UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended December 31, 2009
OR
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from
to
.
Commission file number 0-23280
NEUROBIOLOGICAL TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
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Delaware
(State or other jurisdiction of incorporation)
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94-3049219
(IRS Employer Identification No.)
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2000 Powell Street, Suite 800, Emeryville, California 94608
(Address of principal executive offices)
(510) 595-6000
(Registrants 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
þ
No
o
Indicate by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be submitted and
posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to
submit and post such files).
Yes
o
No
o
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, non-accelerated filer or a smaller reporting company. See definition
of accelerated filer, large accelerated filer and smaller reporting company in
Rule 12b-2 of the Exchange Act):
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Large Accelerated Filer
o
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Accelerated Filer
o
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Non-Accelerated Filer
o
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Smaller Reporting Company
þ
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Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act): Yes
o
No
þ
Indicate the number of shares outstanding of each of the issuers classes of the common
stock, as of the latest practicable date.
Common Stock, $0.001 par value: 27,019,805 shares outstanding as of February 12, 2010.
NEUROBIOLOGICAL TECHNOLOGIES, INC.
FORM 10-Q
TABLE OF CONTENTS
2
PART I FINANCIAL INFORMATION
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Item 1.
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Financial Statements
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NEUROBIOLOGICAL TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENT OF NET ASSETS (LIQUIDATION BASIS)
(Unaudited; in thousands)
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December 31,
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2009
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ASSETS
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Cash and cash equivalents
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$
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2,406
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Short-term investments
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842
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3,248
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LIABILITIES AND NET ASSETS
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Accounts payable
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71
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Accrued compensation, including severance
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331
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Accrued professional expenses
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37
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Income taxes payable
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53
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Reserve for estimated costs during the liquidation period
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1,455
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Total liabilities
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1,947
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Net assets in liquidation available to common stockholders
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$
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1,301
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See accompanying notes.
3
NEUROBIOLOGICAL TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS (LIQUIDATION BASIS)
(Unaudited; in thousands)
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December 18, 2009
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to
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December 31, 2009
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Stockholders equity as of December 17, 2009
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$
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3,322
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Effects of adopting the liquidation basis of accounting:
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Initial adjustment of assets to estimated net realizable value
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(521
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)
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Initial adjustment of liabilities to estimated settlement amounts
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(1,500
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)
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Net assets on liquidation basis as of December 18, 2009
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$
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1,301
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Change in estimated net realizable value of assets and liabilities
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Net assets on liquidation basis available to common stockholders
as of December 31, 2009
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$
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1,301
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See accompanying notes.
4
NEUROBIOLOGICAL TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEET (GOING CONCERN BASIS)
(in thousands, except per share amounts)
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June 30,
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2009
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(Note 1)
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ASSETS
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Current assets:
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Cash and cash equivalents
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$
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8,230
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Short-term investments
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15,819
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Accounts receivable
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184
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Prepaid expenses and other current assets
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305
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Total current assets
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24,538
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Deposits
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52
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Property and equipment, net
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70
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$
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24,660
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LIABILITIES AND STOCKHOLDERS EQUITY
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Current liabilities:
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Accounts payable
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$
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21
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Accrued professional expenses
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493
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Accrued compensation, including severance
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281
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Other accrued liabilities
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25
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Warrant liability
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295
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Total current liabilities
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1,115
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Commitments and contingencies
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Stockholders equity:
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Preferred stock, $0.001 par value, 5,000 shares authorized; 3,000 authorized shares
designated as Series A convertible preferred stock, 2,332 Series A shares issued and 494
outstanding
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247
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Common stock, $0.001 par value, 50,000 shares authorized, 26,930 shares issued and outstanding
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27
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Additional paid-in capital
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145,739
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Accumulated deficit
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(122,468
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)
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Total stockholders equity
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23,545
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$
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24,660
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See accompanying notes.
5
NEUROBIOLOGICAL TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (GOING CONCERN BASIS)
(Unaudited; in thousands, except per share amounts)
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From October 1, 2009
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From October 1
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From July 1, 2009
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From July 1, 2008
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through
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through
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through
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through
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December 17, 2009
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December 31, 2008
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December 17, 2009
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December 31, 2008
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(78 Days)
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(Three months)
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(170 Days)
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(Six months)
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REVENUES
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Royalty
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$
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$
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2,007
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$
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6,019
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$
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4,085
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Technology sale and collaboration services
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1,484
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7
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2,971
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Total revenues
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3,491
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6,026
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7,056
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EXPENSES
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Research and development
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10,392
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15,844
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General and administrative
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663
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1,201
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1,541
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2,532
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Total expenses
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663
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11,593
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1,541
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18,376
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Operating (loss) income
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(663
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)
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(8,102
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)
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4,485
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(11,320
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)
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Interest income
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12
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264
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44
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513
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Gain on sale of long-term investments
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145
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206
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170
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Loss on sale of property and equipment
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(28
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)
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(34
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)
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Non-cash gain on decrease in fair value of warrants
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29
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295
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37
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Income (loss) before provision for income taxes
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(505
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)
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(7,838
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)
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4,996
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(10,600
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)
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(Benefit) provision for income taxes
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(43
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)
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53
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NET INCOME (LOSS)
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$
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(462
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)
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$
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(7,838
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)
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$
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4,943
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$
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(10,600
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)
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BASIC AND DILUTED NET (LOSS) INCOME PER SHARE
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$
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(0.02
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)
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$
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(0.29
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)
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$
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0.18
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$
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(0.39
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)
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Shares used in basic net (loss) income per share calculation
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26,984
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26,924
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26,955
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26,924
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|
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Shares used in diluted net (loss) income per share calculation
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26,984
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26,924
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|
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26,969
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|
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26,924
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|
|
|
|
|
|
|
|
|
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See accompanying notes.
6
NEUROBIOLOGICAL TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (GOING CONCERN BASIS)
(Unaudited in thousands)
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From July 1, 2009
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From July 1, 2008
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through
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through
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December 17, 2009
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December 31, 2008
|
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(170 days)
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(Six months)
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OPERATING ACTIVITIES:
|
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Net income (loss)
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$
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4,943
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$
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(10,600
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)
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Adjustments to reconcile net loss to net cash used in operating activities:
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|
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Depreciation and amortization
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8
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89
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Loss on impairment of asset
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174
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Loss on sale of property and equipment
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34
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Stock-based compensation
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|
156
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474
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Gain on sale of long-term investments
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(206
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)
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(170
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)
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Non-cash gain on decrease in fair value of warrants
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(295
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)
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(37
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)
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Changes in assets and liabilities:
|
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|
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|
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|
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Accounts receivable
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|
(132
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)
|
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|
399
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|
Prepaid expenses and other current assets
|
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|
(135
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)
|
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|
3
|
|
Accounts payable and accrued liabilities
|
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|
353
|
|
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4,460
|
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Income taxes payable
|
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|
53
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|
|
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Deferred revenue
|
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(2,750
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)
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Net cash provided by (used in) operating activities
|
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|
4,779
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(7,958
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)
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INVESTING ACTIVITIES:
|
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|
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Purchase of investments
|
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|
(11,088
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)
|
|
|
(19,356
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)
|
Maturity and sale of investments
|
|
|
26,270
|
|
|
|
6,288
|
|
Purchase of property and equipment
|
|
|
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Net cash provided by (used in) by investing activities
|
|
|
15,182
|
|
|
|
(13,070
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
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FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Proceeds from exercise of stock options and purchases under the employee stock purchase plan
|
|
|
59
|
|
|
|
1
|
|
Redemption of Series A Preferred Stock
|
|
|
(247
|
)
|
|
|
|
|
Payment of extraordinary dividends
|
|
|
(25,128
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(25,316
|
)
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease in cash and cash equivalents
|
|
|
(5,355
|
)
|
|
|
(21,027
|
)
|
|
|
|
|
|
|
|
|
|
Cash and equivalents at beginning of period
|
|
|
8,230
|
|
|
|
27,941
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and equivalents at end of period
|
|
$
|
2,875
|
|
|
$
|
6,914
|
|
|
|
|
|
|
|
|
See accompanying notes.
7
NEUROBIOLOGICAL TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009
(Unaudited)
(Tabular amounts in thousands, except per share amounts, percentages and years)
1. Basis of Presentation and Summary of Significant Accounting Policies
Company Description
Neurobiological Technologies, Inc. (NTI or the Company) is a biopharmaceutical
company that previously focused on developing investigational drugs for central nervous
system conditions. On October 27, 2009, the Companys stockholders approved the
dissolution of the Company pursuant to a plan of complete liquidation and dissolution
approved by Companys board of directors on August 27, 2009 (the Plan of Dissolution).
On November 4, 2009, the Company redeemed all of the outstanding shares of Series A
Preferred Stock for its liquidation preference of $0.50 per share. Following payment of
extraordinary dividends of $0.75 and $0.18 per share of common stock on November 18,
2009 and December 9, 2009, respectively, on December 17, 2009 the Company filed a
certificate of dissolution with the Secretary of State of the State of Delaware (the
Certificate of Dissolution) and completed the voluntary delisting of its common stock
from the Nasdaq Capital Market. On December 17, 2009, the Company also closed its stock
transfer books and discontinued recording transfers of its common stock. The Company is
in the process of winding down its remaining operations under dissolution procedures
provided for under the General Corporation Law of the State of Delaware (the DGCL),
and as this process proceeds the Company intends to make at least one additional
liquidating distribution to its stockholders, although the amount and timing cannot
presently be determined.
Basis of Presentation
The unaudited condensed consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiary, NTI-Empire, Inc. All intercompany accounts
and transactions have been eliminated. NTI operates in one business segment, the
development of pharmaceutical products.
These financial statements have been prepared in accordance with U.S. generally
accepted accounting principles (GAAP) for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnote disclosures required by GAAP for reporting
on complete financial statements. These condensed consolidated financial statements
should be read in conjunction with the financial statements and notes in the Companys
Annual Report on Form 10-K for the year ended June 30, 2009. The condensed consolidated
financial statements reflect all adjustments, which, in the opinion of management, are
necessary for a fair presentation of results for the interim periods presented. Such
adjustments consist only of normally recurring items. Operating results for the periods
from October 1, 2009 and July 1, 2009 through December 17, 2009 are not indicative of
the results that may be expected for any other interim period or for the fiscal year
ending June 30, 2010. In particular, the Company adopted the liquidation basis of
accounting on December 17, 2009, and on-going adjustments to the estimated liquidation
values of assets and liabilities will not be reported in a statement of operations see
additional information in Liquidation Basis of Accounting below.
The preparation of financial statements in conformity with GAAP requires management
to make estimates and assumptions that affect the balances and disclosures. Actual
results could differ from these estimates.
The consolidated balance sheet as of June 30, 2009 has been derived from the
audited financial statements at that date but as noted above does not include all
disclosures required for complete financial statements.
Liquidation Basis of Accounting
Following the filing of the Certificate of Dissolution with the State of Delaware
on December 17, 2009, the Company began reporting on a liquidation basis of accounting
instead of a going concern basis of accounting. Under the liquidation basis of
accounting, the Statement of Net Assets (Liquidation Basis) and Statement of Changes in
Net Assets (Liquidation Basis) are the principal financial statements presented. In
these statements, the assets are stated at their estimated net realizable value, which
is the amount of cash into which an asset is ultimately expected to be converted, less
any conversion costs. Liabilities are reported at their estimated settlement amount,
which is the amount of cash expected to be paid to liquidate the obligation, including
any direct costs of the liquidation. Additionally, the Company has established a reserve
for all estimated future general and administrative expenses and other costs expected to
be incurred during the liquidation. The reserve for these estimated expenses primarily
includes accruals including personnel costs for administrative work which are to be paid
on an hourly basis only, professional services, facilities
including previously unaccrued future facility lease and other obligations,
professional services and legal costs, corporate expenses (insurance, directors fees
and statutory fees) and estimated expenses to establish a facility to preserve the
Companys continuing interest in a drug being developed by another party. These
estimates will be periodically reviewed and adjusted as appropriate. There can be no
assurance that these estimated values will ultimately be realized.
8
The valuation of assets at their net realizable value and liabilities at their
anticipated settlement amounts represent estimates, based on present facts and
circumstances, of the net realizable value of the assets and the costs associated with
carrying out the Plan of Liquidation. The actual values and costs associated with
carrying out the Plan of Liquidation may differ from amounts reflected in the financial
statements because of the inherent uncertainty in estimating future events. These
differences may be material. In particular, the estimates of costs will vary with the
length of time necessary to complete the liquidation process and resolve potential
claims which have not yet been submitted to the Company. Accordingly, it is not possible
to predict the timing or aggregate amount which will ultimately be distributed to
stockholders and no assurance can be given that the distributions will equal or exceed
the estimate presented in the accompanying Statement of Net Assets (Liquidation Basis).
Upon transition to the liquidation basis of accounting, the Company recorded the
following adjustments to record assets at net realizable value:
|
|
|
|
|
Initial Adjustment of Assets to Estimated Net Realizable Value
|
|
Amount
|
|
Prepaid and other current assets
|
|
$
|
493
|
|
Property and equipment
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
521
|
|
|
|
|
|
The adjustments of assets were the result of these assets not having a realizable
value upon liquidation of the Company.
The Company was required to make significant estimates and exercise judgment in
determining the accrued costs of liquidation at December 17, 2009. The accrued costs of
liquidation were recorded as an adjustment of liabilities to estimated settlement
amount. Upon transition to the liquidation basis of accounting, the Company accrued the
following costs expected to be incurred in liquidation:
|
|
|
|
|
Accrued Costs of Liquidation
|
|
Amount
|
|
Outside services and wind-down expenses
|
|
$
|
1,213
|
|
Contractual commitments
|
|
|
287
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,500
|
|
|
|
|
|
Revenue Recognition
Revenues are recognized according to the terms of contractual agreements to which
NTI is a party, when the Companys performance requirements have been fulfilled, the
amount is fixed and determinable, and collection is reasonably assured. Revenue from
license fees with non-cancelable, non-refundable terms and no future performance
obligations is recognized when collection is assured. Milestone payments are recognized
when the Company has fulfilled development milestones and collection is assured. Revenue
from services performed for other parties is recorded during the period in which the
expenses are incurred.
Royalty revenue is recorded when payments are received since the Company is unable
to estimate the amount of royalties as they are earned. Revenue from sales of royalty
rights is recorded as royalty revenue during the period in which the arrangement is
completed and collection is assured.
Revenue arrangements with multiple components are divided into separate units of
accounting if certain criteria are met, including whether the delivered component has
stand-alone value to the customer, and whether there is objective reliable evidence of
the fair value of the undelivered items. Consideration received is allocated among the
separate units of accounting based on their relative fair values, and the applicable
revenue recognition criteria are identified and applied to each of the units.
9
2. Investments
Available-for-sale securities were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
As of June 30,
|
|
|
|
2009
|
|
|
2009
|
|
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
|
Estimated
|
|
|
|
Cost
|
|
|
Fair Value
|
|
|
Cost
|
|
|
Fair Value
|
|
Type of security and term
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government and Agency Obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturing within one year
|
|
$
|
|
|
|
$
|
|
|
|
$
|
10,292
|
|
|
$
|
10,292
|
|
Auction rate securities (ARS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturing in 22 years
|
|
|
842
|
*
|
|
|
842
|
|
|
|
5,527
|
*
|
|
|
5,527
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments
|
|
$
|
842
|
|
|
$
|
842
|
|
|
$
|
15,819
|
|
|
$
|
15,819
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Cost represents purchase price less impairment charges of $158,000 and
$1,973,000 on securities still held at December 31, 2009 and June 30,
2009, respectively.
|
The Companys investments in ARS were structured to provide liquidity via an
auction process that reset the applicable interest rate at predetermined calendar
intervals. Beginning in February 2008, failed auctions occurred throughout the ARS
market, and since then all auctions for NTIs ARS have been unsuccessful. While the
credit rating of these securities generally remains high and the ARS are paying interest
according to their terms, as a result of the potentially long maturity, currently low
interest rates and lack of liquidity for ARS, the Company believes the value of the ARS
in NTIs portfolio has been impaired. During the fiscal years ended June 30, 2009 and
2008, the Company recorded other than temporary impairment charges in its realized
losses related to the ARS, based on models of discounted future cash flows and
assumptions regarding interest rates. Values as of December 31, 2009 for the one
security the Company continues to hold are based on models of discounted future cash
flows. Other than the realized losses recorded to date for the ARS, as of December 31,
2009, all other realized and unrealized gains and losses on the Companys investments
were not material.
3. Fair Value of Financial Instruments
The following table provides the fair value measurements of the Companys financial
assets as of December 31, 2009, according to a hierarchy based on three levels of input
objectivity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using Inputs from
|
|
|
|
Carrying Value
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Cash and cash equivalents
|
|
$
|
2,406
|
|
|
$
|
2,406
|
|
|
$
|
|
|
|
$
|
|
|
Auction rate securities
|
|
|
842
|
|
|
|
|
|
|
|
|
|
|
|
842
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,248
|
|
|
$
|
2,406
|
|
|
$
|
|
|
|
$
|
842
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1 inputs in the table above are quoted prices in active markets for identical assets
or liabilities. Level 2 inputs are quoted prices in active markets for similar assets and
liabilities, quoted prices in markets that are not active, or other inputs that are observable
for the asset or liability. Level 3 inputs are based on managements own assumptions used to
measure the fair value of assets and liabilities, which are supported by little or no market
activity. Level 1 and Level 2 inputs are considered observable, while Level 3 inputs are
considered unobservable. A financial asset or liabilitys classification within the hierarchy is
determined based on the lowest level input that is significant to the fair value measurement.
The input levels and the methodology used for valuing securities are not necessarily an
indication of the credit risk associated with the securities.
Fair values are based on quoted market prices, where available. These fair values are
obtained primarily from third party pricing services, which generally use Level 1 or Level 2
inputs for the determination of fair value. Third party pricing services normally derive the
security prices through recently reported trades for identical or similar securities making
adjustments through the reporting date based upon available market observable information. For
securities not actively traded, the third party pricing services may use quoted market prices of
comparable instruments or discounted cash flow analyses, incorporating inputs that are currently
observable in the markets for similar securities. Inputs that are often used in the valuation
methodologies include, but are not limited to, benchmark yields, broker quotes, credit spreads,
default rates and prepayment speed. The Company performs a review of the prices received from
third parties to determine whether the prices are reasonable estimates of fair value.
10
The Companys investments in ARS are classified as Level 2 if they represent ARS with
reliable observable inputs, such as recent sales for the same or similar CUSIPs. The Companys
investments in ARS are classified within Level 3 if there are no active markets for the ARS and
the Company is unable to obtain independent valuations from market sources. Level 3 ARS were
valued using discounted cash flow models, and certain inputs to the cash flow model are
unobservable in the market. The changes in Level 3 assets measured at fair value for the period
from July 1, 2009 through December 17, 2009 were as follows:
|
|
|
|
|
Balance at June 30, 2009
|
|
$
|
5,527
|
|
Unrealized gains included in other comprehensive income
|
|
|
|
|
Sales of securities
|
|
|
(4,685
|
)
|
Transfer to Level 2 assets
|
|
|
|
|
|
|
|
|
Balance at December 17, 2009
|
|
$
|
842
|
|
|
|
|
|
There were no changes in Level 3 assets measured at fair value for the period from
December 18, 2009 through December 31, 2009. The balance of Level 3 securities at
December 31, 2009 represents one student loan ARS, CUSIP 69847RAA0, issued by Panhandle
Plains Student Fin. Corp., with a maturity date of December 1, 2031 and a par value of
$1,000,000.
4. Warrant Liability
Under the going concern method of accounting, the fair value of warrants issued by
the Company in connection with an April 2007 sale of common stock was recorded as a
liability on the consolidated balance sheet based on a Black-Scholes option pricing
model, and was marked to market on each financial reporting date. The change in fair
value of the warrants was recorded in the consolidated statements of operations as a
non-cash gain or loss. Based on the December 17, 2009 closing stock price of $0.11, the
warrant exercise price of $16.80 per share and key assumptions including a volatility
factor of 1.00, a risk-free interest rate of 1.25% and no dividend yield for the
remaining 2
1
/
4
years until maturity, the warrants had no value at the time of filing the
Certificate of Dissolution. Under the liquidation method of accounting, the Company does
not believe the warrants will be exercised and accordingly has not assigned any value
for their settlement.
5. Stock-based Compensation
The Company recognizes stock-based compensation expense in its statement of
operations based on estimates of the fair value of employee stock option and stock grant
awards as measured on the grant date and uses the Black-Scholes option pricing model to
determine the value of the awards granted. The Company amortizes the estimated value of
the options as of the grant date over the stock options vesting period, which generally
ranges from one to four years.
Stock-based compensation expense has been recorded in the condensed consolidated
statement of operations as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From October 1, 2009
|
|
|
From October 1, 2008
|
|
|
From July 1, 2009
|
|
|
From July 1, 2008
|
|
|
|
through
|
|
|
through
|
|
|
through
|
|
|
through
|
|
|
|
December 17, 2009
|
|
|
December 31, 2008
|
|
|
December 17, 2009
|
|
|
December 31, 2008
|
|
|
|
(78 Days)
|
|
|
(Three months)
|
|
|
(170 Days)
|
|
|
(Six months)
|
|
General and administrative
|
|
$
|
49
|
|
|
$
|
133
|
|
|
$
|
156
|
|
|
$
|
272
|
|
Research and development
|
|
|
|
|
|
|
97
|
|
|
|
|
|
|
|
202
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation expense
|
|
$
|
49
|
|
|
$
|
230
|
|
|
$
|
156
|
|
|
$
|
474
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the period from July 1, 2009 through December 17, 2009, the Company did not
grant any stock-based compensation awards. During the three- and six- month periods
ended December 31, 2008, the Company granted options to purchase a total of 90,000 and
201,000 shares of common stock, respectively, for which the aggregate grant-date fair
value was $40,000 and $117,000, respectively. On December 17, 2009, the Company
terminated all remaining stock award programs and cancelled all remaining outstanding
stock options. Therefore, as of December 31, 2009, there was no remaining unrecognized
compensation cost related to unvested stock-based compensation awards.
6. Income Taxes
The Company makes certain estimates and judgments in determining income tax expense
for financial statement reporting purposes. These estimates and judgments occur in the
calculation of certain tax assets and liabilities which arise from differences in the
timing of recognition of revenue and expenses for financial statement and tax reporting
purposes. As of December 31, 2009, the Companys net deferred tax assets remain fully
offset by a valuation allowance due to the significant uncertainty of the Companys
ability to realize these assets.
11
The provision for income taxes in the amount of $53,000 for the period from July 1,
2009 through December 17, 2009 is comprised of:
|
|
|
$16,000 for federal alternative minimum tax (AMT), due to certain
limitations on the utilization of prior years net operating loss
carryforwards to offset current year alternative taxable income and
|
|
|
|
|
$37,000 for California state income taxes, due to temporary provisions
enacted in California that prevent utilization of net operating loss
carryforwards and research and development tax credit carryforwards.
|
7. Net Income (Loss) per Share
Basic net income or loss per share is based on the weighted average number of
shares of common stock issued and outstanding during the period. Dilutive net income per
share is calculated based on the weighted-average number of shares of common stock
outstanding as well as other potentially dilutive securities outstanding during the
period using the treasury stock method. For the period from July 1, 2009 through
December 17, 2009, dilutive securities included options to purchase 90,000 shares of
common stock. Because their effect would have been anti-dilutive, dilutive securities
excluded options to purchase 727,000 shares of common stock, warrants to purchase
544,000 shares of common stock and the conversion of convertible preferred stock into
71,000 shares of common stock. If the Company had reported net income for the period
from October 1, 2009 through December 17, 2009, the dilutive effect of these equity
securities would need to be considered. If the Company had reported net income for the
three- and six- months ended December 31, 2008, the dilutive effect of these equity
instruments (then totaling 2,678,000 shares) would need to be considered.
8. Comprehensive Income (Loss)
The Companys comprehensive loss was $532,000 for the period from October 1, 2009
through December 17, 2009. The Companys comprehensive income was the same as net income
for the period from July 1, 2009 through December 17, 2009. For the three- and six-
month periods ended December 31, 2008, the comprehensive loss was $9,157,000 and
$12,450,000, respectively. The comprehensive income or loss is comprised of the net
income or loss and certain changes in equity that are excluded from the Companys net
loss, which for NTI are the unrealized holding gains or loss on available-for-sale
investments.
9. Subsequent Events
The Company performed an evaluation of subsequent events through February 12, 2010,
the date these financial statements were issued, and does not believe there were any
material subsequent events that would require further disclosure.
12
|
|
|
Item 2.
|
|
Managements Discussion and Analysis of Financial Condition and Results of
Operations.
|
Except for the historical information contained herein, the matters discussed in
this Managements Discussion and Analysis of Financial Condition and Results of
Operations, and elsewhere in this Form 10-Q are forward-looking statements that involve
risks and uncertainties. The factors referred to in the section captioned Risk
Factors, as well as any cautionary language in this Form 10-Q, provide examples of
risks, uncertainties and events that may cause our actual results to differ materially
from those projected. The Companys Annual Report on Form 10-K, filed with the SEC on
August 31, 2009, and the Companys definitive proxy statement, filed with the SEC on
September 22, 2009 (the Proxy Statement), also contain risk factors that provide
examples of risks, uncertainties, and events that may cause our actual results to differ
materially from those implied or projected.
Except as may be required by law, we undertake no obligation to update any
forward-looking statement to reflect events after the date of this report.
Overview
We are a biopharmaceutical company that previously focused on developing
investigational drugs for central nervous system conditions. On October 27, 2009, our
stockholders approved the dissolution of the Company pursuant to the Plan of Dissolution
approved by our board of directors on August 27, 2009. On November 4, 2009, we redeemed
all outstanding shares of Series A Preferred Stock for its liquidation preference of
$0.50 per share. Following payment of extraordinary dividends of $0.75 and $0.18 per
share on November 18, 2009 and December 9, 2009, respectively, on December 17, 2009 we
filed a Certificate of Dissolution with the Secretary of State of the State of Delaware
and delisted our common stock from the Nasdaq Capital Market. On December 17, 2009, we
also closed our stock transfer books and discontinued recording transfers of our common
stock, although stockholders that held their shares in brokerage account (street name)
can still generally trade their shares in the Pink Sheets, an electronic bulletin board
established for unlisted securities. We are in the process of winding down our remaining
operations under dissolution procedures provided for under the DGCL, and as this process
proceeds we intend to make at least one additional liquidating distribution to
stockholders, although the amount and timing cannot presently be determined.
On August 12, 2009, we announced the termination of our license and cooperation
agreement with Merz Pharmaceuticals GmbH, or Merz, and Childrens Medical Center
Corporation. Under the license and cooperation agreement, as amended in 2008, we
previously received quarterly royalty payments on sales of memantine in the United
States, based on a declining royalty-rate schedule, and Merz had the ability to
terminate the agreement upon six months notice. Upon termination of the agreement, we
received a final royalty payment of $1.1 million for prior period sales and an
additional payment of $4.9 million in various installments.
Celtic Pharmaceuticals, to whom we sold rights to the investigational drug
XERECEPT
®
in 2005, continues to develop XERECEPT for the treatment of brain edema
associated with cerebral tumors. We are entitled to receive payments if Celtics
successfully develops and commercializes XERECEPT, or based upon the net proceeds
received by Celtic, if Celtic sells its rights to XERECEPT. We are unable to estimate if
or when we will receive any payments related to the development of XERECEPT.
RESULTS OF OPERATIONS
Summary
Prior to filing the Certificate of Dissolution, we terminated most of the major
contracts to which we were a party. During the prior year our operations were primarily
focused on developing an investigational drug for treatment of stroke.
13
RESULTS OF OPERATIONS
Revenues
The major components of our revenue were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variance
|
|
|
|
|
|
|
|
|
|
|
Variance
|
|
|
|
Most Recent Quarterly
|
|
|
from Period
|
|
|
Year-to-Date Reporting
|
|
|
from Period
|
|
|
|
Reporting Period Ended
|
|
|
in Prior
|
|
|
Period Ended
|
|
|
in Prior
|
|
|
|
December 17,
|
|
|
Year
|
|
|
December 17,
|
|
|
Year
|
|
|
|
2009
|
|
|
2008
|
|
|
2009/2008
|
|
|
2009
|
|
|
2008
|
|
|
2009/2008
|
|
Royalty Revenue
|
|
$
|
|
|
|
$
|
2,007
|
|
|
$
|
(2,007
|
)
|
|
$
|
6,019
|
|
|
$
|
4,085
|
|
|
$
|
1,934
|
|
XERECEPT Sale
|
|
|
|
|
|
|
1,375
|
|
|
|
(1,375
|
)
|
|
|
|
|
|
|
2,750
|
|
|
|
(2,750
|
)
|
Collaboration Services
|
|
|
|
|
|
|
109
|
|
|
|
(109
|
)
|
|
|
7
|
|
|
|
221
|
|
|
|
(214
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
|
$
|
3,491
|
|
|
$
|
(3,491
|
)
|
|
$
|
6,026
|
|
|
$
|
7,056
|
|
|
$
|
(1,030
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We had no revenues for the quarterly period ended December 17, 2009, the date we
filed for dissolution, because we had previously entered into arrangements with our
revenue sources to terminate the underlying agreements. For the year-to-date period
ended December 17, 2009, the Company received $6 million from Merz Pharmaceuticals GmbH
upon the termination of the contractual agreement between NTI and Merz, and recorded the
entire amount as revenue, since we have no further obligations under our agreements with
Merz. Other revenues were not material in the fiscal 2010 reporting periods. In the
prior fiscal year, we earned revenue from a royalty-bearing agreement with Merz, from
providing drug development services to a collaborator, and as a result of the
amortization of a previously received up-front payment.
Celtic Pharmaceuticals continues to develop XERECEPT
®
, an investigational drug for
edema, which we sold to Celtic in fiscal 2006. We are entitled to future payments upon
either Celtics marketing of XERECEPT or Celtics sale of XERECEPT to another party, but
we are not able to estimate if or when either of these events may occur. Unless Celtic
successfully receives approval for XERECEPT and markets the drug, or Celtic successfully
sells its interest in XERECEPT to another party, we do not expect any future revenue at
NTI. Celtic may never receive approval to market XERECEPT and may never enter into an
agreement for the sale of XERECEPT.
RESEARCH AND DEVELOPMENT EXPENSES
We terminated our research and development programs prior to the beginning of our
fiscal year ended June 30, 2010, and accordingly did not have any research and
development expenses during the periods ended December 17, 2009. Research and
development expenses for the prior fiscal year primarily represented costs associated
with the product candidate Viprinex, which we were developing in phase 3 clinical trials
as a potential treatment for stroke. Clinical work on Viprinex terminated on December
16, 2008 when the clinical trials were unblinded and we learned that the drug
candidates efficacy did not meet predetermined criteria.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses were $663,000 for the period from October 1,
2009 through December 17, 2009, a 45% decrease from expenses of $1,201,000 for the three
months ended December 31, 2008. The decrease of $538,000 for the fiscal 2010 reporting
period as compared to the fiscal 2009 reporting period was primarily due to reduction in
personnel costs following the termination of our Viprinex program. In addition,
following a successful appeal with the German taxing authorities, during fiscal 2010 we
received a refund for VAT taxes that was previously denied. Partially offsetting the
lower costs in the fiscal 2010 period were severance costs for terminated personnel.
In the year-to-date period, general and administrative expenses decreased 39%
compared to the prior year, for the same reasons as noted in the quarterly period.
Based on the liquidation method of accounting, estimated future costs have been
accrued, and the Company does not expect to record additional operating expense, but may
adjust its estimates, which will be recorded in the Statement of Changes in Net Assets
(Liquidation Basis).
INTEREST INCOME
Interest income decreased during the periods from October 1, 2009 and July 1, 2009
through December 17, 2009, when compared to the reporting periods ended December 31,
2009, due to the Companys lower cash and investments balances and lower interest rates.
GAIN ON SALE OF LONG-TERM INVESTMENTS
Gain on sale of long-term investments increased during the fiscal 2010 reporting
periods due to sales of ARS.
14
LOSS ON SALE OF PROPERTY AND EQUIPMENT
Loss on sale of property and equipment during the 2010 reporting periods related to
dispositions as the Company prepared for liquidation.
NON-CASH GAIN ON DECREASE IN FAIR VALUE OF WARRANTS
Based on declines in NTIs stock price and decreases in the Companys estimate for
stock price volatility, the Company recorded non-cash gains based on decreases in the
estimated fair value of warrants issued during a previous financing transaction. No
further gains or other changes are expected based on the Companys liquidation
accounting.
LIQUIDITY AND CAPITAL RESOURCES
We assess liquidity primarily by the cash which we believe is necessary to fund the
wind-down of our operations and our remaining contractual obligations, as well as to
allow for reasonable contingencies identified in the dissolution process. Short-term
investments are also considered if there is a high assurance of our ability to convert
them into cash. Investments such as our ARS, for which we do not believe there is a high
assurance of our ability to readily convert to cash, are not considered for this
liquidity analysis. Based on our liquidity assessments, and following stockholder
approval of our Plan of Liquidation, on October 27, 2009, our board of directors
declared an extraordinary dividend of $0.75 per share, which was paid to our
stockholders on November 18, 2009. On November 19, 2009, following the sale of most of
our remaining ARS, our board of directors declared an additional extraordinary dividend
of $0.18 per share, which was paid to our stockholders on December 9, 2009. These two
payments aggregated $0.93 per share, or approximately $25.1 million.
Following completion of the process specified under the DGCL to allow potential
claims to be submitted to the Company and resolved, we intend to distribute any
additional cash to our stockholders. The currently estimated amount of this additional
cash is represented in the financial statements by the net assets in liquidation
available to common stockholders as of December 31, 2009. In order for the net assets
in liquidation available to common stockholders to be ultimately distributed to our
stockholders, claims would need to come in at or below our current estimates and costs
of the dissolution process would need to come in at or below our current estimates. If
either claims or costs are higher, stockholders may not receive any further
distributions from NTI.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to
have a current or future effect on our net assets available to stockholders or other
financial statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our Acting Chief Executive and Financial Officer is responsible for establishing
and maintaining disclosure controls and procedures (as defined in the rules
promulgated under the Securities Exchange Act of 1934, as amended) for our company.
Based on his evaluation of our disclosure controls and procedures (as defined in the
rules promulgated under the Securities Exchange Act of 1934), our Acting Chief Executive
and Financial Officer concluded that our disclosure controls and procedures were
effective as of December 31, 2009, the end of the period covered by this report.
Changes in Internal Control over Financial Reporting
In connection with the Companys filing a certificate of dissolution on December
17, 2009, the Company terminated all of its employees, and has retained its former Chief
Financial Officer and its former Controller on an hourly basis as needed to complete the
Companys legal and reporting requirements. The responsibilities for internal control
over financial reporting have been consolidated to these two part-time consultants. The
Companys board of directors serves to oversee and review the Companys system of
financial reporting.
Other than those stated above, there were no changes in the Companys internal
control over financial reporting during the Companys last fiscal quarter that have
materially affected, or are reasonably likely to materially affect, the Companys
internal control over financial reporting.
15
PART II OTHER INFORMATION
Item 1. Legal Proceedings.
We are not currently party to any material legal proceedings, although from time to
time we may be named as a party to lawsuits in the normal course of business.
Item 1A. Risk Factors.
In addition to the other information set forth in this report, you should carefully
consider the factors discussed in Part I, Item 1A. Risk Factors in our Annual Report
on Form 10-K for the year ended June 30, 2009, filed with the SEC on August 31, 2009,
our Definitive Proxy Statement on Schedule 14A filed with the SEC on September 22, 2009,
and the following updates to these risk factors. Any of these risks could materially
affect our business, financial condition and future results. The risks described below,
in our Annual Report on Form 10-K and in the Proxy Statement are not the only risks we
face. Additional risks and uncertainties not currently known to us or that we currently
deem to be immaterial also may materially adversely affect our business, financial
condition and future results.
We expect to continue to incur the expenses of complying with public company reporting
requirements, which may be economically burdensome.
Our common stock is currently registered under the Exchange Act, which requires that
we, and our officers and directors with respect to Section 16 of the Exchange Act, comply
with certain public reporting and proxy statement requirements thereunder. Until we file
to deregister our common stock, we have an obligation to continue to comply with these
reporting requirements, even though such compliance may be economically burdensome and of
minimal value to our stockholders. Because our initial request to seek relief from the
SEC to suspend our reporting obligations under the Exchange Act was not successful, we
intend to continue to comply with the applicable reporting requirements of the Exchange
Act. As a result, we will continue to incur the expenses associated with these reporting
requirements, which will reduce the cash available for distribution to our stockholders.
If the amount of our contingency reserve is insufficient to satisfy the aggregate amount
of our liabilities and other obligations, each stockholder may be liable to our creditors
for the amount of liquidating distributions received by such stockholder under the Plan
of Dissolution, which could also have adverse tax consequences.
Our corporate existence will continue until at least December 17, 2012, three years
from the date we filed the Certificate of Dissolution. However, as a corporation in
dissolution, we are not allowed to carry on any business except for the purpose of
winding down the business and affairs of the Company. After we filed the Certificate of
Dissolution, we commenced the elective dissolution process, under Sections 280 and 281(a)
of the DGCL, which involves providing notice of our dissolution to potential claimants
and paying or making reasonable provision to pay all claims and obligations, including
all contingent, conditional or unmatured contractual or statutory claims, known to us. We
may also obtain and maintain insurance coverage or establish and set aside a reasonable
amount of cash or other assets as a contingency reserve to satisfy claims against and
obligations of the Company. In the event that the amount of the contingency reserve,
insurance and other measures calculated to provide for the satisfaction of liabilities
and claims are insufficient to satisfy the aggregate amount ultimately found payable in
respect of our liabilities and claims against us, each stockholder could be held liable
for amounts due to creditors up to the amounts distributed to such stockholder under the
Plan of Dissolution. In such event, a stockholder could be required to return any amounts
received as distributions pursuant to the Plan of Dissolution. Moreover, for U.S. federal
income tax purposes, payments made by a stockholder in satisfaction of our liabilities
not covered by the cash or other assets in our contingency reserve or otherwise satisfied
through insurance or other reasonable means generally would produce a capital loss for
such stockholder in the year the liabilities are paid. The deductibility of any such
capital loss generally would be subject to limitations under the Internal Revenue Code of
1986, as amended.
Final liquidating distributions to our stockholders could be delayed or reduced or may
never be made.
Any final liquidating distributions we make to our stockholders could be delayed,
depending on many factors, including, without limitation:
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if a creditor or other third party seeks an injunction against the making
of distributions to our stockholders on the ground that the amounts to be
distributed are needed to provide for the satisfaction of our liabilities or
other obligations;
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if we become a party to lawsuits or other claims asserted by or against
us, including any claims or litigation arising in connection with our decision to
liquidate and dissolve, payments to suppliers or other vendors or claims from
patients in our clinical trials;
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16
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if we are unable to liquidate our remaining ARS or if such liquidation
takes longer than expected;
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if we are unable to resolve claims with creditors or other third parties,
or if such resolutions take longer than expected; or
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the elective dissolution process is not completed in a timely manner due
to all of the steps required to complete such a process, including any potential
delay in the Delaware Court of Chancery, which could delay final approval of our
petition.
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Any of the foregoing could delay or substantially diminish the amount available for
distribution to our stockholders. In addition, under the DGCL, claims and demands may be
asserted against us at any time before December 17, 2012. Accordingly, our board of
directors may retain funds to obtain and maintain insurance coverage or establish and set
aside a reasonable amount of cash or other assets as a contingency reserve to satisfy
claims against and obligations of the Company that may arise during that three-year
period. As a result of these factors, we may retain for distribution at a later date,
some or all of the estimated amounts that we expect to distribute to our stockholders. At
the conclusion of the process for dissolution, there may not be any remaining cash
available for distribution to stockholders.
We may not be able to settle all of our obligations to creditors.
We have current obligations to creditors. Our estimate of the final distributions to
our stockholders takes into account all of our known obligations and our best estimate of
the amount reasonably required to satisfy such obligations. As part of the dissolution
process, we will attempt to settle those obligations with our creditors. We cannot assure
you that we will be able to settle all of these obligations or that they can be settled
for the amounts we have estimated for purposes of calculating the likely distribution to
stockholders. If we are unable to reach agreement with a creditor relating to an
obligation, that creditor may bring a lawsuit against us. Amounts required to settle
obligations or defend lawsuits in excess of the estimated amounts will result in
distributions to stockholders that are smaller than those that we presently estimate or
may eliminate distributions entirely.
Our common stock stopped trading on the Nasdaq Capital Market on December 17, 2009, and
we closed our stock transfer books as of this date, each of which will make it difficult
or impossible for stockholders to trade their shares.
On December 17, 2009, we closed our stock transfer books after we filed the
Certificate of Dissolution. We are now prohibited from recording transfers of record
ownership of our common stock, and stock certificates evidencing the shares of our common
stock are no longer assignable or transferable on our books. Trading of our common stock
was halted on the Nasdaq Capital Market as of the beginning of business on December 17,
2009 and trading of our common stock is now conducted in the over-the-counter market on
the Pink Sheets, an electronic bulletin board established for unlisted securities. Such
trading has reduced the market liquidity of our common stock. As a result, an investor
will find it more difficult to dispose of, or obtain accurate quotations for the price
of, our common stock.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
On February 12, 2010, our board of directors appointed Matthew M. Loar, our former
Vice President and Chief Financial Officer, as Acting Chief Executive and Financial
Officer, and approved an hourly pay rate of $200 to compensate Mr. Loar for his services
in that capacity, including his responsibilities for meeting our continuing financial
reporting obligations.
Item 6. Exhibits
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31.1
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Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
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32.1
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Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
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17
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
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NEUROBIOLOGICAL TECHNOLOGIES, INC.
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Dated: February 12, 2010
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/s/ Matthew M. Loar
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Matthew M. Loar
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Acting Chief Executive and Financial Officer
(Principal Executive, Financial and Accounting
Officer)
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18
EXHIBIT INDEX
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Exhibit
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No.
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Description
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31.1
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Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
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32.1
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Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
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19
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