FORM 10-QSB
UNITED STATES
SECURITY AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to _____________
Commission file number 0-23280
NEUROBIOLOGICAL TECHNOLOGIES, INC.
(exact name of small business issuer as specified in its charter)
Delaware 94-3049219
(State or other jurisdiction of incorporation (IRS Employer Identification No.)
or organization)
1387 Marina Way South
Richmond, California 94804
(Address of principal executive offices)
(510) 215-8000
(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 the number of shares outstanding of each of the issuer's
classes of the common stock, as of the latest practical date.
Common Stock, $.001 Par Value-7,553,699-shares
outstanding as of January 31, 1999
Transitional Small Business Disclosure format Yes [ ] No [X]
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INDEX
NEUROBIOLOGICAL TECHNOLOGIES, INC.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (Unaudited)
Condensed Balance Sheets -- December 31, 1998 and June 30, 1998
Condensed Statements of Operations -- Three and six months ended
December 31, 1998 and 1997;
Period from August 27, 1987 (inception) through December 31, 1998
Condensed Statements of Cash Flows -- Six months ended December 31,
1998 and 1997;
Period from August 27, 1987 (inception) through December 31, 1998
Notes to Condensed Financial Statements -- December 31, 1998
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF THE SECURITY HOLDERS
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES
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PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (Unaudited)
<TABLE>
NEUROBIOLOGICAL TECHNOLOGIES, INC.
(A development stage company)
CONDENSED BALANCE SHEETS
(Unaudited)
<CAPTION>
December 31, June 30,
1998 1998
------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 519,523 $ 2,020,886
Prepaid expenses and other 47,486 59,016
------------------------------------
Total current assets 567,009 2,079,902
Property and equipment, net 20,828 53,447
------------------------------------
$ 587,837 $ 2,133,349
====================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 532,227 $ 497,578
Stockholders' equity:
Common stock, $.001 par value, 25,000,000 shares
authorized, 7,553,699 outstanding at December 31, 1998
and June 30, 1998 29,980,898 29,980,898
Deficit accumulated during development stage (29,925,288) (28,345,127)
------------------------------------
Total stockholders' equity 55,610 1,635,771
------------------------------------
$ 587,837 $ 2,133,349
====================================
<FN>
See accompanying notes.
</FN>
</TABLE>
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<TABLE>
NEUROBIOLOGICAL TECHNOLOGIES, INC.
(A development stage company)
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
Three months ended Six months ended Period from
December 31, December 31, August 27, 1987
----------------------------------------------------------------- (inception) through
1998 1997 1998 1997 December 31, 1998
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
REVENUES
License $ -- $ -- $ -- $ -- $ 2,100,000
Grant -- -- -- -- 49,900
------------------------------------------------------------------------------------
Total revenue -- -- -- -- 2,149,900
EXPENSES
Research and development 619,104 448,313 1,059,677 1,145,897 23,348,058
General and administrative 333,170 775,524 555,206 1,396,991 10,893,357
------------------------------------------------------------------------------------
Total expenses 952,274 1,223,837 1,614,883 2,542,888 34,241,415
Operating loss (952,274) (1,223,837) (1,614,883) (2,542,888) (32,091,515)
Interest income 11,714 24,109 34,722 67,274 2,166,227
------------------------------------------------------------------------------------
NET LOSS $ (940,560) $ (1,199,728) $ (1,580,161) $ (2,475,614) $(29,925,288)
====================================================================================
BASIC & DILUTED
NET LOSS PER SHARE $ (0.12) $ (0.18) $ (0.21) $ (0.38)
==================================================================
Shares used in basic
& diluted net loss
per share calculation 7,553,699 6,541,306 7,553,699 6,540,810
==================================================================
<FN>
See accompanying notes.
</FN>
</TABLE>
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<TABLE>
NEUROBIOLOGICAL TECHNOLOGIES, INC.
(A development stage company)
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Six months ended Period from
December 31, August 27, 1987
---------------------------------- (inception) through
1998 1997 December 31, 1998
--------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (1,580,161) $ (2,475,614) $(29,925,288)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 32,619 57,920 629,033
Issuance of common stock and warrants
for license rights and services -- -- 139,775
Changes in assets and liabilities:
Prepaid expenses and other 11,530 89,182 (47,486)
Accounts payable and accrued expenses 34,649 (132,328) 532,227
--------------------------------------------------------
Net cash used in operating activities (1,501,363) (2,460,840) (28,671,739)
--------------------------------------------------------
INVESTING ACTIVITIES:
Purchase of investments -- -- (33,839,678)
Sale of investments -- 2,559,911 33,839,678
Purchases of property and equipment -- -- (366,799)
Additions to patents and licenses -- -- (283,062)
--------------------------------------------------------
Net cash (used in) provided by
investing activities -- 2,559,911 (649,861)
FINANCING ACTIVITIES:
Proceeds of short-term borrowings -- -- 235,000
Issuance of common stock -- 2,201 22,614,041
Issuance of preferred stock -- -- 6,992,082
--------------------------------------------------------
Net cash provided by financing activities -- 2,201 29,841,123
Increase (decrease) in cash and
cash equivalents (1,501,363) 101,272 519,523
Cash and equivalents at beginning of period 2,020,886 1,278,402 --
--------------------------------------------------------
Cash and equivalents at end of period $ 519,523 $ 1,379,674 $ 519,523
========================================================
<FN>
See accompanying notes.
</FN>
</TABLE>
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NEUROBIOLOGICAL TECHNOLOGIES, INC.
(A development stage company)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
December 31, 1998
NOTE 1-BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Item 310(b)
of Regulation S-B. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring adjustments) considered necessary for a fair presentation
have been included. Operating results for the three month period ended December
31, 1998 are not necessarily indicative of the results that may be expected for
the year ended June 30, 1999. For further information, refer to the financial
statements and footnotes thereto included in the Company's Form 10-KSB for the
fiscal year ended June 30, 1998.
The Company believes that its available cash and cash equivalents of
$.5 million as of December 31, 1998 may be adequate to fund its operations
through the third quarter of fiscal 1999. The Company will need to raise
substantial additional capital to fund subsequent operations beyond the third
quarter of fiscal 1999. The Company intends to seek funding through public or
private financings, collaborative or other arrangements with corporate partners,
or from other sources. However, there can be no assurance that funding will be
available on favorable terms from any of these sources, if at all. If such
funding is unavailable, the Company will be required to delay, scale back, or
eliminate one or more of its research, discovery, or development projects,
including clinical trials, and to make future reductions in workforce. In
addition, if such funding is unavailable, the Company will need to consider
obtaining funds through entering into arrangements with collaborative partners
or others that may require the Company to relinquish rights to certain of its
technologies, product candidates or products that the Company would not
otherwise relinquish, and to consider other restructuring alternatives,
including the license or sale of certain of its assets and technology,
discontinuing operations or liquidation.
BASIC AND DILUTED NET LOSS PER SHARE
Net loss per share is presented under the requirements of Financial
Accounting Standards Board ("FAS") No. 128, "Earnings per Share" which replaced
the calculation of primary and fully diluted earnings per share with basic and
diluted earnings per share. Basic earnings per share excludes any dilutive
effects of options, warrants, and convertible securities. Diluted earnings per
share is very similar to the previously reported fully diluted earnings per
share. The effects of potentially dilutive securities
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have been excluded from the computation of basic and diluted net loss per share
because their effect is antidilutive.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued FAS No.
130, "Reporting Comprehensive Income" which establishes new standards for
reporting and displaying comprehensive income and its components in a full set
of general purpose financial statements. FAS 130 is effective for the Company's
financial statements for the year ending June 30, 1999. There is no difference
in the Company's historical net losses as reported and the comprehensive net
losses under the provisions of FAS 130.
In June 1997, the Financial Accounting Standards Board also issued FAS
No. 131, "Disclosures about Segments of an Enterprise and Related Information."
FAS 131 changes the way companies report selected segment information in interim
financial reports to stockholders. FAS 131 is effective for the Company's
financial statements for the year ending June 30, 1999. The Company does not
expect any changes necessary to comply with the provisions of FAS 131.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Neurobiological Technologies, Inc. ("NTI" or the "Company") is an
emerging drug development company focused on the clinical evaluation and
regulatory approval of neuroscience drugs. NTI develops neuroprotective and
neuromodulatory agents to treat progressive neurological impairments
characteristic of various nervous system disorders, including diabetic
neuropathy, brain cancer, and AIDS dementia syndrome.
NTI's strategy is to in-license and develop early stage drug candidates
that target major medical needs and which can be rapidly commercialized. The
Company's experienced management team oversees the human clinical trials
necessary to establish preliminary evidence of efficacy and seeks partnerships
with pharmaceutical and biotechnology companies for late-stage development and
marketing of its product candidates.
NTI currently has two product candidates in Phase II clinical trials.
The Company is developing Memantine, an orally available compound that appears
to restore the function of impaired neurons by modulation activity of the
N-methyl-D-aspartate ("NMDA") receptor, integral to the membranes of such cells.
Such restoration of function may inhibit injured or damaged neurons from firing
abnormally, a pathological process associated with many neurological conditions,
including dementia, Alzheimer's disease, neuropathic pain, and AIDS dementia.
During the second quarter of fiscal 1999,
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the Company initiated a Phase IIB human clinical trial to evaluate Memantine as
a treatment for painful peripheral diabetic neuropathy. Quintiles CNS
Therapeutics ("Quintiles"), a leading contract research organization with
experience in neurology, will jointly manage the trial with NTI. Quintiles is a
business unit of Quintiles Transnational Corp., the market leader in providing a
full range of integrated product development and marketing services to the
pharmaceutical, biotechnology, and medical device industries. Quintiles is
headquartered near Research Triangle Park, North Carolina. The Company is also
developing XERECEPT(TM), a synthetic preparation of the human peptide
Corticotropin-Releasing Factor, which the Company believes has novel anti-edema
properties. NTI is developing XERECEPT as a treatment for peritumoral brain
edema (swelling of the brain caused by a tumor). XERECEPT has been granted
orphan drug designation by the FDA. Significant additional preclinical and
clinical testing will be required prior to submission of any regulatory
application for the commercial use of these products. There can be no assurance
that the Company will have the financial resources necessary to conduct future
clinical trials or that such trials, if conducted, will demonstrate an adequate
level of safety or efficacy for commercialization of these products.
Since 1987 when NTI was founded, the Company has applied a majority of
its resources to its research and development programs. The Company is a
development stage company, has not received any revenue from the sale of
products, and does not anticipate receiving revenue from the sale of products in
the near future. The Company has incurred losses since its inception and expects
to incur substantial, increasing losses due to ongoing and planned research and
development efforts. As part of the strategic planning process, the Company has
limited expenditures to only two drug candidates. The Company will need to
obtain additional financing to continue operations beyond the third quarter of
fiscal 1999.
RESULTS OF OPERATIONS
The Company's research and development expenses increased to
approximately $619,000 in the three months ended December 31, 1998 from
approximately $448,000 in the same period of the prior year. The increase was
primarily due to the initiation of a Phase IIB human clinical trial to evaluate
Memantine as a treatment for peripheral diabetic neuropathy. General and
administrative expenses decreased to approximately $333,000 in the three months
ended December 31, 1998 from $776,000 in the three months ended December 31,
1997. The decrease was primarily due to decreased expenditures in activities
relating to seeking financing and corporate partnerships, a reduction in
workforce and lower facility costs. Interest income decreased to $12,000 in the
three months ended December 31, 1998 from $24,000 in the same period of the
prior year primarily due to lower average cash balances.
The Company expects to incur substantial ongoing costs primarily for
Phase II clinical trials for its development programs and related administrative
support. If the Company obtains financing to continue operations, the Company
expects that its
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expenditures will continue to increase as its products move through Phase II
clinical trials and, if the Phase II clinical trials are successful, through
Phase III clinical trials.
LIQUIDITY AND CAPITAL RESOURCES
The Company expects its cash requirements to increase significantly in
future periods. Future cash requirements will depend on numerous factors,
including: the in-licensing of potential drug candidates; the progress on
development programs; the time and costs involved in seeking regulatory
approval; the ability of the Company to establish collaborative arrangements;
product commercialization activities; and the acquisition of manufacturing or
laboratory facilities. As part of the strategic planning process, the Company
has limited expenditures to two drug candidates, which has allowed the Company
to reduce its workforce by approximately 50% during fiscal 1998, some of whom
are employed part-time.
From inception through December 31, 1998, the Company has raised a
total of $29.8 million in net proceeds from the sale of common and preferred
stock.
The Company believes that its available cash and cash equivalents of
$.5 million as of December 31, 1998 may be adequate to fund its operations
through the third quarter of fiscal 1999. The Company will need to raise
substantial additional capital to fund subsequent operations beyond the third
quarter of fiscal 1999. The Company intends to seek funding through public or
private financings, through collaborative or other arrangements with corporate
partners, and from other sources. However, there can be no assurance that
funding will be available on favorable terms from any of these sources, if at
all. If such funding is unavailable, the Company will be required to delay,
scale back, or eliminate one or more of its research, discovery, or development
projects, including clinical trials, and to make further reductions in
workforce. In addition, the Company will need to consider obtaining funds
through entering into arrangements with collaborative partners or others that
may require the Company to relinquish rights to certain of its technologies,
product candidates or products that the Company would not otherwise relinquish,
and to consider other restructuring alternatives, including the license or sale
of certain of its assets and technology, discontinuing operations or
liquidation.
IMPACT OF YEAR 2000 ISSUE
Year 2000 ("Y2K") exposure is the result of computer programs using two
instead of four digits to represent the year. These computer programs may
erroneously interpret dates beyond the year 1999, which could cause system
failures or other computer errors, leading to disruptions in operations.
The Company has completed an assessment of its computer systems. The
Company only uses commercially available software and will continue to install
Y2K compliant upgrades during 1999. The Company believes that such systems will
function properly with respect to dates in the Y2K and thereafter. The Company
is assessing the possible effects on the Company's operations of the Y2K
readiness of key subcontractors.
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The Company intends to contact key subcontractors to determine their Y2K
readiness. The potential impact of Y2K compliance and related cost are not known
at this time, and Y2K problems could result in material adverse consequences to
the Company. At present, given the Company's financial position, the Company
does not intend to create a contingency plan if Y2K readiness is not achieved.
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING
The Company believes that its available cash and cash equivalents of
$.5 million as of December 31, 1998 may be adequate to fund its operations
through the third quarter of fiscal 1999. In addition, the Company will require
substantial additional funds beyond the third quarter of fiscal 1999 to conduct
the research and development and preclinical and clinical testing of its
potential products and to market any products that may be developed. The Company
intends to seek such additional funding through public or private financings,
collaborative or other arrangements with corporate partners, or from other
sources. There can be no assurance that additional financing will be available
from any of these sources, or, if available, that it will be available on
acceptable terms. The Company may seek to raise additional funds whenever market
conditions so permit. If additional funds are raised by issuing equity
securities, further significant dilution to existing stockholders may result. If
such funding is unavailable, the Company will be required to delay, scale back,
or eliminate one or more of its research, discovery, or development projects,
including clinical trials, and to make further reductions in workforce. In
addition, the Company will need to consider obtaining funds through entering
into arrangements with collaborative partners or others that may require the
Company to relinquish rights to certain of its technologies, product candidates
or products that the Company would not otherwise relinquish, and to consider
other restructuring alternatives, including the license or sale of certain of
its assets and technology, discontinuing operations or liquidation.
Although the Company currently plans to contract with third parties to
manufacture clinical and commercial scale quantities of its potential products,
to the extent the Company subsequently determines to establish its own
manufacturing facilities, the Company will require substantial additional
capital. The Company's future capital requirements depend on numerous factors,
including the amount of upfront, milestone, and royalty payments received
pursuant to the Company's research and marketing alliance with Merz + Co. GmbH &
Co. of Frankfurt, Germany ("Merz") for future sales of Memantine; the progress
of the Company's research, preclinical development and clinical development
programs; the time and cost involved in obtaining regulatory approvals; the cost
of filing, prosecuting, defending, and enforcing patent claims and other
intellectual property rights; competing technological and market developments;
changes in the Company's existing research relationships; the ability of the
Company to establish collaborative relationships; the development of
commercialization activities and arrangements; and the purchase of additional
capital equipment.
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GOING CONCERN DISCLOSURE IN INDEPENDENT AUDITORS' REPORT
The report of the Company's independent auditors with respect to the
Company's financial statements included in Form 10-KSB for the year ended June
30, 1998 includes a "going concern" modification, indicating that the Company's
recurring losses during the development stage raise substantial doubt about the
Company's ability to continue as a going concern. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Notes to
Condensed Financial Statements."
EARLY STAGE OF DEVELOPMENT: TECHNOLOGICAL UNCERTAINTY
NTI is at an early stage of development and currently has no marketed
products. The Company's potential products are in clinical development, and no
revenues have been generated from product sales. To date, most of the Company's
resources have been dedicated to the research and development of selected
candidate pharmaceutical products, and there can be no assurance that the
Company will be able to develop a candidate product that will receive required
regulatory approvals or be successfully commercialized. The Company is currently
evaluating two potential products in Phase II clinical trials. Results attained
in preclinical studies and in such early stage clinical trials are not
necessarily indicative of results that will be obtained upon further human
clinical testing. The products currently under development by the Company will
require significant additional clinical testing prior to submission of any
regulatory application for commercial use. Such activities will require
substantial resources and will necessitate the raising of substantial additional
capital.
The Company's potential products are subject to the risks of failure
inherent in the development of products based on new technologies. These risks
include the possibilities that any or all of the potential products will be
found to be unsafe, ineffective or toxic, or otherwise fail to receive necessary
regulatory clearances; that the products, if safe and effective, will be
difficult to manufacture on a large scale or uneconomical to market; that
proprietary rights of third parties will preclude the Company from marketing
products; or that third parties market or will market superior or equivalent
products. There can be no assurance that the Company's development activities
will result in any commercially viable products. The Company does not expect to
be able to commercialize any products for a number of years, if at all.
DEPENDENCE ON MERZ AND ON OTHER THIRD PARTIES
The Company has only limited internal resources and thus the Company
has relied and will continue to rely heavily on others for research,
development, manufacture and commercialization of its potential products. With
respect to Memantine, the Company is dependent on Merz for the manufacturing and
supply of the drug for the Company's clinical trials, and the successful
commercialization of the product to treat neuropathic pain and AIDS-related
dementia. The only revenue that the Company will receive in the future for
Memantine are upfront, milestone and royalty payments received on product sales
and/or third party contracts by Merz. Any failure by Merz to successfully
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commercialize Memantine after its development will have a material adverse
effect on the Company's business, financial condition and results of operations.
The Company has entered into various arrangements (many of which are
non-exclusive) with consultants, academic collaborators, licensors, licensees,
contractors and others, and the Company is dependent upon the level of
commitment and subsequent success of these outside parties in performing their
responsibilities. Certain of these agreements place responsibility for
preclinical testing and human clinical trials and for preparing and submitting
submissions for regulatory approval for potential products on the collaborator,
licensor or contractor. Should such collaborator, licensor or contractor fail to
perform, the Company's business may be adversely affected.
The Company has entered into certain agreements and licenses with third
parties, a number of which require the Company to pay royalties and make other
payments. Failure by the Company to make such payments could cause the Company
to lose rights to technology or data under these agreements.
The Company has relied on scientific, technical, clinical, commercial
and other data supplied and disclosed by others in entering into these
agreements and will rely on such data in support of applications to enter human
clinical trials for its potential products. Although the Company has no reason
to believe that this information contains errors or omissions of fact, there can
be no assurance that there are no errors or omissions of fact that would change
materially the Company's view of the future likelihood of FDA approval or
commercial viability of its potential products.
GOVERNMENT REGULATION AND PRODUCT APPROVAL
The FDA, state and local agencies, and comparable agencies and entities
in foreign countries, impose substantial requirements on the manufacturing and
marketing of human therapeutics through lengthy and detailed laboratory,
preclinical animal studies and clinical testing procedures, sampling activities,
and other costly and time consuming procedures. Satisfaction of these
requirements typically takes many years and varies substantially based on the
type, complexity, and novelty of the drug. The effect of government regulation
may be to delay for a considerable period of time or prevent the marketing of
any product that the Company may develop and/or to impose costly procedures upon
the Company's activities, the result of which may be to furnish an advantage to
its competitors. There can be no assurance that FDA or other regulatory approval
for any products developed by the Company will be granted on a timely basis or
at all. Any such delay in obtaining or failure to obtain such approvals would
adversely affect the marketing of the Company's proposed products and its
ability to earn product revenues or royalties. In addition, success in
preclinical or early stage clinical trials does not assure success in later
stage clinical trials. As with any regulated product, additional government
regulations may be promulgated which could delay regulatory approval of the
Company's potential products. Adverse government regulation which might arise
from future legislation or administrative action cannot be predicted.
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UNCERTAINTY OF PROTECTION OF PATENTS AND PROPRIETARY RIGHTS
The Company's success will depend, in large part, on its ability to
obtain or license patents, protect trade secrets and operate without infringing
upon the proprietary rights of others. There can be no assurance that any of the
patent applications licensed to the Company will be approved, that the Company
will not be challenged by others, or that the patents of others will not impair
the ability of the Company to do business.
The patent position of biotechnology firms generally is highly
uncertain, involving complex legal and factual questions, and has recently been
the subject of much litigation. No consistent policy has emerged from the United
States Patent and Trademark Office regarding the breadth of claims allowed or
the degree of protection afforded under biotechnology patents. Finally, there
can be no assurance that others will not independently develop similar products,
duplicate any of the Company's potential products, or design around any
potential patented products of the Company. As a result, there can be no
assurance that patent applications relating to the Company's potential products
or processes will result in patents being issued, or that patents, if issued,
will provide protection against competitors who successfully challenge the
Company's patents, obtain patents that may have an adverse effect on the
Company's ability to conduct business, or be able to circumvent the Company's
patent position. In view of the time delay in patent approval and the secrecy
afforded United States patent applications, the Company does not know if other
applications that would have priority over the Company's applications have been
filed.
MANUFACTURING LIMITATIONS
The Company currently does not have its own manufacturing facilities to
manufacture products under the current Good Manufacturing Practices ("cGMP")
requirements prescribed by the FDA. The Company has established arrangements
with its corporate collaborator, Merz, and with contract manufacturers to supply
potential products for preclinical and clinical trials and intends to establish
similar arrangements for the manufacture, packaging, labeling and distribution
of products, if approved for marketing. If the Company's contractors are unable
to supply sufficient quantities of product candidates manufactured in accordance
with cGMP on acceptable terms, or if the Company is unable to contract for
supplies of such product candidates because of lack of financing, the Company's
preclinical and human clinical testing schedule would be delayed. If the Company
should encounter delays or difficulties in establishing relationships with
manufacturers to produce, package and distribute its products, market
introduction and subsequent sales of such products would be adversely affected.
Moreover, collaborators and contract manufacturers that the Company may use must
adhere to cGMP regulations enforced by the FDA through its facilities inspection
program. If these facilities cannot pass a pre-approval plant inspection, the
FDA pre-market approval of the products would be adversely affected. The
Company's dependence on third parties for the manufacture of products may
adversely affect the
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Company's results of operations and its ability to develop and deliver products
on a timely and competitive basis.
RISK OF PRODUCT LIABILITY
Clinical trials or marketing of any of the Company's potential products
may expose the Company to liability claims from the use of such products. The
Company's product liability insurance does not cover commercial sales of
products. The Company has a limited amount of product liability insurance to
cover liabilities arising from clinical trials. There can be no assurance that
the Company's insurance will be adequate to cover any liabilities arising from
the Company's clinical trials, that the Company will be able to obtain product
liability insurance covering commercial sales or, if obtained, that sufficient
coverage can be acquired at a reasonable cost. An inability to obtain insurance
at acceptable cost or otherwise protect against potential product liability
claims could prevent or inhibit commercialization of any products developed by
the Company.
DEPENDENCE ON QUALIFIED PERSONNEL AND ADVISORS
The Company is highly dependent upon its scientific and management
staff and on consultants and advisors, the loss of whose services might
significantly delay the achievement of planned development objectives. During
the quarter, Behzad Khosrovi, Ph.D., VP Pharmaceuticals Development, moved from
the list of part-time employees to become a consultant for the Company. The
Company believes that this reduction in force has not damaged its ability to
manage ongoing human clinic trials. However, a further reduction in force could
have a material adverse effect on the Company's operations.
In addition, the Company is dependent on collaborators at research
institutions. Recruiting and retaining qualified personnel, collaborators,
advisors and consultants will be critical to the Company's success. There is
intense competition for such qualified personnel in the area of the Company's
activities, and there can be no assurance that the Company will be able to
continue to attract and retain the personnel necessary for the development of
the Company's business. The inability to acquire such services or to develop
needed expertise could have a material adverse effect on the Company's
operations.
SUBSEQUENT EVENTS
On January 8, 1999, the Company received a loan of $200,000 from Merz. The
loan will be repaid upon Merz signing an agreement with a third party regarding
the development and marketing of Memantine for the indication of dementia and/or
neuropathic pain with automatic compensation and payments (pursuant to article
8.5 of the license and cooperation agreement dated April 16, 1998 between NTI,
Merz, and Children's Medical Center Corporation) to NTI. If no such agreement
occurs, the loan will be repaid by December 31, 2000.
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In lieu of this repayment by NTI, Merz has the right to exercise an option
at its own discretion to receive shares of NTI common stock at a strike price of
$1.20 per share which would be equivalent to the $200,000 loan plus accrued
interest of eight percent per annum.
On January 15, 1999, Jian Johnson, MS resigned from the Company as VP
Regulatory Affairs.
On January 26, 1999, NTI received $83,331 as the first disbursement of an
award amount of $99,544 from a Small Business Innovative Research ("SBIR") grant
from the National Institutes of Health to continue clinical development of its
anti-edema agent XERECEPT(TM) for the treatment of peritumoral brain edema. The
second and final disbursement of $16,213 was received on February 4, 1999.
Note: Except for the historical information contained herein, the matters
discussed in this Management's Discussion and Analysis of Financial Conditions
and Results of Operations and other sections of this quarterly report are
forward looking statements that involve risks and uncertainties, including the
ability to raise capital; properly design, implement, and complete planned
trials; meet regulatory requirements; demonstrate safety and efficacy for
product candidates; manage third party contractors; and avoid infringement of
third party proprietary rights, as well as other risks detailed from time to
time in the Company's Securities and Exchange Commission filings. Actual results
may differ materially from those projected. These forward looking statements
represent the Company's judgment as of the date hereof. The Company disclaims,
however, any intent or obligation to update these forward looking statements.
15
<PAGE>
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On November 12, 1998, the Company held its Annual Meeting of Stockholders. The
following matters were voted on at the Annual Meeting of Stockholders.
(1) The following six directors were elected:
Votes For Withheld
--------- --------
Paul E. Freiman 5,669,980 221,535
Abraham E. Cohen 5,668,780 222,735
Enoch Callaway, M.D. 5,672,682 218,833
Theodore L. Eliot, Jr. 5,693,618 197,897
Abraham D. Sofaer 5,669,780 221,735
John B. Stuppin 5,673,618 217,897
(2) The selection of Ernst & Young LLP as the independent auditors of the
Company for the current year was ratified: For 5,862,035; Against 4,650; Abstain
24,830.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibit 27: Financial Data Schedule for the period ended December 31, 1998.
Reports: The Company did not file any reports on Form 8-K during the three
months ended December 31, 1998.
SIGNATURES
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.
NEUROBIOLOGICAL TECHNOLOGIES, INC.
Dated: February 11, 1999 /s/ Paul E. Freiman
--------------------------------------------
Paul E. Freiman
President, Chief Executive Officer
(Principal Executive and Accounting Officer)
and Director
16
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<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BALANCE
SHEET AND INCOME STATEMENTS DATED 12/31/98 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS
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<CURRENCY> U.S. DOLLARS
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<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 519,523
<SECURITIES> 0
<RECEIVABLES> 0
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<CURRENT-ASSETS> 567,009
<PP&E> 292,372
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<COMMON> 29,980,898
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<OTHER-EXPENSES> 952,274
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (11,714)
<INCOME-PRETAX> (940,560)
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