Quarterly Report (10-q)

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

x QUARTERLY REPORT UNDER SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934:

For the quarterly period ended March 31, 2016

¨ TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE EXCHANGE ACT OF 1934

Commission file number: 333-128226

INTELLECT NEUROSCIENCES, INC.

(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of		20-8329066
incorporation or organization)		(I.R.S. Employer Identification No.)

550 Sylvan Ave.
Englewood Cliffs, NJ		07632
(Address of principal executive offices)		(Zip Code)

(201) 608 5101

(Registrant’s telephone number, including area code)

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

Indicate by checkmark whether the Registrant has submitted electronically and posted on its corporate website, if any, any Interactive Data File required to be submitted and posted pursuant to Rule 405 of regulation S-T (Section 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 x 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. (Check one):

Large accelerated filer	Accelerated filer	Non-accelerated filer	Smaller reporting company

¨	¨	(Do not check if a smaller reporting company) ¨	x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨ No x

The registrant had 6,520,389 shares of Common Stock, par value $.001 par value per share, outstanding as of May 9, 2016.

Index		Page No.

PART I	FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)

	Consolidated Balance Sheets as of March 31, 2016 and June 30, 2015	3

	Consolidated Statements of Operations for the nine and three months ended March 31, 2016 and 2015	4

	Consolidated Statements of Cash Flows for the nine months ended March 31, 2016 and 2015	5

	Notes to Consolidated Financial Statements	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	12

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	18

Item 4.	Controls and Procedures	18

PART II	OTHER INFORMATION	18

Item 1.	Legal Proceedings	18

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	19

Item 3.	Defaults Upon Senior Securities	19

Item 4.	Mine Safety Disclosures	19

Item 5.	Other	19

Item 6.	Exhibits	19

SIGNATURES		20

CERTIFICATIONS

Intellect Neurosciences Inc. and Subsidiary

Consolidated Balance Sheets

(Unaudited)

	March 31, 2016			June 30, 2015
ASSETS
Current assets:
Cash	$	2,491		$	23,858
Total current assets		2,491			23,858

Security deposits		2,250			2,250
Total Assets	$	4,741		$	26,108

LIABILITIES AND CAPITAL DEFICIENCY

Current Liabilities:
Accounts payable and accrued expenses	$	2,639,355		$	2,599,706
Accrued interest - convertible promissory notes		1,609,859			1,447,601
Derivative instruments		683,000			2,682,541
Preferred stock dividend payable		13,794,774			11,880,647
Convertible promissory notes - current, net of debt discount of $213,553 and $155,528, respectively		2,456,447			2,166,472
Total Current liabilities	$	21,183,435		$	20,776,967

Long Term Debt
Convertible promissory notes - long term, net of debt discount of $9,198 and $296,370, respectively	$	105,802		$	339,130

Total Liabilities	$	21,289,237		$	21,116,097

Capital deficiency:

Series B Convertible Preferred Stock, $.001 par value - 459,309 shares designated and 40,686 and 76,887 shares issued and outstanding at March 31, 2016 and June 30, 2015 (liquidation preference at March 31, 2016 of $1,133,267)	$	41		$	77

Series C Convertible Preferred Stock, $.001 par value - 25,000 shares designated and 14,398 and 16,636 shares issued and outstanding at March 31, 2016 and June 30, 2015, respectively (liquidation preference at March 31, 2016 of $22,728,099)		14			16

Series D Convertible Preferred stock, $.001 par value - 25,000 shares designated and 1,054 and 2,729 shares issued and outstanding at March 31, 2016 and June 30, 2015, respectively (liquidation preference at March 31, 2016 of $1,399,960)		1			3

Series E Convertible Preferred stock, $.001 par value - 25,000 shares designated and 18,633 shares issued and outstanding at March 31, 2016 and June 30, 2015 (liquidation preference at March 31, 2016 of $23,521,430)		19			19

Series F Convertible Preferred stock, $.001 par value - 25,000 shares designated and 2,532 and 1,200 shares issued and outstanding at March 31, 2016 and June 30, 2015, respectively (liquidation preference at March 31, 2016 of $6,230,370)		3			1

Series G Convertible Preferred stock, $.001 par value - 10,000 shares designated and 3,490 and zero shares issued and outstanding at March 31, 2016 and June 30, 2015, respectively (liquidation preference at March 31, 2016 of $7,402,902)		4			-

Series H Convertible Preferred stock, $.001 par value - 2,000 shares designated and 1,081 shares and zero shares issued and outstanding at March 31, 2016 and June 30, 2015, respectively (liquidation preference at March 31, 2016 of $2,260,591)		1			-

Common stock, par value $0.001 per share, 2,000,000,000 shares authorized; 6,520,389 and 3,550,336 shares issued and outstanding at March 31, 2016 and June 30, 2015, respectively		6,521			3,550

Additional paid in capital		74,862,588			72,144,582

Accumulated Deficit		(96,153,688	)		(93,238,237	)

Total Capital Deficiency	$	(21,284,496	)	$	(21,089,989	)

Total Liabilities and Capital Deficiency	$	4,741		$	26,108

See notes to consolidated financial statements

Intellect Neurosciences Inc. and Subsidiary

Consolidated Statements of Operations

(Unaudited)

	Nine Months Ended						Three Months Ended
	March 31,						31-Mar
	2016			2015			2016			2015

Revenues:
License fees		-		$	1,200,000			-
Total revenue	$	-		$	1,200,000		$	-

Costs and Expenses:
Research and development		24,916			31,202			16,812			4,001
General and administrative		1,011,738			1,786,230			225,571			528,800
Total cost and expenses		1,036,654			1,817,432			242,383			532,801

Loss from operations	$	(1,036,654	)	$	(617,432	)	$	(242,383	)	$	(532,801	)

Other income/(expenses):

Interest expense, net of interest income		(3,988,942	)		(4,718,857	)		(1,311,063	)		(1,255,149	)
Changes in fair value of derivative instruments		2,110,145			389,194			(235,290	)		(5,989,647	)
Total other income/(expense):		(1,878,797	)		(4,329,663	)		(1,546,353	)		(7,244,796	)

Loss before provision for taxes	$	(2,915,451	)	$	(4,947,095	)	$	(1,788,736	)	$	(7,777,597	)
Income tax provision		-			-			-			-
Net loss allocable to common shareholders	$	(2,915,451	)	$	(4,947,095	)	$	(1,788,736	)	$	(7,777,597	)

Basic and diluted loss per share	$	(0.52	)	$	(2.27	)	$	(0.29	)	$	(3.03	)

Weighted average number of shares outstanding:		5,612,674			2,183,018			6,168,027			2,563,262

See notes to consolidated financial statements

Intellect Neurosciences Inc. and Subsidiary

Consolidated Statements of Cash Flows

(Unaudited)

	Nine Months Ended
	March 31,
	2016			2015
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss)	$	(2,915,451	)	$	(4,947,095	)

Adjustments to reconcile net (loss) to net cash used in operating activities:
Change in fair value of derivative instruments		(2,110,145	)		(389,194	)
Stock and warrant based compensation		37,741			115,000
Non-cash interest expense		3,989,339			4,711,168

Change in assets and liabilities
Accounts payable and accrued expenses		39,649			(65,251	)

Net cash used in operating activities	$	(958,867	)	$	(575,372	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of convertible notes		125,000			45,000
Proceeds from issuance of preferred stock		860,000			1,200,000
Repayments of convertible notes		(47,500	)		(360,000	)

Net cash provided by financing activities	$	937,500		$	885,000

NET INCREASE (DECREASE) IN CASH	$	(21,367	)	$	309,628

CASH - BEGINNING OF PERIOD	$	23,858			-

CASH - END OF PERIOD	$	2,491		$	309,628

SUPPLEMENTAL CASH FLOW INFORMATION:
Non-cash financing activities
Conversion of convertible notes and interest to common stock	$	-		$	131,929
Conversion of preferred stock to common stock	$	245,000		$	-
Debt discount recognized as derivative liabiltiy	$	110,604		$	45,000

See notes to consolidated financial statements

Intellect Neurosciences, Inc.

Notes to Unaudited Consolidated Condensed Financial Statements

March 31, 2016

Note 1. Basis of Presentation

The accompanying unaudited consolidated condensed financial statements presented herein have been prepared in accordance with the instructions to Form 10-Q and do not include all the information and note disclosures required by accounting principles generally accepted in the United States. The consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2015 filed with the Securities and Exchange Commission (the “SEC”) on October 14, 2015. In the opinion of management, this interim information includes all material adjustments, which are of a normal and recurring nature, necessary for fair presentation.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Estimates that are particularly susceptible to change include assumptions used in determining the fair value of securities owned or issued and non-readily marketable securities.

The results of operations for the nine and three months ended March 31, 2016 are not necessarily indicative of the results to be expected for the entire year or for any other period.

Note 2. Business Description and Going Concern

Intellect Neurosciences, Inc., a Delaware corporation, (“Intellect”, “our”, “us”, “we” or the “Company” refer to Intellect Neurosciences, Inc. and its subsidiary) is a biopharmaceutical company, which together with its subsidiary, Intellect Neurosciences, USA, Inc. (“Intellect USA”), is engaged in the discovery and development of disease-modifying therapeutic agents for the treatment and prevention of rare neurodegenerative conditions.

Since our inception in 2005, we have devoted all of our efforts and resources to research and development activities and advancing our patent estate. Our losses from operations have been funded with the proceeds of equity and debt financings and fees from license arrangements.

These consolidated financial statements are presented on the basis that we will continue as a going concern. The going concern concept contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.

The Company has generated losses from operations since its inception in 2005. As of March 31, 2016, the Company had negative working capital of $21,180,944, an accumulated deficit of $96,153,638 and a capital deficiency of $21,284,496. The Company had a loss from operations of $(1,036,654) for the nine months ended March 31, 2016. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from this uncertainty.

The audit report prepared by our independent registered public accounting firm relating to our consolidated financial statements for the year ended June 30, 2015 includes an explanatory paragraph expressing substantial doubt about our ability to continue as a going concern.

Note 3. Summary of Significant Accounting Policies

Principles of Consolidation. The consolidated financial statements include the accounts of our wholly owned subsidiary, Intellect USA.

Use of Estimates. The preparation of consolidated financial statements in accordance with accounting principles generally accepted in the United States involves the use of estimates and assumptions that affect the recorded amounts of assets and liabilities as of the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Significant estimates include the fair value of derivative instruments, including stock options and warrants to purchase our common stock, recognition of clinical trial costs, certain consulting expenses and deferred taxes. Actual results may differ substantially from these estimates.

Revenue Recognition . We recognize revenue in accordance with authoritative accounting guidance, which provides that non-refundable upfront and research and development milestone payments and payments for services are recognized as revenue as the related services are performed over the term of the collaboration.

Convertible Instruments We evaluate and account for conversion options embedded in convertible instruments in accordance with ASC 815 “Derivatives and Hedging Activities”. Applicable GAAP requires companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments according to certain criteria. The criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under other GAAP with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument.

We account for convertible instruments (when we have determined that the embedded conversion options should not be bifurcated from their host instruments) as follows: We record when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements are amortized over the term of the related debt to their stated date of redemption. We also record when necessary, deemed dividends for the intrinsic value of conversion options embedded in preferred shares based upon the differences between the fair value of the underlying common stock at the commitment date of the transaction and the effective conversion price embedded in the preferred shares.

Common Stock Purchase Warrants We classify as equity any contracts that require physical settlement or net-share settlement or provide us a choice of net-cash settlement or settlement in our own shares (physical settlement or net-share settlement) provided that such contracts are indexed to our own stock as defined in ASC 815-40 (“Contracts in Entity’s Own Equity”). We classify as assets or liabilities any contracts that require net-cash settlement (including a requirement to net cash settle the contract if an event occurs and if that event is outside our control) or give the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement). We assess classification of our common stock purchase warrants and other free standing derivatives at each reporting date to determine whether a change in classification between assets and liabilities is required.

Preferred Stock . We apply the guidance enumerated in ASC 480 “Distinguishing Liabilities from Equity” when determining the classification and measurement of preferred stock. Preferred shares subject to mandatory redemption (if any) are classified as liability instruments and are measured at fair value. We classify conditionally redeemable preferred shares (if any), which includes preferred shares that feature redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within our control, as temporary equity. At all other times, we classified our preferred shares in stockholders’ equity.

Derivative Instruments . Our derivative financial instruments consist of embedded derivatives related to the convertible debt, warrants and beneficial conversion features embedded within our convertible debt. The accounting treatment of derivative financial instruments requires that we record the derivatives and related warrants at their fair values as of the inception date of the debt agreements and at fair value as of each subsequent balance sheet date. Any change in fair value was recorded as non-operating, non-cash income or expense at each balance sheet date. If the fair value of the derivatives was higher at the subsequent balance sheet date, we recorded a non-operating, non-cash charge. If the fair value of the derivatives was lower at the subsequent balance sheet date, we recorded non-operating, non-cash income.

During the nine and three month periods ended March 31, 2016, we recognized other income of $2,110,145 and other loss of $(235,290), respectively, relating to recording the derivative instruments fair value. At March 31, 2016 and June 30, 2015, there were approximately $683,000 and $2.7 million of derivative liabilities outstanding, respectively.

Our derivative instruments were valued using the Black-Scholes option pricing model, using the following assumptions during the quarter ended March 31, 2016:

Estimated dividends	None
Expected volatility	188	%
Risk-free interest rate	0.49% - 1.58	%
Expected term (years)	1 month - 5 years

Note 4 . Notes Payable

The following table presents the components of Convertible Notes Payable at March 31, 2016 and June 30, 2015:

	March 31, 2016		June 30, 2015
Convertible Notes issued during fiscal year ended June 30, 2010	$	17,500	$	17,500
Convertible Notes issued during fiscal year ended June 30, 2011		702,500		850,000
Convertible Notes issued during fiscal year ended June 30, 2012		251,500		301,500
Convertible Notes issued during fiscal year ended June 30, 2013		1,116,000		1,116,000
Convertible Notes issued during fiscal year ended June 30, 2014		557,500		657,500
Convertible Notes issued during fiscal year ended June 30, 2015		15,000		15,000
Convertible Notes issued during fiscal year ending June 30, 2016		125,000
Balance at End of Period	$	2,785,000	$	2,957,500
Less debt discount:		222,751		451,898
Convertible Notes Payable, Net	$	2,562,249	$	2,505,602

Classified as follows on the accompanying consolidated balance sheets:
Current portion of Convertible Notes Payable	$	2,456,447	$	2,166,472
Long term portion of Convertible Notes Payable		105,802		339,130
	$	2,562,249	$	2,505,602

All of the foregoing convertible notes carry interest at 14% annually, mature three years from the issue date and are convertible into the Company's common shares at a conversion price of $1.25 per share except for notes with an aggregate principal amount of $420,000, $325,000 and $125,000, which are convertible into the Company's common shares at a conversion price of $0.08, $0.14 and $0.10 per share, respectively.

Convertibe Notes Payable are payable as follows:
Past Due	$	531,500
Year ending December 31, 2016		1,893,500
Year ending December 31, 2017		360,000
Total	$	2,785,000

Note 5. Convertible Preferred Stock

Series B Convertible Preferred Stock

The Series B Convertible Preferred Stock carries a cumulative dividend of 6% per annum and a stated value of $17.50 per share. Each share is convertible into 0.05 common shares based on the current conversion price of $375.

As described more fully below under Series G and Series H Convertible Preferred Shares , on July 1, 2015, 36,201 shares of Series B Convertible Preferred Stock plus accrued dividends thereon were exchanged for 1,081 shares of Series H Convertible Preferred Stock. There were no conversions of Series B Convertible Preferred Stock during the nine months ended March 31, 2016

Series C Convertible Preferred Stock

The Series C Convertible Preferred Stock carries a cumulative dividend of 14% per annum and a stated value of $1,000 per share. Each share is convertible into 800 common shares based on the current conversion price of $1.25.

As described more fully below under Series F Convertible Preferred Shares , on November 30, 2015, an aggregate of $1,086,333 Stated Value and accrued dividends of Series C Preferred Stock were exchanged for shares of Series F Convertible Preferred Stock.

As described more fully below under Series G Convertible Preferred Shares , on November 30, 2015, 700 shares of Series C Convertible Preferred Stock were exchanged for 700 shares of Series G Preferred Stock.

During the nine months ended March 31, 2016, 2,238 shares of Series C Convertible Preferred Stock were converted into 1,066,400 common shares. There were no conversions of Series C Convertible Preferred Stock during the quarter ended March 31, 2016.

Series D Convertible Preferred Shares

The Series D Convertible Preferred Stock carries a cumulative dividend of 8% per annum and a stated value of $1,000 per share. Each share is convertible into 800 common shares based on the current conversion price of $1.25.

As described more fully below under Series G Convertible Preferred Shares , on November 30, 2015, 1,675 shares of Series D Convertible Preferred Stock plus accrued dividends thereon were exchanged for 2,039 shares of Series G Convertible Preferred Stock. There were no conversions of Series D Convertible Preferred Stock during the nine months ended March 31, 2016.

Series E Convertible Preferred Shares

The Series E Convertible Preferred Stock carries a cumulative dividend of 8% per annum and a stated value of $1,000 per share. Each share is convertible into 400 common shares based on the current conversion price of $2.50. There were no conversions of Series E Convertible Preferred Stock during the nine months ended March 31, 2016.

Series F Convertible Preferred Shares

The Series F Convertible Preferred Stock carries a cumulative dividend of 8% per annum and a stated value of $1,000 per share. Each share is convertible into 10,000 common shares based on the current conversion price of $0.10. The Series F Convertible Preferred Stock has a right to a liquidation preference of $2,000 per share.

On November 30, 2015, we entered into a stock purchase agreement with certain accredited investors (the “Investors”) whereby we issued to the Investors (i) an aggregate of 1,577 shares of Series F Convertible Preferred Stock; and (ii) warrants to purchase an aggregate of 880,000 shares of common stock, par value $0.001 per share of the Company. We received gross cash proceeds of $110,000 and the financing resulted in the exchange and cancellation of an aggregate of $380,900 of principal and accrued interest due with respect to convertible promissory notes owned by the Investors, which were in default, and an aggregate of $1,086,333 Stated Value and accrued dividends of Series C Preferred Stock. The private placement was conducted pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended, and Rule 506 of Regulation D promulgated thereunder.

During the nine months ended March 31, 2016, 245 shares of Series F Convertible Preferred Stock were converted into 1,450,000 common shares.

Series G and Series H Convertible Preferred Shares

On July 1, 2015, (the “Closing Date”) we entered into a stock purchase agreement (the “Purchase Agreement”) with certain accredited investors (the “Investors”) whereby we issued to the Investors (i) an aggregate of 3,490 shares of Series G Convertible Preferred Stock (the “Series G Preferred”); (ii) an aggregate of 1,081 shares of Series H Preferred Stock (the “Series H Preferred”); and (iii) warrants to purchase an aggregate of 15,000,000 shares of common stock (the “Series G Financing”). The Warrants are exercisable for a period of five (5) years from the date of issuance and are exercisable into shares of common stock at an exercise price of $.10 per share.

In connection with the Series G Financing, the Board of Directors of the Company approved the filing of a Certificate of Designations, Preferences and Rights of Series G Convertible Preferred Stock (the “Series G Certificate of Designation”) which was filed with and accepted by the Secretary of State of the State of Delaware on June 30, 2015. Pursuant to the Series G Certificate of Designation, we established a new series of 10,000 shares, par value $0.001 per share, of Series G Convertible Preferred Stock

The Series G Preferred Stock has a right to a liquidation preference of $2,000 per share and is convertible at any time into shares of our Common Stock at a conversion price of $0.10 per share, subject to adjustment. Each share of Series G Preferred Stock has a stated value of $1,000 (the “Stated Value”) and accrues a dividend of 8% of the Stated Value per annum, which is payable annually on June 30th in cash or, at the holder’s option, in Common Stock, or a combination thereof. The Series G Preferred Stock has no voting rights and holders thereof shall vote together with holders of Common Stock on an as converted basis.

Pursuant to the Purchase Agreement, we granted holders of previously issued Series C and Series D Preferred Stock the right to exchange their shares of Series C and Series D Preferred Stock for shares of Series G Preferred and holders of previously issued Series B Preferred Stock the right to exchange their shares of Series B Preferred Stock for shares of Series H Preferred. The stated value of each share of exchanged Series B, Series C and Series D Preferred Stock, plus accrued dividends, was treated as the cash value of such shares for purposes of determining the number of shares of Series G and H Preferred Stock to be issued in connection with such exchange.

Pursuant to the Series H Certificate of Designations, Preferences and Rights of Series H Convertible Preferred Stock, which was filed on June 30, 2015, we established a new series of 2,000 shares of Series H Preferred Stock. The Series H Preferred Stock has a right to a liquidation preference of $2,000 per share and is convertible into common stock of the Company at a fixed conversion price of $1.92 per share. The Series H Preferred Stock has no voting rights except as otherwise required by law, and in such event, holders thereof shall vote together with holders of Common Stock on an as converted basis.

Based on authoritative guidance, the entire proceeds from the Series G Financing were credited to preferred stock and additional paid in capital.

There were no conversions of Series G or H Convertible Preferred Stock during the three or nine month periods ended March 31, 2016

Note 6. Outstanding Warrants

The following table presents the number of Warrants outstanding at the periods ended March 31, 2016 and June 30, 2015. All Warrants have a 5 year term and are exercisable at March 31, 2016. The Warrants issued in connection with the Series F and Series G Financing described above in Note 5 have an exercise price of $0.10 per share. All other outstanding warrants have an exercise price of $1.25 per common share, except for 44,800 warrants and 625,000 warrants, which have an exercise price of $15.625 and $0.10 per share, respectively.

Warrants outstanding at June 30, 2015			12,470,327
Issued			16,505,000
Exercised			-
Expired			-
Warrants outstanding at March 31, 2016			28,975,327

Note 7. Capital Deficiency

Common stock

In July 2015, we issued 816,400 and 650,000 shares of our common stock to holders of Series C Convertible Preferred Stock and Series F Convertible Preferred Stock, respectively, upon their exercise of the conversion feature contained in those securities.

In August 2015, we issued 250,000 and 300,000 shares of our common stock to holders of Series C Convertible Preferred Stock and Series F Convertible Preferred Stock, respectively, upon their exercise of the conversion feature contained in those securities.

In August 2015, we issued 301 shares of our common stock in connection with implementation of the reverse stock split on our outstanding common shares that was effective on February 11, 2015.

In November 2015, we issued 500,000 shares of our common stock to holders of Series F Convertible Preferred Stock upon their exercise of the conversion feature contained in those securities.

In February 2016, we issued 303,352 shares of our common stock to Mr. Elliot Maza, our Chief Executive Officer and CFO pursuant to the terms of his employment agreement with the Company.

In March 2016, we issued 50,000 shares of our common stock to Dr. Troy Rohn, our lead scientific advisor, and 100,000 shares of our common stock to another service provider.

Note 8. Income Taxes

No provision for income taxes has been recorded due to the utilization of net operating losses for which a 100% valuation allowance had been provided.

Note 9. Subsequent Events

Management has evaluated events occurring after the date of these financial statements through the date these financial statements were issued. There were no material subsequent events as of that date that require adjustment to or disclosure in the Company’s consolidated financial statements except as described below:

Financing Transaction

On April 14, 2016, (the “Closing Date”) Intellect Neurosciences, Inc. (the “Company”) entered into a stock purchase agreement (the “Purchase Agreement”) with certain accredited investors (the “Investors”), pursuant to which the Company sold an aggregate of $250,000 principal amount of its convertible promissory notes (each, a “Note”) to the Investors (the “Financing”). The Company received $250,000 gross proceeds.

The Notes are convertible, at the option of the holder, into shares of the Company’s common stock, par value $0.001 per share, at a per share price of $0.10 (the “Conversion Price”), subject to adjustment as provided in the Notes and subject to a total beneficial ownership limitation of 9.99% of the Company’s issued and outstanding common stock. Each Note has a maturity date (the “Maturity Date”) that is two years from the Closing Date. The Maturity Date may be accelerated, at the option of the holder, upon the occurrence of a Major Liquidity Event or a Minor Liquidity Event (each as defined in the Note).

In accordance with the Purchase Agreement, Investors who acquire Notes for cash subscription amounts may thereafter acquire Notes in exchange for shares of the Company’s Series G 8% Convertible Preferred Stock initially issued on July 1, 2015.

The Purchase Agreement included standard closing conditions. In addition the closing was contingent upon the Company’s entering into an Intercreditor Agreement (the “Intercreditor Agreement”) by and among the Company, the Investors and certain holders of the Company’s outstanding promissory notes (the “Junior Lenders”). The purpose of the Intercreditor Agreement was to establish the relative priority of the Notes and the obligations due by the Company to the Junior Lenders and to provide for the orderly sharing of payments by the Company among the Investors and the Junior Lenders.

The Financing was conducted as a private placement pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended, (the “Securities Act”) and Rule 506 of Regulation D promulgated thereunder.

Change to Material Agreement

In May 2008, we entered into a License Agreement (the “License”) with AHP Manufacturing BV, acting through its Wyeth Medica Ireland Branch and Elan Pharma International Limited to provide Wyeth and Elan (collectively, the “Licensees”) with certain license rights under certain of our patents and patent applications (the “Licensed Patents”) relating to certain antibodies that may serve as potential therapeutic products for the treatment for Alzheimer’s Disease (the “Licensed Products”). We granted the Licensees a non-exclusive license under the Licensed Patents to research, develop, manufacture and commercialize Licensed Products. In 2012, the Licensees discontinued all studies of the drug covered by the Licensed Patents. On March 29, 2016, the Licensees sent us a notice of termination of the License, such termination to become effective on May 29, 2016.

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

The following discussion and analysis of our financial condition and results of operations contains information that management believes is relevant to an assessment and understanding of our results of operations. You should read this discussion in conjunction with the Financial Statements and Notes included elsewhere in this report and with Management’s Discussion and Analysis of Financial Condition and Results of Operations for the year ended June 30, 2015 contained in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on October 14, 2015. Certain statements set forth below constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. See “Special Note Regarding Forward-Looking Statements”. References to “Intellect,” the “Company,” “we,” “us” and “our” refer to Intellect Neurosciences, Inc. and its subsidiaries.

General

We are a research-based biotechnology company focused on the discovery, development and licensing of novel disease-modifying therapeutics for the treatment and prevention of rare, neurodegenerative, “orphan” diseases with no approved therapies. Since our inception in 2005, we have devoted substantially all of our efforts and resources to advancing our intellectual property portfolio and research and development activities. We have entered into license and other agreements with large pharmaceutical companies related to drug candidates in our product portfolio and our patent estate, however, neither we nor any of our licensees have obtained regulatory approval for sales of any product candidates covered by our license agreements or patents. We operate under a single segment. Our fiscal year end is June 30th.

Our core business strategy is to build a portfolio of compounds with the potential to treat or prevent rare, “orphan”, neurodegenerative diseases, develop each compound to pre-determined milestones, and license the compounds to pharmaceutical companies for advanced development and commercialization. We intend to obtain revenues from licensing fees, milestone payments, development fees, royalties and/or sales related to the use of our drug candidates or intellectual property for specific therapeutic indications or applications. As an example, we developed OX1, a small molecule multi-modal antioxidant, completed preclinical and human safety trials, and then licensed the program to ViroPharma Inc. (subsequently merged into Shire plc) for development of a drug to treat Friedreich's Ataxia and other neurodegenerative diseases. We could receive up to $120 million in milestone payments from Shire and significant royalties from sales if the resulting drug product is approved for sale by the US Food and Drug Administration (“FDA”). There can be no assurance that we will receive such milestone payments or royalties.

Our research and development activity is subject to change as we develop a better understanding of our projects and their prospects. Total research and development costs from inception through March 31, 2015 were $15,103,542.

Results of Operations

Three Months Ended March 31, 2016 Compared to Three Months Ended March 31, 2015:

	Three Months Ended March 31,
	2016			2015			Change

Revenue	$	-		$	-		$	-
Research and Development Costs		(16,812	)		(4,001	)		(12,811	)
General and Administrative		(225,571	)		(528,800	)		303,229

Loss from operations	$	(242,383	)	$	(532,801	)	$	290,418

	Three Months Ended March 31,
	2016			2015			Change

Loss from operations	$	(242,383	)	$	(532,801	)	$	290,418
Other expenses		(1,546,353	)		(7,244,796	)		5,698,443

Net loss	$	(1,788,736	)	$	(7,777,597	)	$	5,988,861

Our operating loss decreased by $290,418 to a loss of $242,383 for the three months ended March 31, 2016 from an operating loss of $532,801 for the three months ended March 31, 2015. Primarily, this change was due to a reduction in General and Administrative expenses incurred during the quarter as described below.

General and Administrative expenses, which includes patent prosecution and maintenance costs, decreased by $303,229 to $(196,555) for the three months ended March 31, 2016 as compared to $528,800 for the three months ended March 31, 2015. Primarily, the decrease in General and Administrative expenses was due to a decrease in license fees of approximately $18,250; consulting fees of $55,000; executive compensation of $42,000 professional fees of $61,350; corporate & shareholder expenses of approximately $34,000; and other G&A expenses of $92,000. The reduction in G&A expenses was due partially to the termination of the consulting agreement with our former CEO and reduced corporate transactions.

Research and Development costs increased by $12,811 for the quarter ended March 31, 2016 as compared to the quarter ended March 31, 2015 primarily as a result of R&D consulting fees incurred during the quarter.

Other expenses decreased by $5,698,443, to $(1,546,353) for the three months ended March 31, 2016 from $7,244,796 for the three months ended March 31, 2015. The reduction in other expenses primarily is due to a reduction of approximately $5.75 million in the loss recorded for the change in the fair market value of derivative instruments for the three months ended March 31, 2016 as compared to the same period last year, partially offset by an increase of approximately $56,000 in interest expense related to convertible preferred stock and convertible notes for the three months ended March 31, 2016 compared to the three months ended March 31, 2015.

As a result of the foregoing, we recognized a net loss of $1,788,736 for the three months ended March 31, 2016 as compared to a net loss of $7,777,597 for the three months ended March 31, 2015, a decrease in net loss of $5,988,861.

Nine Months Ended March 31, 2016 Compared to Nine Months Ended March 31, 2015:

	Nine Months Ended March 31,
	2016			2015			Change

Revenue	$	-		$	1,200,000		$	(1,200,000	)
Research and Development Costs		(24,916	)		(31,202	)		6,286
General and Administrative		(1,011,738	)		(1,786,230	)		774,492

Loss from operations	$	(1,036,654	)	$	(617,432	)	$	(419,222	)

	Nine Months Ended March 31,
	2016			2015			Change

Loss from operations	$	(1,036,654	)	$	(617,432	)	$	(419,222	)
Other expenses		(1,878,797	)		(4,329,663	)		2,450,866

Net loss	$	(2,915,451	)	$	(4,947,095	)	$	2,031,644

Our operating loss increased by 419,222 to a loss of $1,036,654 for the nine months ended March 31, 2016 from a loss of $617,432 for the nine months ended March 31, 2015. Primarily, this change was due to the receipt of a one-time milestone payment of $1.2 million during the nine month period ended March 31, 2015, which reduced net loss from operations.

General and Administrative expenses, which includes patent prosecution and maintenance costs, decreased by $774,492 to $1,011,738 for the nine months ended March 31, 2016 as compared to $1,786,230 for the nine months ended March 31, 2015. Primarily, the decrease in General and Administrative expenses was due to a decrease in professional fees of approximately $500,000; corporate & shareholder expenses of approximately $85,000 and other G&A expenses of approximately $190,000.

Research and Development costs decreased by $6,286 for the nine months ended March 31, 2016 as compared to the nine months ended March 31, 2015 primarily as a result of antibody manufacturing fees incurred during the nine month period ended March 31, 2015.

Other expenses decreased by $2,450,866 to $1,878,797 for the nine months ended March 31, 2016 as compared to $4,329,663 for the nine months ended March 31, 2015. Primarily, this difference is due to an increase in gain on change in fair value of derivative instruments of $1.72 million and a decrease in non-cash interest expense of approximately $730,000. The difference in gain on change in fair value of derivative instruments results from differences in the changes of our stock price during the relevant periods. The decrease in interest expense, representing a decrease in accrued preferred stock dividends, was due to the reduction in outstanding convertible preferred stock.

As a result of the foregoing, we recognized a net loss of $2,915,451 for the nine months ended March 31, 2016 as compared to a net loss of $4,947,095 for the nine months ended March 31, 2015, a decrease in net loss of $2,031,644.

Liquidity and Capital Resources

Since our inception in 2005, we have mainly generated losses from operations and we anticipate that we will continue to generate significant losses from operations for the foreseeable future. As of March 31, 2016, our accumulated deficit was $(96,153,688). Our net cash used in operations was $958,867 and $575,372 for the nine months ended March 31, 2016 and 2015, respectively. Our capital deficiency was $(21,284,496) as of March 31, 2016.

We have limited capital resources and operations since inception have been funded with the proceeds from equity and debt financings and license fee arrangements. As of March 31, 2016, we had $2,491 of cash. We anticipate that our existing capital resources will enable us to continue operations for the next several months. If we fail to raise additional capital or obtain substantial cash inflows from existing or potential partners within the next few months, we may be forced to cease operations. We cannot assure you that financing will be available in a timely manner, on favorable terms or at all.

On April 14, 2016, we entered into a stock purchase agreement with certain accredited investors pursuant to which we sold an aggregate of $250,000 principal amount of our convertible promissory notes and received $250,000 gross proceeds.

Off-Balance Sheet Arrangements

As of March 31, 2016, our material off-balance sheet arrangements, other than obligations under various agreements, are as follows:

Under Research License Agreements with NYU and SAMSF (“RLA”), we are obligated to make future payments totaling approximately $1.5 million to each of NYU and SAMSF upon achievement of certain milestones based on phases of clinical development and approval of the FDA (or foreign equivalent) and also to pay each of NYU and SAMSF a royalty based on product sales by Intellect or royalty payments received by Intellect. In September 2011, we granted a sublicense of the RLAs to ViroPharma (merged into Shire plc). Pursuant to the terms of the RLAs, we paid SAMSF and NYU $650,000 of the up-front licensing fee and are obligated to pay a portion of future payments we may receive from Shire.

Under a License Agreement with Northwestern University (“NWU”) dated as of May 3, 2012, we are obligated to make future payments totaling approximately $700,000 to NWU upon achievement of certain milestones based on phases of clinical development and also to pay NWU a royalty based on product sales.

Mindset Biopharmaceuticals, Inc. (“Mindset”) acquired from Mayo Foundation for Medical Education and Research (“Mayo”) a non-exclusive license to use certain transgenic mice as models for AD and is obligated to pay Mayo a royalty of 2.5% of any net revenue that Mindset receives from the sale or licensing of a drug product for AD in which the Mayo transgenic mice were used for research purposes. The Mayo transgenic mice were used by SAMSF to conduct research with respect to OX1. Pursuant to an Assignment Agreement dated as of June 23, 2005, which we executed with SAMSF, we agreed to assume Mindset’s obligations to pay royalties to Mayo.

Pursuant to a Letter Agreement with the Institute for the Study of Aging dated as of December 29, 2006, we are obligated to pay a total of $225,500 of milestone payments contingent upon future clinical development of OX1.

Under a Research Agreement with MRCT dated as of September 16, 2012, we are obligated to make future research milestone payments totaling approximately $560,000 to MRCT related to the development of the 82E1 humanized antibody and to pay additional milestones related to the commercialization, and a royalty based on sales, of the resulting drug products.

Under the terms of the IBL Agreement with Immuno-Biological Laboratories Co., Ltd. dated as of December 26, 2006 as amended as of March 31, 2016, we agreed to pay IBL a total of $2,175,000 upon the achievement of certain milestones plus a specified royalty based on sales of any pharmaceutical product derived from the 82E1or 1A10 antibodies.

In the ordinary course of business, we enter into agreements with third parties that include indemnification provisions which, in our judgment, are normal and customary for companies in our industry sector. These agreements are typically with business partners, clinical sites, and suppliers. Pursuant to these agreements, we generally agree to indemnify, hold harmless, and reimburse indemnified parties for losses suffered or incurred by the indemnified parties with respect to our product candidates, use of such product candidates, or other actions taken or omitted by us. The maximum potential amount of future payments we could be required to make under these indemnification provisions is unlimited. We have not incurred material costs to defend lawsuits or settle claims related to these indemnification provisions. As a result, the estimated fair value of liabilities relating to these provisions is minimal. Accordingly, we have no liabilities recorded for these provisions as of June 30, 2014 or 2013.

In the normal course of business, we may be confronted with issues or events that may result in a contingent liability. These generally relate to lawsuits, claims, environmental actions or the actions of various regulatory agencies. We consult with counsel and other appropriate experts to assess the claim. If, in our opinion, we have incurred a probable loss as set forth by accounting principles generally accepted in the United States, an estimate is made of the loss and the appropriate accounting entries are reflected in our consolidated financial statements. After consultation with legal counsel, we do not anticipate that liabilities arising out of currently pending or threatened lawsuits and claims will have a material adverse effect on our consolidated financial position, results of operations or cash flows.

Critical Accounting Estimates and New Accounting Pronouncements

Critical Accounting Estimates

The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect reported amounts and related disclosures in the financial statements. Management considers an accounting estimate to be critical if it requires assumptions to be made that were uncertain at the time the estimate was made, and changes in the estimate or different estimates that could have been selected could have a material impact on our consolidated results of operations or financial condition.

Convertible Instruments. We evaluate and account for conversion options embedded in convertible instruments in accordance with ASC 815 “Derivatives and Hedging Activities”. Applicable GAAP requires companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments according to certain criteria. The criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under other GAAP with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument.

Common Stock Purchase Warrants . We classify as equity any contracts that require physical settlement or net-share settlement or provide us a choice of net-cash settlement or settlement in our own shares (physical settlement or net-share settlement) provided that such contracts are indexed to our own stock as defined in ASC 815-40 (“Contracts in Entity’s Own Equity”). We classify as assets or liabilities any contracts that require net-cash settlement (including a requirement to net cash settle the contract if an event occurs and if that event is outside our control) or give the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement). We assess classification of our common stock purchase warrants and other free standing derivatives at each reporting date to determine whether a change in classification between assets and liabilities is required.

Research and Development Costs and Clinical Trial Expenses . Research and development costs include costs directly attributable to the conduct of research and development programs, including the cost of salaries, payroll taxes, employee benefits, materials, supplies, maintenance of research equipment, costs related to research collaboration and licensing agreements, the cost of services provided by outside contractors, including services related to our clinical trials, clinical trial expenses, the full cost of manufacturing drugs for use in research, preclinical development, and clinical trials. All costs associated with research and development are expensed as incurred.

New Accounting Pronouncements

In August 2014, the FASB issued authoritative guidance that requires an entity’s management to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern and requires additional disclosures if certain criteria are met. This guidance is effective for fiscal periods ending after December 15, 2016, with early adoption permitted. This accounting standard update is not expected to have any impact on the Company’s financial statements.

In June 2014, the FASB issued ASU No. 2014-10, Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation. We have elected to adopt early application of Accounting Standards Update No. 2014-10; accordingly we no longer present or disclose inception-to-date information and other remaining disclosure requirements of Topic 915.

Management does not believe that any other recently issued, but not yet effective accounting pronouncements, when adopted, will have a material effect on the accompanying financial statements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable to smaller reporting companies

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) are recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file under the Exchange Act is accumulated and communicated to our management, including our principal executive and financial officers, as appropriate to allow timely decisions regarding required disclosure.

Our principal executive officer and principal financial officer has evaluated the effectiveness of our disclosure controls and procedures, as defined in Rules 13a – 15(e) and 15d – 15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of the end of the period covered by this report. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.

Our CEO and CFO has concluded that, based on such evaluation, our disclosure controls and procedures are not designed at a reasonable assurance level and are ineffective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms as of September 30, 2015.

The conclusion was due to the presence of the following material weaknesses in disclosure controls and procedures due to our small size and limited resources: (1) we lack a sufficient number of employees to properly segregate duties and provide adequate review of the preparation of the financial statements and (2) we lack sufficient independent directors on our Board of Directors to maintain Audit and other committees consistent with proper corporate governance standards. We have limited financial resources and only one employee. The lack of personnel is a weakness because it could lead to improper classification of items and other failures to make the entries and adjustments necessary to comply with U.S. GAAP. Accordingly, management’s assessment is that the Company’s internal controls over financial reporting were not effective as of March 31, 2016.

Changes in Internal Controls Over Financial Reporting

No changes in the Company’s internal control over financial reporting have come to management’s attention during the Company’s last fiscal quarter that have materially affected, or are likely to materially affect, the Company’s internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1. Legal Proceedings .

We are not a party to any pending legal proceeding, nor is our property the subject of a pending legal proceeding, that is not in the ordinary course of business or otherwise material to the financial condition of our business. None of our directors, officers or affiliates is involved in a proceeding adverse to our business or has a material interest adverse to our business.

ITEM 1A. Risk Factors.

Not required for smaller reporting companies.

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

In July 2015, we issued 3,490 shares of Series G Convertible Preferred Stock; 1,081 shares of Series H Preferred Stock; and warrants to purchase an aggregate of 15,000,000 shares of common stock to investors in the Series G and Series H Convertible Preferred Share financing transaction described in Note 5 to the unaudited consolidated financial statements of the Company. ,

In August 2015, we issued 301 shares of our common stock in connection with implementation of the reverse stock split on our outstanding common shares that was effective on February 11, 2015.

In November 2015, we issued 500,000 shares of our common stock to holders of Series F Convertible Preferred Stock upon their exercise of the conversion feature contained in those securities.

ITEM 3. Defaults Upon Senior Securities.

None.

ITEM 4. Mine Safety Disclosures.

Not applicable.

ITEM 5. Other

None

ITEM 6. Exhibits

31.1* Certification of Principal Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(a) and 15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)

32.1* Certification of Principal Executive Officer and Chief Financial Officer pursuant to Rule 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith)

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 herewith

** Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Act of 1934 and otherwise are not subject to liability.

SIGNATURES

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

May 9 , 2016	Intellect Neurosciences, Inc.

	/s/ Elliot Maza
	Elliot Maza
	Chief Executive Officer and Chief Financial Officer

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