Neurologix Q1 2005 10-QSB
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-QSB
(Mark
One)
|
x |
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE |
|
SECURITIES
EXCHANGE ACT OF 1934 |
For the
quarter ended March 31, 2005
|
o |
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: 000-13347
NEUROLOGIX,
INC.
(Name of
Small Business Issuer in its charter)
|
DELAWARE |
06-1582875 |
|
(State
or other jurisdiction of |
I.R.S.
Employer |
|
Incorporation
or organization) |
Identification
No.) |
|
ONE
BRIDGE PLAZA, FORT LEE, NEW JERSEY |
07024 |
|
(Address
of principal executive offices) |
(Zip
Code) |
|
(201)
592-6451 |
|
(Issuer’s
telephone number, including area code) |
|
N/A |
|
(Former
name, former address and former fiscal year, |
|
if
changed since last report) |
Check
whether the issuer (1) filed all reports required to be filed by Section 13 or
15(d) of the Exchange Act during the past 12 months (or for such shorter period
that the Registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes x No
o.
State the
number of shares outstanding of each of the issuer’s classes of common equity,
as of the latest practicable date:
At May
11, 2005 there were outstanding 26,253,977 shares of the Registrant’s Common
Stock, $.001 par value.
Transitional
Small Business Disclosure Format: Yes o No
x.
|
PART
I. FINANCIAL INFORMATION |
|
| |
|
|
Item
1 - Financial Statements |
|
|
Condensed
Consolidated Balance Sheet (Unaudited) |
1 |
|
Condensed
Consolidated Statements of Operations (Unaudited) |
2 |
|
Condensed
Consolidated Statements of Changes in Stockholders’ Equity (Deficiency)
(Unaudited) |
3 |
|
Condensed
Consolidated Statements of Cash Flows (Unaudited) |
4 |
|
Notes
to Condensed Consolidated Financial Statements (Unaudited) |
5 |
| |
|
|
Item
2 - Management’s Discussion and Analysis or Plan of
Operation |
12 |
| |
|
|
Item
3 - Controls and Procedures |
16 |
| |
|
|
PART
II. OTHER INFORMATION |
17 |
| |
|
|
Item
6. - Exhibits |
17 |
PART I.
FINANCIAL INFORMATION
Item
1 - Financial Statements
|
NEUROLOGIX,
INC.
AND SUBSIDIARY
(A
Development Stage Company)
CONDENSED
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(Amounts
in thousands, except share and per share data) |
|
| |
|
March
31, |
|
| |
|
2005 |
|
ASSETS |
|
(UNAUDITED) |
|
Current
assets: |
|
|
|
Cash
and cash equivalents |
|
$ |
3,704 |
|
Investments
being held to maturity |
|
|
1,600 |
|
|
Prepaid
expenses and other current assets |
|
|
116 |
|
Total
current assets |
|
|
5,420 |
|
| |
|
|
|
|
Equipment,
less accumulated depreciation of $201 |
|
|
176 |
|
Intangible
assets, less accumulated amortization of $61 |
|
|
372 |
|
Investments
in unconsolidated affiliates |
|
|
8 |
|
|
Other
assets |
|
|
6 |
|
|
Total
Assets |
|
$ |
5,982 |
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY |
|
|
|
|
Current
liabilities: |
|
|
|
|
Accrued
expenses |
|
$ |
583 |
|
|
Current
portion of capital lease obligations |
|
|
17 |
|
|
Total
current liabilities |
|
|
600 |
|
| |
|
|
|
|
|
Capital
lease obligations, net of current portion |
|
|
9 |
|
|
Total
Liabilities |
|
|
609 |
|
Commitments
and contingencies |
|
|
|
|
Stockholders’
equity: |
|
|
|
|
Preferred
stock: |
|
|
|
|
Series
A - $.06 per share cumulative, convertible 1-for-25 into common stock;
$.10 par value; 500,000 shares authorized, 645 shares issued and
outstanding with an
aggregate liquidation preference of $1 per share |
|
|
- |
|
Common
stock:
$.001
par value; 60,000,000 shares authorized, 25,073,993 issued
and outstanding |
|
|
25 |
|
Additional
paid-in capital |
|
|
15,317 |
|
Unearned
compensation |
|
|
(298 |
) |
|
Deficit
accumulated during the development stage |
|
|
(9,671 |
) |
|
Total
stockholders’ equity |
|
|
5,373 |
|
|
Total
Liabilities and Stockholders’ Equity |
|
$ |
5,982 |
|
See
accompanying notes to the unaudited condensed consolidated financial
statements.
NEUROLOGIX,
INC.
AND SUBSIDIARY
(A
Development Stage Company)
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(Amounts
in thousands, except share and per share
data) |
|
| |
|
Three
Months
Ended
March 31, |
|
|
For
the period February 12, 1999 (inception) through
March
31, 2005 |
|
| |
|
|
|
|
|
2004 |
|
|
|
|
Operating
expenses: |
|
|
|
|
|
|
|
|
|
|
Research
and development |
|
$ |
502 |
|
$ |
334 |
|
$ |
5,485 |
|
|
General
and administrative expenses |
|
|
429 |
|
|
343 |
|
|
3,949 |
|
|
Loss
from operations |
|
|
(931 |
) |
|
(677 |
) |
|
(9,434 |
) |
| |
|
|
|
|
|
|
|
|
|
|
Other
income (expense): |
|
|
|
|
|
|
|
|
|
|
Dividend,
interest income and other income |
|
|
35 |
|
|
-
|
|
|
169 |
|
|
Interest
expense-related parties |
|
|
(1 |
) |
|
(19 |
) |
|
(406 |
) |
|
Other
income (expense), net |
|
|
34 |
|
|
(19 |
) |
|
(237 |
) |
|
Net
loss |
|
$ |
(897 |
) |
$ |
(696 |
) |
$ |
(9,671 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted net loss per share |
|
$ |
(0.04 |
) |
$ |
(0.05 |
) |
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding, basic and diluted |
|
|
23,684,292 |
|
|
15,464,960 |
|
|
|
|
See
accompanying notes to the unaudited condensed consolidated financial
statements.
|
NEUROLOGIX,
INC. AND SUBSIDIARY
(A
Development Stage Company)
CONDENSED
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(DEFICIENCY)
FOR
THE PERIOD FROM FEBRUARY 12, 1999 (DATE OF INCEPTION) THROUGH MARCH 31,
2005
(UNAUDITED)
(Amounts
in thousands, except share data) |
|
| |
|
|
|
|
|
|
|
|
|
Deficit |
|
|
|
| |
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
| |
|
|
|
|
|
Additional |
|
|
|
During
the |
|
|
|
| |
|
Common
Stock |
|
Paid-in |
|
Unearned |
|
Development |
|
|
|
| |
|
Shares |
|
Amount |
|
Capital |
|
Compensation |
|
Stage |
|
Total |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale
of common stock to founders |
|
|
6,004,146 |
|
$ |
0 |
|
$ |
4 |
|
$ |
- |
|
$ |
- |
|
$ |
4 |
|
|
Net
loss |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
(328 |
) |
|
(328 |
) |
Balance,
December 31, 1999 |
|
|
6,004,146 |
|
|
0 |
|
|
4 |
|
|
- |
|
|
(328 |
) |
|
(324 |
) |
|
Net
loss |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
(1,055 |
) |
|
(1,055 |
) |
Balance,
December 31, 2000 |
|
|
6,004,146 |
|
|
0 |
|
|
4 |
|
|
- |
|
|
(1,383 |
) |
|
(1,379 |
) |
Stock
options granted for services |
|
|
-
|
|
|
-
|
|
|
9 |
|
|
- |
|
|
- |
|
|
9 |
|
Common
stock issued for intangible assets at $0.09 per share |
|
|
259,491 |
|
|
- |
|
|
24 |
|
|
- |
|
|
- |
|
|
24 |
|
|
Net
loss |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
(870 |
) |
|
(870 |
) |
Balance,
December 31, 2001 |
|
|
6,263,637 |
|
|
0 |
|
|
37 |
|
|
- |
|
|
(2,253 |
) |
|
(2,216 |
) |
Retirement
of founder shares |
|
|
(33,126 |
) |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
- |
|
Common
stock issued pursuant to license agreement at $1.56 per
share |
|
|
368,761 |
|
|
- |
|
|
577 |
|
|
(577 |
) |
|
- |
|
|
-
|
|
Private
placement of Series B preferred stock |
|
|
-
|
|
|
- |
|
|
2,613 |
|
|
-
|
|
|
- |
|
|
2,613 |
|
Amortization
of unearned compensation |
|
|
-
|
|
|
- |
|
|
- |
|
|
24 |
|
|
- |
|
|
24 |
|
|
Net
loss |
|
|
-
|
|
|
- |
|
|
- |
|
|
-
|
|
|
(1,310 |
) |
|
(1,310 |
) |
Balance,
December 31, 2002 |
|
|
6,599,272 |
|
|
0 |
|
|
3,227 |
|
|
(553 |
) |
|
(3,563 |
) |
|
(889 |
) |
Sale
of common stock |
|
|
276,054 |
|
|
0 |
|
|
90 |
|
|
(89 |
) |
|
- |
|
|
1 |
|
Amortization
of unearned compensation |
|
|
- |
|
|
- |
|
|
- |
|
|
164 |
|
|
- |
|
|
164 |
|
|
Net
loss |
|
|
- |
|
|
- |
|
|
- |
|
|
-
|
|
|
(2,274 |
) |
|
(2,274 |
) |
Balance,
December 31, 2003 |
|
|
6,875,326 |
|
|
0 |
|
|
3,317 |
|
|
(478 |
) |
|
(5,837 |
) |
|
(2,998 |
) |
Conversion
of note payable to common stock |
|
|
1,091,321 |
|
|
1 |
|
|
2,371 |
|
|
-
|
|
|
- |
|
|
2,372 |
|
Conversion
of mandatory redeemable preferred stock to common stock |
|
|
6,086,991 |
|
|
6 |
|
|
494 |
|
|
-
|
|
|
- |
|
|
500 |
|
Conversion
of Series B convertible stock to common stock |
|
|
1,354,746 |
|
|
1 |
|
|
(1 |
) |
|
-
|
|
|
- |
|
|
-
|
|
Effects
of reverse acquisition |
|
|
7,103,020 |
|
|
14 |
|
|
5,886 |
|
|
-
|
|
|
- |
|
|
5,900 |
|
Amortization
of unearned compensation |
|
|
-
|
|
|
- |
|
|
-
|
|
|
202 |
|
|
- |
|
|
202 |
|
Stock
options granted for services |
|
|
-
|
|
|
- |
|
|
42 |
|
|
(42 |
) |
|
- |
|
|
-
|
|
Exercise
of stock options |
|
|
10,000 |
|
|
- |
|
|
15 |
|
|
-
|
|
|
- |
|
|
15 |
|
|
Net
loss |
|
|
-
|
|
|
- |
|
|
-
|
|
|
-
|
|
|
(2,937 |
) |
|
(2,937 |
) |
Balance,
December 31, 2004 |
|
|
22,521,404 |
|
|
22 |
|
|
12,124 |
|
|
(318 |
) |
|
(8,774 |
) |
|
3,054 |
|
Amortization
of unearned compensation |
|
|
-
|
|
|
-
|
|
|
-
|
|
|
70 |
|
|
-
|
|
|
70 |
|
Stock
options granted for services |
|
|
|
|
|
|
|
|
50 |
|
|
(50 |
) |
|
-
|
|
|
-
|
|
Private
placement of common stock |
|
|
2,435,452 |
|
|
3 |
|
|
3,053 |
|
|
-
|
|
|
-
|
|
|
3,056 |
|
Exercise
of stock options |
|
|
120,000 |
|
|
-
|
|
|
90 |
|
|
-
|
|
|
-
|
|
|
90 |
|
|
Net
loss |
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(897 |
) |
|
(897 |
) |
|
Balance
March 31, 2005 |
|
|
25,076,856 |
|
$ |
25 |
|
$ |
15,317 |
|
$ |
(298 |
) |
$ |
(9,671 |
) |
$ |
5,373 |
|
See
accompanying notes to the unaudited condensed consolidated financial
statements.
|
NEUROLOGIX,
INC.
AND SUBSIDIARY
(A
Development Stage Company)
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Amounts
in thousands) |
|
| |
|
Three
Months Ended March 31, |
|
For
the period February 12, 1999 (inception) through
March
31, 2005 |
|
| |
|
2005 |
|
2004 |
|
|
|
Operating
activities: |
|
|
|
|
|
|
|
Net
loss |
|
$ |
(897 |
) |
$ |
(696 |
) |
$ |
(9,671 |
) |
Adjustments
to reconcile net loss to net cash used in operating
activities: |
|
|
|
|
|
|
|
|
|
|
Depreciation |
|
|
19 |
|
|
21 |
|
|
209 |
|
Amortization |
|
|
6 |
|
|
6 |
|
|
75 |
|
Stock
options granted for services |
|
|
-
|
|
|
-
|
|
|
9 |
|
Impairment
of intangible assets |
|
|
89 |
|
|
-
|
|
|
140 |
|
Amortization
of unearned compensation |
|
|
70 |
|
|
44 |
|
|
460 |
|
Non-cash
interest expense |
|
|
1 |
|
|
19 |
|
|
377 |
|
|
Changes
in operating assets and liabilities |
|
|
256 |
|
|
(66 |
) |
|
204 |
|
|
Net
cash used in operating activities |
|
|
(456 |
) |
|
(672 |
) |
|
(8,197 |
) |
Investing
activities: |
|
|
|
|
|
|
|
|
|
|
Security
deposits paid |
|
|
-
|
|
|
-
|
|
|
(7 |
) |
Purchases
of equipment |
|
|
(17 |
) |
|
(16 |
) |
|
(270 |
) |
Development
of intangible assets |
|
|
(82 |
) |
|
(28 |
) |
|
(562 |
) |
Purchases
of marketable securities |
|
|
(600 |
) |
|
-
|
|
|
6,474 |
|
|
Proceeds
from sale of marketable securities |
|
|
600 |
|
|
-
|
|
|
(8,072 |
) |
|
Net
cash used in investing activities |
|
|
(99 |
) |
|
(44 |
) |
|
(2,439 |
) |
Financing
activities: |
|
|
|
|
|
|
|
|
|
|
Proceeds
from note payable |
|
|
-
|
|
|
-
|
|
|
1,100 |
|
Borrowings
from related party |
|
|
-
|
|
|
-
|
|
|
2,000 |
|
Cash
acquired in Merger |
|
|
-
|
|
|
5,413 |
|
|
5,413 |
|
Merger-related
costs |
|
|
-
|
|
|
(375 |
) |
|
(375 |
) |
Payments
of capital lease obligations |
|
|
(9 |
) |
|
(2 |
) |
|
(78 |
) |
Stock
issuance costs |
|
|
(110 |
) |
|
-
|
|
|
(110 |
) |
Proceeds
from exercise of stock options |
|
|
90 |
|
|
-
|
|
|
110 |
|
Proceeds
from issuance of common stock |
|
|
3,166 |
|
|
-
|
|
|
3,166 |
|
|
Proceeds
from issuance of preferred stock |
|
|
-
|
|
|
-
|
|
|
3,114 |
|
|
Net
cash provided by financing activities |
|
|
3,137 |
|
|
5,036 |
|
|
14,340 |
|
Net
increase in cash and cash equivalents |
|
|
2,582 |
|
|
4,320 |
|
|
3,704 |
|
|
Cash
and cash equivalents, beginning of period |
|
|
1,122 |
|
|
755 |
|
|
-
|
|
|
Cash
and cash equivalents, end of period |
|
$ |
3,704 |
|
$ |
5,075 |
|
$ |
3,704 |
|
Supplemental
disclosure of non-cash investing and financing activities: |
|
|
|
|
|
|
|
|
|
|
|
Issuance
of Common Stock to pay debt |
|
|
-
|
|
$ |
2,372 |
|
$ |
2,372 |
|
|
Reverse
acquisition - net liabilities assumed, excluding cash |
|
|
-
|
|
$ |
(213 |
) |
$ |
(214 |
) |
|
Mandatory
redeemable convertible preferred stock converted to Common
Stock |
|
|
-
|
|
$ |
500 |
|
$ |
500 |
|
|
Common
Stock issued to acquire intangible assets |
|
|
-
|
|
|
-
|
|
|
24 |
|
|
Acquisition
of equipment through capital leases |
|
|
-
|
|
|
-
|
|
|
106 |
|
See accompanying notes to the unaudited condensed
consolidated financial statements.
NEUROLOGIX,
INC. AND SUBSIDIARY
(A
Development Stage Company)
Notes
to Unaudited Condensed Consolidated Financial Statements
(In
thousands, except for share and per share
amounts)
(1) In the
opinion of management, the accompanying unaudited condensed consolidated
financial statements contain all adjustments (consisting of normal recurring
adjustments) necessary to present fairly the financial position of Neurologix,
Inc. and its wholly-owned subsidiary (collectively referred to herein as the
“Company”) at
March 31, 2005, and the results of its operations and its cash flows for the
periods presented. The unaudited consolidated financial statements include the
accounts of the Company and its subsidiary. All significant intercompany
accounts and transactions have been eliminated in consolidation.
The
accompanying unaudited condensed consolidated financial statements have been
prepared assuming that the Company will continue as a going concern. The Company
is in the development stage and has not generated any operating revenues as of
March 31, 2005. As a result, the Company has incurred net losses of $897, $696
and $9,671 and negative cash flows from operating activities of $456, $672 and
$8,197 for the three months ended March 31, 2005 and 2004 and for the period
from February 12, 1999 (inception) to March 31, 2005, respectively. In addition,
management believes that the Company will continue to incur net losses and cash
flow deficiencies from operating activities for the foreseeable
future.
As
of March 31, 2005, the Company had cash and cash equivalents of $3,704 and
investments being held to maturity of $1,600. During the period from April 1,
2005 to April 28, 2005, the Company completed private placements resulting in
net proceeds to the Company, after expenses, of approximately $1,970.
Management believes that the Company’s current resources will
enable it to continue as a going concern through at least
March 31, 2006 and, if necessary, that it can implement cost saving
initiatives that can extend its operations after that period. Although the
Company believes that its resources are sufficient to initiate and complete a
Phase I clinical trial in epilepsy, the Company’s resources are not sufficient
to allow it to perform clinical trials to enable drug approval and marketing.
Accordingly, it will continue to seek additional funds through public or private
equity offerings, debt financings or corporate collaboration and licensing
arrangements. The Company does not know whether additional financing will be
available when needed or if available, will be on acceptable or favorable terms
to it or its stockholders.
Effective
February 10, 2004, pursuant to a Merger Agreement (the “Merger
Agreement”),
Neurologix Research, Inc. (formerly known as Neurologix, Inc. and referred to
herein as “ NRI”) merged
(the “Merger”) with
and into a wholly-owned subsidiary of Neurologix, Inc. (formerly known as Change
Technology Partners, Inc. and referred to herein individually as “Neurologix” and,
together with its subsidiary, as the “Company”) with
NRI being the surviving corporation and becoming a wholly-owned subsidiary of
the Company. As a result of the Merger, stockholders of NRI received an
aggregate number of shares of Neurologix common stock representing approximately
68% of the total number of shares of Neurologix common stock outstanding after
the Merger. Accordingly, the business combination has been accounted for as a
reverse acquisition with NRI being the accounting parent and Neurologix being
the accounting subsidiary. The Company’s condensed consolidated financial
statements include the operations of Neurologix, being the accounting
subsidiary, from the date of acquisition.
On September 10, 2004, pursuant to the written consent of stockholders owning
approximately 59% of the Company’s Common Stock, the Company amended and
restated its Certificate of Incorporation, as a result of which it effected a
reverse stock split of the shares of Common Stock at a ratio of 1 for 25 and
reduced the Company’s number of authorized shares of Common Stock from
750,000,000 to 60,000,000. All information related to the Company’s Common
Stock, preferred stock, options and warrants to purchase the Company’s Common
Stock and earnings per share included in the accompanying consolidated financial
statements has been retroactively adjusted to give effect to the Company’s 1 for
25 reverse stock split, which became effective on September 10,
2004.
NEUROLOGIX,
INC. AND SUBSIDIARY
(A
Development Stage Company)
Notes
to Unaudited Condensed Consolidated Financial Statements -
(Continued)
(In
thousands, except for share and per share
amounts)
(2) The
accounting policies followed by the Company are set forth in Note 2 to the
Company’s consolidated financial statements included in the Company’s Annual
Report on Form 10-KSB for the year ended December 31, 2004, which are
incorporated herein by reference.
(3) The
results of operations for the three months ended March 31, 2005 are not
necessarily indicative of the results to be expected for the full
year.
(4) Statement
of Financial Accounting Standards No. 123, “Accounting for Stock-Based
Compensation” (“SFAS
123”),
provides for the use of a fair value based method of accounting for employee
stock compensation. However, SFAS 123 also allows an entity to continue to
measure compensation cost for stock options granted to employees using the
intrinsic value method of accounting prescribed by Accounting Principles Board
Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB
25”), which
only requires charges to compensation expense for the excess, if any, of the
fair value of the underlying stock at the date a stock option is granted (or at
an appropriate subsequent measurement date) over the amount the employee must
pay to acquire the stock, if such amounts differ materially from the historical
amounts. The Company has elected to continue to account for employee stock
options using the intrinsic value method under Opinion 25. By making that
election, the Company is required by SFAS 123 and SFAS 148, “Accounting for
Stock-Based Compensation -- Transition and Disclosure” to provide pro forma
disclosures of net income (loss) and earnings (loss) per share as if a fair
value based method of accounting had been applied. The Company has used the
Black-Scholes option pricing model, as permitted by SFAS 123, to estimate the
fair value of options granted to employees for such pro forma disclosures, as
follows:
| |
|
Three
months ended
March
31, |
|
| |
|
2005 |
|
2004 |
|
Net
loss - as reported |
|
$ |
(897 |
) |
$ |
(696 |
) |
|
Deduct
total stock-based employee compensation expense determined under fair
value-based method for all awards |
|
|
(76 |
) |
|
(62 |
) |
|
Net
loss - pro forma |
|
$ |
(973 |
) |
$ |
(758 |
) |
|
Basic/diluted
loss per share - as reported |
|
$ |
(0.04 |
) |
$ |
(0.05 |
) |
|
Basic/diluted
loss per share - pro forma |
|
$ |
(0.04 |
) |
$ |
(0.05 |
) |
The
following are the weighted-average assumptions used with the Black-Scholes
pricing model:
| |
|
Three
months ended
March
31, |
|
| |
|
2005 |
|
2004 |
|
Expected
option term (years) |
|
|
5 |
|
|
5 |
|
Risk-free
interest rate (%) |
|
|
3.68 |
|
|
3.15 |
|
Expected
volatility (%) |
|
|
111 |
|
|
152 |
|
Dividend
yield (%) |
|
|
0 |
|
|
0 |
|
NEUROLOGIX,
INC. AND SUBSIDIARY
(A
Development Stage Company)
Notes
to Unaudited Condensed Consolidated Financial Statements -
(Continued)
(In
thousands, except for share and per share
amounts)
As a
result of amendments to SFAS 123, the Company will be required to expense the
fair value of options over the vesting period beginning in the first quarter of
the year ending December 31, 2006.
In
accordance with SFAS 123, all other issuances of common stock, stock options or
other equity instruments issued to employees and non-employees as consideration
for goods or services received by the Company are accounted for based on the
fair value of the consideration received or the fair value of the equity
instrument, whichever is more readily measurable. Such fair value is measured at
an appropriate date pursuant to the guidance in EITF Issue No. 96-18 and
capitalized or expensed as appropriate.
(5) Basic net
loss per common share excludes the effect of potentially dilutive securities and
is computed by dividing net income or loss available to common stockholders by
the weighted average number of common shares outstanding for the period. Diluted
net income or loss per share is adjusted for the effect of convertible
securities, warrants and other potentially dilutive financial instruments only
in the periods in which such effect would have been dilutive.
The
following securities were not included in the computation of diluted net loss
per share because to do so would have had an anti-dilutive effect for the
periods presented:
|
|
|
March
31, |
|
|
|
|
2005 |
|
2004 |
|
Stock
Options |
|
|
2,283,459 |
|
|
1,420,835 |
|
Warrants |
|
|
611,863 |
|
|
828,000 |
|
Series
A Convertible Preferred Stock |
|
|
645 |
|
|
645 |
|
(6) Related
Party Transactions:
Since the
Merger, Refac, which is 90% owned by Palisade Concentrated Equity Partnership,
L.P., a private equity partnership managed by Palisade Capital Management,
L.L.C. (“PCM”), has
provided consulting services to the Company at a basic monthly retainer of $5
subject to a quarterly adjustment, by mutual agreement, at the end of each
calendar quarter to reflect the services rendered during such quarter. Either
party has the right to terminate this agreement at any time without any prior
notice. Under this arrangement, the Company has paid $23 and $40 with respect to
services rendered during the three month periods ended March 31, 2005 and 2004,
respectively.
Pursuant
to the Merger Agreement, the Company paid Palisade Capital Securities, LLC
(“PCS”), $200
for investment banking services rendered in connection with the Merger. PCS is
an affiliate of Palisade Private Partnership, LP, a private equity partnership
managed by PCM, which is the beneficial owner of approximately 26% of the
Company’s outstanding Common Stock.
Effective
with the closing of the Merger, the Company relocated its corporate offices to
One Bridge Plaza, Fort Lee, New Jersey 07024. The Company used these premises on
a month-to-month basis under a verbal agreement with PCS that did not require
the payment of rent. On August 10, 2004, the Company entered into a sublease
with PCS for the lease of space at One Bridge Plaza, Fort Lee, New Jersey
through January 31, 2008 at a base annual rent of approximately $35. The rent
that the Company pays to PCS is the same rental amount that PCS pays under its
master lease for this space.
NEUROLOGIX,
INC. AND SUBSIDIARY
(A
Development Stage Company)
Notes
to Unaudited Condensed Consolidated Financial Statements -
(Continued)
(In
thousands, except for share and per share
amounts)
Effective
April 1, 2005, the Company entered into an agreement with PCM for administrative
support services at a rate of $3 per month. Either party has the right to
terminate this agreement at any time upon 30 days prior notice.
Additionally,
the Company
maintains brokerage accounts with PCS for the Company’s marketable
securities.
(7) Employment
Agreement with Dr. Michael Sorell
Effective
September 21, 2004, the Board entered into an employment agreement with Michael
Sorell, M.D. to serve as the President and Chief Executive Officer of the
Company and NRI for an initial term of employment of 18 months, which will
automatically be extended for an additional 18 months absent notice to the
contrary from either party. Dr. Sorell’s initial annual base salary was $150,
which was increased to $181 in March 2005 and to $200 in May 2005 based upon the
achievement of specified financing objectives of the Company (see Notes 9 and
11). In addition to cash compensation, Dr. Sorell’s employment agreement also
provides for the grant of options as described in Note 8.
(8) Stock
Options:
During
2000, the Company approved a stock option plan (the “Plan”) which
provides for the granting of stock options and restricted stock to employees,
independent contractors, consultants, directors and other individuals. A maximum
of 800,000 shares of Common Stock were originally approved for issuance under
the Plan by the Board. The Board has amended, subject to stockholder approval,
the Plan to increase the number of shares available for issuance under the Plan
by 500,000 shares. Without taking into account the 500,000 share increase
approved by the Board, as of March 31, 2005, the Company had granted options for
27,892 shares in excess of the number of shares covered by the
Plan.
Base
Stock Option Grant -
In
connection with Dr. Sorell’s employment, the Company entered into a Stock Option
Agreement with him pursuant to which it granted Dr. Sorell options to purchase
up to 1,150,000 shares of Common Stock at an exercise price of $0.75 per share.
These options include a base grant and an incentive grant. The base grant
consists of an option to purchase 250,000 shares of Common Stock, 125,000 of
which are vested. The remaining 125,000 shares vest as follows: 100,000 shares
on December 31, 2005 and 25,000 shares on March 31, 2006.
Incentive
Stock Option Grant - The
incentive grant consists of an option to purchase up to 900,000 shares of the
Company’s Common Stock at an exercise price of $0.75 per share (the
“Incentive
Grant”). This
grant is subject to the Company’s ability to close one or more financings and/or
corporate partner contributions (in the form of up-front payments or payments
based on milestones which, in the judgment of the Board, are likely to be
realized within eighteen months following such agreement) with gross proceeds
totaling $5,000 (collectively referred to herein as the “Financing”) on or
before June 30, 2005 at a weighted average per share price of at least $1.30. If
the weighted average per share price is at least $1.30 per share but less than
$2.65 (without taking into account the value of warrants, if any, included in
the Financing), then, upon the final closing of the Financing, one percent (1%)
of the shares of Company Common Stock underlying the Incentive Grant shall lapse
for each $0.03 decrement of price below $2.65 per share. Through April 28, 2005,
the Company has raised gross proceeds before expenses of approximately $5,216 at
an average price of $1.44 per share.
NEUROLOGIX,
INC. AND SUBSIDIARY
(A
Development Stage Company)
Notes
to Unaudited Condensed Consolidated Financial Statements -
(Continued)
(In
thousands, except for share and per share
amounts)
That
portion of the Incentive Grant that has not lapsed will vest on June 30, 2005
with one-third (⅓) becoming exercisable on that date and the balance ratably
over the subsequent twenty-four (24) month period. In the event that Dr. Sorell
ceases to be an officer and director of the Company, then the option shall
immediately terminate as to any shares that have not previously become
exercisable as of the date of such termination. The options have a maximum
ten-year term and are subject to accelerated vesting in the event that Dr.
Sorell’s employment is terminated by the Company without cause, due to his death
or disability or upon a change in control. If the Financing is not completed by
June 30, 2005, the entire Incentive Grant shall lapse. Of the total options
granted to Dr. Sorell, 273,892 were granted pursuant to the Plan in order to
qualify as incentive stock options and the remaining 876,108 options were not
granted under a shareholder-approved plan but are governed by terms identical to
the provisions of the Plan.
The
following table summarizes information about stock options outstanding at
March 31,
2005:
|
|
|
Number
of Shares |
|
Weighted
Average Exercise Price |
|
January
1, 2005 |
|
|
2,613,459* |
|
$ |
0.83 |
|
Granted |
|
|
30,000 |
|
|
2.10 |
|
Exercised |
|
|
(120,000 |
) |
|
0.75 |
|
|
Expired |
|
|
(240,000 |
) |
|
0.75 |
|
|
March
31, 2005 |
|
|
2,283,459 |
|
$ |
0.86 |
|
|
* Includes
the Incentive Grant of 900,000 options to Dr. Sorell that will vest should
the Company achieve certain financing goals as provided for under the
terms of his employment. (See above) |
(9) Private
Placement
During
the period from February 4, 2005 to March 31, 2005, pursuant to a Stock Purchase
Agreement, as amended, (the “Stock
Purchase Agreement”) the
Company sold and issued 2,435,452 shares of Common Stock to investors led by
Merlin Biomed Group (the “Purchasers”), for
an aggregate purchase price of $3,166, or $1.30 per share, resulting in net
proceeds after expenses of approximately $3,056. The Purchasers also received
five-year warrants to purchase a total of 608,863 shares of Common Stock at an
exercise price of $1.625 per share. Beginning in August 2007 if the share price
of the Company’s Common Stock exceeds $3.25 per share for any ten consecutive
trading day period and certain other conditions are met, the Company may call
any or all of the unexercised warrants by purchasing the warrants at a price of
$0.01 each. Proceeds will be used for general corporate purposes, including
clinical trials and research and development.
On April
4, 2005 pursuant to the Stock Purchase Agreement, the Company sold and issued an
additional 38,462 shares of Common Stock to the Purchasers for an aggregate
purchase price of $50, or $1.30 per share. The Purchasers also received
five-year warrants to purchase a total of 9,615 shares.
(10) Pro
forma Financial Statements
As
described in Note 1 above, NRI merged with and into a wholly-owned subsidiary of
Neurologix on February 10, 2004. The following unaudited pro forma information
summarizes the combined results of Neurologix and NRI for the three months ended
March 31, 2004 as if the merger had occurred at the beginning of
2004.
NEUROLOGIX,
INC. AND SUBSIDIARY
(A
Development Stage Company)
Notes
to Unaudited Condensed Consolidated Financial Statements -
(Continued)
(In
thousands, except for share and per share
amounts)
| |
|
Three
Months Ended March 31, 2004 |
|
|
Net
loss |
|
|
($1,214 |
) |
| |
|
|
|
|
|
Basic
and diluted net loss per share |
|
|
($0.05 |
) |
| |
|
|
|
|
|
Weighted
average common shares outstanding, basic and diluted |
|
|
22,502,139 |
|
(11) Subsequent
Events
On April
25, 2005 NRI entered into an Amended and Restated Consulting Agreement (the
"Kaplitt Agreement") with Dr. Michael G. Kaplitt, one of NRI’s scientific
co-founders. NRI and Dr. Kaplitt had been party to a Consulting Agreement, dated
October 1, 1999, as amended on October 8, 2003. Pursuant to the terms of the
Kaplitt Agreement, Dr. Kaplitt will continue to provide advice and consulting
services on an exclusive basis in scientific research on human gene therapy
using adenovirus and adeno-associated virus vectors in the nervous system and to
assist NRI and the Company in seeking financing and meeting with prospective
investors. Dr. Kaplitt will also continue to serve as a member of NRI's
Scientific Advisory Board. Dr. Kaplitt will be paid an annual retainer of $100
at such time as he determines that his receipt of compensation from NRI would
not be considered to be in conflict with any clinical trial sponsored by NRI or
with his employment. In connection with the execution of the Kaplitt Agreement,
the Company granted Dr. Kaplitt nonqualified stock options to purchase 160,000
shares of the Company’s common stock. Although the options were not granted
under the Plan, the options will be governed under the same terms as options
granted under the Plan. The exercise price of the options is $2.05 per share.
Twenty percent of the options became exercisable on the date of the grant, and
twenty percent will vest on each anniversary following the date of the grant
through 2009. The fair value of the option of approximately $270 will be
expensed over the vesting period.
On April
1, 2005 the Company entered into a License Agreement (the "KEIO
Agreement") with KEIO University (“KEIO”),
whereby KEIO granted to the Company the sole and exclusive right and license,
under the ownership rights of the university, to certain patent rights and
technical information throughout the world with the exception of Japan. Pursuant
to the KEIO Agreement the Company paid KEIO an up front payment of $75 and
will pay annual license maintenance fees of $50 payable on or before January 31
of each calendar year from 2006 to 2011, or, if earlier, until such time as the
Company is actually commercially selling Products, as defined in the KEIO
Agreement. Additionally, the Company will pay benchmark payments and royalties
as defined in the KEIO Agreement. The KEIO Agreement is terminable by the
Company upon 90 days notice.
On April
15, 2005 the Company entered into a Research Agreement with Auckland
Uniservices, Ltd. for a total of $282 to be paid in three equal installments of
$94 over an 18 month period with the first payment due on April 30, 2005. The
research activities to be performed will include, but are not necessarily
restricted to, gene therapy research studies on Parkinson's Disease. In
addition, the research may include work on gene delivery systems, new viral and
non-viral vectors, animal models of neurological and metabolic diseases and
pre-clinical gene therapy studies on epilepsy and other neurological
disorders.
NEUROLOGIX,
INC. AND SUBSIDIARY
(A
Development Stage Company)
Notes
to Unaudited Condensed Consolidated Financial Statements
(In
thousands, except for share and per share
amounts)
On April
27, 2005 the Company entered into a development and manufacturing agreement (the
“Development
Agreement”) with
Medtronic, Inc. (“Medtronic”). The
Development Agreement provides that the Company will use its experience in
technology relating to biologics for the treatment of Parkinson's disease and
temporal lobe epilepsy and Medtronic will use its experience in delivery systems
for biologic and pharmaceutical compositions to collaborate on a project through
which Medtronic will develop a system for delivering biologics (the
“Product”).
Pursuant to the Development Agreement, the Company will pay development costs of
$850 to Medtronic over the course of the project based upon development
milestones. Following regulatory approval and commercialization of the Product,
Medtronic and the Company will have a revenue sharing arrangement based on sales
of the Product.
The
Development Agreement will be in place for two years and will renew
automatically for successive one-year periods thereafter, unless either party
gives the other at least sixty days prior written notice of its intent not to
renew. The Development Agreement provides that the Company will use Medtronic
products for clinical studies relating to Parkinson’s disease and temporal lobe
epilepsy and further provides that each of the parties shall have certain
ownership rights to portions of the intellectual property associated with the
project.
In
conjunction with the Development Agreement, Medtronic International, Ltd. (a
wholly-owned subsidiary of Medtronic and referred to herein as “Medtronic
International”)
increased its equity investment in the Company by $2,000, by purchasing
1,141,522 shares at a price of $1.752 per share, plus warrants to purchase
285,388 shares at an exercise price of $2.19 per share (the “Warrant”). The
Company has the option to call the Warrant following the thirtieth month after
the date of issuance, provided that at such time there will be a shelf
registration statement effective for at least six months covering the shares of
Common Stock underlying the Warrant. If the holder does not exercise the Warrant
once the call option requirements have been met, the Company may redeem the
Warrant at a price of $0.01 per Warrant Share. Following the closing of this
transaction, Medtronic International owns approximately 8.8% of the Company’s
outstanding stock.
Management’s
Discussion and Analysis or Plan of Operation
(Dollar
amounts, in thousands except for per share data)
Item
2 - Management’s Discussion and Analysis or Plan of
Operation
Plan
of Operation
Effective
February 10, 2004, pursuant to a Merger Agreement (the “Merger
Agreement”),
Neurologix Research, Inc. (formerly known as Neurologix, Inc. and referred to
herein as “NRI”) merged
(the “Merger”) with
and into a wholly-owned subsidiary of Neurologix, Inc. (formerly known as Change
Technology Partners, Inc. and referred to herein individually as “Neurologix” and,
together with its subsidiary, as the “Company”) with
NRI being the surviving corporation and becoming a wholly-owned subsidiary of
the Company. As a result of the Merger, stockholders of NRI received an
aggregate number of shares of Neurologix common stock representing approximately
68% of the total number of shares of Neurologix common stock outstanding after
the Merger. Accordingly, the business combination has been accounted for as a
reverse acquisition with NRI being the accounting parent and Neurologix being
the accounting subsidiary. The Company’s unaudited condensed consolidated
financial statements include the operations of Neurologix, being the accounting
subsidiary, from the date of acquisition.
The
Company is in the development stage and is involved in the development of
proprietary treatments for disorders of the brain and central nervous system
using gene therapy and other innovative therapies. These treatments are designed
as alternatives to conventional surgical and pharmacological treatments. To
date, it has not generated any operating revenues and has incurred total net
losses and aggregate negative cash flows from operating activities from
inception to March 31, 2005 of $9,671 and $8,197, respectively.
The
Company’s initial focus is to develop therapeutic products (i) to meet the needs
of patients suffering from Parkinson’s disease and (ii) the needs of patients
suffering from a type of human epilepsy known as temporal lobe epilepsy or
“TLE.” As of May 10, 2005, gene transfer surgery has been performed on a total
of 11 patients for its Company sponsored Phase I clinical trial for Parkinson’s
disease (the “Clinical
Trial”) and,
depending upon obtaining the informed consent of qualified patients, the Company
currently expects the 12th (and
final) patient to undergo the gene transfer surgery by the end of
2005.
In
October 2004, motivated by encouraging rodent studies, the Company entered into
an agreement with Universida Federal de Sao Paolo to commence a non-human
primate study for evaluating the toxicity and efficacy of using its technology
in the brain for the treatment of epilepsy. The study is expected to begin and
be completed by the end of 2005. Subject to the successful completion of this
study, the Company plans to
submit an Investigational New Drug application to the FDA in the second half of
2005 for permission to begin a Phase I clinical trial in temporal lobe epilepsy.
The proposed clinical protocol was presented to the NIH Recombinant DNA Advisory
Committee on September 23, 2004 and was reviewed favorably.
Under the
Company’s research agreement with Cornell University for its Medical College,
the Company will continue to fund the development of gene therapy approaches for
neurodegenerative disorders, including Parkinson’s disease, Huntington’s
disease, Alzheimer’s disease and epilepsy. In addition, the Company expects to
hire a lab technician during the second quarter of 2005 to assist the research
scientists working at its lab facility.
Management’s
Discussion and Analysis or Plan of Operation
(Dollar
amounts, in thousands except for per share data)
As
of March 31, 2005, the Company had cash and cash equivalents of $3,704 and
investments being held to maturity of $1,600. During the period from April 1,
2005 to April 28, 2005, the Company completed private placements resulting in
net proceeds to the Company, after expenses, of approximately
$1,970. Management believes that the Company’s current resources will
enable it to continue as a going concern through at least March 31, 2006 and, if
necessary, that it can implement cost saving initiatives that can extend its
operations after that period. Although
the Company believes that its resources are sufficient to initiate and complete
a Phase I clinical trial in epilepsy, the Company’s resources are not sufficient
to allow it to perform clinical trials to enable drug approval and marketing.
Accordingly,
it will continue to seek additional funds through public or private equity
offerings, debt financings or corporate collaboration and licensing
arrangements. The Company does not know whether additional financing will be
available when needed or if available, will be on acceptable or favorable terms
to it or its stockholders.
Critical
Accounting Policies
The
Company’s discussion and analysis and plan of operation is based upon the
Company’s condensed consolidated financial statements, which have been prepared
in accordance with accounting principles generally accepted in the United States
of America for interim financial statements filed with the Securities and
Exchange Commission. The preparation of these unaudited condensed consolidated
financial statements requires the Company to make estimates and judgments that
affect the reported amounts of assets, liabilities, revenues and expenses, and
related disclosure of contingent assets and liabilities. On an on-going basis,
the Company evaluates its estimates, including those related to fixed assets,
intangible assets, stock-based compensation, income taxes and contingencies. The
Company bases its estimates on historical experience and on various other
assumptions that are believed to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under different assumptions or
conditions.
The
accounting policies and estimates used as of December 31, 2004, as outlined in
the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2004,
have also been applied for the three months ended March 31, 2005.
Results
of Operations
Three
Months Ended March 31, 2005 Compared to the Three Months Ended March 31,
2004
Revenues.
The
Company did not generate any operating revenues during the three months ended
March 31, 2005 and 2004.
Costs
and Expenses.
Research
and Development.
Research and development expenses increased by $168 during the three months
ended March 31, 2005 to $502 as compared to $334 during the same period in 2004.
The Company is sponsoring the Clinical Trial at North Shore University Hospital
and Cornell University for its Medical College under which the Company makes
payments based upon when the patient treatment commences. During the first
quarter of 2005, the Company commenced treatment of three (3) patients at a cost
of $193 whereas in the first quarter of 2004, it paid $65 to these institutions
covering the 1 patient that commenced treatment during such quarter. In
addition, the Company incurred costs associated with impairment on certain
intellectual property of $89. Other research and development expenses decreased
by an aggregate of $49.
Management’s
Discussion and Analysis or Plan of Operation
(Dollar
amounts, in thousands except for per share data)
General
and Administrative. General
and administrative expenses increased by $86 to $429 during the three months
ended March 31, 2005, as compared to $343 during the comparable period in 2004.
The increase in 2005 is primarily related to the fact that the operations of
Neurologix, which accounted for $251 of such expenses during the first quarter
of 2005, only accounted for $158 of such expenses during 2004 because during the
first quarter of 2004 the operations of Neurologix were only included from the
date of the Merger (February 10, 2004) through March 31, 2004. This increase was
offset by an overall decrease in other general and administrative expenses of
$7.
Interest
Income, Net. The
Company had net interest income of $34 during the three months ended March 31,
2005 as compared to net interest expense of $19 during the three months ended
March 31, 2004. This increase is a result of the closing of the Merger on
February 10, 2004, which enabled the Company to satisfy its loans to related
parties, thereby eliminating the related interest expense and providing it with
interest bearing cash accounts and cash equivalents, as well as the interest
earned on private placement proceeds received during the first quarter of
2005.
Liquidity
and Capital Resources.
Cash and
cash equivalents were $3,704 and investments being held to maturity were $1,600
at March 31, 2005.
The
Company is still
in the development stage and has not generated any operating revenues as of
March 31, 2005. In addition, the Company will continue to incur net losses and
cash flow deficiencies from operating activities for the foreseeable
future.
As
of March 31, 2005, the Company had cash and cash equivalents of $3,704 and
investments being held to maturity of $1,600. During the period from April 1,
2005 to April 28, 2005, the Company completed private placements resulting in
net proceeds to the Company, after expenses, of approximately $1,970.
Management believes that the Company’s current resources will enable it
to continue as a going concern through at least March 31, 2006 and, if
necessary, that it can implement cost saving initiatives that can extend its
operations after that period. Although the Company believes that its resources
are sufficient to initiate and complete a Phase I clinical trial in epilepsy,
the Company’s resources are not sufficient to allow it to perform clinical
trials to enable drug approval and marketing. Accordingly, it plans to seek
additional funds through public or private equity offerings, debt financings or
corporate collaboration and licensing arrangements. The Company does not know
whether additional financing will be available when needed, or if available,
will be on acceptable or favorable terms to it or its
stockholders.
Operating
activities used $456 of cash during the three months ended March 31, 2005 as
compared to $672 during the same period in 2004.
Net cash
used in investing activities during the three month periods ended March 31, 2005
and 2004 were $99 and $44, respectively, primarily for the purchases marketable
securities and development of intangible assets.
Net cash
provided by financing activities was $3,137 during the three months ended March
31, 2005, principally from the closing of the private placement. During the
three months ended March 31, 2004, financing activities provided $5,036,
principally from cash acquired in the Merger ($5,413), partially offset by
Merger-related costs ($375).
Management’s
Discussion and Analysis or Plan of Operation
(Dollar
amounts, in thousands except for per share
data)
Recent
Accounting Pronouncements
In
May 2003, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Standards (“SFAS”) No.
150, “Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity.” This standard requires that certain financial
instruments embodying obligations to transfer assets or to issue equity
securities be classified as liabilities. It is effective for financial
instruments entered into or modified after May 31, 2003, and is otherwise
effective July 1, 2003. The adoption of this statement did not have a material
impact on the Company’s consolidated financial statements.
In
December 2004, the FASB issued SFAS No. 153, “Exchanges of Nonmonetary
Assets”. This
Statement addresses the measurement of exchanges of nonmonetary assets and is
effective for nonmonetary asset exchanges occurring in fiscal years beginning
after June 15, 2005. The adoption of SFAS No.
153 is not expected to have a material effect on the Company’s financial
position or results of operations.
In December
2004, the FASB issued SFAS No. 123(R) - Share-Based Payment, which is a revision
of SFAS No. 123, “Accounting for Stock-Based Compensation.” SFAS No. 123(R)
supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees”, and
amends SFAS No. 95, “Statement of Cash Flows”. Generally, the approach in SFAS
No. 123(R) is similar to the approach described in SFAS No. 123. However, SFAS
No. 123(R) requires all share-based payments to employees, including grants of
employee stock options, to be recognized in the income statement based on their
fair values. Pro forma disclosure is no longer an alternative. In April 2005,
the SEC adopted a new rule which defers the compliance date of SFAS No.
123(R) for the Company until the first interim or annual reporting period
beginning after December 15, 2005. As a result, the Company will be required to
expense the fair value of options granted over the service period beginning in
the first quarter of the year ending December 31, 2006. The Company is still
evaluating the impact the adoption of this standard will have on its financial
statements.
FORWARD
LOOKING STATEMENTS
This
document includes certain statements of the Company that may constitute
“forward-looking statements” within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended, and which are made pursuant to the Private Securities Litigation
Reform Act of 1995. These forward-looking statements and other information
relating to the Company are based upon the beliefs of management and assumptions
made by and information currently available to the Company. Forward-looking
statements include statements concerning plans, objectives, goals, strategies,
future events, or performance, as well as underlying assumptions and statements
that are other than statements of historical fact. When used in this document,
the words “expects,” “anticipates,” “estimates,” “plans,” “intends,” “projects,”
“predicts,” “believes,” “may” or “should,” and similar expressions, are intended
to identify forward-looking statements. These statements reflect the current
view of the Company’s management with respect to future events and are subject
to numerous risks, uncertainties, and assumptions. Many factors could cause the
actual results, performance or achievements of the Company to be materially
different from any future results, performance, or achievements that may be
expressed or implied by such forward-looking statements, including, among other
things:
Management’s
Discussion and Analysis or Plan of Operation
(Dollar
amounts, in thousands except for per share
data)
|
●
|
the
inability of the Company to raise additional funds, when needed, through
public or private equity offerings, debt financings or additional
corporate collaboration and licensing arrangements. |
|
●
|
the
inability of the Company to successfully complete the Phase I clinical
trial for Parkinson’s disease. |
Other
factors and assumptions not identified above could also cause the actual results
to differ materially from those set forth in the forward-looking statements.
Additional information regarding factors which could cause results to differ
materially from management’s expectations is found in the section entitled “Risk
Factors” contained in the Company’s 2004 Annual Report on Form 10-KSB. Although
the Company believes these assumptions are reasonable, no assurance can be given
that they will prove correct. Accordingly, you should not rely upon
forward-looking statements as a prediction of actual results. Further, the
Company undertakes no obligation to update forward-looking statements after the
date they are made or to conform the statements to actual results or changes in
the Company’s expectations.
Item
3 - Controls and Procedures
(a) Disclosure
Controls and Procedures. The Company’s Chief Executive Officer and Secretary and
Treasurer (as the Company’s principal financial officer) have evaluated the
effectiveness of the Company’s disclosure controls and procedures (as such term
is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of
1934, as amended (the “Exchange
Act”)) as of
the end of the period covered by this report. Based on such evaluation, the
Company’s Chief Executive Officer and Secretary and Treasurer have concluded
that, as of the end of such period, the Company’s disclosure controls and
procedures are effective.
(b)
Internal Control Over Financial Reporting. There have not been any changes in
the Company’s internal control over financial reporting (as such term is defined
in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter to
which this report relates that have materially affected, or are reasonably
likely to materially affect, the Company’s internal control over financial
reporting.
PART
II. OTHER INFORMATION
Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds
As
disclosed in the Current Reports on Form 8-K filed by the Company on February
10, February 25, March 4, April 8 and May 2, 2005, between February 4, 2005 and
April 27, 2005, the Company issued and sold 3,615,436 shares of Common Stock and
warrants to purchase 903,866 shares of Common Stock for a weighted average
purchase price of $1.44 per share. Total expenses incurred for the Company's
account in connection with the issuance and distribution of the securities are
estimated to be $190,000, all of which were legal fees. This resulted in net
proceeds after expenses of approximately $5,026,000. Proceeds from such issuance
and sale will be used for the Company's general corporate purposes, including
clinical trials and research and development.
Item
6. Exhibits
See
Exhibit Index
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Signatures |
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Pursuant
to the requirements of Section 13 or 15 (d) of the Securities Exchange Act
of 1934, the Company has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized. |
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NEUROLOGIX,
INC. |
|
May
13, 2005 |
/s/Michael
Sorell |
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Michael
Sorell, President and CEO |
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|
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May
13, 2005 |
/s/Mark
S. Hoffman |
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Mark
S. Hoffman, Secretary and Treasurer |
EXHIBIT
INDEX
|
Exhibit
No. |
Exhibit |
| |
|
|
10.1 |
Stock
Purchase Agreement, dated as of February 4, 2005, by and among Neurologix,
Inc, Merlin Biomed Long Term Appreciation Fund LP and Merlin Biomed
Offshore Master Fund LP. (filed
as an exhibit to the Registrant’s Report on Form 8-K, dated February 10,
2005 and incorporated herein by reference). |
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|
|
10.2 |
Form
of Warrant Certificate (filed as an exhibit to the Registrant’s Report on
Form 8-K, dated February 10, 2005 and incorporated herein by
reference). |
| |
|
|
10.3 |
Registration
Rights Agreement, dated as of February 4, 2005, by and among Neurologix,
Inc, Merlin Biomed Long Term Appreciation Fund LP and Merlin Biomed
Offshore Master Fund LP. (filed as an exhibit to the Registrant’s Report
on Form 8-K, dated February 10, 2005 and incorporated herein by
reference). |
| |
|
|
10.4 |
Amendment
No. 1 to the Stock Purchase Agreement, dated as of February 9, 2005, by
and between Neurologix, Inc. and Copper Spire Fund Portfolio. (filed as an
exhibit to the Registrant’s Report on Form 8-K, dated February 10, 2005
and incorporated herein by reference). |
| |
|
|
10.5 |
Form
of Amendment to the Stock Purchase Agreement dated as of February 4, 2005,
by and among Neurologix, Inc, Merlin Biomed Long Term Appreciation Fund LP
and Merlin Biomed Offshore Master Fund LP. (filed as an exhibit to the
Registrant’s Report on Form 8-K, dated February 25, 2005 and incorporated
herein by reference). |
| |
|
|
10.6 |
Employment
Agreement, dated as of September 21, 2004, between Michael Sorell, M.D.
and Neurologix, Inc. (filed as an exhibit to the Registrant’s Report on
Form 8-K, dated March 18, 2005 and incorporated herein by
reference). |
| |
|
|
10.7 |
Stock
Option Agreement, dated as of September 21, 2004, between Michael Sorell,
M.D. and Neurologix, Inc. (filed as an exhibit to the Registrant’s Report
on Form 8-K, dated March 18, 2005 and incorporated herein by
reference). |
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|
|
10.8 |
Development
and Manufacturing Agreement by and among Neurologix, Inc. and Neurologix
Research, Inc. and Medtronic, Inc., dated as of April 27, 2005.
** |
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13.1 |
Note
2 to the Company’s consolidated financial statements contained in the
Registrant’s Annual Report on Form 10-KSB for the fiscal year ended
December 31, 2004 is incorporated herein by reference. |
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31.1 |
Rule
13a-14(a)/15d-14(a) Certification of Chief Executive Officer.
** |
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31.2 |
Rule
13a-14(a)/15d-14(a) Certification of Secretary and Treasurer (as Principal
Financial Officer). ** |
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32.1 |
Section
1350 Certification, Chief Executive Officer and Secretary and Treasurer
(as Principal Financial Officer). ** |
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__________ |
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**
Filed herewith |