commercialization, if ever. 

 

Research and Development Expenses

 

Our research and development expenses consist primarily of clinical trial expenses, including payments to clinical trial sites that perform our clinical trials and clinical research organizations (CROs) that help us manage our clinical trials; manufacturing of small molecule drugs and stem cells for both human clinical trials and for pre-clinical studies and research; personnel costs for research and clinical personnel; and other costs including research supplies and facilities.

 

We focus on the development of treatment candidates with potential uses in multiple indications, and use employee and infrastructure resources across several projects. Accordingly, many of our costs are not attributable to a specifically identified product and we do not account for internal research and development costs on a project-by-project basis.

 

We expect that research and development expenses, which include expenses related to our ongoing clinical trials, will increase in the future, as funding allows and we proceed with our Phase 2 trial in major depressive disorder.

 

We have formed a wholly owned subsidiary in the People’s Republic of China. We anticipate that this subsidiary will primarily: (i) conduct pre-clinical research with regard to proposed stem cells therapies, and (ii) oversee our approved future clinical trials in China, including the current trial to treat motor deficits due to ischemic stroke.

 

General and Administrative Expenses

 

General and administrative expenses are primarily comprised of salaries, benefits and other costs associated with our operations including, finance, human resources, information technology, public relations and costs associated with maintaining a public company listing, legal, audit and compliance fees, facilities and other external general and administrative services.  

 

Critical Accounting Policies

 

Our consolidated financial statements have been prepared in accordance with U.S. GAAP. 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 2 of the Notes to Condensed Consolidated Financial Statements included elsewhere herein 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 U.S. GAAP, 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 consolidated financial statements:

 

Use of Estimates - Our financial statements prepared in accordance with U.S. GAAP require us 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, we have estimated the expected economic life and value of our patent technology, our net operating loss carryforward and related valuation allowance for tax purposes and our stock -based compensation expenses related to employees, directors, consultants and investment banks. Actual results could differ from those estimates.

 

Long Lived Intangible Assets - Our long lived intangible assets consist of our intellectual property patents including primarily legal fees associated with the filings and in defense of our patents. The assets are amortized on a straight-line basis over the expected useful life which we define as ending on the expiration of the patent group. These assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. We assess this recoverability by comparing the carrying amount of the asset to the estimated undiscounted future cash flows to be generated by the asset. If an asset is deemed to be impaired, we estimate the impairment loss by determining the excess of the asset’s carrying amount over the estimated fair value. These determinations use assumptions that are highly subjective and include a high degree of uncertainty. During the nine months ended September 30, 2016 and 2015, no significant impairment losses were recognized.

Fair Value Measurements - The carrying amounts of our short-term financial instruments, which primarily include cash and cash equivalents, other short-term investments, accounts payable and accrued expenses, approximate their fair values due to their short maturities. The fair value of our long-term indebtedness is estimated based on the quoted prices for the same or similar issues or on the current rates offered to the Company for debt of the same remaining maturities. The fair values of our derivative instruments are estimated using Level 3 unobservable inputs.

 

Share-Based Compensation - We account for share-based compensation at fair value; accordingly we expense the estimated fair value of share-based awards over the requisite service period. Share-based compensation cost for stock options and warrants issued to employees and board members is determined at the grant date while awards granted to non-employee consultants are generally valued at the vesting date using an option pricing model. Option pricing models require us to make assumptions, including expected volatility and expected term of the options. If any of the assumptions we use in the model were to significantly change, stock based compensation expense may be materially different. Share-based compensation cost for restricted stock and restricted stock units issued to employees and board members is determined at the grant date based on the closing price of our common stock on that date. The value of the award that is ultimately expected to vest is recognized as expense on a straight-line basis over the requisite service period.

 

RESULTS OF OPERATIONS

 

Comparison of Three Months Ended September 30, 2016 and 2015

 

Revenue

During each of the three months ended September 30, 2016 and 2015, we recognized approximately $2,500 of revenue related to ongoing fees pursuant to certain licenses of our intellectual property to third parties.

 

Operating Expenses

Operating expenses for the three months ended September 30, 2016 and 2015 were as follows:

 

		Three Months Ended September 30,								Increase (Decrease)
		2016				2015				$				%
Operating Expenses
Research and development expenses		$	3,589,793			$	3,392,086			$	197,707				6	%
General and administrative expenses			1,329,712				1,807,934				(478,222	)			(26	%)
Total operating expenses		$	4,919,505			$	5,200,020			$	(280,515	)			(5	%)

 

Research and Development Expenses

The increase of approximately $198,000 or 6% in research and development expenses for the period ended September 30, 2016 compared to the comparable period of 2015 was primarily attributable to increased spending on clinical trials associated with our on-going Phase 2 MDD study, partially offset by salary and benefits saving associated with our reduction-in-force in May and reduced manufacturing expenses

 

General and Administrative Expenses

The decrease of approximately $478,000 or 26% in general and administrative expenses for the period ended September 30, 2016 compared to the comparable period of 2015 was primarily due to a reduction in salaries, benefits and consulting expenses as a result of our May 2016 reduction-in-force.

 

Other expense

Other expense, net totaled approximately $303,000 and $440,000 for the three months ended September 30, 2016 and 2015, respectively. Other expense, net in 2016 consisted of approximately $538,000 of losses related to the fair value adjustment of our derivative instruments and $240,000 of interest expense primarily related to our long-term debt, partially offset by a gain of approximately $459,000 related to our entering into a reimbursement agreement with a former executive officer.

 

Other expenses, net in 2015 consisted primarily of approximately $464,000 of interest expense principally related to our long-term debt partially offset by approximately $24,000 in interest income.

 

Comparison of Nine months ended September 30, 2016 and 2015

 

Revenue

During the nine months ended September 30, 2016 and 2015, we recognized approximately $7,500 and $7,900 of revenue, respectively, related to ongoing fees pursuant to certain licenses of our intellectual property to third parties.

 

Operating Expenses

Operating expenses for the nine months ended September 30, 2016 and 2015 were as follows:

 

		Nine Months Ended September 30,								Increase (Decrease)
		2016				2015				$				%
Operating Expenses
Research and development expenses		$	9,130,012			$	9,887,750			$	(757,738	)			(8	%)
General and administrative expenses			5,862,374				4,925,389				936,985				19	%
Total operating expenses		$	14,992,386			$	14,813,139			$	179,247				1	%

 

Research and Development Expenses

The decrease of approximately $758,000 or 8% in research and development expenses for the period ended September 30, 2016 compared to the comparable period of 2015 was primarily attributable to a decrease in manufacturing costs associated with producing clinical supplies of NSI-189 partially offset by an increase pre-clinical and clinical trial expenses related to the initiation of our Phase 2 MDD study.

 

General and Administrative Expenses

The increase of approximately $937,000 or 19% in general and administrative expenses for the period ended September 30, 2016 compared to the comparable period of 2015 was primarily due to a severance accrual and increased non-cash stock based compensation resulting from the accelerated vesting of options, both related to the resignation of our former Chief Executive Officer coupled with non-cash stock based compensation expense resulting from grants to our new Chief Executive Officer which were partially offset by a decrease in our employee bonus expense.

 

Research and development and general and administrative expenses for the nine months ended September 30, 2016 include approximately $312,000 and $158,000, respectively related to our May 2016 cost-reduction effort. The total $470,000 of expense is comprised of approximately $413,000 for severance and other employee payments, and $57,000 of non-cash costs for modification of employee stock options.

 

Other expense

Other expenses, net totaled approximately $694,000 and $1,334,000 for the nine months ended September 30, 2016 and 2015, respectively. Other expense, net in 2016 consisted of approximately $949,000 of interest expense primarily related to our long-term debt and $464,000 of fees related to the issuance of our derivative instruments, partially offset by a gain of approximately $459,000 related to our entering into a reimbursement agreement with a former executive officer of the Company and $219,000 of gain related to the change in the fair value adjustment of our derivative instruments.

 

Other expenses, net in 2015 consisted primarily of approximately $1,377,000 of interest expense principally related to our long-term debt partially offset by approximately $54,000 in interest income.

 

Liquidity and Capital Resources

 

Financial Condition

Our Cash and Cash Equivalent balances were approximately $5.7 million as of September 30, 2016. We believe these funds are only sufficient to fund operations through December 2016.

 

We will require additional capital to continue to develop our pre-clinical and clinical development operations. We cannot assure you that we will be able to secure additional financing or that the expected income will materialize. Several factors will affect our ability to raise additional funding, including, but not limited to market conditions, interest rates and, more specifically, our progress in our exploratory, preclinical and future clinical development programs.

 

Since our inception, we have financed our operations through the sales of our securities, issuance of long term debt, the exercise of investor warrants, and to a lesser degree from grants and research contracts.

 

		Nine Months Ended September 30,								Increase (Decrease)
		2016				2015				$				%
Net cash used in operating activities		$	(11,535,750	)		$	(15,032,404	)		$	3,496,654				23	%
Net cash provided by investing activities		$	7,389,182			$	9,800,395			$	(2,411,213	)			25	%
Net cash provided by financing activities		$	5,105,271			$	5,845,636			$	(740,365	)			(13	%)

 

Net Cash Used in Operating Activities

We used approximately $11,536,000 and $15,032,000 of cash in our operating activities for the nine months ended September 30, 2016 and 2015, respectively.   The decrease in our use of cash in operating activities of approximately $3,497,000 was primarily due to reduction in cash used in our daily operations and a reduction in cash invested in working capital.

 

Net Cash Provided by Investing Activities

For the nine months ended September 30, 2016 and 2015 respectively, we received approximately $7,389,000 and $9,800,000 of cash primarily in connection with the liquidation of our CDAR investments as they matured in order to fund operations.

 

Net Cash Provided by Financing Activities

We received approximately $5,105,000 and $5,846,000 from financing activities in the nine months ended September 30, 2016 and 2015, respectively. Net proceeds from our two financings in May 2016 of approximately $8,154,000 were partially offset by loan principal repayments of approximately $3,382,000. For the corresponding period in 2015, net cash provided in financing activities related substantially to proceeds from equity transactions.

 

Future Liquidity and Needs

We have incurred significant operating losses and negative cash flows since inception. We have not achieved profitability and may not be able to realize sufficient revenue to achieve or sustain profitability in the future. We do not expect to be profitable in the next several years, but rather expect to incur additional operating losses. We have limited liquidity and capital resources and must obtain significant additional capital resources in order to sustain our product development efforts, for acquisition of technologies and intellectual property rights, for preclinical and clinical testing of our anticipated products, pursuit of regulatory approvals, acquisition of capital equipment, laboratory and office facilities, establishment of production capabilities, for general and administrative expenses and other working capital requirements. We rely on cash balances and the proceeds from the offering of our securities, exercise of outstanding warrants and grants to fund our operations.

 

We intend to pursue opportunities to obtain additional financing in the future through the sale of our securities and additional research grants. We currently have two shelf registration statements that are effective. On September 13, 2013, our shelf registration statement (Registration No. 333-190936) registering the sale of up to $50 million of our securities was declared effective by the SEC. To date, through September 30, 2016 we have sold or reserved for sale upon the exercise of outstanding warrants approximately $48.2 million of securities under this shelf registration statement. On June 19, 2014, our shelf registration statement (Registration No. 333-196567) registering the sale of up to $100 million of our securities was declared effective by the SEC. To date, through September 30, 2016 we have sold or reserved for sale upon exercise of outstanding warrants approximately $16.0 million of securities under this shelf registration statement.

 

On September 7, 2016, we entered into a definitive securities purchase agreement with Tianjin Pharmaceutical Holdings Co., Ltd. for the private placement of $20,000,000 of our securities. The offering is expected to close during the fourth quarter of 2016 in accordance with the regulations of money transfers of the People’s Republic of China. Notwithstanding the foregoing, there can be no assurance that the transaction will close during such period.

 

We anticipate conducting financing in the future based on our shelf registration statement when and if financing opportunities arise.

 

The source, timing and availability of any future financing will depend principally upon market conditions, interest rates and, more specifically, our progress in our exploratory, preclinical and future clinical development programs. Funding may not be available when needed, at all, or on terms acceptable to us. Lack of necessary funds may require us, among other things, to delay, scale back or eliminate some or all of our research and product development programs, planned clinical trials, and/or our capital expenditures or to license our potential products or technologies to third parties.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Financial instruments that potentially subject us to concentrations of credit risk consist of cash and cash equivalents which are held at highly rated United States financial institutions and at times maintain the balances of our deposits in excess of federally insured limits. We invest our cash in instruments with short-term maturities with the objective of preserving capital. Because of the short-term maturities, we do not believe that a one-half percentage point increase or decrease in interest rates would have had a material effect on our interest income.

 

We are subject to interest rate risk for our long-term debt which contains a floating interest rate based on Wall Street Journal published prime rate. For the full year ended December 31, 2016 a one percentage point increase in the prime rate would increase our interest expense by approximately $61,000.

 

Our foreign operations in China subject us to changes in foreign exchange rates. Changes in exchange rates for the year ended December 31, 2016 are not expected to have a material effect as the operations are expected to be limited. Future changes to foreign exchange rates could have a material effect on us as our clinical trial activity increases. 

 

ITEM 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

Based on an evaluation under the supervision and with the participation of the Company’s management, the Company’s principal executive officer and principal financial officer have concluded that the Company’s disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act were effective as of September 30, 2016, to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms and (ii) accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. 

 

Changes in Internal Control Over Financial Reporting

 

Management has identified the following changes in our internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) that occurred during the second quarter of 2016 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

In conjunction with the cost-reduction plan discussed in Footnote 7, we have outsourced the majority of our accounting and finance functions to external third party consultants. These outside consultants work under the supervision of and will be supported by our Chief Financial Officer.

 

Inherent Limitations Over Internal Controls

 

The Company’s internal control over financial reporting is 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 (“GAAP”). The Company’s internal control over financial reporting includes those policies and procedures that:

 

(i)          pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the Company’s assets;

 

(ii)         provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that the Company’s receipts and expenditures are being made only in accordance with authorizations of the Company’s management and directors; and

 

(iii)        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.

 

Management, including the Company’s principal executive officer and principal financial officer, does not expect that the Company’s internal controls will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, 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. Because of the inherent limitations in all control systems, no evaluation of internal controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Also, any evaluation of the effectiveness of controls in future periods are subject to the risk that those internal controls may become inadequate because of changes in business conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

 

 

 

PART II

OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

We are parties to legal proceedings that we believe to be ordinary, routine litigation incidental to the business of present or former operations. It is management’s opinion, based on the advice of counsel, that the ultimate resolution of such litigation will not have a material adverse effect on our financial condition, results of operations or cash flows.

 

ITEM 1A. RISK FACTORS

 

Investing in our common stock involves a high degree of risk. We have described below a number of uncertainties and risks which, in addition to uncertainties and risks presented elsewhere in this Quarterly 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 Quarterly Report, and those included in our Annual Report on Form 10-K for the year ended December 31, 2015, filed with the SEC should be considered carefully in evaluating our company and our business and the value of our securities.

 

Risks Relating to Our Stage of Development and Capital Structure

 

We may not be able to continue as a going concern if we do not obtain additional financing by December, 2016.

 

The Company has incurred losses since its inception and has not demonstrated an ability to generate revenues from sales or services.  These factors create substantial doubt about the Company’s ability to continue as a going concern.  The consolidated financial statements do not include any adjustment that might be necessary if the Company is unable to continue as a going concern.

 

Our cash and cash equivalents balance at September 30, 2016 was approximately $5.7 million. Based on our current expected level of operating expenditures, we expect these funds to be only sufficient to fund our operations through December 31, 2016. On September 7, 2016, we entered into a definitive securities purchase agreement with Tianjin Pharmaceutical Holdings Co., Ltd. for the private placement of $20,000,000 of our securities. The offering is expected to close during the fourth quarter of 2016 in accordance with the regulations of money transfers of the People’s Republic of China. Notwithstanding the foregoing, there can be no assurance that the transaction will close during such period or at all. Our ability to continue as a going concern is wholly dependent upon obtaining sufficient financing to fund our operations.

 

Despite our ability to secure capital in the past, there is no assurance that additional equity or debt financing will be available to us when needed. In the event that we are not able to secure financing, we may be forced to curtail operations, delay or stop ongoing clinical trials, cease operations altogether or file for bankruptcy.

 

Our auditors have expressed substantial doubt about our ability to continue as a going concern.

 

Our auditors’ report on our December 31, 2015 financial statements expressed an opinion that our capital resources as of the date of their Audit Report were not sufficient to sustain operations or complete our planned activities for the upcoming year unless we raised additional funds. Accordingly, our current cash level raises substantial doubt about our ability to continue as a going concern. If we do not obtain additional funds by such time, we may no longer be able to continue as a going concern and will cease operation which means that our shareholders may lose their entire investment.

  

We have a history of losses.

 

Since inception in 1996 and through September 30, 2016, we have accumulated losses totaling approximately $187,637,000. On September 30, 2016, we had a working capital deficit of approximately $1,165,000 and stockholders’ deficit of approximately $3,785,000. Our net losses for the two most recent fiscal years have been approximately $20,904,000 and $22,629,000, for 2015 and 2014, respectively, while our loss for the nine months ended September 30, 2016 was approximately $15,679,000. We have generated no significant revenue from the sales of our proposed products.

 

Our ability to generate revenues and achieve profitability will depend upon our ability to complete the development of our proposed products, obtain the required regulatory approvals, manufacture and market and sell our proposed products. To date, we have not generated any revenue from the commercial sale of our proposed products. No assurances can be given as to exactly when, if at all, we will be able to fully develop, commercialize, market, sell and/or derive any, let alone material, revenues from our proposed products.

 

We will need to raise additional capital to continue operations.

 

Since our inception, we have funded our operations through the sale of our securities, credit facilities, the exercise of options and warrants, and to a lesser degree, from grants and research contracts and other revenue generating activities such as licensing. As of September 30, 2016, we had cash, cash equivalents and short-term investments on hand of approximately $5.7 million. On September 7, 2016, we entered into a definitive securities purchase agreement with Tianjin Pharmaceutical Holdings Co., Ltd. for the private placement of $20,000,000 of our securities. The offering is expected to close during the fourth quarter of 2016 in accordance with the regulations of money transfers of the People’s Republic of China. Notwithstanding the foregoing, there can be no assurance that the transaction will close during such period or at all. We cannot assure you that we will be able to secure additional capital through financing transactions, including issuance of debt, licensing agreements or grants. Our inability to license our intellectual property, obtain grants or secure additional financing will materially impact our ability to fund our current and planned operations.

 

We have spent and expect to continue spending substantial cash in the research, development, clinical and pre-clinical testing of our proposed products with the goal of ultimately obtaining FDA approval and equivalent international approvals to market such products. We will require additional capital to conduct research and development, establish and conduct clinical and pre-clinical trials, enter into commercial-scale manufacturing arrangements and to provide for marketing and distribution of our products. We cannot assure you that financing will be available if needed. If additional financing is not available, we may not be able to fund our operations, develop or enhance our technologies, take advantage of business opportunities or respond to competitive market pressures. If we exhaust our cash reserves and are unable to secure adequate additional financing, we may be unable to meet operating obligations which could result in us initiating bankruptcy proceedings or delaying, or eliminating some or all of our research and product development programs. 

 

We will need to raise additional capital to pay our indebtedness as it comes due.

 

We have a substantial level of debt. As of September 30, 2016, we had approximately $4,953,000 in aggregate principal amount long-term indebtedness outstanding. Under our amended loan and security agreement, we were required to make monthly interest only payments through September 2015; and are required to make monthly interest and principal payments of approximately $435,000 per month from January 2016 through March 2017 and make a balloon payment for the remaining principal in April 2017. As security for such indebtedness, we have pledged substantially all of our assets, including our intellectual property. If we are unable to make the required payments, or if we fail to comply with the various requirements and covenants of our indebtedness, we would be in default, which would permit the holders of our indebtedness to accelerate the maturity and require immediate repayment and lead to potential foreclosure on the assets securing the debt. Any default under our indebtedness would have a material adverse effect on our business, operating results and financial condition. Additionally, our amended loan and security agreement governing this loan also contains a number of affirmative and restrictive covenants, including reporting requirements and other collateral limitations, certain limitations on liens and indebtedness, dispositions, mergers and acquisitions, restricted payments and investments, corporate changes and limitations on waivers and amendments to certain agreements, our organizational documents, and documents relating to debt that is subordinate to our obligations under the credit facility. Our failure to comply with the covenants in the amended loan and security agreement could result in an event of default that, if not cured or waived, could result in the acceleration of all or a substantial portion of our debt and potential foreclosure on the assets securing the debt. If we are unable to refinance or repay our indebtedness as it becomes due, including upon an event of default, we may become insolvent and be unable to continue operations.

 

If we are unable to submit and gain approval for a compliance plan with the Nasdaq Capital Market, our securities will be delisting.

 

On October 18, 2016, we received notice from the Listing Qualifications Staff (the “Staff”) of The NASDAQ Stock Market LLC (“Nasdaq”) indicating that the Staff had determined to delist the Company’s securities from The Nasdaq Capital Market due to the Company’s continued non-compliance with the $1.00 bid price requirement unless the Company timely requested a hearing before the Nasdaq Hearings Panel (the “Panel”). The Company has requested a hearing before the Panel, which request will stay any delisting action by the Staff until such hearing is held. At the hearing, the Company will present its plan to regain compliance with all applicable requirements for continued listing on Nasdaq.

 

The Company is diligently working on the plan it will present at the hearing; however, there can be no assurance that the Panel will determine to continue listing the Company’s common stock on Nasdaq or that the Company will be able to evidence compliance with the applicable listing criteria within the period of time that may be granted by the Panel.

 

Should Nasdaq reject the Company’s plan, the Company faces delisting of its shares on the Nasdaq Capital Market. If delisted, our shares would likely trade on the OTCQB market (“Pink Sheets”). Being delisted from the Nasdaq will likely result in difficulties in future-fund raising efforts and is likely to affect the Company’s operations and research efforts going forward. If our common stock is delisted, this would, among other things, substantially impair our ability to raise additional funds and could result in a loss of institutional investor interest and fewer development opportunities for us.

 

Additionally, even if our plan is approved, we cannot be sure we will meet the requirements for continued listing of our shares on the Nasdaq Capital Market in the future or that we will comply with the other continued listing requirements.

 

Risks Relating to Our Business

 

Our business is dependent on the successful development of our product candidates and our ability to raise additional capital.

 

Our business is significantly dependent on our product candidates which are currently at different phases of pre-clinical and clinical development. The process to approve our product candidates is time-consuming, involves substantial expenditures of resources, and depends upon a number of factors, including the availability of alternative treatments, and the risks and benefits demonstrated in our clinical trials. Our success will depend on our ability to achieve scientific and technological advances and to translate such advances into FDA-approvable, commercially competitive products on a timely basis. Failure can occur at any stage of the process. If we are not successful in developing our product candidates, we will have invested substantial amounts of time and money without developing revenue-producing products. As we enter a more extensive clinical program for our product candidates, the data generated in these studies may not be as compelling as the earlier results. This, in turn, could adversely impact our ability to raise additional capital and pursue our business plan and planned research and development efforts.

 

Our proposed products are not likely to be commercially available for at least several years, if at all. Our development schedules for our proposed products may be affected by a variety of factors, including technological difficulties, clinical trial failures, regulatory hurdles, competitive products, intellectual property challenges and/or changes in governmental regulation, many of which will not be within our control. Any delay in the development, introduction or marketing of our product candidates could result either in such products being marketed at a time when their cost and performance characteristics would not be competitive in the marketplace or in the shortening of their commercial lives. In light of the long-term nature of our projects, the unproven technology involved and the other factors described elsewhere in this section, there can be no assurance that we will be able to successfully complete the development or marketing of any of our proposed product candidates.

 

Our business relies on technologies that we may not be able to commercially develop and we are unable to predict when or if we will be able to earn revenues.

 

We have allocated the majority of our resources to the development of our stem cell and small molecule technologies. Our ability to generate revenue and operate profitably will depend on being able to develop these technologies for human applications. These are emerging technologies that may have limited human application. We cannot guarantee that we will be able to develop our technologies or that if developed, our technologies will result in commercially viable products or have any commercial utility or value. We anticipate that the commercial sale of our proposed products and/or royalty/licensing fees related to our technologies, will be our primary sources of revenue. We recognized revenue of approximately $10,000 and $19,000 for the years ended December 31, 2015 and 2014, respectively, and $7,500 for the nine months ended September 30, 2016, related to the licensing of certain intellectual property to third parties and certain subcontractor services that we provided. If we are unable to develop our technologies, we may never realize any significant revenue. Additionally, given the uncertainty of our technologies, product candidates and the need for government regulatory approval, we cannot predict when, or if ever, we will be able to realize revenues related to our products. As a result, we will be primarily dependent on our ability to raise capital through the sale of our securities for the foreseeable future.

 

Our product development programs are based on novel technologies in an emerging field and are inherently risky.

 

We are subject to the risks inherent in the development of products based on new technologies. The novel nature of therapies in the field of regenerative medicine creates significant challenges in regard to product development and optimization, manufacturing, government regulation, third party reimbursement, and market acceptance. For example, the pathway to regulatory approval for cell-based therapies, including our stem cell based product candidates, may be more complex and lengthy than the pathway for conventional drugs. These challenges may prevent us from developing and commercializing products on a timely or profitable basis or at all. Regenerative medicine is still an emerging field. There can be no assurances that we will ultimately produce any viable commercialized products and processes. Even if we are able to produce a commercially viable product, there may be strong competitors in this field and our products may not be able to successfully compete against them.

 

Our stem cell therapy programs rely on experimental surgical devices and experimental and highly invasive surgical procedures.

 

We are subject to the risks inherent in the use and development of experimental surgical devices and procedures. We have limited experience with medical devices and must rely on outside consultants and manufacturers to develop and seek any required approvals for the device we use in connection with our stem cell therapy program. Additionally, the surgical procedures required to administer our stem cell therapy is experimental, highly invasive and is required to be performed by highly experienced neurosurgeons who have received special training. We cannot guarantee consistent and safe performance of the device or the surgical procedure. A surgery related adverse event may result in a clinical hold and may have long-term and damaging effects on our ability to complete development of the stem cell therapy programs, including the completion of any ongoing or planned clinical trials. Even if one or more of our programs is successful and receives marketing approval from a regulatory authority, due to the specialized nature of the device and surgical procedure, there may not be sufficient train surgeons to administer our therapy.

 

We are unable to predict when or if we will be able to earn revenues.

 

Given the uncertainty of our technologies and the need for government regulatory approval, we cannot predict when, or if ever, we will be able to realize revenues related to our products.

 

Our proposed products are not likely to be commercially available for at least several or more years, if ever. Accordingly, we do not foresee generating any significant revenue during such time. As a result, we will be primarily dependent on our ability to raise capital through the sale of our securities to fund our operations for the foreseeable future.

 

Our inability to manufacture and store our stem cells in-house that are used in our products could adversely impact our business.

 

We currently outsource most of the manufacturing of our stem cells and small molecule pharmaceutical compounds to third party contractors and as such have limited ability to adequately control the manufacturing process and the safe storage thereof. Any manufacturing or storage irregularity, error, or failure to comply with applicable regulatory procedure would require us to find new third parties to outsource our manufacturing and storage responsibilities or our business would be impacted. Additionally, as part of our business plan, we are developing in-house manufacturing capabilities but there can be no assurance that such capabilities will be successfully developed or if developed, be sufficient to meet our demands. And delays in the development of such in-house manufacturing capabilities could adversely affect our plans.

 

If we are unable to complete pre-clinical and clinical testing and trials or if clinical trials of our product candidates are prolonged, delayed, suspended or terminated, our business and results of operations could be materially harmed.

 

We are currently in clinical trials for NSI-566 and NSI-189, two of our proposed products, with regard to multiple indications. Although we have commenced a number of trials, the ultimate outcome of the trials is uncertain. If we are unable to satisfactorily complete such trials, or if such trials yield unsatisfactory results, we may be unable to obtain regulatory approval for and commercialize our proposed products. No assurances can be given that our clinical trials will be completed or result in successful outcomes. A number of events, including any of the following, could delay the completion of our planned clinical trials and negatively impact our ability to obtain regulatory approval for, and to market and sell, a particular product candidate:

 

·

conditions imposed on us by the FDA or any foreign regulatory authority regarding the scope or design of our clinical trials;

·

delays in obtaining, or our inability to obtain, required approvals from institutional review boards, or IRBs, or other reviewing entities at clinical sites selected for participation in our clinical trials;

·

insufficient supply or deficient quality of our product candidates or other materials necessary to conduct our clinical trials;

·

delays in obtaining regulatory agency agreement for the conduct of our clinical trials;

·

lower than anticipated enrollment and retention rate of subjects in clinical trials;

	·	serious and unexpected side effects experienced by patients in our clinical trials which are related to the use of our product candidates; or
	·	failure of our third-party contractors to meet their contractual obligations to us in a timely manner.

 

Clinical trials may also be delayed or terminated as a result of ambiguous or negative interim results. In addition, a clinical trial may be suspended or terminated by us, the FDA, the IRBs at the sites where the IRBs are overseeing a trial, or a data safety monitoring board, or DSMB, overseeing the clinical trial at issue, or other regulatory authorities due to a number of factors. Additionally, changes in regulatory requirements and guidance may occur and we may need to amend clinical trial protocols to reflect these changes. Amendments may require us to resubmit our clinical trial protocols to IRBs for reexamination, which may impact the cost, timing or successful completion of a clinical trial. We do not know whether our clinical trials will be conducted as planned, will need to be restructured or will be completed on schedule, if at all. Delays in our clinical trials will result in increased development costs for our drug candidates. In addition, if we experience delays in the completion of, or if we terminate, any of our clinical trials, the commercial prospects for our drug candidates may be harmed and our ability to generate product revenues will be jeopardized. Furthermore, many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of a drug candidate. If regulatory authorities do not approve our products or if we fail to maintain regulatory compliance, we would be unable to commercialize our proposed products, and our business and results of operations could be materially harmed.

 

The results of pre-clinical studies and clinical trials may not be predictive of the results of our later-stage clinical trials and our proposed products may not have favorable results in later-stage clinical trials or receive regulatory approval.

 

Positive results from pre-clinical studies or our Phase 1 and Phase 2 trials should not be relied upon as evidence that our clinical trials will succeed. Even if our product candidates achieve positive results in pre-clinical studies or during our Phase 1 and Phase 2 studies, we will be required to demonstrate through further clinical trials that our product candidates are safe and effective for use in a diverse population before we can seek regulatory approvals for their commercial sale. There is typically an extremely high rate of attrition from the failure of product candidates as they proceed through clinical trials. If any product candidate fails to demonstrate sufficient safety and efficacy in any clinical trial, then we may experience potentially significant delays in, or be required to abandon, development of that product candidate. Additionally, failure to demonstrate safety and efficacy results acceptable to the FDA in later stage trials could impair our development prospects and even prevent regulatory approval of our current and future product candidates. Any such delays or abandonment in our development efforts of any of our product candidates would materially impair our ability to generate revenues.

 

Our research and development expenses are subject to uncertainty.

 

Factors affecting our research and development expenses include, but are not limited to:

·

competition from companies that have substantially greater assets and financial resources than we have;

·

need for acceptance of our proposed products;

·

ability to anticipate and adapt to a competitive market and rapid technological developments;

·

amount and timing of operating costs and capital expenditures relating to outsourcing of manufacturing and management of pre-clinical and clinical trials;

·

need to rely on multiple levels of outside funding due to the length of drug development cycles and governmental approved protocols associated with the pharmaceutical industry; and

·

dependence upon key personnel including key independent consultants and advisors.

 

There can be no guarantee that our research and development expenses will be consistent from period to period. We may be required to accelerate or delay incurring certain expenses depending on the results of our studies and the availability of adequate funding.

 

We are subject to numerous risks inherent in conducting clinical trials.

 

We outsource the management of our clinical trials to third parties. Agreements with clinical investigators and medical institutions for clinical testing and with other third parties for data management services, place substantial responsibilities on these parties that, if unmet, could result in delays in, or termination of, our clinical trials. For example, if any of our clinical trial sites fail to comply with FDA-approved good clinical practices, we may be unable to use the data gathered at those sites. If these clinical investigators, medical institutions or other third parties do not carry out their contractual duties or obligations or fail to meet expected deadlines, or if the quality or accuracy of the clinical data they obtain is compromised due to their failure to adhere to our clinical protocols or for other reasons, our clinical trials may be extended, delayed or terminated, and we may be unable to obtain regulatory approval for, or successfully commercialize, our proposed products. Delays in recruitment, lack of clinical benefit or unacceptable side effects would delay or prevent the completion of our clinical trials.

 

We or our regulators may suspend or terminate our clinical trials for a number of reasons. We may voluntarily suspend or terminate our clinical trials if at any time we believe they present an unacceptable risk to the patients enrolled in our clinical trials or do not demonstrate clinical benefit. In addition, regulatory agencies may order the temporary or permanent discontinuation of our clinical trials at any time if they believe that the clinical trials are not being conducted in accordance with applicable regulatory requirements or that they present an unacceptable safety risk to the patients enrolled in our clinical trials.

 

Our clinical trial operations are subject to regulatory inspections at any time. If regulatory inspectors conclude that we or our clinical trial sites are not in compliance with applicable regulatory requirements for conducting clinical trials, we may receive reports of observations or warning letters detailing deficiencies, and we will be required to implement corrective actions. If regulatory agencies deem our responses to be inadequate, or are dissatisfied with the corrective actions we or our clinical trial sites have implemented, our clinical trials may be temporarily or permanently discontinued, we may be fined, we or our investigators may be precluded from conducting any ongoing or any future clinical trials, the government may refuse to approve our marketing applications or allow us to manufacture or market our products, and we may be criminally prosecuted.

 

The lengthy approval process as well as the unpredictability of future clinical trial results may result in our failing to obtain regulatory approval for our proposed products, which would materially harm our business, results of operations and prospects.

 

There are no assurances that we will be able to submit a pre-market application or obtain FDA approval in order to market and sell our products.

 

There can be no assurance that even if the clinical trial of any potential product candidate is successfully initiated and completed, that we will be able to submit a Biologics License Application (“BLA”) or New Drug Application (“NDA”) to the FDA, or that any BLA or NDA that we submit will be approved in a timely manner, if at all. If we are unable to submit a BLA or NDA with respect to any future product, or if such application is not approved by the FDA, we will be unable to commercialize that product. The FDA can and does reject BLAs and NDAs and may require additional clinical trials, even when product candidates performed well or achieved favorable results during initial clinical trials. If we fail to commercialize our product candidates and are unable to generate sufficient revenues to attain profitability our business will be adversely effected.

 

The manufacturing of stem cell-based therapeutic products is novel and dependent upon specialized key materials.

 

The manufacturing of stem cell-based therapeutic products is a complicated and difficult process, dependent upon substantial know-how and subject to the need for continual process improvements. We depend almost exclusively on third party manufacturers to supply our cells. In addition, our suppliers’ ability to scale-up manufacturing to satisfy the various requirements of our planned clinical trials is uncertain. Manufacturing irregularities or lapses in quality control could have a material adverse effect on our business. Additionally, many of the materials that we use to prepare our cell-based products are highly specialized, complex and available from only a limited number of suppliers. The loss of one or more of these sources would likely delay our ability to conduct planned clinical trials and otherwise adversely affect our business.

 

We may be subject to litigation that will be costly to defend or pursue and uncertain in its outcome.

 

Our business may bring us into conflict with licensees, licensors, or others with whom we have contractual or other business relationships or with our competitors or others whose interests differs from ours. If we are unable to resolve these conflicts on terms that are satisfactory to all parties, we may become involved in litigation brought by or against such parties. Any 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 our business. The outcome of litigation is always uncertain, and in some cases could include judgments against us which could have a materially adverse effect on our business.

 

We may not be able to obtain necessary licenses to third-party patents and other rights.

 

A number of companies, universities and research institutions have filed patent applications or have received patents relating to technologies in our field. We cannot predict which, if any, of these applications will issue as patents or how many of these issued patents will be found valid and enforceable. There may also be existing issued patents on which we would infringe by the commercialization of our product candidates. If so, we may be prevented from commercializing these products unless the third party is willing to grant a license to us. We may be unable to obtain licenses to the relevant patents at a reasonable cost, if at all, and may also be unable to develop or obtain alternative non-infringing technology. If we are unable to obtain such licenses or develop non-infringing technology at a reasonable cost, our business could be significantly harmed. Also, any infringement lawsuits commenced against us may result in significant costs, divert our management’s attention and result in an award against us for substantial damages, or potentially prevent us from continuing certain operations.

 

We may not be able to obtain government or third-party payor coverage and reimbursement.

 

Our ability to successfully commercialize our product candidates, if approved, depends to a significant degree on the ability of patients to be reimbursed for the costs of such products and related treatments. We cannot assure you that reimbursement in the U.S. or in foreign countries will be available for any products developed, or, if available, will not decrease in the future, or that reimbursement amounts will not reduce the demand for, or the price of, our products. There is considerable pressure to reduce the cost of therapeutic products. Government and other third party payors are increasingly attempting to contain health care costs by limiting both coverage and the level of reimbursement for new therapeutic products and by refusing, in some cases, to provide any coverage for uses of approved products for disease indications for which the FDA or other relevant authority has not granted marketing approval. Moreover, in some cases, government and other third party payors have refused to provide reimbursement for uses of approved products for disease indications for which the FDA or other relevant authority has granted marketing approval. Significant uncertainty exists as to the reimbursement status of newly approved health-care products or novel therapies such as ours. We 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 our business. If additional regulations are overly onerous or expensive or if healthcare related legislation makes our business more expensive or burdensome than originally anticipated, we may be forced to significantly downsize our business plans or completely abandon the current business model.

 

Our products may not be profitable due to manufacturing costs and our inability to receive favorable pricing.

 

Our products may be significantly more expensive to manufacture than other drugs or therapies currently on the market today due to a fewer number of potential manufacturers, greater level of needed expertise and other general market conditions affecting manufacturers of our proposed products. Even if we are able to receive approval for the reimbursement of our proposed products the amount of reimbursement may be significantly less than the manufacturing costs of our products. Additionally, other market factors may limit the price which we can charge for our proposed products while still being competitive. Accordingly, even if we are successful in developing our proposed products, we may not be able to charge a high enough price for us to earn a profit.

 

We are dependent on the acceptance of our products by the healthcare community.

 

Our product candidates, 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 we are attempting to develop represent substantial departures from established treatment methods and will compete with a number of more conventional therapies marketed by major pharmaceutical companies. If the healthcare community does not accept our products for any reason, our business will be materially harmed.

 

We depend on key employees and consultants for our continued operations and future success.

 

We are highly dependent on our chief executive officer, chief scientific officer and outside consultants.  Although we have entered into employment and consulting agreements with these parties, these agreements can be terminated at any time.  The loss of any of these key employees or consultants could adversely affect our opportunities and materially harm our future prospects.  In addition, we anticipate growth and expansion into areas and activities requiring additional expertise, such as clinical testing, regulatory compliance, manufacturing and marketing.  We anticipate the need for additional management personnel as well as the development of additional expertise by existing management personnel. There is intense competition for qualified personnel in the areas of our present and planned activities, and there can be no assurance that we will be able to attract and retain the qualified personnel necessary for the development our business.

The employment contracts of certain key employees contain significant anti-termination provisions which could make changes in management difficult or expensive.

 

We have entered into employment agreements with Messrs. Daly and Lloyd Jones and Dr. Johe. Each of these employment agreements require the payment of severance, in the event certain conditions are met, if these individuals are terminated. These provisions will make the replacement of these employees very costly and could cause difficulty in effecting a change in control.

 

If we are unable to successfully execute our new refocused business strategy or integrate our new management team, our business could be harmed.

 

During 2016, the strategic direction of our company and executive management team have undergone significant change. In January 2016, we announced a new strategic refocusing to concentrate our resources on the NSI-189 small molecule program. As part of this refocusing, we announced that we will seek external funding to defray all, or substantially all, of the costs associated with the NSI-566 stem cell therapy program. During 2016, we also received the resignation of our former President and Chief Executive Officer and founder. In addition, in February 2016, Richard Daly joined our company as our new President and Chief Executive Officer and was appointed to the board and, in May 2015, Jonathan Lloyd Jones joined our company as our new Chief Financial Officer. In May, 2016 we announced that we had committed to a cost-reduction plan in order to better utilize our resources on the implementation of our refocused clinical and corporate strategy. This cost-reduction plan includes a reduction in force across all of the Company’s departments. In June, 2016 we announced that the executive salaries of our chief executive officer and chief scientific officer have voluntarily been reduced. Furthermore, all compensation to non-employee directors were deferred until such time that our equity compensation plans are amended to authorize additional shares or the committee determines that the company is sufficiently funded. Our success depends largely on the development and execution of our refocused business strategy by our senior management team as well as the acceptance of such refocused strategy and team by our stakeholders. The recent transitions may be disruptive to our business, and if we are unable to manage orderly transitions, our business may be adversely affected. Additionally, since our management team consists of a limited number of individuals, the loss of these members of our senior management team or key personnel would likely harm our ability to implement our business strategy and respond to the rapidly changing market conditions in which we operate. There may be a limited number of persons with the requisite skills to serve in these positions, and we cannot assure you that we would be able to identify or employ such qualified personnel on acceptable terms, if at all. We cannot assure you that we will be able to successfully execute our refocused business strategy or that management will succeed in working together as a team. In the event we are unsuccessful, our business and prospects could be harmed.

 

Our competition has significantly greater experience and financial resources.

 

The biotechnology industry is characterized by rapid technological developments and a high degree of competition. We compete against numerous companies, many of which have substantially greater resources. Several such enterprises have initiated cell therapy research programs and/or efforts to treat the same diseases which we target. Given our current stage of development and resources, it may be extremely difficult for us to compete against more developed companies.

 

As a result, our proposed products could become obsolete before we recoup any portion of our related research and development and commercialization expenses. Competition in the biopharmaceutical industry is based significantly on scientific and technological factors. These factors include the availability of patent and other protection for technology and products, the ability to commercialize technological developments and the ability to obtain governmental approval for testing, manufacturing and marketing. We compete with specialized biopharmaceutical firms in the United States, Europe and elsewhere, as well as a growing number of large pharmaceutical companies that are applying biotechnology to their operations. Many major pharmaceutical companies have developed or acquired internal biotechnology capabilities or made commercial arrangements with other biopharmaceutical companies. These companies, as well as academic institutions and governmental agencies and private research organizations, also compete with us in recruiting and retaining highly qualified scientific personnel and consultants. Our ability to compete successfully with other companies in the pharmaceutical field will also depend to a considerable degree on the continuing availability of capital to us.

 

We believe that our proposed products under development and in pre-clinical testing and clinical trials will address unmet medical needs for those indications for which we are focusing our development efforts. Our competition will be determined in part by the potential indications for which our proposed products are developed and ultimately approved by regulatory authorities. Additionally, the timing of market introduction of some of our proposed products or of competitors’ products may be an important competitive factor. Accordingly, the relative speed with which we can develop our proposed products, complete preclinical testing, clinical trials and approval processes and supply commercial quantities to market is expected to be important competitive factors. We expect that competition among products approved for sale will be based on various factors, including product efficacy, safety, reliability, availability, price and patent position. 

 

Our outsource model depends on third parties to assist in developing and testing our proposed products.

 

Our strategy for the development, clinical and pre-clinical testing and commercialization of our proposed products is based in large part on an outsource model. This model requires us to engage third parties in order to further develop our technology and products as well as for the day to day operations of our business. In the event we are not able to enter into such relationships in the future, our ability to operate and develop products may be seriously hindered or we may be required to spend considerable time and resources to bring such 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.

 

The commercialization of therapeutic products exposes us to product liability claims.

 

Product liability claims could result in substantial litigation costs and damage awards against us. We attempt to mitigate this risk by obtaining and maintaining appropriate insurance coverage. Historically, we have obtained liability insurance that covers our clinical trials. If we begin commercializing products, we will need to increase our insurance coverage. We may not be able to obtain insurance on acceptable terms, if at all, and the policy limits on our insurance policies may be insufficient to cover our liability.

 

We currently rely heavily upon third party FDA-regulated manufacturers and suppliers for our products

 

We currently manufacture our cells both in-house and on an outsource basis. We outsource the manufacturing of our pharmaceutical compound to third party manufacturers. We manufacture cells in-house which are not required to meet stringent FDA requirements. We use these cells in our research and collaborative programs. At present, we outsource all the manufacturing and storage of our stem cells and pharmaceuticals compound to be used in pre-clinical and clinical works, and which are subject to higher FDA requirements, to Charles River Laboratories, Inc., of Wilmington, Massachusetts (stem cells) and Albany Molecular Resources, Inc. (small molecule). Failure by our contract manufacturer to achieve and maintain high manufacturing standards could result in patient injury or death, product recalls or withdrawals, delays or failures in testing or delivery, cost overruns, or other problems that could seriously hurt our business. Contract manufacturers may encounter difficulties involving production yields, quality control, and quality assurance. These manufacturers are subject to ongoing periodic and unannounced inspections by the FDA and corresponding state and foreign agencies to ensure strict compliance with cGMPs, GTPs and other applicable government regulations and corresponding foreign standards; however, we do not have control over third-party manufacturers’ compliance with these regulations and standards.

 

Because manufacturing facilities are subject to regulatory oversight and inspection, failure to comply with regulatory requirements could result in material manufacturing delays and product shortages, which could delay or otherwise negatively impact our clinical trials and product development. Moreover, we do not have quantity or volume commitment orders from these manufacturers and we cannot assure you that the manufacturers will be able to manufacture in the quantity we require on a timely basis or at all. In the event we are required to seek alternative third party suppliers or manufacturers, they may require us to purchase a minimum amount of materials or could require other unfavorable terms. Any such event would materially impact our business prospects and could delay the development of our products. Moreover, there can be no assurance that any manufacturer or supplier that we select will be able to supply our products in a timely or cost effective manner or in accordance with applicable regulatory requirements or our specifications. In addition, due to the novelty of our products and product development, there can be no assurances that we would be able to find other suitable third party FDA-regulated manufacturers on a timely basis and at terms reasonable to us. Even if we were to locate alternative manufacturers there may be delays before they are able to begin manufacturing. Failure to secure such third party manufacturers or suppliers would materially impact our business.

 

We rely on third parties to conduct our clinical trials and perform data collection and analysis, which may result in costs and delays that prevent us from successfully commercializing our product candidates.

 

We do not have the in-house capability to conduct clinical trials for our product candidates. We rely, and will rely in the future, on medical institutions, clinical investigators, contract research organizations, contract laboratories, and collaborators to perform data collection and analysis and other aspects of our clinical trials. Our reliance on these third parties for clinical development activities results in reduced control over these activities. Furthermore, these third parties may also have relationships with other entities, some of which may be our competitors. Our preclinical activities or clinical trials conducted in reliance on third parties may be delayed, suspended, or terminated if:

 

	·	the third parties do not successfully carry out their contractual duties;
	·	the third parties fail to meet FDA and other regulatory obligations or expected deadlines;

·

we replace a third party for any reason; or

·

the quality or accuracy of the data obtained by third parties is compromised due to their failure to adhere to clinical protocols, regulatory requirements, or for other reasons.

 

Third party performance failures may increase our development costs, delay our ability to obtain regulatory approval, and delay or prevent the commercialization of our product candidates. While we believe that there are numerous alternative sources to provide these services, in the event that we seek such alternative sources, we may not be able to enter into replacement arrangements without incurring delays or additional costs.

 

Risks Relating to Intellectual Property

 

We may not be able to withstand challenges to our intellectual property rights.

 

We rely on our intellectual property, including issued and applied-for patents, as the foundation of our business. Our intellectual property rights may come under challenge. No assurances can be given that our current and potential future patents will survive such challenges. For example, in 2005 one of our patents was challenged in the USPTO. Although we prevailed in this particular matter, these cases are complex, lengthy, expensive, and could potentially be adjudicated adversely to our interests, removing the protection afforded by an issued patent. The viability of our 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 our business and future prospects.

 

We may not be able to adequately protect against the piracy of the intellectual property in foreign jurisdictions.

 

We conduct research in countries outside of the U.S., including through our subsidiary in the People’s Republic of China. A number of our competitors are located in these countries and may be able to access our technology or test results. The laws protecting intellectual property in some of these countries may not adequately protect our trade secrets and intellectual property. The misappropriation of our intellectual property may materially impact our position in the market and any competitive advantages, if any, that we may have.

 

Risks Relating to Our Common Stock

 

The market price for our common shares is particularly volatile.

 

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 those of a seasoned issuer. The volatility in our share price is attributable to a number of factors. Mainly however, we are a speculative or “risky” investment due to our limited operating history, lack of significant revenues to date and the uncertainty of FDA approval. 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; the results of clinical trials for our product candidates; FDA’s determination with respect to filings for new clinical studies, new drug applications and new indications; government regulations; announcements of significant acquisitions, strategic partnerships or joint ventures; our capital commitments; offerings of our securities 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 the sale of shares or the availability of common shares for sale at any time will have on the prevailing market price.

 

The requirements of being a public company may strain our resources, divert management’s attention and affect our ability to attract and retain qualified board members.

 

As a public company, we incur significant legal, accounting and other expenses that we would not incur as a private company, including costs associated with public company reporting requirements. We also incur costs associated with the Sarbanes-Oxley Act of 2002, as amended, the Dodd-Frank Wall Street Reform and Consumer Protection Act and related rules implemented or to be implemented by the SEC and the Nasdaq. The expenses incurred by public companies generally for reporting, insurance and corporate governance purposes have been increasing. We expect these rules and regulations to increase our legal and financial compliance costs and to make some activities more time-consuming and costly. These laws and regulations could also make it more difficult or costly for us to obtain certain types of insurance, including director and officer liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. These laws and regulations could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees or as our executive officers and may divert management’s attention. Furthermore, if we are unable to satisfy our obligations as a public company, we could be subject to delisting of our common stock, fines, sanctions and other regulatory action and potentially civil litigation.

 

We have never paid a cash dividend and do not intend to pay cash dividends on our common stock in the foreseeable future.

 

We have never paid cash dividends nor do we anticipate paying cash dividends in the foreseeable future. Accordingly, any return on your investment will be as a result of stock appreciation if any. Additionally, we are prohibited from paying any cash dividends under the terms of our loan and security agreement.

 

Our anti-takeover provisions may delay or prevent a change of control, which could adversely affect the price of our common stock.

 

Our amended and restated certificate of incorporation and amended and restated bylaws contain provisions that may make it difficult to remove our board of directors and management and may discourage or delay “change of control” transactions, which could adversely affect the price of our common stock. These provisions include, among others:

 

·

our board of directors is divided into three classes, with each class serving for a staggered three-year term, which prevents stockholders from electing an entirely new board of directors at an annual meeting;

·

advance notice procedures that stockholders must comply with in order to nominate candidates to our board of directors and propose matters to be brought before an annual meeting of our stockholders may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of our company; and

·

our board of directors may, without stockholder approval, issue series of preferred stock, or rights to acquire preferred stock, that could dilute the interest of, or impair the voting power of, holders of our common stock or could also be used as a method of discouraging, delaying or preventing a change of control.

 

If securities or industry analysts do not publish research reports, or publish unfavorable research about our business, the price and trading volume of our common stock could decline.

 

The trading market for our common stock will depend in part on the research and reports that securities or industry analysts publish about us and our business. We currently have limited research coverage by securities and industry analysts. In the event an analyst downgrades our securities, the price of our securities would likely decline. If analysts cease to cover us or fails to publish regular reports on us, interest in our securities could decrease, which could cause the price of our common stock and other securities and their trading volume to decline.

 

Our charter documents and Delaware law contain provisions that could make it difficult for us to be acquired in a transaction that might be beneficial to our stockholders.

 

Our board of directors has the authority to issue shares of preferred stock and to fix the rights, preferences, privileges, and restrictions of these shares without stockholder approval.  Additionally, our Bylaws provide for a staggered board.  These provisions in our charter documents, along with certain provisions under Delaware law, may make it more difficult for a third party to acquire us or discourage a third party from attempting to acquire us, even if the acquisition might be beneficial to our stockholders.

 

Our board of directors has broad discretion to issue additional securities which might dilute the net tangible book value per share of our common stock for existing stockholders.

 

We are entitled under our certificate of incorporation to issue up to 300,000,000 shares of common stock and 7,000,000 “blank check” shares of preferred stock. Shares of our blank check preferred stock provide our board of directors with broad authority to determine voting, dividend, conversion, and other rights. As of September 30, 2016 we have issued and outstanding 114,823,460,shares of common stock and we have 66,792,486 shares of common stock reserved for future grants under our equity compensation plans and for issuances upon the exercise or conversion of currently outstanding options, warrants and convertible securities. As of September 30, 2016, we had no shares of preferred stock issued and outstanding. Accordingly, we are entitled to issue up to 118,384,054 additional shares of common stock and 7,000,000 additional shares of “blank check” preferred stock. Our board may generally issue those common and preferred shares, or convertible securities to purchase those shares, without further approval by our shareholders. Any preferred shares we may issue will 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 in order 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. The issuance of additional securities may cause substantial dilution to our shareholders.

 

Risks Related to Government Regulation and Approval of our Product Candidates.

 

The regulatory approval processes of the FDA and comparable foreign authorities are lengthy, time consuming and inherently unpredictable, and our products may not receive regulatory approval.

 

The time required to obtain approval by the FDA and comparable foreign authorities is inherently unpredictable but typically takes many years following the commencement of clinical trials and depends upon numerous factors, including the substantial discretion of the regulatory authorities. In addition, approval policies, regulations, or the type and amount of clinical data necessary to gain approval may change during the course of a drug candidate’s clinical development and may vary among jurisdictions. We have not obtained regulatory approval for any product candidate and it is possible that none of our existing product candidates or any product candidates we may seek to develop in the future will ever obtain regulatory approval.

 

Our drug candidates could fail to receive regulatory approval for many reasons, including the following:

 

·

the FDA or comparable foreign regulatory authorities may disagree with the design or implementation of our clinical trials;

·

we may be unable to demonstrate to the satisfaction of the FDA or comparable foreign regulatory authorities that a product candidate is safe and effective for its proposed indication;

·

the results of clinical trials may not meet the level of statistical significance required by the FDA or comparable foreign regulatory authorities for approval;

·

we may be unable to demonstrate that a product candidate’s clinical and other benefits outweigh its safety risks;

·

the FDA or comparable foreign regulatory authorities may disagree with our interpretation of data from preclinical studies or clinical trials;

·

the data collected from clinical trials of our product candidates may not be sufficient to support the submission of a BLA, NDA or other submission or to obtain regulatory approval in the United States or elsewhere;

·

the FDA or comparable foreign regulatory authorities may fail to approve the manufacturing processes or facilities of third-party manufacturers with which we contract for clinical and commercial supplies; or

·

the approval policies or regulations of the FDA or comparable foreign regulatory authorities may significantly change in a manner rendering our clinical data insufficient for approval.

 

We are currently undertaking clinical trials for our lead products candidates NSI-189 and NSI-566.  We cannot assure you that we will successfully complete any clinical trials in connection with such INDs.  Further, we cannot predict when we might first submit any product license application (NDA or BLA) for FDA approval or whether any such product license application will be granted on a timely basis, if at all.  Moreover, we cannot assure you that FDA approvals for any products developed by us will be granted on a timely basis, if at all. Any delay in obtaining, or failure to obtain, such approvals could have a material adverse effect on the marketing of our products and our ability to generate product revenue.

 

In addition, even if we were to obtain approval, regulatory authorities may approve any of our product candidates for fewer or more limited indications than we request, may not approve the price we intend to charge for our products, may grant approval contingent on the performance of costly post-marketing clinical trials, or may approve a drug candidate with a label that does not include the labeling claims necessary or desirable for the successful commercialization of that drug candidate. Any of the foregoing scenarios could materially harm the commercial prospects for our drug candidates.

Development of our product candidates is subject to extensive government regulation.

 

Our research and development efforts, as well as any future clinical trials, and the manufacturing and marketing of any products we may develop, will be subject to, and restricted by, extensive regulation by governmental authorities in the U.S. and other countries. The process of obtaining FDA and other necessary regulatory approvals is lengthy, expensive and uncertain. FDA and other legal and regulatory requirements applicable to our proposed products could substantially delay or prevent us from initiating additional clinical trials. We may fail to obtain the necessary approvals to commence clinical testing or to manufacture or market our potential products in reasonable time frames, if at all. In addition, the U.S. Congress and other legislative bodies may enact regulatory reforms or restrictions on the development of new therapies that could adversely affect the regulatory environment in which we operate or the development of any products we may develop.

 

A substantial portion of our research and development entails the use of stem cells obtained from human tissue. The U.S. federal and state governments and other jurisdictions impose restrictions on the acquisition and use of human tissue, including those incorporated in federal Good Tissue Practice, or “GTP,” regulations. These regulatory and other constraints could prevent us from obtaining cells and other components of our products in the quantity or of the quality needed for their development or commercialization. These restrictions change from time to time and may become more onerous. Additionally, we may not be able to identify or develop reliable sources for the cells necessary for our potential products — that is, sources that follow all state and federal laws and guidelines for cell procurement. Certain components used to manufacture our stem and progenitor cell product candidates will need to be manufactured in compliance with the FDA’s GMP. Accordingly, we will need to enter into supply agreements with companies that manufacture these components to GMP standards. There is no assurance that we will be able to enter into any such agreements.

 

Noncompliance with applicable regulatory requirements can subject us, our third party suppliers and manufacturers and our other collaborators to administrative and judicial sanctions, such as, among other things, warning letters, fines and other monetary payments, recall or seizure of products, criminal proceedings, suspension or withdrawal of regulatory approvals, interruption or cessation of clinical trials, total or partial suspension of production or distribution, injunctions, limitations on or the elimination of claims we can make for our products, refusal of the government to enter into supply contracts or fund research, or government delay in approving or refusal to approve new drug applications.

 

We cannot predict if or when we will be able to commercialize our products due to regulatory constraints.

 

Federal, state and local governments and agencies in the U.S. (including the FDA) and governments in other countries have significant regulations in place that govern many of our activities.  We are, 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 our proposed products are subject to extensive government regulation that may prevent us from creating commercially viable products. In addition, our sale of any commercially viable product will be subject to government regulation from several standpoints, including manufacturing, advertising, marketing, promoting, selling, labeling and distributing.  If, and to the extent that, we are unable to comply with these regulations, our ability to earn revenues, if any, will be materially and negatively impacted.

 

If our clinical trials fail to demonstrate that any of our product candidates are safe and effective for the treatment of particular diseases, the FDA may require us to conduct additional clinical trials or may not grant us marketing approval for such product candidates for those diseases.

 

We are not permitted to market our product candidates in the United States until we receive approval of a BLA or NDA from the FDA. Before obtaining regulatory approvals for the commercial sale of any product candidate for a target indication, we must demonstrate with evidence gathered in preclinical and well-controlled clinical trials, and, with respect to approval in the United States, to the satisfaction of the FDA and, with respect to approval in other countries, similar regulatory authorities in those countries, that the product candidate is safe and effective for use for that target indication and that the manufacturing facilities, processes and controls used to produce the product are compliant with applicable statutory and regulatory requirements. Our failure to adequately demonstrate the safety and effectiveness of any of our product candidates for the treatment of particular diseases may delay or prevent our receipt of the FDA’s approval and, ultimately, may prevent commercialization of our product candidates for those diseases. The FDA has substantial discretion in deciding whether, based on the benefits and risks in a particular disease, any of our product candidates should be granted approval for the treatment of that particular disease. Even if we believe that a clinical trial or trials has demonstrated the safety and statistically significant efficacy of any of our product candidates for the treatment of a disease, the results may not be satisfactory to the FDA. Preclinical and clinical data can be interpreted by the FDA and other regulatory authorities in different ways, which could delay, limit or prevent regulatory approval. If regulatory delays are significant or regulatory approval is limited or denied altogether, our financial results and the commercial prospects for those of our product candidates involved will be harmed, and our prospects for profitability will be significantly impaired.

 

Satisfaction of these and other regulatory requirements is costly, time consuming, uncertain, and subject to unanticipated delays. Despite our efforts, our drug candidates may not:

 

·

offer improvement over existing comparable products;

·

be proven safe and effective in clinical trials; or

·

meet applicable regulatory standards.

 

In addition, in the course of its review of a BLA or NDA or other regulatory application, the FDA or other regulatory authorities may conduct audits of the practices and procedures of a company and its suppliers and contractors concerning manufacturing, clinical study conduct, non-clinical studies and several other areas. If the FDA and/or other regulatory authorities conducts an audit relating to a BLA, NDA or other regulatory application and finds a significant deficiency in any of these or other areas, the FDA or other regulatory authorities could delay or not approve such BLA, NDA or other regulatory application. If regulatory delays are significant or regulatory approval is limited or denied altogether, our financial results and the commercial prospects for those of our products or product candidates involved will be harmed, and our prospects for profitability will be significantly impaired.

 

Both before and after marketing approval, our product candidates are subject to extensive and rigorous ongoing regulatory requirements and continued regulatory review, and if we fail to comply with these continuing requirements, we could be subject to a variety of sanctions.

 

Both before and after the approval of our product candidates, we, our product candidates, our operations, our facilities, our suppliers, and our contract manufacturers, contract research organizations, and contract testing laboratories are subject to extensive regulation by governmental authorities in the United States and other countries, with regulations differing from country to country. In the United States, the FDA regulates, among other things, the pre-clinical testing, clinical trials, manufacturing, safety, efficacy, potency, labeling, packaging, adverse event reporting, storage, record keeping, quality systems, advertising, promotion, sale and distribution of therapeutic products. These requirements include submissions of safety and other post-marketing information and reports, registration, as well as continued compliance with cGMP, requirements and current good clinical practice, or cGCP, requirements for any clinical trials that we conduct post-approval. Failure to comply with applicable requirements could result in, among other things, one or more of the following actions: restrictions on the marketing of our products or their manufacturing processes, notices of violation, untitled letters, warning letters, civil penalties, fines and other monetary penalties, unanticipated expenditures, delays in approval or refusal to approve a product candidate, suspension or withdrawal of regulatory approvals, product, seizure or detention, voluntary or mandatory product recalls and related publicity requirements, interruption of manufacturing or clinical trials, operating restrictions, injunctions, import or export bans, and criminal prosecution. We or the FDA, or an institutional review board, may suspend or terminate human clinical trials at any time on various grounds, including a finding that the subjects are being exposed to an unacceptable health risk.

 

The FDA’s policies may change and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of our drug candidates. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that we may have obtained, which would adversely affect our business, prospects and ability to achieve or sustain profitability.

 

If side effects are identified during the time our drug candidates are in development or after they are approved and on the market, we may choose to or be required to perform lengthy additional clinical trials, discontinue development of the affected drug candidate, change the labeling of any such products, or withdraw any such products from the market, any of which would hinder or preclude our ability to generate revenues.

 

Undesirable side effects caused by our drug candidates could cause us or regulatory authorities to interrupt, delay or halt clinical trials and could result in a more restrictive label or the delay or denial of regulatory approval by the FDA or other comparable foreign authorities. The drug-related side effects could affect patient recruitment or the ability of enrolled patients to complete the trial or result in potential product liability claims. Any of these occurrences may harm our business, financial condition and prospects significantly. Even if any of our drug candidates receives marketing approval, as greater numbers of patients use a drug following its approval, an increase in the incidence of side effects or the incidence of other post-approval problems that were not seen or anticipated during pre-approval clinical trials could result in a number of potentially significant negative consequences, including:

 

·

regulatory authorities may withdraw their approval of the product;

·

regulatory authorities may require the addition of labeling statements, such as warnings or contraindications;

·

we may be required to change the way the product is administered, conduct additional clinical trials or change the labeling of the product;

·

we could be sued and held liable for harm caused to patients; and

·

our reputation may suffer.

 

Any of these events could substantially increase the costs and expenses of developing, commercializing and marketing any such drug candidates or could harm or prevent sales of any approved products.

 

Even if our product candidates receive regulatory approval in the United States, we may never receive approval or commercialize our products outside of the United States.

 

In order to market any products outside of the United States, we must establish and comply with numerous and varying regulatory requirements of other countries regarding safety and efficacy. Approval procedures vary among countries and can involve additional product testing and additional administrative review periods. The time required to obtain approval in other countries might differ from that required to obtain FDA approval. The regulatory approval process in other countries may include all of the risks detailed above regarding FDA approval in the United States as well as other risks. Regulatory approval in one country does not ensure regulatory approval in another, but a failure or delay in obtaining regulatory approval in one country may have a negative effect on the regulatory process in others. Failure to obtain regulatory approval in other countries or any delay or setback in obtaining such approval would impair our ability to develop foreign markets for our drug candidates.

 

Our product candidates for which we intend to seek approval as biologic products may face competition sooner than anticipated.

 

We expect our stem cell product candidates to be regulated by the FDA as biologic products and we intend to seek approval for these products pursuant to the BLA pathway. The Biologics Price Competition and Innovation Act of 2009, or BPCIA, created an abbreviated pathway for the approval of biosimilar and interchangeable biologic products. The abbreviated regulatory pathway establishes legal authority for the FDA to review and approve biosimilar biologics, including the possible designation of a biosimilar as “interchangeable” based on its similarity to an existing brand product. Under the BPCIA, an application for a biosimilar product cannot be approved by the FDA until 12 years after the original branded product was approved under a BLA. The law is complex and is still being interpreted and implemented by the FDA. As a result, its ultimate impact, implementation, and meaning are subject to uncertainty. While it is uncertain when such processes intended to implement BPCIA may be fully adopted by the FDA, any such processes could have a material adverse effect on the future commercial prospects for our biologic products.

 

We believe that any of our product candidates approved as a biologic product under a BLA should qualify for the 12-year period of exclusivity. However, there is a risk that this exclusivity could be shortened due to congressional action or otherwise, or that the FDA will not consider our drug candidates to be reference products for competing products, potentially creating the opportunity for generic competition sooner than anticipated. Moreover, the extent to which a biosimilar, once approved, will be substituted for any one of our reference products in a way that is similar to traditional generic substitution for non-biologic products is not yet clear, and will depend on a number of marketplace and regulatory factors that are still developing.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

The following information is given with regard to unregistered securities sold from January 1, 2016 to October 31, 2016.  The following securities were issued in private offerings pursuant to the exemption from registration contained in the Securities Act and the rules promulgated thereunder in reliance on Section 4(2) thereof, relating to offers of securities by an issuer not involving any public offering:

 

·

On February 15, 2016, as an inducement to Mr. Daly’s employment, we granted an inducement option to purchase 2,750,000 shares of Common Stock. The option has a term of ten (10) years, and vests as follows: (i) 687,500 options vest on the six (6) month anniversary of the grant date, (ii) 687,500 options vest on the one (1) year anniversary of the grant date and the remaining 1,375,000 options vesting quarterly over the subsequent three (3) year period such that the option will be fully vested on the four (4) year anniversary of the grant date.

 

·

On May 12, 2016, we entered into private placement securities purchase agreements with certain accredited investors to purchase 2,700,000 of common stock and 2,700,000 common stock purchase warrants at a price of $0.40 per each share and common stock purchase warrant. We received aggregate gross proceeds of approximately $1,080,000 and net proceeds of approximately $925,000. The warrants allow the holder to purchase one share of common stock, have an exercise price of $0.40 per share and a term of 5 years. The warrants contain certain non-standard anti-dilution protection and. Consequently, are being accounted for as derivative instruments recorded at fair value each period. This private placement transaction was not made pursuant to any registration statement.

 

·

In July 2016, we issued one of our legal advisors a common stock purchase warrant to purchase 150,000 shares of our common stock at an exercise price of $0.30 per share as partial compensation for legal work. The warrant vests monthly over one year from the grant date, has a term of 5 years and will expire on June 30, 2021. Any vested portion of the warrant can be exercised after 6 months from the issuance date on a cashless basis at any time that the shares underlying the warrant are not subject to a registration statement. The warrant provides for an adjustment to the purchase price and number of shares underlying the warrant upon stock dividends and splits. The warrant does not contain any price protection provisions with regard to subsequent financings.

 

·

In September and October 2016 we sold an aggregate of 98,215 shares of common stock to certain members of our management. The average purchase price for the shares was $0.31 based on the closing price of our common stock on each purchase date generating $30,000 of proceeds. The shares were issued pursuant to a plan to facilitate the ownership of our common shares by management.

 

ITEM 3. DEFAULT UPON SENIOR SECURITIES

 

None

 

ITEM 4. MINE SAFETY DISCLOSURE

 

Not Applicable

 

ITEM 5. OTHER INFORMATION

 

Not Applicable

 

ITEM 6. EXHIBITS

 

The exhibits listed in the accompanying index to exhibits are filed or incorporated by reference as part of this Form 10-Q.

 

SIGNATURES

 

In accordance with the requirements of the Securities Exchange Act of 1934, the Registrant has caused this report to be signed by the undersigned hereunto duly authorized.

 

	NEURALSTEM, INC.
Date:  November 8, 2016		/s/  Richard Daly
		Chief Executive Officer
		/s/ Jonathan Lloyd Jones
		Chief Financial Officer
		(Principal Accounting Officer)

 

 

 

INDEX TO EXHIBITS

 

 

Incorporated by Reference

Filed/

Exhibit

Furnished

Exhibit

No.

Description

Herewith

Form

No.

File No.

Filing Date

3.01(i)

Amended and Restated Certificate of Incorporation of Neuralstem, Inc. filed on 7/9/14

10-Q

3.01(i)

001-33672

8/8/14

3.02(i)

Certificate of Designation to be filed before closing of offering with Tianjin Pharmaceutical Holdings Co., Ltd.

8-K

3.01

001-33672

9/12/216

3.03(ii)

Amended and Restated Bylaws of Neuralstem, Inc. adopted on 11/10/2015

8-K

3.01

001-33672

11/16/15

4.01**

Amended and Restated 2005 Stock Plan adopted on 6/28/07

10-QSB

4.2(i)

333-132923

8/14/07

4.02**

Non-qualified Stock Option Agreement between Neuralstem, Inc. and Richard Garr dated 7/28/05

SB-2

4.4

333-132923

6/21/06

4.03**

Non-qualified Stock Option Agreement between Neuralstem, Inc. and Karl Johe dated 7/28/05

SB-2

4.5

333-132923

6/21/06

4.04**

Neuralstem, Inc. 2007 Stock Plan

10-QSB

4.21

333-132923

8/14/07

4.05

Form of Common Stock Purchase Warrant Issued to Karl Johe on 6/5/07

10-KSB

4.22

333-132923

3/27/08

4.06

Form of Placement Agent Warrant Issued to Midtown Partners & Company on 12/18/08

8-K

4.1

001-33672

12/18/08

4.07

Form of Consultant Common Stock Purchase Warrant issued on 1/5/09

S-3/A

10.1

333-157079

02/3/09

4.08		Form of Series D, E and F Warrants				8-K		4.01		001-33672		7/1/09
4.09		Form of Placement Agent Warrant				8-K		4.02		001-33672		7/1/09
4.10		Form of Consultant Warrant Issued 1/8/10				10-K		4.20		001-33672		3/31/10
4.11		Form of Replacement Warrant Issued 1/29/10				10-K		4.21		001-33672		3/31/10
4.12		Form of Series C Replacement Warrant Issued March of 2010 and May, June and July of 2013 (Original Ex. Price $2.13 and $1.25)				10-K		4.22		001-33672		3/31/10
4.13		Form of employee and consultant option grant pursuant to our 2007 Stock Plan and 2010 Equity Compensation Plan				10-K		4.23		001-33672		3/31/10
4.14		Form of Warrants dated 6/29/10				8-K		4.01		001-33672		6/29/10
4.15**		Amended Neuralstem 2010 Equity Compensation Plan adopted on June 21, 2013				DEF 14A		Appendix I		001-33672		4/30/13
4.16		Form of Consultant Warrant issued 10/1/09 and 10/1/10				S-3		4.07		333-169847		10/8/10
4.17**		Form of Restricted Stock Award Agreement pursuant to our 2007 Stock Plan and 2010 Equity Compensation Plan				S-8		4.06		333-172563		3/1/11
4.18**		Form of Restricted Stock Unit Agreement				S-8		4.08		333-172563		3/1/11
4.19		Form of Common Stock Purchase Warrant issued pursuant to February 2012 registered offering				8-K		4.01		001-33672		2/8/12
4.20		Form of Common Stock Purchase Warrant issued to Consultants in June of 2012 and March 19, 2013				10-Q		4.20		001-33672		8/9/12
4.21		Form of Underwriter Warrant issued to Aegis Capital Corp. on 8/20/12				8-K		4.1		001-33672		8/17/12

4.22		Form of Placement Agent Warrant issued to Aegis Capital Corp. on 9/13/12				8-K		4.1		001-33672		9/19/12
4.23		Form of Consulting Warrant issued January 2011 and March 2012				S-3		4.01		333-188859		5/24/13
		Form of Replacement Warrant issued January, February and May of 2013 (Original Ex. Prices $3.17 and $2.14)
4.24		Form of Lender Warrant issued March 22, 2013				8-K		4.01		001-33672		3/27/13
4.25		Form of Advisor Warrant issued March 22, 2013				8-K		4.02		001-33672		3/27/13
4.26		Form of Warrant issued June of 2013 and July of 2014 to Legal Counsel				10-Q		4.26		001-33672		8/8/13
4.27		Form of Warrant issued in September 2013 in connection with Issuer’s registered direct offering				8-K		4.01		011-33672		9/10/13
4.28		Form of Warrant issued to strategic advisor in August 2013				10-Q		4.28		001-33672		11/12/13
4.29		Form of Investor Warrant issued January 2014				8-K		4.01		001-33672		1/6/14

 

4.30		Form of Lender Warrant Issued October 28, 2014				8-K		4.01		001-33672		10/29/14
4.31**		Inducement Stock Option Plan adopted 2/15/2016				8-K		4.01		001-33672		2/19/16
4.32**		Form of Inducement Award Non-Qualified Stock Option Grant pursuant to Inducement Stock Option Plan				8-K		4.02		001-33672		2/19/16
4.33		Form of Common Stock Purchase Warrant From May 2016 Public Offering dated May 6, 2016				8-K		4.01		001-33672		5/3/16
4.34		Form of Common Stock Purchase Warrant from May 2016 Private Offering Dated May 12, 2016				8-K		4.01		001-33672		5/13/16
4.35		Form of Series A Preferred Stock Certificate				8-K		4.01		001-33672		9/12/16

10.01**

Employment Agreement with I. Richard Garr dated January 1, 2007 and amended as of November 1, 2005

SB-2

10.1

333-132923

6/21/06

10.02**

Amended terms to the Employment Agreement of I Richard Garr dated January 1, 2008

10-K

10.02

001-33672

3/31/09

10.03**

Amended terms to the employment Agreement of I. Richard Garr dated March 1, 2015

8-K

10.01

001-33672

3/2/15

10.04**

Employment Agreement with Karl Johe dated January 1, 2007 and amended as of November 1, 2005

SB-2

10.2

333-132923

6/21/06

10.05**

Amended terms to the Employment Agreement of Karl Johe dated January 1, 2009

10-K

10.04

001-33672

3/31/09

10.06**

Employment Agreement with Thomas Hazel, Ph.D dated August 11, 2008

10-K/A

10.05

001-33672

10/5/10

10.07**

Employment Agreement with Richard Daly dated February 15, 2016

8-K

10.01

001-33672

2/19/16

10.08

Consulting Agreement dated January 2010 between Market Development Consulting Group and the Company and amendments No. 1 and 2.

10-K

10.07

001-33672

3/16/11

10.09**

Renewal of I. Richard Garr Employment Agreement dated 7/25/12

8-K

10.01

001-33672

7/27/12

10.10**

Renewal of Dr. Karl Johe  Employment Agreement dated 7/25/12

8-K

10.02

001-33672

7/27/12

10.11**

Renewal of Dr. Tom Hazel  Employment Agreement dated 7/25/12

8-K

10.03

001-33672

7/27/12

10.12

Loan and Security Agreement dated March 2013

8-K

10.01

001-33672

3/27/13

10.13

Intellectual Property and Security Agreement dated March 2013

8-K

10.02

001-33672

3/27/13

10.14

At the Market Offering Agreement entered into on October 25, 2013

8-K

10.01

001-33672

10/25/13

10.15**

Form of Amendment to Karl Johe Employment Agreement

8-K

10.01

001-33672

9/18/14

10.16

Form of Second Amendment to Loan and Security Agreement dated March of 2013 that was entered into on October 28, 2014

8-K

10.01

001-33672

10/29/14

10.17**

Offer Letter Between Neuralstem, Inc. and Jonathan Lloyd Jones

8-K

10.01

001-33672

5/11/15

10.18**

General Release and Waiver of Claims with I. Richard Garr dated 3/2/2016

8-K

10.01

001-33672

3/4/16

10.19

Form of Securities Purchase Agreement from May 2016 Private Offering

8-K

10.01

001-33672

5/13/16

10.20

Amendment to General Release and Waiver of Claims with I. Richard Garr dated 6/16/2016

8-K

10.01

001-33672

6/16/16

10.21

Form of Securities Purchase Agreement between Issuer and Tianjin Pharmaceutical Holdings Co., Ltd.

8-K

10.01

001-33672

9/12/16

10.22**

Form of Securities Purchase Agreement between Issuer and Jonathan Lloyd Jones

*

10.23**

Form of Securities Purchase Agreement between Issuer and Richard Daly

*

31.1/31.2

Certification of the Principal Executive Officer and Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

*

32.1/32.2

Certification of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. § 1350

*

101.INS

XBRL Instance Document

*

101.SCH

XBRL Taxonomy Extension Schema

*

101.CAL

XBRL Taxonomy Extension Calculation Linkbase

*

101.DEF

XBRL Taxonomy Extension Definition Linkbase

*

101.LAB

XBRL Taxonomy Extension Label Linkbase

*

101.PRE

XBRL Taxonomy Extension Presentation Linkbase

*

 

* Filed herein

** Management contracts or compensation plans or arrangements in which directors or executive officers are eligible to participate.

 

 

45

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