Filed
with the Securities and Exchange Commission on August
25, 2006
Registration
No. 333-132923
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
AMENDMENT
NO. 5
FORM
SB-2
REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933
NEURALSTEM,
INC.
(Exact
Name of Registrant as Specified in its Charter)
Delaware
|
|
2836
|
|
52-2007292
|
(State
of Incorporation)
|
|
(Primary
Standard Industrial Code No.)
|
|
(IRS
Employer Identification No.)
|
9700
Great Seneca Highway, Rockville, Maryland 20850
(301)
366-4841
(Address
and telephone number of principal executive offices)
The
Corporation Trust Company
1209
Orange Street
New
Castle County, Wilmington, Delaware 19801
(Name,
address and telephone number of agent for service)
Copies
to:
Christopher
H. Dieterich, Esq.
Dieterich
& Associates
11300
West Olympic Blvd., Suite 800
Los
Angeles, California 90064
|
|
Raul
Silvestre
Law
Offices of Raul Silvestre & Associates, APLC
31200
Via Colinas, Suite 200
Westlake
Village, CA 91362
|
Approximate
date of commencement of proposed sale to the public: From time-to-time
after the effective date of this Registration Statement.
If
this
Form is filed to register additional securities for an offering pursuant to
Rule
462(b) under the Securities Act, please check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering.
o
If
this
Form is a post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering.
o
If
this
Form is a post-effective amendment filed pursuant to Rule 462(d) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering.
o
If
delivery of the Prospectus is expected to be made pursuant to Rule 434, please
check the following box.
o
CALCULATION
OF REGISTRATION FEE
Title
of Each Class of
Securities
to be Registered
|
|
Amount
to
be
Registered
|
|
Proposed
Offering
Price
Per
Share
|
|
Proposed
Aggregate
Offering
Price
|
|
Amount
Of
Registration
Fee
|
|
Common
Stock
|
|
|
8,088,667
|
|
$
|
1.00
|
(1)
|
$
|
8,088,667
|
|
$
|
865.49
|
|
Common
Stock—Penalty(9)
|
|
|
50,000
|
|
$
|
1.00
|
(1)
|
$
|
50,000
|
|
$
|
5.35
|
|
Common
Stock underlying class “A” warrant
|
|
|
2,508,333
|
|
$
|
1.50
|
(2)(3)
|
$
|
3,762,500
|
|
$
|
402.59
|
|
Common
Stock underlying class “A” warrants—Penalty(10)
|
|
|
25,000
|
|
$
|
1.50
|
(2)(10)
|
$
|
37,500
|
|
$
|
4.01
|
|
Common
Stock underlying class “B” warrant
|
|
|
2,508,333
|
|
$
|
2.00
|
(2)(4)
|
$
|
5,016,667
|
|
$
|
536.78
|
|
Common
Stock underlying class “B” warrants—Penalty(11)
|
|
|
25,000
|
|
$
|
2.00
|
(2)(10)
|
$
|
50,000
|
|
$
|
5.35
|
|
Common
Stock underlying $.50 warrants issued to service providers
|
|
|
1,330,000
|
|
$
|
.50
|
(2)(5)
|
$
|
665,000
|
|
$
|
71.16
|
|
Common
Stock underlying $5.00 warrant
|
|
|
1,000,000
|
|
$
|
5.00
|
(2)(6)
|
$
|
5,000,000
|
|
$
|
535.00
|
|
Common
Stock underlying Placement Agent Warrant
|
|
|
800,000
|
|
$
|
1.10
|
(2)(7)
|
$
|
880,000
|
|
$
|
94.16
|
|
|
|
|
16,335,333
|
|
|
|
|
$
|
23,550,334
|
|
$
|
2,519.89
|
(8)
|
(1) |
Estimated
solely for the purpose of calculating the registration fee in accordance
with Rule 457 of the Securities Act based upon a per share amount
of
$1.00, based on the price on which the securities were previously
sold
pursuant to the Company's March 2006 private placements. There is
currently no trading market for the Registrant's common stock. The
price
of $1.00 is a fixed price at which the selling stockholders identified
herein may sell their shares until the Registrant's common stock
is quoted
on the OTC Bulletin Board, at which time the shares may be sold at
prevailing market prices or privately negotiated
prices.
|
(2) |
Fee
based on exercise price applicable to shares issuable upon exercise
of
warrants in accordance with Rule 457(g).
|
(3) |
Represents
shares of Common Stock issuable upon the exercise (at a price of
$1.50 per
share) of outstanding warrants.
|
(4) |
Represents
shares of Common Stock issuable upon the exercise (at a price of
$2.00 per
share) of outstanding warrants.
|
(5) |
Represents
shares of Common Stock issuable upon the exercise (at a price of
$.50 per
share) of outstanding warrants.
|
(6) |
Represents
shares of Common Stock issuable upon the exercise (at a price of
$5.00 per
share) of outstanding warrants.
|
(7) |
Represents
shares of Common Stock issuable upon the exercise (at a price of
$1.10 per
share) of outstanding warrants.
|
(8) |
Registrant
previously paid $2,505.18 in connection with its
filings.
|
|
Represents
shares of Common Stock issuable as penalties arising from certain
registration rights.
|
(10)
|
Represents
shares of Common Stock issuable upon the exercise (at a price of
$1.50) of
warrants that may become outstanding as a result of penalties arising
from
certain registration rights.
|
(11)
|
Represents
shares of Common Stock issuable upon the exercise (at a price of
$2.00) of
warrants that may become outstanding as a result of penalties arising
from
certain registration rights.
|
The
information in this Prospectus is not complete and may be changed. We have
filed
a registration statement containing this prospectus with the Securities and
Exchange Commission. The securities offered for sale under this prospectus
may not be offered for sale or sold until the registration statement filed
with
the Securities and Exchange Commission is effective. This Prospectus is
not an offer to sell these securities and it is not soliciting an offer to
buy
these securities in any state where the offer or sale is not
permitted.
OFFERING
PROSPECTUS
Subject
to completion, dated August
25, 2006
NEURALSTEM,
INC.
A
DELAWARE CORPORATION
16,335,333
Common
Shares
The
selling stockholders identified on pages 35− 45 this prospectus are
offering on a resale basis a total of 16,335,333 shares of our common stock.
We
will not receive any proceeds from the sale of these shares by the selling
stockholders.
Our
common stock is not presently traded on any market or securities exchange,
and
we have not applied for listing or quotation on any public market. We anticipate
seeking sponsorship for the trading of our common stock on the National
Association of Securities Dealers OTC Bulletin Board upon the effectiveness
of
the registration statement of which this prospectus forms a part. However,
we
can provide no assurance that our shares will be traded on the OTC Bulletin
Board or, if traded, that a public market will materialize. The selling
shareholders will sell at a price of $1.00 per share until our shares are quoted
on the OTC Bulletin Board and thereafter at prevailing market prices or
privately negotiated prices.
_________________________________
The
securities offered by this prospectus involve a high degree of
risk.
See
“Risk Factors” beginning on page 6
_________________________________
Neither
the Securities and Exchange Commission nor any state securities commission
has
approved or disapproved
these
securities or determined that this prospectus is truthful or complete. A
representation to the contrary is a criminal
offense.
The
date
of this Prospectus is August
25, 2006
TABLE
OF CONTENTS
RISK
FACTORS
|
6
|
FORWARD
LOOKING STATEMENTS
|
12
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USE
OF PROCEEDS
|
13
|
OUR
BUSINESS
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|
Our
History
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|
Overview
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|
The
Field of Regenerative Medicine
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14
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Stem
Cell Therapy Background
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14
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The
Potential of Our Tissue-Derived Stem Cell-Based
Therapy
|
14
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Potential
Markets
|
15
|
Our
Technology
|
15
|
Business
Strategy
|
15
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Our
Research and Programs
|
16
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Our
Grant
|
17
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Our
Intellectual Property Licensed to Others
|
17
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Manufacturing
|
18
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Products
& Marketing
|
18
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Our
Intellectual Property
|
18
|
Patents
Pending
|
19
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Patents
Issued
|
19
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Competition
|
20
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Government
Regulation
|
21
|
Employees
|
22
|
PROPERTIES
|
22
|
MANAGEMENT'S
DISCUSSION AND ANALYSIS
|
23
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RESULTS
OF OPERATIONS
|
25
|
LEGAL
PROCEEDINGS
|
28
|
MANAGEMENT
|
28
|
Audit
Committee Financial Expert
|
28
|
Code
of Ethics
|
28
|
EXECUTIVE
COMPENSATION
|
29
|
Summary
Compensation Table
|
29
|
Option
Grants in Last Fiscal Year
|
29
|
Compensation
of Directors
|
30
|
Employment
Agreements and Change-in-Control
Arrangements
|
30
|
PRINCIPAL
STOCKHOLDERS
|
30
|
TRANSACTIONS
AND BUSINESS RELATIONSHIPS WITH
|
32
|
DESCRIPTION
OF SECURITIES
|
32
|
General
|
32
|
Common
Stock
|
32
|
Preferred
Stock
|
33
|
Options
And Warrants Convertible into Common Shares
|
33
|
EQUITY
COMPENSATION PLAN INFORMATION
|
33
|
2005
Stock Plan
|
33
|
MARKET
FOR COMMON EQUITY & RELATED STOCKHOLDER
MATTERS
|
33
|
Market
Information
|
33
|
Dividend
Policy
|
34
|
SHARES
ELIGIBLE FOR FUTURE SALE
|
34
|
SELLING
SHAREHOLDERS
|
35
|
REGISTRATION
RIGHTS
|
45
|
PLAN
OF DISTRIBUTION
|
46
|
TRANSFER
AGENT
|
48
|
LEGAL
MATTERS
|
48
|
EXPERTS
|
48
|
INDEMNIFICATION
OF DIRECTORS AND OFFICERS
|
48
|
WHERE
YOU CAN FIND MORE INFORMATION
|
48
|
|
|
FINANCIAL
INFORMATION
|
F-1
|
INFORMATION
NOT REQUIRED IN PROSPECTUS
|
II-1
|
Indemnification
Of Directors & Officers
|
|
Other
Expenses of Issuance & Distribution
|
|
Recent
Sales of Unregistered Securities
|
|
Exhibits
|
|
RISK
FACTORS
An
investment in Neuralstem, Inc. involves significant risks. You should read
these
risk factors carefully before deciding whether to invest in our company. The
following is a description of what we consider our key challenges and
risks.
Risks
Relating to the Company's Stage of Development
Since
the Company has a limited operating history and has significantly shifted its
operations and strategies since inception, you cannot rely upon the Company's
limited historical performance to make an investment
decision.
Since
inception in 1996 and through December 31, 2005, the Company has raised an
aggregate of slightly
in excess of approximately
$34,901,568 in
capital and recorded accumulated losses totaling $35,445,238
of December 31, 2005, the Company had a working capital deficit of $475,243
and
negative stockholder's equity of $460,173. Our net losses for the two most
recent fiscal years have been $1,651,507
and $9,376,543 for 2005 and 2004 respectively. During this period, we have
generated only marginal revenue from licensing and grants in the amount of
$125,457 and $309,142 for the 2004 and 2005 fiscal years,
respectively.
The
Company's ability to generate revenues and achieve profitability depends upon
its ability to complete the development of its stem cell products, obtain the
required regulatory approvals and manufacture, market and sell its products.
In
part because of the Company's past operating results, no assurances can be
given
that the Company will be able to accomplish all or any these goals.
Although
the Company has generated some revenue to date, the Company has not generated
any revenue from the commercial sale of its proposed stem cell products. Since
inception, the Company has engaged in several related lines of business and
has
discontinued operations in certain areas. For example, in 2002, the Company
lost
a material contract with the Department of Defense and was forced to close
its
principal facility and lay off almost all of its employees in an attempt to
focus the Company's strategy on its stem cell technology. This limited and
changing history may not be adequate to enable you to fully assess the Company's
current ability to develop and commercialize its technologies and proposed
products, obtain approval from the U.S. Food and Drug Administration (“FDA”),
achieve market acceptance of its proposed products and respond to competition.
No assurances can be given as to exactly when, if at all, the Company will
be
able to fully develop, commercialize, market, sell and derive material revenues
from its proposed products in development.
The
Company will
need to raise additional capital to continue operations, and failure to do
so
would impair the Company's ability to fund operations, develop its technologies
or promote its products.
The
Company has relied almost entirely on external financing to fund operations.
Such financing has historically come primarily from the sale of common and
preferred stock and convertible debt to third parties and to a lesser degree
from grants, loans and revenue from license and royalty fees. The Company
anticipates, based on current proposed plans and assumptions relating to its
operations (including the timetable of, and costs associated with, new product
development) and financing the Company has undertaken prior to the date of
this
prospectus, that its current working capital will be sufficient to satisfy
contemplated cash requirements for approximately 11 months, assuming that the
Company does not engage in an extraordinary transaction or otherwise face
unexpected events or contingencies, any of which could effect cash requirements.
As of June 30, 2006, the Company has cash and cash equivalents on hand of
$3,202,703. Presently, the Company has a monthly cash burn rate of $260,000.
Accordingly, the Company will need to raise additional capital to fund
anticipated operating expenses and future expansion after such 11 month period.
Among other things, external financing will be required to cover the further
development of the Company's technologies and products and other operating
costs. The Company cannot assure you that financing whether from external
sources or related parties will be available if needed or on favorable terms.
If
additional financing is not available when required or is not available on
acceptable terms, the Company may be unable to fund operations and planned
growth, develop or enhance its technologies, take advantage of business
opportunities or respond to competitive market pressures. Any negative impact
on
the Company's operations may make capital raising more difficult and may also
result in a lower price for the Company's securities.
The
Company may have difficulty raising needed capital in the future as a result
of,
among other factors, the Company's limited operating history and business risks
associated with the Company.
The
Company's business currently generates limited amounts of cash which will not
be
sufficient to meet its future capital requirements. The Company's management
does not know when this will change. The Company has expended and will continue
to expend substantial funds in the research, development and clinical and
pre-clinical testing of the Company's stem cell technologies and products.
The
Company will require additional funds to conduct research and development,
establish and conduct clinical and pre-clinical trials, commercial-scale
manufacturing arrangements and to provide for the marketing and distribution.
Additional funds may not be available on acceptable terms, if at all. If
adequate funds are unavailable from any available source, the Company may have
to delay, reduce the scope of or eliminate one or more of its research,
development or commercialization programs or product launches or marketing
efforts which may materially harm the Company's business, financial condition
and results of operations.
The
Company's long term capital requirements are expected to depend on many factors,
including:
·
|
continued
progress and cost of its research and development
programs;
|
·
|
progress
with pre-clinical studies and clinical
trials;
|
·
|
time
and costs involved in obtaining regulatory
clearance;
|
·
|
costs
involved in preparing, filing, prosecuting, maintaining and enforcing
patent claims;
|
·
|
costs
of developing sales, marketing and distribution channels and its
ability
to sell the Company's stem cell
products;
|
·
|
costs
involved in establishing manufacturing capabilities for commercial
quantities of its products;
|
·
|
competing
technological and market
developments;
|
·
|
market
acceptance of its stem cell
products;
|
·
|
costs
for recruiting and retaining employees and consultants;
and
|
·
|
costs
for educating and training physicians about its stem cell
products.
|
The
Company may consume available resources more rapidly than currently anticipated,
resulting in the need for additional funding. The Company may seek to raise
any
necessary additional funds through the exercising of warrants, options,
equity or debt financings, collaborative arrangements with corporate
partners or other sources, which may be dilutive to existing stockholders or
otherwise have a material effect on the Company's current or future business
prospects. If adequate funds are not available, the Company may be required
to
significantly reduce or refocus its development and commercialization
efforts.
The
Company relies on stem cell technologies that it may not be able to commercially
develop, which will prevent the Company from generating revenues, operating
profitably or providing investors any return on their
investment.
The
Company has concentrated its research on its stem cell technologies, and the
Company's ability to generate revenue and operate profitably will depend on
it
being able to develop these technologies for human applications. These are
emerging technologies with, as yet, limited human applications. The Company
cannot guarantee that it will be able to develop its stem cell technologies
or
that such development will result in products or services with any significant
commercial utility. The Company anticipates that the commercial sale of such
products or services, and royalty/licensing fees related to its technology,
will
be the Company's primary sources of revenues. If the Company is unable to
develop its technologies, investors will likely lose their entire
investment.
Inability
to complete pre-clinical and clinical testing and trials will impair the
viability of the Company.
The
Company is in its development stage and has not yet applied for approval
by the
FDA to conduct clinical trials. Even if the Company successfully files an
IND
and receives approval from the FDA to commence trials, the outcome of
pre-clinical, clinical and product testing of the Company's products is
uncertain, and if the Company is unable to satisfactorily complete such testing,
or if such testing yields unsatisfactory results, the Company will be unable
to
commercially produce its proposed products. Before obtaining regulatory
approvals for the commercial sale of any potential human products, the Company's
products will be subjected to extensive pre-clinical and clinical testing
to
demonstrate their safety and efficacy in humans. No assurances can be given
that
the clinical trials of the Company's products, or those of licensees or
collaborators, will demonstrate the safety and efficacy of such products
at all,
or to the extent necessary to obtain appropriate regulatory approvals, or
that
the testing of such products will be completed in a timely manner, if at
all, or
without significant increases in costs, program delays or both, all of which
could harm the Company's ability to generate revenues. In addition, the
Company's proposed products may not prove to be more effective for treating
disease or injury than current therapies. Accordingly, the Company may have
to
delay or abandon efforts
to
research, develop or obtain regulatory approval to market its proposed products.
Many companies involved in biotechnology research and development have suffered
significant setbacks in advanced clinical trials, even after promising results
in earlier trials. The failure to adequately demonstrate the safety and efficacy
of a therapeutic product under development could delay or prevent regulatory
approval of the product and could harm the Company's ability to generate
revenues, operate profitably or produce any return on an investment in the
Company.
The
Company's additional financing requirements could result in dilution to existing
stockholders.
The
additional financings which the Company will require may in the future be
obtained through one or more transactions which will effectively dilute the
ownership interests of stockholders. The Company has the authority to issue
additional shares of common stock and preferred stock, as well as additional
classes or series of ownership interests or debt obligations which may be
convertible into any one or more classes or series of ownership interests.
The
Company is authorized to issue 75 million shares of common stock and 7 million
shares of preferred stock. Such securities may be issued without the approval
or
other consent of the Company's stockholders.
Risks
Relating to Intellectual Property and Government
Regulation
The
Company may not be able to withstand challenges to its intellectual property
rights, such as patents, should contests be initiated in court or at the U.S
Patent and Trademark Office.
The
Company relies on its intellectual property, including its issued and applied
for patents, as the foundation of its business. The intellectual property rights
of the Company may come under challenge, and no assurances can be given that,
even though issued, the Company's current and potential future patents will
survive claims commencing in the court system alleging invalidity or
infringement on other patents. For example, in 2005, the Company's neural stem
cell technology was challenged in the U.S. Patent and Trademark Office by a
competitor. Although the Company prevailed in this particular matter upon
re-examination by the patent office, these cases are complex, lengthy and
expensive, and could potentially be adjudicated adversely to the Company,
removing the protection afforded by an issued patent. The viability of the
Company's business would suffer if such patent protection were limited or
eliminated. Moreover, the costs associated with defending or settling
intellectual property claims would likely have a material adverse effect on
the
Company.
The
Company may not be able to adequately protect against piracy of intellectual
property in foreign jurisdictions.
Considerable
research in the area of stem cell therapies is being performed in countries
outside of the United States, and a number of the Company's competitors are
located in those countries. The laws protecting intellectual property in
some of those countries may not provide protection for the Company's trade
secrets and intellectual property adequate to prevent its competitors from
misappropriating the Company's trade secrets or intellectual property. If
the Company's trade secrets or intellectual property are misappropriated in
those countries, the Company may be without adequate remedies to address the
issue.
The
Company's products may not receive FDA approval, which would prevent the Company
from commercially marketing its products and producing
revenues.
The
FDA
and comparable government agencies in foreign countries impose substantial
regulations on the manufacture and marketing of pharmaceutical products through
lengthy and detailed laboratory, pre-clinical and clinical testing procedures,
sampling activities and other costly and time-consuming procedures. Satisfaction
of these regulations typically takes several years or more and varies
substantially based upon the type, complexity and novelty of the proposed
product. The Company cannot yet accurately predict when it might first submit
any Investigational New Drug, or IND, application to the FDA, or whether any
such IND application would be granted on a timely basis, if at all, nor can
the
Company assure you that it will successfully complete any clinical trials in
connection with any such IND application. Further, the Company cannot yet
accurately predict when it might first submit any product license application
for FDA approval or whether any such product license application would be
granted on a timely basis, if at all. As a result, the Company cannot
assure you that FDA approvals for any products developed by it will be granted
on a timely basis, if at all. Any such delay in obtaining, or failure to obtain,
such approvals could have a material adverse effect on the marketing of the
Company's products and its ability to generate product revenue.
Because
the Company or its collaborators must obtain regulatory approval to market
its
products in the United States and other countries, the Company cannot predict
whether or when it will be permitted to commercialize its
products.
Federal,
state and local governments and agencies in the United States (including the
FDA) and governments in other countries have significant regulations in place
that govern many of the Company's activities. The Company is or may become
subject to various federal, state and local laws, regulations and
recommendations relating to safe working conditions, laboratory and
manufacturing practices, the experimental use of animals and the use and
disposal of hazardous or potentially hazardous substances used in connection
with its research and development work. The preclinical testing and clinical
trials of the products that the Company or its collaborators develop are subject
to extensive government regulation that may prevent the Company from creating
commercially viable products from its discoveries. In addition, the sale by
the
Company or its collaborators of any commercially viable product will be subject
to government regulation from several standpoints, including manufacturing,
advertising and promoting, selling and marketing, labeling, and distributing.
If, and to the extent that, the Company is unable to comply with these
regulations, its ability to earn revenues will be materially and negatively
impacted.
Risks
Relating to Competition
The
Company's competition includes both public and private organizations and
collaborations among academic institutions and large pharmaceutical companies,
most of which have significantly greater experience and financial resources
than
the Company does.
The
biotechnology industry is characterized by intense competition. The Company
competes against numerous companies, many of which have substantially greater
financial and other resources than it has. Several such enterprises have
initiated cell therapy research programs and/or efforts to treat the same
diseases targeted by the Company. Companies such as Geron Corporation, Genzyme
Corporation, StemCells, Inc., Advanced Cell Technology, Inc., Aastrom
Biosciences, Inc. and Viacell, Inc., as well as others, have substantially
greater resources and experience in the Company's fields than it does, and
are
well situated to compete with us effectively. Of course, any of the world's
largest pharmaceutical companies represent a significant actual or potential
competitor with vastly greater resources than the Company's.
Risks
Relating to the Company's Reliance on Third Parties
The
Company’s outsource model depends on collaborators, non-employee consultants,
research institutions, and scientific contractors to help it develop and test
its proposed products. Our ability to develop such relationships could impair
or
delay our ability to develop products.
The
Company's strategy for the development, clinical testing and commercialization
of its proposed products is based on an outsource model. This model requires
that the Company enter into collaborations with corporate partners, research
institutions, scientific contractors and licensors, licensees and others in
order to further develop its technology and develop products. In the event
the
Company is not able to enter into such relationships in the future, our: ability
to develop products may be seriously hindered; or we would be required to expend
considerable money and research to bring such research and development functions
in house. Either outcome could result in our inability to develop a commercially
feasible product or in the need for substantially more working capital to
complete the research in-house. Also, we are currently dependent on
collaborators for a substantial portion of our research and development.
Although our collaborative agreements do not impose any duties or obligations
on
us other than the licensing of our technology, the failure of any of these
collaborations may hinder our ability to develop products in a timely fashion.
By way of example, our collaboration with John Hopkins University, School of
Medicine yielded findings that contributed to our patent application entitled
Transplantation of Human Cells for Treatment of Neurological Disorder. Had
the
collaboration not have existed, our ability to apply for such patent would
have
been greatly hindered. We currently have 4 key collaborations. They are
with:
|
·
|
The
University of California, San
Diego;
|
|
·
|
University
of South Florida;
|
|
·
|
University
of Central Florida; and
|
|
·
|
John
Hopkins University.
|
As
we are
under no financial obligation to provide additional funding under any of these
collaborations, our primary risk is that no results are derived from their
research. For further information relating to our collaborations, see that
section of this prospectus captioned “Our
Business--Our Research and Programs”.
We
intend to rely upon the third-party FDA-approved manufacturers for our stem
cells. Should these manufacturers fail to perform as expected, we will need
to
develop or procure other manufacturing sources, which would cause delays or
interruptions in our product supply and result in the loss of significant sales
and customers.
We
currently have no internal manufacturing capability, and will rely extensively
on FDA-approved licensees, strategic partners or third party contract
manufacturers or suppliers. We current have an agreement with Charles River
Laboratories for the manufacturing and storage of our cells. The agreement
is a
paid for services agreement and does not require us to purchase a minimum amount
of cells. In the event Charles River Laboratories fails to provide suitable
cells, we would be forced to either manufacture the cells ourselves or seek
other third party vendors. Should we be forced to manufacture our stem cells,
we
cannot give you any assurance that we will be able to develop an internal
manufacturing capability or procure third party suppliers. In the event we
must
seek alternative third party suppliers, they may require us to purchase a
minimum amount of cells, could be significantly more expensive than our current
supplier, or could require other unfavorable terms. Any such event would
materially impact our prospects and c would delay or development. Moreover,
we
cannot give you any assurance that any contract manufacturers or suppliers
we
procure will be able to supply our product in a timely or cost effective manner
or in accordance with applicable regulatory requirements or our
specifications.
General
Risks Relating to the Company's Business
The
Company may be subject to litigation that will be costly to defend or pursue
and
uncertain in its outcome.
The
Company's business may bring it into conflict with its licensees, licensors,
or
others with whom it has contractual or other business relationships or with
its
competitors or others whose interests differ from the Company's. If the Company
is unable to resolve those conflicts on terms that are satisfactory to all
parties, the Company may become involved in litigation brought by or against
it.
That litigation is likely to be expensive and may require a significant amount
of management's time and attention, at the expense of other aspects of the
Company's business. The outcome of litigation is always uncertain, and in some
cases could include judgments against us that require the Company to pay
damages, enjoin it from certain activities, or otherwise affect its legal or
contractual rights, which could have a significant adverse effect on its
business.
The
Company may not be able to obtain third-party patient reimbursement or favorable
product pricing, which would reduce its ability to operate
profitably.
The
Company's ability to successfully commercialize certain of its proposed products
in the human therapeutic field may depend to a significant degree on patient
reimbursement of the costs of such products and related treatments at acceptable
levels from government authorities, private health insurers and other
organizations, such as health maintenance organizations. The Company cannot
assure you that reimbursement in the United States or foreign countries will
be
available for any products it may develop or, if available, will not be
decreased in the future, or that reimbursement amounts will not reduce the
demand for, or the price of, its products with a consequent harm to the
Company's business. The Company cannot predict what additional regulation or
legislation relating to the health care industry or third-party coverage and
reimbursement may be enacted in the future or what effect such regulation or
legislation may have on the Company's business. If additional regulations are
overly onerous or expensive or if health care related legislation makes its
business more expensive or burdensome than originally anticipated, the Company
may be forced to significantly downsize its business plans or completely abandon
its business model.
The
Company's products may be expensive to manufacture, and they may not be
profitable if the Company is unable to control the costs to manufacture
them.
The
Company's products may be significantly more expensive to manufacture than
most
other drugs currently on the market today due to a fewer number of potential
manufactures, greater level of needed expertise, and other general market
conditions affecting manufacturers of stem cell based products. The
Company would hope to substantially reduce manufacturing costs through process
improvements, development of new science, increases in manufacturing scale
and
outsourcing to experienced manufacturers. If the Company is not able to make
these, or other improvements, and depending on the pricing of the product,
its
profit margins may be significantly less than that of most drugs on the market
today. In addition, the Company may not be able to charge a high enough price
for any cell therapy product it develops, even if they are safe and effective,
to make a profit. If the Company is unable to realize significant profits from
its potential product candidates, its business would be materially
harmed.
In
order to secure market share and generate revenues, the Company's proposed
products must be accepted by the health care community, which can be very slow
to adopt or unreceptive to new technologies and
products.
The
Company's proposed products and those developed by its collaborative partners,
if approved for marketing, may not achieve market acceptance since hospitals,
physicians, patients or the medical community in general may decide not to
accept and utilize these products. The products that the Company is attempting
to develop represents substantial departures from established treatment methods
and will compete with a number of more conventional drugs and therapies
manufactured and marketed by major pharmaceutical companies. The degree of
market acceptance of any of the Company's developed products will depend on
a
number of factors, including:
·
|
the
Company's establishment and demonstration to the medical community
of the
clinical efficacy and safety of its proposed
products;
|
·
|
the
Company's ability to create products that are superior to alternatives
currently on the market;
|
·
|
the
Company's ability to establish in the medical community the potential
advantage of its treatments over alternative treatment methods;
and
|
·
|
reimbursement
policies of government and third-party
payors.
|
If
the
health care community does not accept the Company's products for any of the
foregoing reasons, or for any other reason, the Company's business would be
materially harmed.
We
depend on two key employees for our continued operations and future success.
A
loss of either employee could significantly hinder our ability to move forward
with our business plan.
The
loss
of either of our key executive officers, Richard Garr and Karl Johe, would
be
significantly detrimental to us. We currently do not maintain “key person” life
insurance on the lives of Messrs. Garr or Johe. As a result, the Company will
not receive any compensation upon the death or incapacity of these key
individuals.
In
addition, the Company's anticipated growth and expansion into areas and
activities requiring additional expertise, such as clinical testing, regulatory
compliance, manufacturing and marketing, will require the addition of new
management personnel and the development of additional expertise by existing
management personnel. There is intense competition for qualified personnel
in
the areas of the Company's present and planned activities, and there can be
no
assurance that the Company will be able to continue to attract and retain the
qualified personnel necessary for the development of its business. The failure
to attract and retain such personnel or to develop such expertise would
adversely affect the Company's business.
The
Company has entered into long-term contracts with key personnel and
stockholders, with significant anti-termination provisions, which could make
future changes in management difficult or expensive.
Messrs.
Garr and Johe have entered into seven (7) year employment agreements with the
Company which expire on November 1, 2012 and which include termination
provisions stating that if either employee is terminated for any reason other
than a voluntary resignation, then all compensation due to such employee under
the terms of the respective agreement shall become due and payable immediately.
These provisions will make the replacement of either of these employees very
costly to the Company, and could cause difficulty in effecting a change in
control of the Company. Termination prior to full term on the contracts would
cost the Company $240,000 per year unserved, or as much as $1,680,000 per
contract, and immediate vesting of all outstanding options (1,200,000 shares
each). Further, three of the Company's existing shareholders (Westreich, Solomon
and Drescher, collectively owning approximately 36% of the outstanding shares
of
Common Stock), have entered into a voting agreement such that so long as Messrs.
Garr and Johe are stockholders, these 3 owners will vote their shares for the
election of Garr and Johe as directors of the Company. This voting agreement
gives more control to Johe and Garr than their respective stockholdings alone
would provide, and will also make future changes in control more difficult
without their approval. For further information relating to these agreements,
see that section of this prospectus captioned “Executive
Compensation--Employment Agreements and Change in Control
Arrangements”.
The
Company has no product liability insurance, which may leave it vulnerable to
future claims that the Company will be unable to
satisfy.
The
testing, manufacturing, marketing and sale of human therapeutic products entails
an inherent risk of product liability claims, and the Company cannot assure
you
that substantial product liability claims will not be asserted against it.
The
Company has no product liability insurance. In the event the Company is forced
to expend significant funds on defending product liability actions, and in
the
event those funds come from operating capital, the Company will be required
to
reduce its business activities, which could lead to significant
losses.
The
Company cannot assure you that adequate insurance coverage will be available
in
the future on acceptable terms, if at all, or that, if available, the Company
will be able to maintain any such insurance at sufficient levels of coverage
or
that any such insurance will provide adequate protection against potential
liabilities.
The
Company will have limited director and officer insurance and commercial
insurance policies. Any significant insurance claims would have a material
adverse effect on its business, financial condition and results of operations.
Insurance availability, coverage terms and pricing continue to vary with market
conditions. The Company endeavors to obtain appropriate insurance coverage
for
insurable risks that it identifies, however, the Company may fail to correctly
anticipate or quantify insurable risks, may not be able to obtain appropriate
insurance coverage, and insurers may not respond as the Company intends to
cover
insurable events that may occur. The Company has observed rapidly changing
conditions in the insurance markets relating to nearly all areas of traditional
corporate insurance. Such conditions have resulted in higher premium costs,
higher policy deductibles, and lower coverage limits. For some risks, the
Company may not have or maintain insurance coverage because of cost or
availability.
Risks
Relating to the Company's Common Stock
There
is no public market for the Company's securities and no assurances can be given
that one will ever develop.
The
Company is a private company. Without registration, there is only a limited
ability of a security holder to sell their securities, as those transfers or
sales would be made privately. Therefore, an investment in our common stock
should be considered as totally illiquid, and investors are cautioned that
may
not be able to liquidate their investment readily or at all when the need or
desire to sell arises. Moreover, no assurances can be given that a public market
for our securities will ever materialize. Additionally, even if a public market
for our securities develops and our securities become listed, the trading volume
may be limited, making it difficult for an investor to sell shares.
The
Company has identified significant weaknesses with regard to its financial
control procedures. These weaknesses, if not remedied, could result in a
significant misstatement of the Company's financials or its inability to provide
timely disclosure to the public should it become subject to such reporting
requirements.
As
a
result of its stage of development, lack of resources and changes that have
occurred in the Company's operations since 2002, there are currently
deficiencies in the operating effectiveness of the Company's internal controls
over financial reporting that the Company believes would collectively constitute
significant deficiencies and material weaknesses under standards established
by
the American Institute of Certified Public Accountants, resulting in more than
a
remote likelihood that a material misstatement of the annual or interim
financial statements of the Company will not be prevented or detected.
Specifically, the Company has found deficiencies or weaknesses with the timely
reporting of transactions and the documentation thereof. By way of example,
in
the past, the company has failed to document capital transactions when they
occur, has failed to establish controls for document retention, and has failed
to account for transactions using GAAP. As of the date of this prospectus,
the
Company does not have a permanent Chief Financial Officer, although Richard
Garr, the Company's President, is temporarily serving in this capacity. As
a
result, there is a risk that the Company may not be able to properly account
for
operations and/or generate reliable financial statements. This may further
result in the Company not being able to meet its periodic filing requirements
in
a timely manner.
When
and if the Company becomes a public company, the Company faces risks related
to
compliance with corporate governance laws and financial reporting
standards.
The
Sarbanes-Oxley Act of 2002, as well as related new rules and regulations
implemented by the Securities and Exchange Commission and the Public Company
Accounting Oversight Board, require changes in the corporate governance
practices and financial reporting standards for public companies. These new
laws, rules and regulations, including compliance with Section 404 of the
Sarbanes-Oxley Act of 2002 relating to internal control over financial reporting
(“Section 404”), will materially increase the Company's legal and financial
compliance costs and made some activities more time-consuming and more
burdensome. Starting in 2007, Section 404 of the Sarbanes-Oxley Act of 2002
will
require that the Company's management assess the Company's internal control
over
financial reporting annually and include a report on its assessment in its
annual report filed with the SEC. The Company's independent registered public
accounting firm is required to audit both the design and operating effectiveness
of its internal controls and management's assessment of the design and the
operating effectiveness of its internal controls. There exist material
weaknesses and deficiencies at this time in the Company's internal controls.
These weaknesses and deficiencies could have a material adverse effect on the
Company's business and operations.
The
Company does not intend to pay cash dividends on its common stock in the
foreseeable future.
Any
payment of cash dividends will depend upon the Company's financial condition,
results of operations, capital requirements and other factors and will be at
the
discretion of the Board of Directors. The Company does not anticipate paying
cash dividends on its common stock in the foreseeable future. Furthermore,
the
Company may incur additional indebtedness that may severely restrict or prohibit
the payment of dividends.
Our
issuance of additional common shares or preferred shares, or options or warrants
to purchase those shares, could dilute your proportionate ownership and voting
rights and negatively impact the value of your investment in our common
shares as the result of preferential voting rights or veto powers, dividend
rights, disproportionate rights to appoint directors to our board, conversion
rights, redemption rights and liquidation provisions granted to the preferred
shareholders, including the grant of rights that could discourage or prevent
the
distribution of dividends to you, or prevent the sale of our assets or a
potential takeover of our company.
We
are
entitled under our certificate of incorporation to issue up to 75,000,000
common and 7,000,000 “blank check” preferred shares. As of August
25,
2006,
we have issued an outstanding 25,820,939 common shares,
11,121,667
common shares reserved for issuance upon the exercise of current outstanding
options and warrants,
and an
aggregate of 100,000 common shares reserved for issuance in the event we
incur
additional penalties pursuant to the registration rights granted our investors
in the March 2006 private placement. Accordingly, we will be entitled to
issue
up to 37,957,395
additional common shares and 7,000,000 additional preferred shares. Our
board may generally issue those common and preferred shares, or options
or
warrants to purchase those shares, without further approval by our shareholders
based upon such factors as our board of directors may deem relevant at
that
time. Any preferred shares we may issue shall have such rights, preferences,
privileges and restrictions as may be designated from time-to-time by our
board,
including preferential dividend rights, voting rights, conversion rights,
redemption rights and liquidation provisions. It is likely that we will
be
required to issue a large amount of additional securities to raise capital
to
further our development and marketing plans. It is also likely that we
will be
required to issue a large amount of additional securities to directors,
officers, employees and consultants as compensatory grants in connection
with
their services, both in the form of stand-alone grants or under our various
stock plans. We cannot give you any assurance that we will not issue additional
common or preferred shares, or options or warrants to purchase those shares,
under circumstances we may deem appropriate at the time.
Messers
Garr, Johe, Solomon and Westreich currently beneficially own approximately
40%
of our outstanding common shares. These shareholders will retain the ability
to
substantially control our management and the outcome of corporate actions
requiring shareholder approval notwithstanding the overall opposition of
our
other shareholders. This concentration of ownership could discourage or prevent
a potential takeover of our company that might otherwise result in you receiving
a premium over the market price for your common
shares.
Messers
Garr, Johe, Solomon and Westreich own approximately 40% of our outstanding
common shares. As a consequence of their level of stock ownership, the group
will substantially retain the ability to elect a majority of our board of
directors, and thereby control our management. This group of shareholders
has
the ability to significantly control the outcome of corporate actions requiring
shareholder approval, including mergers and other changes of corporate control,
going private transactions, and other extraordinary transactions. See
“Principal
Stockholders”.
FORWARD
LOOKING STATEMENTS
In
this
prospectus we make a number of statements, referred to as “forward-looking
statements”, which are intended to convey our expectations or predictions
regarding the occurrence of possible future events or the existence of trends
and factors that may impact our future plans and operating results. These
forward-looking statements are derived, in part, from various assumptions and
analyses we have made in the context of our current business plan and
information currently available to use and in light of our experience and
perceptions of historical trends, current conditions and expected future
developments and other factors we believe are appropriate in the circumstances.
You can generally identify forward looking statements through words and phrases
such as“believe”,
“expect”, “seek”, “estimate”, “anticipate”, “intend”, “plan”, “budget”,
“project”, “may likely result”, “may be”, “may continue”
and
other similar expressions. When reading any forward-looking statement you should
remain mindful that actual results or developments may vary substantially from
those expected as expressed in or implied by that statement for a number of
reasons or factors, including but not limited to:
·
|
the
success of our research and development activities, the development
of a
viable commercial production model, and the speed with which regulatory
authorizations and product launches may be
achieved;
|
·
|
whether
or not a market for our product develops and, if a market develops,
the
rate at which it develops;
|
·
|
our
ability to successfully sell our products if a market
develops;
|
·
|
our
ability to attract and retain qualified personnel to implement our
growth
strategies;
|
·
|
our
ability to develop sales marketing and distribution
capabilities;
|
·
|
our
ability to obtain reimbursement from third party payers for the products
that we sell;
|
·
|
the
accuracy of our estimates and
projections;
|
·
|
our
ability to fund our short-term and long-term financing
needs;
|
·
|
changes
in our business plan and corporate strategies;
and
|
·
|
other
risks and uncertainties discussed in greater detail in the section
captioned “Risk Factors”
|
Each
forward-looking statement should be read in context with and in understanding
of
the various other disclosures concerning our company and our business made
elsewhere in this prospectus. You should not place undue reliance on any
forward-looking statement as a prediction of actual results or developments.
We
are not obligated to update or revise any forward-looking statements contained
in this prospectus to reflect new events or circumstances unless and to the
extent required by applicable law.
USE
OF PROCEEDS
The
proceeds from the sale of the common shares to be sold under this prospectus
will be retained by the selling shareholders, and will not be paid or remitted
or otherwise made available to our company. Should any selling shareholder
acquire the shares to be sold by exercising common share purchase warrants,
or
options we would receive the proceeds from the exercise price. In such an event
we anticipate we would use the proceeds of such exercise for working capital
and
general corporate purposes.
OUR
BUSINESS
We
are a
biotechnology company focused on developing and commercializing human neural
stem cell technology in the emerging field of regenerative
medicine.
Our
History
We
were
incorporated in 1997 in the state of Maryland and re-incorporated in the state
of Delaware in 2001. From 1997 until 2003, our research focused on:
Genomics,
which is
the study of genes and their functions;
Drug
Discovery,
which
consists of the identification of molecules with desired biological effects
that
have promise as new therapeutic drugs; and
Cell
Therapy,
which
consists of treatments in which cells are administered to patients in order
to
repair damaged or depleted tissues.
In
2001,
we were paid a licensing fee of $7.5 million by Gene Logic, Inc., payable over
three years, to create a database using our technology. Also, in 2001, the
Company received a Defense Department contract to do drug screening using the
cells derived from its technology in the amount of $2.5 million over 18 months.
Finally, during this period, we pursued our own research into transplanting
cells derived from our technology to cure disease. We reached a high of roughly
50 employees in early 2000, mostly involved in the infrastructure involved
with
the Gene Logic/genomics and drug discovery programs.
In
late
2000 and early 2001, as a result of the decline in biotech funding markets
and
the accompanying devaluation of the genomics industry, our genomics program
was
no longer commercially viable. Additionally, in late 2002, the Department of
Defense cancelled the program which funded our drug discover efforts. As a
result, by the end of 2003, the Company made the strategic decision to lay
off
its employees involved
in the genomic and drug discovery programs and focus entirely on transplantation
of its neural stem cells to treat diseases in patients.
The
Company spent 2004 restructuring its capitalization and creating an “outsourced”
model of product development by having the research conducted at various
universities and research labs and having all other functions outsourced.
In
November of 2004 we completed a ten-for-three reverse stock split.
In
2005,
the Company continued to operate under this model, with all accounting, legal,
facility, manufacturing, transplantation experimentation and regulatory
functions outsourced, under the supervision of Richard Garr, the Company’s
President and Chief Executive Officer, and Dr. Johe, the Company’s Chairman and
Chief Scientific Officer.
Overview
In
2004,
we refocused our research efforts to concentrate primarily in the field of
Cell
Therapy. Specifically, we are focused on the development and commercialization
of treatments based on transplanting human neural stem cells.
We
have
developed and maintain a portfolio of patents and patent applications that
form
the proprietary base for our research and development efforts in the area of
neural stem cell research, and have ownership or exclusive licensing of four
issued patents and 12 patent pending applications in the field of regenerative
medicine and related technologies. We believe our technology base, in
combination with our know-how, and collaborative projects with major research
institutions provides a competitive advantage and will facilitate the successful
development and commercialization of products for use in treatment of a wide
array of neurodegenerative conditions and in regenerative repair of acute
disease.
This
is a
young and emerging field. There can be no assurances that our intellectual
property portfolio will ultimately produce viable commercialized products and
processes. Even if we are able to produce a commercially viable product, there
are strong competitors in this field and our product may not be able to
successfully compete against them.
All
of
our research efforts to date are at the level of basic research or in the
pre-clinical stage of development. We are focused on leveraging our key assets,
including our intellectual property, our scientific team, our facilities and
our
capital, to accelerate the advancement of our stem cell technologies. In
addition, we are pursuing strategic collaborations with members of academia.
We
are currently headquartered in Rockville, Maryland.
The
Field of Regenerative Medicine
The
emerging field of treatment called "regenerative medicine" or "cell therapy"
refers to treatments that are founded on the concept of producing new cells
to
replace malfunctioning or dead cells as a vehicle to treat disease and injury.
Many significant and currently untreatable human diseases arise from the loss
or
malfunction of specific cell types in the body. Our focus is the development
of
effective methods to generate replacement cells from neural stem cells. We
believe that replacing damaged or malfunctioning or dead neural cells with
fully
functional ones may be a useful therapeutic strategy in treating many diseases
and conditions of the central nervous system (CNS) including: Alzheimer's
disease, Parkinson's disease, Multiple Sclerosis, Amyotrophic Lateral Sclerosis
(ALS, or Lou Gehrig's Disease), depression, and injuries to the spinal
cord.
Stem
Cell Therapy Background
Cells
maintain normal physiological function in healthy individuals by secreting
or
metabolizing substances, such as sugars, amino acids, neurotransmitters and
hormones, which are essential to life. When cells are damaged or destroyed,
they
no longer produce, metabolize or accurately regulate those substances. Cell
loss
or impaired cellular functions are leading causes of degenerative diseases,
and
some of the specific substances or proteins that are deficient in some of these
diseases have been identified. Although administering these substances or
proteins has some advantages over traditional pharmaceuticals, such as
specificity, there is no existing technology that can deliver them precisely
to
the sites of action, under the appropriate physiological regulation, in the
appropriate quantity, nor for the duration required to cure the degenerative
condition. Cells, however, may do all this naturally. Thus, where failing cells
are no longer producing needed substances or proteins or where there has been
irreversible tissue damage or organ failure, transplantation of stem or
progenitor cells may enable the generation of new functional cells, thus
potentially restoring organ function and the patient's health.
Stem
cells have two defining characteristics: (i) they produce all the kinds of
mature cells making up the particular organ; and (ii) they self
renew -- that is, some of the cells developed from stem cells are
themselves new stem cells, thus permitting the process to continue again and
again. Stem cells are known to exist for a number of systems of the human body,
including the blood and immune system, the central and peripheral nervous
systems (including the brain), the skin, bone, and even hair. They are thought
to exist for many others, including the liver and pancreas endocrine systems,
gut, muscle, and heart. Stem cells are responsible for organ regeneration during
normal cell replacement and, to a greater or lesser extent, after
injury.
Stem
cells are rare and only available in limited supply, whether from the patients
themselves or from donors. Also, cells can often be obtained only through
significant surgical procedures. Therefore, in order to develop stem cell
therapeutics, three key challenges must be overcome: (i) identifying the
stem or progenitor cells of a particular organ and testing them for therapeutic
potential; (ii) creating processes to enable use of these rare cells in
clinical applications, such as expanding and banking them in sufficient
quantities to transplant into multiple patients; and (iii) demonstrating
the safety and efficacy of these potential therapeutics in human clinical
trials.
The
Potential of Our Tissue-Derived Stem Cell-Based
Therapy
We
believe that, if successfully developed, stem cell therapeutics have the
potential to provide a broad therapeutic approach comparable in importance
to
traditional pharmaceuticals and genetically engineered biologics. With respect
to the human neural stem cells we have developed proprietary and reproducible
processes to identify, isolate, expand, purify1
and
control the cells differentiation in mature functioning human
neurons2 and glia
3
and bank human neural stem cells from brain tissue. Because the cells are
purified normal human neural stem cells, they may be better suited for
transplantation and may provide a safer and more effective alternative to
therapies that are based on cells derived from cancer cells, animal derived
cells or are an unpurified mix of many different cell types.
1 Purification
of our
cells is the process whereby we separate “raw” donor tissue into our cells.
During the process, we monitor the division of the neural stems cells and
remove
or “weed out” any cells which have failed to divide after a predetermined period
of time. We repeat this process 3 to 4 times until the cells remaining have
been
“purified” in our estimation.
2 Neurons
are a
major class of cells in the nervous system. Neurons are sometimes called nerve
cells, though this term is technically imprecise since many neurons do not
form
nerves. In vertebrates, they are found in the brain, the spinal cord and in
the
nerves and ganglia of the peripheral nervous system, and their primary role
is
to process and transmit neural information. One important characteristic of
neurons is that they have excitable membranes which allow them to generate
and
propagate electrical signals.
3 Glial
cells,
commonly called neuroglia or simply glia, are non-neuronal cells that provide
support and nutrition, maintain homeostasis, form myelin, and participate in
signal transmission in the nervous system. In the human brain, glia are
estimated to outnumber neurons by as much as 50 to 1.
Potential
Markets
We
believe that, if successfully developed, neural stem cell-based therapies have
the potential to treat a broad range of diseases and injuries of the CNS. We
believe the potential applications of our technologies given our current
research focus includes developing neural cell therapies to treat Parkinson's
disease, Amyotrophic Lateral Sclerosis (ALS), and injuries to the spinal
cord.
We
believe the potential markets for regenerative medicine based on our neural
stem
cell therapies are large. The table below summarizes the potential United States
patient populations which we believe may be amenable to neural cell
transplantation and represent potential target markets for our
products:
POTENTIAL
U.S. PATIENT POPULATIONS
FOR
NEURAL CELL-BASED THERAPIES
Medical
Condition
|
|
Number
of Patients*
|
Parkinson's
Disease
|
|
1
million
|
Spinal-cord
injuries
|
|
0.25
million
|
Amyotrophic
Lateral Sclerosis
|
|
0.03
million
|
*
These
estimates are based on the most current patient estimates published by the
following organizations as of April 2006; the Parkinson's Disease Foundation,
the Parkinson's Action Network, the Foundation for Spinal Cord Injury
Prevention, Care and Cure, and the Amyotrophic Lateral Sclerosis
Association.
Our
Technology
Our
technology is the ability to isolate human neural stem cells from most areas
of
the developing human brain and spinal cord and our technology includes the
ability to grow them into physiologically relevant human neurons of all types.
Our two issued core patents entitled Isolation,
Propagation, and Directed Differentiation of Stem Cell from Embryonic and Adult
Central Nervous System of Mammals
and
In
Vitro Generation of Differentiated Neurons from Cultures of Mammalian
Multi-potential CNS Stem Cell
contain
claims which cover the process of deriving the cells and the cells created
from
such process.
Our
technology is the ability to isolate human neural stem cells from most areas
of
the developing human brain and spinal cord and to grow them into physiologically
relevant human neurons of all types. Our core patents entitled:
|
·
|
Isolation,
Propagation, and Directed Differentiation of Stem Cell from Embryonic
and
Adult Central Nervous System of Mammal; and
|
|
·
|
In
Vitro Generation of Differentiated Neurons from Cultures of Mammalian
Multi-potential CNS Stem Cell
|
contain
claims which cover the details of this process and the culture of cells created.
What differentiates our stem cell technology from others is that our patented
processes do not require us to “push” the cells towards a certain fate by adding
specific growth factors. Our cells actually “become” the type of cell they are
fated to be. We believe this process and the resulting cells create a technology
platform that allows for the efficient isolation and ability to produce, in
commercially reasonable quantities, neural stem cells from the human brain
and
spinal cord.
Our
technology allows for cells to grow in cultured dishes, also known
as
in
vitro
growth,
without mutations or other adverse events that would compromise their
usefulness. We believe this provides for two distinct advantages:
·
|
First,
the growth or expansion of the cells in vitro occurs while the cells
are
still in their “stem cell” or blank state which allows for the creation of
commercially reasonable quantities of neural stem cells. Once a sufficient
number of blank cells have been grown, our technology allows us to
program
or differentiate the cells into either neurons or glia;
and
|
·
|
Secondly,
we have the ability to sample the cells while still
in vitro
in
order to confirm that the cells are differentiating in the desired
cell
type.
|
Our
technology also has ancillary uses with respect to drug development. Our ability
to grow and differentiate neural cells
in
vitro
, gives
us the ability to analyze the potential biological effects of molecules on
these
cells. This has resulted in the identification of a group of small molecule
compounds with the potential to enhance the survival of the endogenous cells
residing in the hippocampus
3
region on the brain.
Business
Strategy
We
are
seeking to develop and commercialize stem cell therapeutics to treat, and
possibly cure, a range of human diseases. Our strategy has been to be the first
to identify, isolate and patent important human neural stem and progenitor
cells
derived from human tissue with therapeutic and commercial importance; to develop
techniques which enable the expansion and banking of those cells; and then
to
take them into clinical development as transplantable therapeutics.
3 The
hippocampus region of the brain plays a part in memory and navigation.
We
believe that this ability to enhance the survival rate of the endogenous
cells
may result in the development of drugs or compounds that could be used
to treat
a variety of central nervous system diseases.
A
central
element of our business strategy is to obtain patent protection for the
compositions, processes and uses of these multiple types of cells that would
make the commercial development of neural stem cell therapeutics financially
feasible. We have obtained rights to certain inventions relating to stem cells
and progenitor through our own research and from academic collaborators. We
expect to continue to expand our search for, and to seek to acquire rights
from
third parties where relevant relating to, neural stem and progenitor cells,
and
to further develop our intellectual property positions with respect to these
cells in-house and through research at commercial and scholarly
institutions.
Our
Research and Programs
We
have
devoted substantial resources to our research programs to isolate and develop
a
series of neural stem cell banks that we believe can serve as a basis for
therapeutic products. Our efforts to date have been directed at methods to
identify, isolate and culture large varieties of stem cells of the human nervous
system, and to develop therapies utilizing these stem cells. This research
is
conducted both internally and through the use of third party laboratory
consulting companies under our direct supervision.
In
addition to research which we conduct internally or under our direct
supervision, we conduct research and development through research
collaborations. These collaborations, or programs, are undertaken with both
commercial and scholarly institutes pursuant to the terms and conditions of
our
standard material transfer agreement.
The
material terms of our standard material transfer agreement requires us to
provide our research partner or collaborator with access to our technology
or
“research materials,” which are comprised of our neurological stem cells, for a
specific pre-defined purpose. As part of the agreement, we agree to provide
sufficient research materials and technical assistance to accomplish the purpose
of the program. The determination of sufficiency is determined at our sole
discretion. As part of these agreements, we are entitled to certain reporting
rights and the right to have patentable discoveries presented to us prior to
publication in order for us to file applicable patents. In the event we choose
to file a patent, we will either be responsible for all filing and maintenance
fees or we will split the fees with our research partner depending on the type
of patent to be filed. The agreements also provide for us to receive a fully
paid up, royalty free, non-exclusive license to any inventions made by our
partner with respect to our technologies and their interest in any intellectual
property jointly developed and first right to negotiate an exclusive license.
The agreements also provide confidentiality between the parties. Generally
each
party is responsible for its own expense, there are no milestone payment or
royalty payment requirements and the duration of these agreements is for a
three
year term which can be terminated by either party with 90 days written notice.
The
only
agreement which varies from our general terms is the agreement pertaining to
our
work with the University of California San Diego. In addition to the general
terms, the agreement also required us to provide a grant of $13,680, which
we
have already paid. We have no other payment obligations under any of our current
material transfer agreements unless the studies result in findings which we
choose to patent. We will then incur the costs associated with the filing and
maintenance of such patent.
In
addition to our general research regarding the application of our technology
to
central nervous systems diseases, we are presently involved in the following
specific programs with our partners in order to demonstrate that our products
work in small, non-statistically controlled studies (commonly referred to as
proof-of-principle), in animal models:
University
of California San Diego, San Diego, CA:
In May
of 2002, we initiated a research project with the University of California
in
San Diego for the purpose of researching the applicability of our technology
to
the treatment of Ischemic Spastic Paraplegia and traumatic spinal cord injury.
The project is ongoing. The research yielded findings that contributed to our
filing of patent entitled Transplantation of Human Cells for Treatment of
Neurological Disorders.
John
Hopkins University, School of Medicine, Baltimore, MD:
In
March of 2001 we initiated a research project with John Hopkins University,
School of Medicine for the purpose of researching the applicability of our
technology to the treatment of Amyotrophic Lateral Sclerosis and traumatic
spinal cord injury. The project is ongoing. The research yielded findings that
contributed to our filing of patent entitled Transplantation of Human Cells
for
Treatment of Neurological Disorders.
University
of Southern Florida, Tampa, FL:
In
September of 2005 we initiated a research project with the University of
Southern Florida for the purpose of researching the applicability of our
technology to the treatment of Parkinson's Disease. The project is
ongoing.
University
of Central Florida, Orlando, FL:
In
March of 2006 we initiated a research project with the University of Central
Florida for the purpose of researching the applicability of our technology
to
the treatment of spinal cord injuries. The project is ongoing.
We
have
attached copies of the material transfer agreements governing the above
collaborations as exhibits to this prospectus.
Our
Grants
In
August
of 2005 we were awarded a two year, $500,000 Small Business Innovation Research
non competitive grant from the National Institute of Health (NIH), to further
our research with regard to depression. Under the terms of the grant, we
submit
an annual budget of $250,000 to be used for the purpose of testing our compounds
in various models of depression. Any changes or modifications to the submitted
budget must be approved by case manager. After we incur expenses, we submit
those expenses to the NIH for reimbursement. The grant covers salary, wages,
personnel costs, supplies, travel costs, and consortium/contractual costs
with
regard to the research.
The
only
conditions to full funding of the grant are that we use the proceeds to
further
or research regarding depression and that we use the funds as budgeted.
Notwithstanding, in the event of a budget variance, we can seek approval
of such
variance from the case manager and such variance would be funded provided
the
aggregate funding does not exceed the amount of the grant. As of July 31,
2006,
we have received an aggregate of $160,000 pursuant to this grant.
Our
Intellectual Property Licensed to Others
The
following summarizes licenses from us to third parties.
A-T
Children's Project.
On
December 22, 2004, we entered into a non exclusive limited license and
material transfer agreement with A-T Children's Project (“A-TCP”), pursuant to
which we granted to A-TCP a non-exclusive limited license to use all of our
intellectual property for use in developing suitable tests for screening
compounds to treat Ataxia-Telangiectasia. The license limits the use of our
cells in
vitro
for
compound screen development and not for any therapeutic use of the cells.
In consideration of the rights and licenses granted to A-TCP, A-TCP paid to
us a
one time payment of $37,500.
The
initial term of A-TCP license is for a period of 10 years and contains certain
conditions as to confidentiality which will survive the term. The agreement
does
not make any provisions for early termination by the parties and is silent
with
regard to notice requirements. The agreement does not contain any
indemnification provisions or conditions regarding infringement or right
to
defend.
Biomedical
Research Models, Inc. License.
On
February 7, 2005, we entered into an exclusive, worldwide, royalty-bearing
license with Biomedical Research Models, Inc. (“BRM”), pursuant to which we
exclusively licensed to BRM certain technology and patent rights embodied in
our
patent application entitled “Use of Fused Imidazoles, Aminopyrimidines,
Isonicotinamides, Aminomethyl Phenoxypiperidines and Aryloxypiperidines to
Promote and Detect Endogenous Neurogenesis.” Under the agreement, we license
rights to certain patent rights and technology useful as compounds and
therapeutic agents to treat diabetes and its complications.
Under
the
terms of the agreement, BRM is obligated to pay us an annual license fee of
$75,000 on January 1, 2007 and 2008. In the event a milestone payment becomes
due during this period, the annual payments will cease and the last amounts
paid
will be credited towards the milestone payment. BRM has agreed to the following
milestone payments:
(i)
|
$750,000
within 30 days of initiating Phase I clinical trials (Milestone
1);
|
(ii)
|
$1,000,000
within 30 days of initiating Phase II clinical trials (Milestone
2);
|
(iii)
|
$1,500,000
within 30 days of initiating Phase III clinical trials (Milestone
3);
|
(iv)
|
$35,000,000
within one year after full commercial approval and licensure is granted
by
the United States Food and Drug Administration (Milestone 4);
and
|
(v)
|
A
one time sale bonus of $100 million within one year after the first
time
the aggregate net sales of any licensed product by BRM reaches $1.0
billion.
|
Under
the
terms of the agreement, BRM shall also pay us royalties of 7.0% of net sales
of
products they market directly, or 20% of any sub-license income. For a more
detailed description of the BRM license, please refer to the exclusive licensing
agreement filed as an exhibit to this prospectus.
The
term
of the BRM license is for a period of 15 years however the agreement provides
for early termination in the event that BRM does not undertake diligence
to
develop product and introduce those products into the commercial market.
The
agreement can also be terminated in the event of a material breach by the
other
party upon 90 days written notice.
The
agreement also requires BRM to indemnify Neuralstem against any liability
incurred as a result of BRM’s use of the technology but excludes any liability
as a result of our gross negligence or intentional activities. Additionally,
the
agreement provides that all costs associated with the preparation, filing,
prosecution and maintenance of all Neuralstem patent rights under the agreement
will be the sole responsibility of BRM. The agreement also grants BRM the
right
to prosecute and or defend against any third party infringement of the licensed
intellectual property at its sole expense. In the event that BRM does not
prosecute or defend against an infringement within a reasonable time of becoming
aware of such infringement, Neuralstem shall have the right to prosecute
such
infringement.
High
Med Technologies, Inc. License. On
July 7, 2005, we entered into a limited exclusive, licensing agreement relating
to the sales, distribution and marketing of our technology by High Med
Technologies, Inc. (HiMed). Under the agreement, we granted HiMed the exclusive
right (excluding Neuralstem) to create, manufacture, develop, sublicense or
offer for sale our technology for the sole purpose of in vitro research that
does not involve the injection of cells or cell-derivative materials into living
animals or human beings. Accordingly, we have limited HiMed use under the
license to in
vitro
uses,
and there is no license for any therapeutic use of the cells. As part of the
agreement, HiMed has agreed to certain revenue targets which if met, will extend
the term of this agreement from five years to the life of all applicable
patents. Accordingly, we have licensed HiMed any and all technology that we
control, but only for limited in vitro uses mentioned above.
As
compensation under the license, we will be entitled to:
·
|
80%
of revenues obtained by HiMed where HiMed does not manufacture and
supply
the product to the customer; and
|
·
|
20%
of revenues obtained by HiMed where HiMed is required to manufacture
and
supply the product to the customer.
|
We
have
also agreed that should we directly supply a customer who is or was a customer
of HiMed, we will be required to pay HiMed 20% of any revenues received
therefrom.
The
initial term of the HiMed license is for a period of 5 years but automatically
extends to the life of certain patents in the event annual target revenues
are
met. The agreement does not make any provisions for early termination by the
parties and is silent with regard to notice requirements. The agreement does
not
contain any indemnification provisions or conditions regarding infringement
or
right to defend.
Manufacturing
We
currently manufacture our cells both in-house and on an outsource basis. We
manufacture cells in-house which are not required to meet stringent FDA
requirements. We use these cells in our research grant and collaborative
programs. We outsource all the manufacturing and storage of our stem cells
to be
used in pre-clinical works, and which are accordingly subject to the higher
FDA
requirements, to Charles River Laboratories, Inc., of Wilmington, Massachusetts.
The Charles River facility has the capacity to be used for cell processing
under
the FDA determined Good Manufacturing Practices (GMP) in quantities sufficient
for our current pre-trial and anticipated future clinical trial needs. We
believe the facility has sufficient capacity to provide for our needs in the
near to intermediate term. We have no quantity or volume commitment with Charles
River Laboratories and our cells are ordered and manufactured on an as needed
basis.
Products
& Marketing
Because
of the early stage of our programs, we have yet to identify any specific product
and we have not yet addressed questions of channels of distribution and
marketing of potential future products. We are however focusing our efforts
on
applications of our technology to diseases that affect the central nerve
system.
Our
Intellectual Property
Our
research and development is supported by our intellectual property. We currently
own or have exclusive licenses to 4 patents and 12 patent applications pending
worldwide in the field of regenerative medicine and stem cell
therapy.
Our
success will likely depend upon our ability to preserve our proprietary
technologies and operate without infringing the proprietary rights of other
parties. However, we may rely on certain proprietary technologies and know-how
that are not patentable. We protect our proprietary information, in part, by
the
use of confidentiality agreements with our employees, consultants and certain
of
our contractors.
When
appropriate, we seek patent protection for inventions in our core technologies
and in ancillary technologies that support our core technologies or which we
otherwise believe will provide us with a competitive advantage. We accomplish
this by filing patent applications for discoveries we make, either alone or
in
collaboration with scientific collaborators and strategic partners. Typically,
although not always, we file patent applications both in the United States
and
in select international markets. In addition, we plan to obtain licenses or
options to acquire licenses to patent filings from other individuals and
organizations that we anticipate could be useful in advancing our research,
development and commercialization initiatives and our strategic business
interests.
The
following table identifies the issued and pending patents we own that we believe
currently support our technology platform.
Patents
Pending
Number
|
|
Country
|
|
Filing
Date
|
|
Issue
Date
|
|
Expiration
Date
|
|
Title
|
97923569.4
|
|
EP
|
|
05/07/97
|
|
Pending
|
|
N/A
|
|
Isolation,
Propagation, and Directed Differentiation of Stem Cell from Embryonic
and
Adult Central Nervous System of Mammals
|
|
|
|
|
|
|
|
|
|
|
|
2257068
|
|
CA
|
|
05/07/97
|
|
Pending
|
|
N/A
|
|
Isolation,
Propagation, and Directed Differentiation of Stem Cell from Embryonic
and
Adult Central Nervous System of Mammals
|
|
|
|
|
|
|
|
|
|
|
|
99948396.9
|
|
EP
|
|
09/20/99
|
|
Pending
|
|
N/A
|
|
Stable
Neural Stem Cell Lines
|
|
|
|
|
|
|
|
|
|
|
|
2002-526065
|
|
JAP
|
|
09/20/99
|
|
Pending
|
|
N/A
|
|
Stable
Neural Stem Cell Lines
|
|
|
|
|
|
|
|
|
|
|
|
2343571
|
|
CA
|
|
09/20/99
|
|
Pending
|
|
N/A
|
|
Stable
Neural Stem Cell Lines
|
|
|
|
|
|
|
|
|
|
|
|
10/047,352
|
|
US
|
|
01/14/02
|
|
Pending
|
|
N/A
|
|
Stable
Neural Stem Cells
|
|
|
|
|
|
|
|
|
|
|
|
10/728,652
|
|
US
|
|
12/05/03
|
|
Pending
|
|
N/A
|
|
Method
for Discovering Neurogenic Agents
|
|
|
|
|
|
|
|
|
|
|
|
2004/053071
|
|
WO
|
|
12/05/03
|
|
Pending
|
|
N/A
|
|
Method
for Discovering Neurogenic Agents
|
|
|
|
|
|
|
|
|
|
|
|
10/914,460
|
|
US
|
|
08/09/04
|
|
Pending
|
|
N/A
|
|
Use
of Fused Imidazoles, Aminopyrimidines, Isonicotinamides, Aminomethyl
Phenoxypiperidines and Aryloxypiperidines to Promote and Detect Endogenous
Neurogenesis
|
|
|
|
|
|
|
|
|
|
|
|
1576134
|
|
EP
|
|
12/05/03
|
|
Pending
|
|
N/A
|
|
Method
for Discovering Neurogenic Agents
|
|
|
|
|
|
|
|
|
|
|
|
11/281,640
|
|
US
|
|
11/17/05
|
|
Pending
|
|
N/A
|
|
Transplantation
of Human Cells for Treatment of Neurological Disorders
|
|
|
|
|
|
|
|
|
|
|
|
PCT/US05/41367
|
|
WO
|
|
11/17/05
|
|
Pending
|
|
N/A
|
|
Transplantation
of Human Cells for Treatment of Neurological
Disorders
|
Patents
Issued
Number
|
|
Country
|
|
Filing
Date
|
|
Issue
Date
|
|
Expiration
Date
|
|
Title
|
|
|
|
|
|
|
|
|
|
|
|
5,753,506
|
|
US
|
|
09/25/96
|
|
05/19/98
|
|
09/25/2016
|
|
Isolation,
Propagation, and Directed Differentiation of Stem Cell from Embryonic
and
Adult Central Nervous System of Mammals
|
|
|
|
|
|
|
|
|
|
|
|
6,040,180
|
|
US
|
|
05/07/97
|
|
03/21/00
|
|
09/25/2016
|
|
In
Vitro Generation of Differentiated Neurons from Cultures of Mammalian
Multi-potential CNS Stem Cell
|
|
|
|
|
|
|
|
|
|
|
|
6,284,539
|
|
US
|
|
10/09/98
|
|
09/04/01
|
|
10/9/2018
|
|
Method
for Generating Dopaminergic Cells Derived from Neural
Precursors
|
|
|
|
|
|
|
|
|
|
|
|
755849
|
|
Australia
|
|
09/22/99
|
|
04/03/03
|
|
09/20/2019
|
|
Stable
Neural Stem Cell Lines
|
We
also
rely upon trade-secret protection for our confidential and proprietary
information and take active measures to control access to that
information.
Our
policy is to require our employees, consultants and significant scientific
collaborators and sponsored researchers to execute confidentiality agreements
upon the commencement of an employment or consulting relationship with us.
These
agreements generally provide that all confidential information developed or
made
known to the individual by us during the course of the individual's relationship
with us is to be kept confidential and not disclosed to third parties except
in
specific circumstances. In the case of employees and consultants, the agreements
generally provide that all inventions conceived by the individual in the course
of rendering services to us shall be our exclusive property.
The
patent positions of pharmaceutical and biotechnology companies, including ours,
are uncertain and involve complex and evolving legal and factual questions.
The
coverage sought in a patent application can be denied or significantly reduced
before or after the patent is issued. Consequently, we do not know whether
any
of our pending applications will result in the issuance of patents, or if any
existing or future patents will provide significant protection or commercial
advantage or will be circumvented by others. Since patent applications are
secret until the applications are published (usually eighteen months after
the
earliest effective filing date), and since publication of discoveries in the
scientific or patent literature often lags behind actual discoveries, we cannot
be certain that we were the first to make the inventions covered by each of
our
pending patent applications or that we were the first to file patent
applications for such inventions. There can be no assurance that patents will
issue from our pending or future patent applications or, if issued, that such
patents will be of commercial benefit to us, afford us adequate protection
from
competing products, or not be challenged or declared invalid.
In
the
event that a third party has also filed a patent application relating to
inventions claimed in our patent applications, we may have to participate in
interference proceedings declared by the United States Patent and Trademark
Office to determine priority of invention, which could result in substantial
uncertainties and cost for us, even if the eventual outcome is favorable to
us.
There can be no assurance that our patents, if issued, would be held valid
by a
court of competent jurisdiction.
A
number
of pharmaceutical, biotechnology and other companies, universities and research
institutions have filed patent applications or have been issued patents relating
to cell therapy, stem cells and other technologies potentially relevant to
or
required by our expected products. We cannot predict which, if any, of such
applications will issue as patents or the claims that might be
allowed.
If
third
party patents or patent applications contain claims infringed by our technology
and such claims are ultimately determined to be valid, there can be no assurance
that we would be able to obtain licenses to these patents at a reasonable cost,
if at all, or be able to develop or obtain alternative non-infringing
technology. If we are unable to obtain such licenses or develop or obtain
alternative non-infringing technology at a reasonable cost, we may not be able
to develop certain products commercially. There can be no assurance that we
will
not be obliged to defend ourselves in court against allegations of infringement
of third party patents. Patent litigation is very expensive and could consume
substantial resources and create significant uncertainties. An adverse outcome
in such a suit could subject us to significant liabilities to third parties,
require us to seek licenses from third parties, or require us to cease using
such technology.
Competition
The
biotechnology industries are characterized by rapidly evolving technology and
intense competition. Our competitors include major multinational pharmaceutical
companies, specialty biotechnology companies and chemical and medical products
companies operating in the fields of regenerative medicine, cell therapy, tissue
engineering and tissue regeneration. Many of these companies are
well-established and possess technical, research and development, financial
and
sales and marketing resources significantly greater than ours. In addition,
certain smaller biotech companies have formed strategic collaborations,
partnerships and other types of joint ventures with larger, well established
industry competitors that afford these companies potential research and
development and commercialization advantages. Academic institutions,
governmental agencies and other public and private research organizations are
also conducting and financing research activities which may produce products
directly competitive to those we are developing. Moreover, many of these
competitors may be able to obtain patent protection, obtain FDA and other
regulatory approvals and begin commercial sales of their products before we
do.
In
the
general area of cell-based therapies, we compete with a variety of companies,
most of whom are specialty biotechnology companies. Some of these, such as
Geron
Corporation, Genzyme Corporation, StemCells, Inc., Aastrom
Biosciences, Inc. and Viacell, Inc., are well-established and have
substantial technical and financial resources compared to us. However, as
cell-based products are only just emerging as medical therapies, many of our
direct competitors are smaller biotechnology and specialty medical products
companies. These smaller companies may become significant competitors through
rapid evolution of new technologies. Any of these companies could substantially
strengthen their competitive position through strategic alliances or
collaborative arrangements with large pharmaceutical or biotechnology
companies.
The
diseases and medical conditions we are targeting have no effective long-term
therapies. Nevertheless, we expect that our technologies and products will
compete with a variety of therapeutic products and procedures offered by major
pharmaceutical companies. Many pharmaceutical and biotechnology companies are
investigating new drugs and therapeutic approaches for the same purposes, which
may achieve new efficacy profiles, extend the therapeutic window for such
products, alter the prognosis of these diseases, or prevent their onset. We
believe that our products, when and if successfully developed, will compete
with
these products principally on the basis of improved and extended efficacy and
safety and their overall economic benefit to the health care
system.
Competition
for any stem cell products that we may develop may be in the form of existing
and new drugs, other forms of cell transplantation, surgical procedures, and
gene therapy. We believe that some of our competitors are also trying to develop
similar stem cell-based technologies. We expect that all of these products
will
compete with our potential stem cell products based on efficacy, safety, cost
and intellectual property positions. We may also face competition from companies
that have filed patent applications relating to the use of genetically modified
cells to treat disease, disorder or injury. In the event our therapies should
require the use of such genetically modified cells, we may be required to seek
licenses from these competitors in order to commercialize certain of our
proposed products, and such licenses may not be granted.
Government
Regulation
Regulation
by governmental authorities in the United States and other countries is a
significant factor in our research and development and will be a significant
factor in the manufacture and marketing of our proposed products. The nature
and
extent to which such regulation applies to us will vary depending on the nature
of any products we may develop. We anticipate that many, if not all, of our
products will require regulatory approval by governmental agencies prior to
commercialization. In particular, human therapeutic products are subject to
rigorous preclinical and clinical testing and other approval procedures of
the
U.S. Food and Drug Administration, referred to as the FDA, and similar
regulatory authorities in European and other countries. Various governmental
statutes and regulations also govern or influence testing, manufacturing,
safety, labeling, storage and recordkeeping related to such products and their
marketing. The process of obtaining these approvals and the subsequent
compliance with appropriate statutes and regulations require the expenditure
of
substantial time and money, and there can be no guarantee that approvals will
be
granted.
FDA
Approval The
FDA requirements for our potential products to be marketed in the United States
include the following five steps:
Preclinical
laboratory and animal tests must be conducted. Preclinical tests include
laboratory evaluation of the cells and the formulation intended for use in
humans for quality and consistency. In vivo studies are performed in normal
animals and specific disease models to assess the potential safety and efficacy
of the cell therapy product.
An
investigational new drug application, or IND, must be submitted to the FDA,
and
the IND must become effective before human clinical trials in the United States
may commence. The IND is submitted to the FDA with the preclinical data, a
proposed development plan and a proposed protocol for a study in humans. The
IND
becomes effective 30 days following receipt by the FDA, provided there are
no questions, requests for delay or objections from the FDA. If the FDA has
questions or concerns, it notifies the sponsor, and the IND will then be on
clinical hold until a satisfactory response is made by the sponsor.
Adequate
and well-controlled human clinical trials must be conducted to establish the
safety and efficacy of the product. Clinical trials involve the evaluation
of a
potential product under the supervision of a qualified physician, in accordance
with a protocol that details the objectives of the study, the parameters to
be
used to monitor safety and the efficacy criteria to be evaluated. Each protocol
is submitted to the FDA as part of the IND. The protocol for each clinical
study
must be approved by an independent institutional review board, or IRB, of the
institution at which the study is conducted, and the informed consent of all
participants must be obtained. The IRB reviews the existing information on
the
product, considers ethical factors, the safety of human subjects, the potential
benefits of the therapy and the possible liability of the institution. The
IRB
is responsible for ongoing safety assessment of the subjects during the clinical
investigation. Clinical development is traditionally conducted in three
sequential phases.
·
|
Phase
1 studies for a cell therapy product are designed to evaluate safety
in a
small number of subjects in a selected patient population by assessing
adverse effects, and may include multiple dose levels. This study
may also
gather preliminary evidence of a beneficial effect on the
disease.
|
·
|
Phase
2 may involve studies in a limited patient population to determine
biological and clinical effects of the product and to identify possible
adverse effects and safety risks of the product in the selected patient
population.
|
·
|
Phase
3 trials would be undertaken to conclusively demonstrate clinical
benefit
or effect and to test further for safety within a broader patient
population, generally at multiple study sites. The FDA continually
reviews
the clinical trial plans and results and may suggest changes or may
require discontinuance of the trials at any time if significant safety
issues arise.
|
Marketing
authorization applications must be submitted to the FDA. The results of the
preclinical studies and clinical studies are submitted to the FDA in the form
of
marketing approval authorization applications.
The
FDA
must approve the applications prior to any commercial sale or practice of the
technology or product. Biologic product manufacturing establishments located
in
certain states also may be subject to separate regulatory and licensing
requirements. The testing and approval process will require substantial time,
effort and expense. The time for approval is affected by a number of factors,
including relative risks and benefits demonstrated in clinical trials, the
availability of alternative treatments and the severity of the disease, and
animal studies or clinical trials that may be requested during the FDA review
period.
Our
research and development is based largely on the use of human stem and
progenitor cells. The FDA has initiated a risk-based approach to regulating
human cell, tissue and cellular and tissue-based products and has published
current Good Tissue Practice regulations. As part of this approach, the FDA
has
published final rules for registration of establishments that engage in the
recovery, screening, testing, processing, storage or distribution of human
cells, tissues, and cellular and tissue-based products, and for the listing
of
such products. While
the
Company believes that it is in compliance with all such practices and
regulations; we are not required to register until we apply for licensure from
the FDA for our product, subject to successful completion of human
trials. In
addition, the FDA has published rules for making suitability and eligibility
determinations for donors of cells and tissue and for current good tissue
practice for manufacturers using them, which have recently taken effect. We
cannot now determine the full effects of this regulatory initiative, including
precisely how it may affect the clarity of regulatory obligations and the extent
of regulatory burdens associated with our stem cell research and the manufacture
and marketing of stem cell products.
European
and Other Regulatory Approval Approval
of a product by regulatory authorities comparable to the FDA in Europe and
other
countries will likely be necessary prior to commencement of marketing a product
in any of these countries. The regulatory authorities in each country may impose
their own requirements and may refuse to grant approval, or may require
additional data before granting approval, even though the relevant product
has
been approved by the FDA or another authority. The regulatory authorities in
the
European Union, or EU, and other developed countries have lengthy approval
processes for pharmaceutical products. The process for gaining approval in
particular countries varies, but is generally similar to the FDA approval
process. In Europe, the European Committee for Proprietary Medicinal Products
provides a mechanism for EU-member states to exchange information on all aspects
of product licensing. The EU has established a European agency for the
evaluation of medical products, with both a centralized community procedure
and
a decentralized procedure, the latter being based on the principle of licensing
within one member country followed by mutual recognition by the other member
countries.
Other
Regulations In
addition to safety regulations enforced by the FDA, we are also subject to
regulations under the Occupational Safety and Health Act, the Environmental
Protection Act, the Toxic Substances Control Act and other present and potential
future and federal, state, local, and foreign regulations.
Outside
the United States, we will be subject to regulations that govern the import
of
drug products from the United States or other manufacturing sites and foreign
regulatory requirements governing human clinical trials and marketing approval
for our products. The requirements governing the conduct of clinical trials,
product licensing, pricing and reimbursements vary widely from country to
country.
The
United States Congress, several states and foreign countries have considered
legislation banning or restricting human application of stem cell-based and
nuclear transfer based technologies. No assurance can be given regarding future
restrictions or prohibitions that might affect our technology and business.
In
addition, we cannot assure you that future judicial rulings with respect to
nuclear transfer technology or human stem cells will not have the effect of
delaying, limiting or preventing the use of nuclear transfer technology or
stem
cell-based technology or delaying, limiting or preventing the sale, manufacture
or use of products or services derived from nuclear transfer technology or
stem
cell-derived material. Any such legislative or judicial development would harm
our ability to generate revenues and operate profitably.
For
additional information about governmental regulations that will affect our
planned and intended business operations, see "RISK FACTORS" beginning on
page 6.
Employees
As
of
August
25, 2006, we had two full-time employees and two part-time employees.
Of
these employees, one is directly involved in research and development activities
and three are engaged in business development and administration. We also
use
the services of numerous outside consultants in business and scientific
matters.
We believe that we have good relations with our employees and
consultants.
PROPERTIES
We
currently lease two facilities. Our
executive offices
and primary research facilities are located at 9700 Great Seneca Highway,
Rockville MD, 20850. We lease these facilities consisting of approximately
2,500
square feet for $4,000.00 per month. The term of our lease expires on March
31,
2007.
We
have
recently entered into a 12 month lease to secure animal research space in San
Diego California at a monthly lease rate of $5,500. This amount includes
personnel and supplies used in connection with our animal tests
The
aforesaid properties are in good condition and we believe they will be suitable
for our purposes for the next 12 months. There is no affiliation between us
or
any of our principals or agents and our landlords or any of their principals
or
agents.
MANAGEMENT'S
DISCUSSION AND ANALYSIS
AND
PLAN OF OPERATION
Overview
This
prospectus contains forward-looking statements that involve risks and
uncertainties. See
"Risk
Factors"
set
forth on page 6 of this prospectus for a more complete discussion of these
factors. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date that they are made.
We undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or
otherwise.
The
following discussion should be read in conjunction with the consolidated
financial statements and notes thereto included in this prospectus.
We
are a
biotechnology company focused on developing and commercializing human stem
cell
technology in the emerging fields of regenerative medicine and stem cell
therapy.
Trends
& Outlook
Revenue;
Our
revenue is currently derived from grant reimbursements and licensing fees.
As
our focus is now on pre-clinical work in anticipation of entering clinical
trials in 2007, we are not concentrated on increasing revenue. Additionally,
as
our current grants wind down, revenue can be expected to continue decreasing.
Finally, as most grants use a fiscal year of October 31, revenue attributed
to
grants tends to be lower in the initial quarters of the year and increases
in
subsequent quarters.
Long-term,
we anticipate that grant revenue as a percentage of revenue will decrease and
our revenue will be derived primarily from licensing fees and the sale of our
cell therapy products. At present we are in our pre-clinical stage of
development and as a result, we can not accurately predict when or if we will
be
able to produce a product for commercialization. Accordingly, cannot accurately
estimate when such change in revenue composition will occur or if it will ever
occur.
Research
& Development Expense; Our
research and development expenses consist primarily of costs associated with
basic and pre-clinical research exclusively in the field of human neural stem
cell therapies and regenerative medicine, related to our clinical cell therapy
candidates. These expenses represent both pre-clinical development costs and
costs associated with non-clinical support activities such as quality control
and regulatory processes. The cost of our research and development personnel
is
the most significant category of expense; however, we also incur expenses with
third parties, including license agreements, third party contract services,
sponsored research programs and consulting expenses.
We
do not
segregate research and development costs by project because our research is
focused exclusively on human stem cell therapies as a unitary field of study.
Although we have different areas of focus for our research, these areas are
completely intertwined and have not yet matured to the point where they are
separate and distinct projects. The intellectual property, scientists and other
resources dedicated to these efforts are not separately allocated to individual
projects, but rather are conducting our research on an integrated
basis.
We
expect
that research and development expenses will continue to increase in the
foreseeable future as we add personnel, expand our pre-clinical research (animal
surgeries, manufacturing of cells, and in vitro characterization of cells which
includes testing and cell quality control), begin clinical trial activities,
increase our regulatory compliance capabilities, and ultimately begin
manufacturing. We do anticipate hiring Qunitiles, Inc. to assist with regulatory
compliance and patient enrollment as we moved from pre-clinical to clinical
stage. The expenses associated with this regulatory compliance and patient
enrollment is budgeted at $200,000 to $250,000 over a twelve month period.
Additionally, we anticipate hiring 2 additional technicians to assist in the
in-house growing of our cells for grant and collaborative work. With regard
to
material and personnel costs, as the industry continues to mature and grow,
we
have seen increased demand for qualified personnel and suitable materials.
Notwithstanding, we feel that our outsource model will provide us with some
protection regarding fluctuating pricing.
Although
we feel the above increase in personnel will be sufficient for our short term
needs, the amount of the monetary increases stemming from increased personnel
and expenses as we move from pre-clinical to clinical state is difficult to
predict due to the uncertainty inherent in the timing and extent of progress
in
our research programs, and initiation of clinical trials. In addition, the
results from our basic research and pre-clinical trials, as well as the results
of trials of similar therapeutics under development by others, will influence
the number, size and duration of planned and unplanned trials. As our research
efforts mature, we will continue to review the direction of our research based
on an assessment of the value of possible commercial applications emerging
from
these efforts. Based on this continuing review, we expect to establish discrete
research programs and evaluate the cost and potential for cash inflows from
commercializing products, partnering with others in the biotechnology industry,
or licensing the technologies associated with these programs to third
parties.
We
believe that it is not possible at this stage to provide a meaningful estimate
of the total cost to complete our ongoing projects and bring any proposed
products to market. The use of human stem cells as a therapy is an emerging
area
of medicine, and it is not known what clinical trials will be required by
the
FDA in order to gain marketing approval. The costs to complete such clinical
trials could vary substantially depending upon the projects selected for
development, the number of clinical trials required and the number of patients
needed for each study. At a minimum, we feel that any trials will require
at
least 10 patients at an estimated cost of $100,000 per patient. It is possible
that the completion of these studies could be delayed for a variety of reasons,
including difficulties in enrolling patients, delays in manufacturing,
incomplete or inconsistent data from the pre-clinical or clinical trials,
and
difficulties evaluating the trial results. Any delay in completion of a trial
would increase the cost of that trial, which would harm our results of
operations. Due to these uncertainties, we cannot reasonably estimate the
size,
nature nor timing of the costs to complete, or the amount or timing of the
net
cash inflows from our current activities. Until we obtain further relevant
pre-clinical and clinical data, we will not be able to estimate our future
expenses related to these programs or when, if ever, and to what extent we
will
receive cash inflows from resulting products.
General
and Administrative Expenses;
Our
general and administrative expenses consist of the general costs, expenses
and
salaries for the operation and maintenance of our business. We anticipate
that
general and administrative expenses will increase as we progress from
pre-clinical to a clinical phase. Additionally, upon this registration
statement
becoming effective, we will
be
subject to the periodic reporting requirements of the Exchange
Act.
As a
result, we foresee an increase in general and administrative expenses relating
to professional services (legal, accounting, audit)
and
estimate such fees to be $10,000 per month. Moreover,
in August of 2006 we became the subject of patent litigation with one of
our
competitors, StemCells, Inc.. The litigation is in its initial stages and
it is
hard to estimate what the actual costs stemming there from will be. We
have
currently budgeted an additional $20,000 per month but this amount could
significantly increase. Notwithstanding,
we anticipate that General and Administrative Expense related to our core
business will increase at a slower rate than that of similar companies
making
such transition do in large part to our outsourcing model.
Significant
Accounting Policies
Our
financial statements have been prepared in accordance with accounting principles
generally accepted in the United States of America. The preparation of these
financial statements requires management to make estimates and assumptions
that
affect the reported amounts of assets, liabilities, revenues and expenses.
Note 1 of the Notes to Consolidated Financial Statements describes the
significant accounting policies used in the preparation of the consolidated
financial statements. Certain of these significant accounting policies are
considered to be critical accounting policies, as defined below.
A
critical accounting policy is defined as one that is both material to the
presentation of our financial statements and requires management to make
difficult, subjective or complex judgments that could have a material effect
on
our financial condition and results of operations. Specifically, critical
accounting estimates have the following attributes: 1) we are required to
make assumptions about matters that are highly uncertain at the time of the
estimate; and 2) different estimates we could reasonably have used, or
changes in the estimate that are reasonably likely to occur, would have a
material effect on our financial condition or results of
operations.
Estimates
and assumptions about future events and their effects cannot be determined
with
certainty. We base our estimates on historical experience and on various other
assumptions believed to be applicable and reasonable under the circumstances.
These estimates may change as new events occur, as additional information is
obtained and as our operating environment changes. These changes have
historically been minor and have been included in the consolidated financial
statements as soon as they became known. Based on a critical assessment of
our
accounting policies and the underlying judgments and uncertainties affecting
the
application of those policies, management believes that our consolidated
financial statements are fairly stated in accordance with accounting principles
generally accepted in the United States, and present a meaningful presentation
of our financial condition and results of operations. We believe the following
critical accounting policies reflect our more significant estimates and
assumptions used in the preparation of our consolidated financial
statements:
Use
of Estimates--These
financial statements have been prepared in accordance with accounting principles
generally accepted in the United States and, accordingly, require management
to
make estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts
of
revenues and expenses during the reporting period. Specifically, our management
has estimated the expected economic life and value of our licensed technology,
our net operating loss for tax purposes and our stock, option and warrant
expenses related to compensation to employees and directors, consultants and
investment banks. Actual results could differ from those estimates.
Cash
and Equivalents--Cash
equivalents are comprised of certain highly liquid investments with maturity
of
three months or less when purchased. We maintain our cash in bank deposit
accounts, which at times, may exceed federally insured limits. We have not
experienced any losses in such account.
Revenue
Recognition--Our
revenues, to date, revenue has been derived primarily from providing treated
samples for gene expression data from stem cell experiments and from providing
services as a subcontractor under federal grant programs. Revenue is recognized
when there is persuasive evidence that an arrangement exists, delivery of goods
and services has occurred, the price is fixed and determinable, and collection
is reasonably assured.
Intangible
and Long-Lived Assets--We
follow SFAS No. 144, "Accounting for Impairment of Disposal of Long-Lived
Assets," which established a "primary asset" approach to determine the cash
flow
estimation period for a group of assets and liabilities that represents the
unit
of accounting for a long lived asset to be held and used. Long-lived assets
to
be held and used are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The carrying amount of a long-lived asset is not recoverable if
it
exceeds the sum of the undiscounted cash flows expected to result from the
use
and eventual disposition of the asset. Long-lived assets to be disposed of
are
reported at the lower of carrying amount or fair value less cost to sell. During
the period ended December 31, 2005 no impairment losses were
recognized.
Research
and Development Costs--Research
and development costs consist of expenditures for the research and development
of patents and technology, which are not capitalizable and charged to operations
when incurred. Our research and development costs consist mainly of payroll
and
payroll related expenses, research supplies and costs incurred in connection
with specific research grants.
Stock
Based Compensation--We
recognize expenses for stock-based compensation arrangements in accordance
with
provisions of Accounting Principles Board (APB) Opinion No. 25, “
Accounting for Stock Issued to Employees,”
and
related Interpretations. Accordingly, compensation cost is recognized for the
excess of the estimated fair value of the stock at the grant date over the
exercise price, if any. The Company accounts for equity instruments issued
to
non-employees in accordance with EITF 96-18,“Accounting
for Equity Instruments that are Issued to Other Than Employees for Acquiring,
or
in Conjunction with Selling Good or Services.”
Accordingly, the estimated fair value of the equity instrument is recorded
on
the earlier of the performance commitment date or the date the services required
are completed.
Beginning
in 2006, we adopted SFAS No. 123R “Share Based Payment” which superseded APB
Opinion No. 25. SFAS No. 123R requires compensation costs related to share-based
payment transactions to be recognized in the financial statements. We do not
believe the adoption of SFAS No. 123R will have a material impact on our
financial statements.
RESULTS
OF OPERATIONS
Result
of Operations for the Years ending December 31, 2004 and
2005
Revenues
for the twelve months ended December 31, 2005 and December 31, 2004
were approximately $309,142 and $125,457 respectively. These amounts relate
primarily to grant reimbursements for the twelve months ending December 31,
2004
and license fees, grant reimbursements and royalties for the twelve months
ending December 31, 2005. The increase in revenue in current periods was
due to
additional licensing revenues.
Research
and development expenses for the twelve months ended December 31, 2005 and
December 31, 2004 were approximately $568,299 and $428,402, respectively.
The increase in expenses in current periods, consists mainly of payroll and
payroll related expenses, research supplies and costs incurred in connection
with specific research grants.
Grant
reimbursements for the twelve months ended December 31, 2005 and
December 31, 2004 were approximately $70,000 and $125,000, respectively.
These amounts represent approved reimbursements under a 3rd
party
grant from the Defense Research Projects Agency in which we served as a
subcontractor.
General
and administrative expenses for the twelve months ended December 31, 2005
and December 31, 2004 were approximately $1,256,278 and $555,080,
respectively. The principal increase in expenses in 2005 versus 2004 is a
result
of approximately $660,000 in stock-based expenses related to consultants.
Other
income (expense) for the twelve months ended December 31, 2005 and
December 31, 2004 were approximately $(84,149)
and $(8,362,963), respectively. The decrease in other income (loss) in
the
twelve months ended December 31, 2005, compared to other income (loss) in
the prior periods, relates primarily to a one time charge of $842,719
and
$7,527,179 in 2004 stemming from the sale of obsolete lab equipment and
3,125,000 shares given to Class C Preferred Shareholders. The business
purpose
of us offering the inducement was; (i) to decrease our liabilities in
order to
facilitate
our ability to raise capital; and (ii) to avoid any possible default
on the
notes as we did not have sufficient
cash to repay the notes.
Net
loss
for the twelve months ended December 31, 2005 and December 31, 2004
was approximately $1,651,507
and $9,376,543 respectively. The increased loss in the current periods
is the
result of the foregoing factors discussed.
Results
of Operations for the 6
month periods ending June
30, 2006 and 2005.
Revenues
for the six
month
period ending June
30,
2006 and June
30,
2005 were approximately $59,211
and $157,813
respectively. The decrease in revenue in current period was mostly due
to
winding down of a subcontracting engagement.
Research
and development expenses for the six
month
period ending June
30,
2006 and June
30,
2005 were approximately $824,592
and $144,949,
respectively. The increase in expenses in current period,
consists mainly of payroll and payroll related expenses, research supplies
and
costs incurred in connection with our current effort to produce preclinical
data
which results in animal surgeries, manufacturing of cells, and in vitro
characterization of cells which includes testing and cell quality
control.
General
and administrative expenses for the six
month
period ending June
30,
2006 and June
30,
2005 were approximately $452,558
and $101,758,
respectively. The principal increase in expenses in the current periods
versus
the same periods last year is a result of increases in professional fees
and
expenses related to accountants and financial advisors related to capital
raised
in 2006.
Nonoperating
income (expense) for the six
month
period ending June
30,
2006 and June
30,
2005 were approximately $(389,749)
and $0. The increase in 2006 relates to expense
relating to warrant liability.
Net
loss
for the six
month
period ending June
30,
2006 and June
30,
2005 was approximately $1,633,650
and $114,856,
respectively. The increased loss in the current periods is the result of
the
foregoing factors discussed.
Recent
Accounting Pronouncements
In
December 2004, the FASB issued SFAS No. 123 (revised 2004),
“Share-Based Payment.” SFAS No. 123R replaced SFAS No. 123 and superseded
Accounting Principles Board Opinion No. 25. SFAS No. 123R will require
compensation costs related to share-based payment transactions to be recognized
in the financial statements. On April 14, 2005, the Securities and Exchange
Commission issued an announcement amending the compliance dates for the FASB's
SFAS 123R that addresses accounting for equity based compensation arrangements.
Under SFAS 123R registrants would have been required to implement the standard
as of the beginning of the first interim or annual period that begins after
June
15, 2005. The Commission's new rule will allow companies to implement SFAS
123R
at the beginning of the next fiscal year after June 15, 2005. The Company
anticipates adopting SFAS 123R in the first quarter 2006. The Company does
not
believe that the adoption of SFAS No. 123R will have a material impact on
our financial statements.
In
December 2004, the FASB issued SFAS No. 153, “Exchanges of Nonmonetary
Assets, an amendment of APB Opinion No. 29” (“SFAS No. 153”). SFAS
No. 153 is based on the principle that exchanges of nonmonetary assets
should be measured based on the fair value of the assets exchanged. APB Opinion
No. 29, “Accounting for Nonmonetary Transactions,” provided an exception to
its basic measurement principle (fair value) for exchanges of similar productive
assets. Under APB Opinion No. 29, an exchange of a productive asset for a
similar productive asset was based on the recorded amount of the asset
relinquished. SFAS No. 153 eliminates this exception and replaces it with
an exception of exchanges of nonmonetary assets that do not have commercial
substance. SFAS No. 153 became effective for our Company as of July 1,
2005. The Company will apply the requirements of SFAS No. 153 on any future
nonmonetary exchange transactions.
In
March 2005, the FASB issued FASB Interpretation ("FIN") No. 47
"Accounting for Conditional Asset Retirement Obligations--an Interpretation
of
FASB Statement No. 143" ("FIN No. 47"). FIN No. 47 clarifies the
timing of liability recognition for legal obligations associated with the
retirement of a tangible long-lived asset when the timing and/or method of
settlement are conditional on a future event. FIN No. 47 is effective for
us no later than December 31, 2005. We do not expect that the adoption of
FIN No. 47 will have a material impact on our financial condition or
results of operations.
Note
1. In May 2005,
the FASB
issued SFAS No. 154, “Accounting Changes and Error Corrections, a
replacement of APB No. 20 and FASB Statement No. 3” (“SFAS
No. 154”). SFAS No. 154 requires retrospective application to
prior periods' financial statements of a voluntary change in accounting
principle unless it is impracticable. APB Opinion No. 20 “Accounting
Changes,” previously required that most voluntary changes in accounting
principle be recognized by including in net income of the period of the change
the cumulative effect of changing to the new accounting principle. This
statement is effective for our Company as of January 1, 2006. The Company
does not believe that the adoption of SFAS No. 154 will have a material
impact on our financial statements.
In
February 2006, the FASB issued FASB Statement No. 155, Accounting for
Certain Hybrid Instruments. This standard amends the guidance in FASB Statements
No. 133, Accounting for Derivative Instruments and Hedging Activities, and
No. 140, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities. Statement 155 allows financial instruments
that
have embedded derivatives to be accounted for as a whole (eliminating the need
to bifurcate the derivative from its host) if the holder elects to account
for
the whole instrument on a fair value basis. Management is currently evaluating
the impact FASB 155 will have on our consolidated financial
statements.
In
September 2005, the Emerging Issues Task Force, or EITF, reached a
consensus on Issue 05-8, "Income Tax Consequences of Issuing Convertible Debt
with a Beneficial Conversion Feature." EITF Issues No. 98-5, "Accounting
for Convertible Securities with Beneficial Conversion Features or Contingently
Adjustable Conversion Ratios," and No. 00-27, "Application of Issue
No. 98-5 to Certain Convertible Instruments," provide guidance on how
companies should bifurcate convertible debt issued with a beneficial conversion
feature into a liability and an equity component. For income tax purposes,
such
an instrument is only recorded as a liability. A question has been raised as
to
whether a basis difference results from the issuance of convertible debt with
a
beneficial conversion feature and, if so, whether the basis difference is a
temporary difference. We do not expect the provisions of this consensus to
have
a material impact on our financial position, results of operations or cash
flows.
In
November 2004, the Emerging Issues Task Force or EITF reached final consensus
on
Issue 04-8, "The Effect of Contingently Convertible Debt on Diluted
Earnings per Share." Contingently convertible debt instruments, commonly
referred to as Co-Cos, are structured financial transactions that combine the
features of contingently issuable shares with a convertible debt instrument.
Co-Cos are convertible into common shares of the issuer after the common stock
price has exceeded a predetermined threshold for a specified time period (market
price trigger). The issue is when the dilutive effect of Co-Cos should be
included in diluted earnings per share. Management does not expect the
implementation of this new standard to have a material impact on our financial
position, results of operations and cash flows.
In
September 2005, the Emerging Issues Task Force or EITF discussed
Issue 05-4, The Effect of a Liquidated Damages Clause on a Freestanding
Instrument Subject to EITF Issue No. 00-19, "Accounting for Derivative
Financial Instruments Indexed to, and Potentially Settled in, a Company's Own
Stock." The Effect of a Liquidated Damages Clause on a Freestanding Financial
Instrument Subject to EITF Issue No. 00-19, "Accounting for Derivative
Financial Instruments Indexed to, and Potentially Settled in, a Company's Own
Stock." Issuance of a registration rights agreement with a liquidated damages
clause is common when equity instruments, stock purchase warrants, and financial
instruments that are convertible into equity securities are issued. The
agreement requires the issuer to use its "best efforts" to file a registration
statement for the resale of the equity instruments or the shares of stock
underlying the stock purchase warrant or convertible financial instrument and
have it declared effective by the end of a specified grace period. The issuer
may also be required to maintain the effectiveness of the registration statement
for a period of time or pay a liquidated damage penalty to the investor each
month until the registration statement is declared effective. Given the
potential significance of the penalty, a question arises as to the effect,
if
any this feature has on the related financial instruments if they are subject
to
the scope of Issue 00-19. We are currently evaluating the effects of EITF
05-4 and have not been able to ascertain, if any, impact to our financial
statements.
In
September 2005, the Emerging Issues Task Force, or EITF, reached a
consensus on Issue 05-7, "Accounting for Modifications to Conversion Options
Embedded in Debt Securities and Related Issues." EITF Issue No. 96-19,
"Debtor's Accounting for a Modification or Exchange of Debt Instruments,"
provides guidance on whether modifications of debt result in an extinguishment
of that debt. In certain situations, companies may change the terms of a
conversion option as part of a debt modification, which may result in the
following circumstances: (a) the change in the conversion option's terms
causes the fair value of the conversion option to change but does not result
in
the modification meeting the condition in Issue 96-19 that would require the
modification to be accounted for as an extinguishment of debt, and (b) the
change in the conversion option's terms did not result in separate accounting
for the conversion option under Statement 133. When both of these circumstances
exist, questions have arisen regarding whether (a) the modification to the
conversion option, which changes its fair value, should affect subsequent
interest expense recognition related to the debt and (b) a beneficial
conversion feature related to a debt modification should be recognized by the
borrower if the modification increases the intrinsic value of the debt. We
do
not expect the provisions of this consensus to have a material impact on our
financial position, results of operations or cash flows.
In
June 2005, the Emerging Issues Task Force, or EITF, reached a consensus on
Issue 05-2, "The Meaning of "Conventional Convertible Debt Instrument" in EITF
Issue 00-19. Paragraph 4 of Issue 00-19 states that "the requirements of
paragraphs 12-32 of this issue do not apply if the hybrid contract is a
conventional convertible debt instrument in which the holder may only realize
the value of the conversion option by exercising the option and receiving the
entire proceeds in a fixed number of shares or the equivalent amount of cash
(at
the discretion of the issuer)". The term "conventional convertible debt
instrument" is not defined in Issue 00-19 and, as a result, questions have
arisen regarding when a convertible debt instrument should be considered
"conventional" for purposes of Issue 00-19. A question has also arisen related
to whether conventional convertible preferred stock should be treated similar
to
conventional convertible debt. We do not expect the provisions of this consensus
to have a material impact on our financial position, results of operations
or
cash flows.
In
June 2005, the Emerging Issues Task Force, or EITF, reached a consensus on
Issue 05-6, Determining the Amortization Period for Leasehold Improvements,
which requires that leasehold improvements acquired in a business combination
or
purchased subsequent to the inception of a lease be amortized over the lesser
of
the useful life of the assets or a term that includes renewals that are
reasonably assured at the date of the business combination or purchase. EITF
05-6 is effective for periods beginning after July 1, 2005. We do not
expect the provisions of this consensus to have a material impact on our
financial position, results of operations or cash flows.
In
March 2005, the SEC released Staff Accounting Bulletin No. 107,
"Share-Based Payment"("SAB 107"), which provides interpretive guidance related
to the interaction between SFAS 123(R) and certain SEC rules and
regulations. It also provides the SEC staff's views regarding valuation of
share-based payment arrangements. In April 2005, the SEC amended the
compliance dates for SFAS 123(R), to allow companies to implement the
standard at the beginning of their next fiscal year, instead of the next
reporting period beginning after June 15, 2005. Management is currently
evaluating the impact SAB 107 will have on our consolidated financial
statements.
Liquidity
and Capital Resources
We
are
financing our operations primarily with the proceeds from our convertible
notes
and private placement offerings. During the years ended December 31, 2005
and
2004, we raised through these offerings a total of $1,234,255 and $373,432,
respectively which are described in Notes 2 and 5 to our Financial
Statements. During the six
month
period ending June
30,
2006, we completed the private placement of our securities with gross proceeds
to us of $5,000,000. To a substantially lesser degree, financing of our
operations is provided through grant funding, payments received under license
agreements, and interest earned on cash and cash equivalents.
We
have
incurred substantial net losses each year since inception as a result of
research and development and general and administrative expenses in support
of
our operations. We anticipate incurring substantial net losses in the
future.
Cash,
cash equivalents, and cash held in escrow at December 31, 2005 and
December 31, 2004 were approximately $526,381 and $39,054, respectively.
Cash, cash equivalents, and cash held in escrow at June
30,
2006 was approximately $3,202,703.
The increase in the current period is the result of closing the financing
described above, net of amounts spent for payment of notes and accounts payable,
increased legal and accounting fees, fees paid to the placement agent, and
increases in other research and development and general and administrative
expenses.
Our
cash
and cash equivalents are limited. We expect to require substantial additional
funding. Our future cash requirements will depend on many factors, including
the
pace and scope of our research and development programs, the costs involved
in
filing, prosecuting, maintaining and enforcing patents and other costs
associated with commercializing our potential products. We intend to seek
additional funding primarily through public or private financing transactions,
and, to a lesser degree, new licensing or scientific collaborations, grants
from
governmental or other institutions, and other related transactions. If we are
unable to raise additional funds, we will be forced to either scale back our
business efforts or curtail our business activities entirely.
We
anticipate that our available cash and expected income will be sufficient to
finance most of our current activities for at least 11 months from the date
of
this prospectus, although certain of these activities and related personnel
may
need to be reduced. Additionally, in the event we are able to file a successful
IND with the FDA, we anticipate we will enter clinical trials in 2007. In the
event of such trials, we would incur additional expenses associated with such
trials which are estimated to exceed $1,000,000. Assuming our current monthly
cash burn rate of $260,000, increased expense from regulatory compliance and
personnel required for the pre-trial and clinical trial work, as well as the
estimated cost of the trial, our cash on hand is sufficient to finance our
current operations, pre-clinical and clinical work for at least 8 months
from the date of this prospectus. We cannot assure you that public or private
financing or grants will be available on acceptable terms, if at all. Several
factors will affect our ability to raise additional funding, including, but
not
limited to, the volatility of our Common Stock.
LEGAL
PROCEEDINGS
As
of the
date of this prospectus, there are no material pending legal or governmental
proceedings relating to our company or properties to which we are a party,
and
to our knowledge there are no material proceedings to which any of our
directors, executive officers or affiliates are a party adverse to us or which
have a material interest adverse to us, other than the following:
On
July 28, 2006, StemCells, Inc. and StemCells
California, Inc. (collectively "Stemcells") of Palo Alto, California, filed
suit
against Neuralstem, Inc. in U.S. District Court in Maryland, alleging that
Neuralstem has been infringing, contributing to the infringement of, and or
inducing the infringement of four patents owned by or exclusively licensed
to
StemCells relating to stem cell culture compositions, genetically modified
stem
cell cultures, and methods of using such cultures. StemCells has sought monetary
relief and a permanent injunction. Neuralstem's response to the suit is due
on
September 19, 2006.
MANAGEMENT
The
following table sets forth the name, age and position of each of our directors,
executive officers and significant employees as of August 25, 2006. Except
as
noted below each director will hold office until the next annual meeting
of our
stockholders or until his or her successor has been elected and qualified.
Our
executive officers are appointed by, and serve at the discretion of, the
Board
of Directors.
Name
|
|
Age
|
|
Position
|
|
|
|
|
|
I.
Richard Garr
|
|
53
|
|
Chief
Executive Officer, Chief Financial Officer, President, General Counsel
and
Director
|
|
|
|
|
|
Karl
Johe, Ph.D.
|
|
46
|
|
Chief
Scientific Officer, Chairman of the Board, and Director
|
|
|
|
|
|
Malcolm
Currie, Ph.D.
|
|
79
|
|
Director
Elect
|
Mr.
I. Richard Garr, JD
has been
our Chief Executive Office, Chief Financial Officer, President, Board Director
& Co-Founder since 1996. Mr. Garr was previously an attorney with Beli, Weil
& Jacobs, the B&G Companies, and Circle Management Companies. Mr. Garr
is a graduate of Drew University (1976) and the Columbus School of Law, The
Catholic University of America (1979). Additionally, he was a founder and
current Board member of the First Star Foundation, a children's charity focused
on abused children's issues; a founder of The Starlight Foundation Mid Atlantic
chapter, which focuses on helping seriously ill children; and is a past Honorary
Chairman of the Brain Tumor Society.
Mr.
Karl Johe, Ph.D.
has been
our Chief Scientific Officer, Chairman & Co-Founder since 1996. Mr. Johe has
over 15 years of research and laboratory experience. Dr. Johe is the sole
inventor of Neuralstem's granted stem cell patents and is responsible for
strategic planning and development of the Company's therapeutic products. Dr.
Johe received his Bachelor of Arts Degree in Chemistry from the University
of
Kansas. Dr. Johe also received a Master's Degree from the University of Kansas
and his doctorate was received from the Albert Einstein College of Medicine.
From 1993 to January 1997, Dr. Johe served as a Staff Scientist at the
Laboratory of Molecular Biology of the National Institute of Neurological
Disease and Stroke in Bethesda, Maryland. While holding this position, Dr.
Johe
conducted research on the isolation of neural stem cells, the elucidation of
mechanisms directing cell type specification of central nervous system stem
cells and the establishment of an in vitro model of mammalian
neurogenesis.
Malcolm
Currie, Ph.D.
was
elected by our directors to serve as a board member on January 23 of 2006.
Dr.
Currie has preliminarily accepted the appointment subject to our stock being
listed on a national exchange or traded over-the-counter. Dr. Currie has been
the Chairman of the Board of Regal One Corporation since 1995, and the CEO
since
2001. From 1969 to 1973, Dr. Currie was the Undersecretary of Research and
Engineering for the Office of Defense. From 1973 to 1977, Dr. Currie was
President of the Missile Systems Group for Hughes Aircraft Corporation. From
1977 to 1988, Dr. Currie started as Executive Vice President and eventually
became Chief Executive Officer and Chairman of the Board of Hughes Aircraft
Corporation. From 1992 to present, Dr. Currie has been Chairman Emeritus of
Hughes Aircraft Corporation. Dr. Currie is also on the Board of Directors of
LSI
Logic, Enova Systems, Inamed Corp., and Innovative Micro Technologies. Dr.
Currie obtained a graduate MBA from the University of California, Berkeley,
and
a PhD in Engineering and Physics at the University of California,
Berkeley.
Audit
Committee Financial Expert
The
functions of the Audit and Compensation Committee are: (i) to recommend the
engagement of the Company's independent auditors and review with them the plan,
scope and results of their audit for each year; (ii) to consider and review
other matters relating to the financial and accounting affairs of the Company;
and (iii) to review and recommend to the Board of Directors all compensation
packages, including the number and terms of stock options, offered to officers
and executive employees of the Company. The Company's entire Board of Directors
serves as the Company's Audit Committee and Compensation Committee.
Code
of Ethics
We
have
adopted a "Code of Ethics for Directors, Officers and Employees" that applies
to
all employees, including our executive officers. A copy of our Code of Ethics
for Directors, Officers and Employees is
filed
as
Exhibit 14.1 to this Registration Statement.
EXECUTIVE
COMPENSATION
Summary
Compensation Table
The
following table sets forth information for the most recent fiscal year
concerning the compensation of (i) the Chief Executive Officer and
(ii) all other executive officers of Neuralstem, Inc. who earned over
$100,000 in salary and bonus in the fiscal year ended December 31, 2005
(together the “Named Executive Officers”).
|
|
|
|
Annual
Compensation
|
|
Long-Term
Compensation
Awards
|
|
Name
and Principal Position
|
|
Year
|
|
Salary
($)
|
|
|
|
Bonus
($)
|
|
Other
Annual
Compensation
($)(3)
|
|
Restricted
Stock
Awards
($)
|
|
Securities
Underlying
Options
(#)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
I
Richard Garr
Chief
Executive Officer
|
|
|
2005
|
|
$
|
240,000
|
|
|
(1
|
)
|
$
|
--
|
|
$
|
27,605
|
|
|
|
|
$
|
--
|
|
|
1,200,000(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Karl
Johe
Chief
Scientific Officer
|
|
|
2005
|
|
$
|
240,000
|
|
|
(2
|
)
|
$
|
--
|
|
$
|
23,070
|
|
|
|
|
$
|
--
|
|
|
1,200,000(4
|
)
|
(1)
|
Includes
$200,000 paid as consulting fees and $40,000 paid pursuant to the
November
1, 2005 employment agreement with the
Company.
|
(2)
|
Includes
$200,000 paid as consulting fees and $40,000 paid pursuant to the
November
1, 2005 employment agreement with the
Company.
|
(3)
|
Includes,
among other things, automobile allowances, perquisites and other
personal
benefits.
|
(4)
|
The
options vest annually at a rate of 300,000 per year and will expire
in 10
years if not exercised.
|
Option
Grants in Last Fiscal Year
The
following tables set forth certain information for the Named Executive Officers
with respect to grants and exercises in fiscal 2005 of options to purchase
our
Common Stock:
Name
|
|
Number of Securities
Underlying
Options
Granted
(#)
|
|
% of Total Options
Granted to Employees
in
Fiscal Year (1)
|
|
|
Exercise or
Base Price
($/sh)
|
|
Expiration
Date
|
I.
Richard Garr
|
|
1,200,000
|
|
50
%
|
|
|
$
|
.50
|
|
7/27/2015
|
Karl
Johe
|
|
1,200,000
|
|
50
%
|
|
|
$
|
.50
|
|
7/27/2015
|
(1) The
numerator in calculating this percentage includes common share purchase options
granted to each named executive officer in fiscal 2005 in his capacity as an
officer or employee. The denominator in calculating this percentage is
2,400,000, which represents options granted to all Neuralstem, Inc. employees
during fiscal 2005, including those to the named executive
officers.
Compensation
of Directors
For
the
fiscal year ended December 31, 2005, we paid no compensation to our directors
for their services on our board.
Employment
Agreements and Change-in-Control Arrangements
Employment
Agreement with I. Richard Garr On
November 1, 2005, we entered into an amendment to the employment agreement
with
Richard Garr, our Chief Executive Officer, President and Chief Financial
Officer. The agreement provides for annual compensation in the amount of
$240,000 and extends his term of employment until October 31, 2012.
Additionally, the agreement provides for a $500 monthly automobile allowance
and
the reimbursement of reasonable business expenses. The agreement also provides
for an industry standard bonus upon the formation of a compensation committee
by
the company.
The
agreement also provides for severance (“Termination Provisions”) an amount equal
to the greater of: (i) the aggregate compensation remaining on his contract;
or
(ii) $1,000,000, in the event Mr. Garr is terminated for any reason. In the
event of termination, the agreement also provides for the immediate vesting
of
100% of stock options granted to Mr. Garr during his term of employment. These
termination provisions apply whether employee is terminated for “cause” or
“without cause.” Additionally, in the event employee voluntarily terminates his
employment following a change in control and material reassignment of duties,
he
will also be entitled to the termination provisions under the contract. In
the
event of early termination, the Termination Provisions will require us to make
a
substantial payment to the employee. By way of example, such payments would
be
approximately as follows:
Termination
Date
|
|
Amount
of Payment(1)
|
|
|
|
|
|
October
31, 2006
|
|
$
|
1,476,000
|
|
|
|
|
|
|
October
31, 2007
|
|
$
|
1,230,000
|
|
|
|
|
|
|
October
31, 2008 until end of Contract
|
|
$
|
1,000,000
|
|
(1)
|
Assumes
payment of annual salary of $240,000 and a monthly automobile allowance
of
$500.00. Does not include health benefits, bonuses or increase in
annual
salary.
|
Mr.
Garr's agreement contains non-solicitation, and confidentiality and
non-competition covenants. The agreement may be terminated by either party
with
or without cause and without prior notice subject to the termination provisions
as discussed.
Employment
Agreement with Karl Y. Johe, Ph.D. On
November 1, 2005, we entered into an amendment to the employment agreement
with
Karl Y. Johe, Ph.D., our Chief Scientific Office and Chairman of the Board.
The
agreement provides for a minimum annual compensation in the amount of $240,000
and in no event less than the salary of the Chief Executive Officer. The
agreement also extends his term of employment until October 31, 2012.
Additionally, the agreement provides for a $500 monthly automobile allowance
and
the reimbursement of reasonable business expenses. The agreement also provides
for an industry standard bonus upon the formation of a compensation committee
by
the company.
The
agreement also provides for severance (“Termination Provisions”) an amount equal
to the greater of: (i) the aggregate compensation remaining on his contract;
or
(ii) $1,000,000, in the event Mr. Johe is terminated for any reason. In the
event of termination, the agreement also provides for the immediate vesting
of
100% of stock options granted to Mr. Johe during his term of employment. These
termination provisions apply whether employee is terminated for “cause” or
“without cause.” Additionally, in the event employee voluntarily terminates his
employment following a change in control and material reassignment of duties,
he
will also be entitled to the termination provisions under the contract. In
the
event of early termination, the Termination Provisions will require us to make
a
substantial payment to the employee. By way of example, such payments would
be
approximately as follows:
Termination
Date
|
|
Amount
of Payment(1)
|
|
|
|
|
|
October
31, 2006
|
|
$
|
1,476,000
|
|
|
|
|
|
|
October
31, 2007
|
|
$
|
1,230,000
|
|
|
|
|
|
|
October
31, 2008 until end of Contract
|
|
$
|
1,000,000
|
|
(1)
|
Assumes
payment of annual salary of $240,000 and a monthly automobile allowance
of
$500.00. Does not include health benefits, bonuses or increase in
annual
salary.
|
Mr.
Johe's agreement contains non-solicitation, and confidentiality and
non-competition covenants. The agreement may be terminated by either party
with
or without cause and without prior notice subject to the termination provisions
as discussed.
PRINCIPAL
STOCKHOLDERS
The
following tables set forth certain information regarding the beneficial
ownership of our common stock. Beneficial ownership is determined in accordance
with the applicable rules of the Securities and Exchange Commission and includes
voting or investment power with respect to shares of our common stock. The
information set forth below is not necessarily indicative of beneficial
ownership for any other purpose, and the inclusion of any shares deemed
beneficially owned in this table does not constitute an admission of beneficial
ownership of those shares. Unless otherwise indicated, to our knowledge, all
persons named in the table have sole voting and investment power with respect
to
their shares of common stock, except, where applicable, to the extent authority
is shared by spouses under applicable state community property
laws.
The
following table sets forth information regarding beneficial ownership of
our
capital stock as of August 25, 2006 by:
·
|
each
person, or group of affiliated persons, known to us to be the beneficial
owner of more than 5% of the outstanding shares of our common
stock;
|
·
|
each
of our directors and named executive officers;
and
|
·
|
all
of our directors and executive officers as a
group.
|
|
|
Common
Stock
|
|
Name
|
|
Amount(1)
|
|
%
|
|
Stanley
Westreich(2)(8)
|
|
|
4,321,114
|
|
|
16.7
|
%
|
Regal
One Corporation(3)(9)
|
|
|
2,815,287
|
|
|
10.9
|
%
|
Karl
Johe(4)
|
|
|
2,084,584
|
|
|
8.1
|
%
|
Merrill
Solomon(5)(10)
|
|
|
2,177,097
|
|
|
8.4
|
%
|
Richard
Garr(6)
|
|
|
1,810,084
|
|
|
7.0
|
%
|
JMG
Capital Partners, LP/JMG Triton Offshore Fund, Ltd(7)(11)
|
|
|
2,006,667
|
|
|
7.8
|
%
|
Malcolm
Currie(3)(12)
|
|
|
50,167
|
|
|
*
|
|
Directors
& Executive Officers as a Group
|
|
|
3,944,835
|
|
|
15.3
|
%
|
*
Less
than 1%
Pursuant
to
(1)
|
Pursuant
to Rules 13d-3 and 13d-5 of the Exchange Act, beneficial ownership
includes any shares as to which a shareholder has sole or shared
voting
power or investment power, and also any shares which the shareholder
has
the right to acquire within 60 days, including upon exercise of
common
shares purchase options or warrant. There are 25,820,939 shares
of common
stock issued and outstanding as of August 25,
2006
|
(2)
|
The
address for Stanley Westreich is 9700 Great Seneca Highway, #240,
Rockville, MD 20850.
|
(3)
|
The
address for Regal One Corporation and Malcolm Currie is 11300 West
Olympic
Boulevard, Los Angeles, CA 90064.
|
(4)
|
The
address for Karl Johe is 9700 Great Seneca Highway, #240, Rockville,
MD
20850.
|
(5)
|
The
address for Merrill Solomon is 9700 Great Seneca Highway, #240, Rockville,
MD 20850.
|
(6)
|
The
address for I. Richard Garr is 9700 Great Seneca Highway, #240, Rockville,
MD 20850.
|
(7)
|
The
address for JMG Capital Partners, LP & JMP Triton Offshore Fund, Ltd
is 11601 Wilshire Blvd., Suite 2180, Los Angeles, CA
90025.
|
(8)
|
Includes
200,000 common shares issuable upon the exercise of a vested warrant
granted to Mr. Westeich in connection with the settlement of a
note.
|
(9)
|
Includes
1,000,000 common shares issuable upon the exercise of a vested warrant
granted for services.
|
(10)
|
Includes
120,000 common shares issuable upon the exercise of a vested warrant
granted to Mr. Solomon's in connection with the settlement of past
due
consulting fees.
|
(11)
|
Includes:
(i) 501,667 common shares held in the name of JMP Capital Partners,
LP;
(ii) 501,667 common shares held in the name of JMP Triton Offshore
Fund,
Ltd; (iii) 250,833 common shares issuable to JMP Capital Partners,
LP upon
the exercise of class A warrants and 250,833 common shares issuable
upon
the exercise of class B warrants; and (iv) 250,833 common shares
issuable
to JMP Triton Offshore Fund, Ltd upon the exercise of class A warrants
and
250,833 common shares issuable upon the exercise of class B
warrants.
|
(12)
|
Includes:
12,542 common shares issuable upon the exercise of class A warrants;
and
12,542 common shares issuable upon the exercise of class B
warrants.
|
TRANSACTIONS
AND BUSINESS RELATIONSHIPS WITH
MANAGEMENT
AND PRINCIPAL SHAREHOLDERS
Summarized
below are certain transactions and business relationships between Neuralstem
and
persons who are or were an executive officer, director or holder of more than
five percent of any class of our securities since January 1, 2003:
·
|
In
late 2004 we issued a note to Stanley Westreich in exchange for
$60,000.
|
·
|
On
March 22, 2005, we converted a note payable to Stanley Westreich
in the
amount of $60,000, and all accrued interest thereon, into 120,000
shares
of our common stock.
|
·
|
On
July 7, 2005, we entered into a limited exclusive, licensing agreement
relating to the sales, distribution and marketing of our technology
by
High Med Technologies, Inc. HighMed is owned by Karl Y. Johe, one
of our
principal shareholders and our Chief Scientific Officer. To date,
no fees
have been paid under the contract. For further information relating
to
this agreement, see that section of this prospectus captioned “Our
Business--Our
Intellectual Property Licensed to Others”.
|
·
|
On
November 1, 2005, we entered into an amendment to the employment
agreement
with Richard Garr, our Chief Executive Officer, President and Chief
Financial Officer. For further information relating to this agreement,
see
that section of this prospectus captioned “Executive
Compensation--Employment Agreements and Change in Control
Arrangements”.
|
·
|
On
November 1, 2005, we entered into an amendment to the employment
agreement
with Karl Y. Johe, Ph.D., our Chief Scientific Office and Chairman
of the
Board. The agreement provides for a minimum annual compensation in
the
amount of $240,000 and in no event less than the salary of the Chief
Executive Officer. For further information relating to this agreement,
see
that section of this prospectus captioned “Executive
Compensation--Employment Agreements and Change in Control
Arrangements”.
|
·
|
On
November 7, 2005 we entered into a settlement agreement with Mr.
Merrill
Solomon regarding unpaid consulting fees. As part of the settlement,
we
granted Mr. Solomon: (i) 120,000 shares of our common stock; and
(ii) a
warrant
to purchase 120,000 common shares at
$.50.
|
·
|
On
November 7, 2005 we converted a note in the amount of $100,000 payable
to
Mr. Stanley Westreich. As part of the conversion, we issued Mr. Westreich:
(i) 200,000 shares of our common stock; and (ii) a warrant
to purchase 200,000 common shares at
$.50.
|
DESCRIPTION
OF SECURITIES
General
Our
authorized capital consists of (1) 75,000,000 shares of common stock, par value
$.001 per share, and (2) 7,000,000 shares of “blank check” preferred stock, par
value $.001 per share.
Common
Stock
The
holders of our common stock are entitled to one vote per share on each matter
submitted to a vote at a meeting of our stockholders, except to the extent
that
the voting rights of our shares of any class or series of stock are determined
and specified as greater or lesser than one vote per share in the manner
provided by our certificate of incorporation. Our stockholders have no
pre-emptive rights to acquire additional shares of our common stock or other
securities. Our common stock is not subject to redemption rights and carries
no
subscription or conversion rights. In the event of liquidation of our company,
the shares of our common stock are entitled to share equally in corporate
assets
after satisfaction of all liabilities. All shares of our common stock now
outstanding are fully paid and non-assessable. Our bylaws authorize the board
of
directors to declare dividends on our outstanding shares. As of August 25,
2006
there are 25,820,939 shares of our common stock issued and
outstanding.
Preferred
Stock
We
may
issue our preferred shares from time to time in one or more series as determined
by our board of directors. The voting powers and preferences, the relative
rights of each series, and the qualifications, limitations and restrictions
thereof may be established by our board of directors without any further
vote or
action by our shareholders. As of August 25, 2006 there were no shares
of our
preferred stock issued and outstanding.
Options
and
Warrants Convertible into Common Shares
As
of
August 25,
2006,
there were outstanding common share purchase options or warrants entitling
the
holders to purchase up to 11,121,667
common shares at exercise prices between $0.05 and $10.00
with an average weighted exercise price of $1.61
per
share.
EQUITY
COMPENSATION PLAN INFORMATION
The
following table sets forth information with respect to our 2005 Stock Plan
as of
August 25,
2006.
|
|
(a)
|
|
(b)
|
|
(c)
|
|
|
|
Number of Securities
to be Issued
upon Exercise
of
Outstanding
Options,
Warrants
and
Rights
|
|
Weighted-Average
Exercise
Price of
Outstanding
Options,
Warrants
and
Rights
|
|
Number of Securities
Remaining Available or
Future
Issuance under
Equity Compensation Plans
(Excluding
Securities
Reflected
in Column (a))
|
|
Equity
compensation plans approved by security holders
|
|
|
2,400,000
|
|
$
|
.50
|
|
|
1,600,000
|
|
Equity
compensation plans not approved by security holders
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
Total
|
|
|
2,400,000
|
|
$
|
.50
|
|
|
1,600,000
|
|
2005
Stock Plan
Our
board
of directors adopted the 2005 Stock Plan on July 27, 2005, and it was
subsequently approved by our stockholders. The 2005 Stock Plan provides for
the
grant of stock options or stock to our employees, directors, and consultants.
As
of August 25, 2006 options to purchase a total of 2,400,000 shares of common
stock were outstanding under the 2005 Stock Plan at a weighted average exercise
price of $.50 per share. At August 25, 2006, 1,600,000 shares of our common
stock remained available for future issuance under our 2005 Stock
Plan.
Administration
of the 2005 Stock Plan. Our
board of directors administers our 2005 Stock Plan. The administrator has the
power to determine the terms of the awards, including the exercise price (which
may be changed by the administrator after the date of grant), the number of
shares subject to each award, the exercisability of the awards and the form
of
consideration payable upon exercise.
Options. A
stock option is the right to purchase shares of our common stock at a fixed
exercise price for a fixed period of time. The administrator will determine
the
exercise price of options granted under our 2005 Stock Plan. Notwithstanding,
pursuant to the plan, the exercise price of any option granted shall in no
event
be less than the lesser of: (i) the book value per share of common stock as
of
the end of the fiscal year immediately preceding the date of such grant; or
(ii)
fifty percent (50%) of the fair market value per share of the common stock
on
the date of grant.
Transferability
of Awards. Unless
the administrator determines otherwise, our 2005 Stock Plan does not allow
for
the transfer of awards other than by will or by the laws of descent and
distribution, and only the participant may exercise an award during his or
her
lifetime.
Amendment
and Termination of Our 2005 Stock Plan. Our
2005 Stock Plan will automatically terminate in 2010, unless we terminate it
sooner. In addition, our board of directors has the authority to amend, suspend
or terminate our 2005 Stock Plan without shareholder consent.
MARKET
FOR COMMON EQUITY & RELATED STOCKHOLDER MATTERS
Market
Information
There
exists no market for our common stock. Private sales or transfers are permitted
under the respective state and Federal securities laws, subject to compliance
with exemptions set forth under the respective statutory guidelines. As of
August 25, 2006, we had 157 shareholders of record. We anticipate this number
to
dramatically increase upon the issuance of the Regal One Corporation stock
dividend as further described in the section titled “Additional
Selling Shareholders.”
Dividend
Policy
Holders
of the Company's Common Stock are entitled to receive dividends should they
be
declared by the Board of Directors, out of funds legally available for
distribution. Any such dividends may be paid in cash, property or shares of
the
Company's common stock. The Company has not paid any dividends since its
inception, and it is not likely that dividends on its Common Stock will be
declared at any time in the foreseeable future. Any dividends will be subject
to
the discretion of the Company's Board of Directors, and will depend upon, among
other things, the operating and financial condition of the Company, its capital
requirements and general business conditions. Therefore, there can be no
assurance that any dividends on the Company's Common Stock will be paid in
the
future.
SHARES
ELIGIBLE FOR FUTURE SALE
To
date,
there has been no market for our common stock. In the event a public market
for
our shares develops, future sales of substantial amounts of our common stock
in
the public market could adversely affect prevailing market prices from time
to
time. Further, since only a limited number of shares will be available for
sale
shortly after this offering because of certain contractual and legal
restrictions on resale described below, sales of substantial amounts of our
common stock in the public market after the restrictions lapse could adversely
affect the prevailing market price and our ability to raise equity capital
in
the future.
Sales
of Restricted Shares
As
of
August 25, 2006, we have issued and outstanding an aggregate of 25,820,939
shares of common stock. Of these shares, the 8,088,667 common shares being
registered in this prospectus, excluding those shares issuable upon the
exercise
of options and warrants, will be freely tradable without restrictions or
further
registration under the Securities Act, unless one or more of our existing
affiliates as that term is defined in Rule 144 under the Securities Act
purchases such shares.
The
remaining 17,739,272 shares of our common stock held by existing stockholders
as
of August 25, 2006 are restricted shares or are restricted by the contractual
provisions described below. Restricted shares may be sold in the public
market
only if registered or if they qualify for an exemption from registration
under
Rule 144 or Rule 701 of the Securities Act, which are summarized below. Of
these restricted shares, 12,822,317 shares are available for resale in
the
public market in reliance on Rule 144(k) as of August 25, 2006. An
additional 3,894,668 shares will be available for resale in the public
market in
reliance on Rule 144 as of August 25, 2006. The remaining 1,015,287
shares become eligible for resale in the public market at various dates
thereafter. Notwithstanding the foregoing, 6,178,211 shares which would
otherwise be subject to Rule 144(k) and 3,894,668 shares which would otherwise
be eligible under Rule 144, are restricted by lock up agreement for a period
of
12 months.
The
table
below sets forth the approximate number of shares eligible for future
sale:
Date
|
|
Number of Shares
|
|
On
the date of this prospectus
|
|
|
14,707,689
|
|
Within
90 days after the date of this prospectus
|
|
|
15,722,976 |
|
Between
90 and 180 days after the date of this prospectus
|
|
|
15,722,976
|
|
At
various times beginning more than 180 days after the date of this
prospectus
|
|
|
25,820,939
|
|
Rule
144
Under
Rule 144 as currently in effect, beginning 90 days after the date of
this prospectus, a stockholder who has beneficially owned restricted shares
for
at least one year and has complied with the requirements described below would
be entitled to sell, upon the expiration of the lock-up agreements described
below, some of that stockholder's shares within any three-month period. That
number of shares cannot exceed the greater of one percent of the number of
shares of our common stock then outstanding, which will equal approximately
258,209 shares immediately after this offering, or the average weekly trading
volume of our common stock during the four calendar weeks preceding the filing
of a notice on Form 144 reporting the sale. Sales under Rule 144 are
also restricted by manner of sale provisions, notice requirements and the
availability of current public information about us. Rule 144 also provides
that our affiliates who are selling shares of our common stock that are not
restricted shares must nonetheless comply with the same restrictions applicable
to restricted shares with the exception of the holding period
requirement.
Under
Rule 144(k), a person who is not deemed to have been one of our affiliates
at any time during the 90 days preceding a sale and who has beneficially
owned the shares proposed to be sold for at least two years is entitled to
sell
those shares without complying with the manner of sale, public information,
volume limitation or notice provisions of Rule 144. Accordingly, these
shares may be sold without restriction immediately upon the expiration of the
lock-up agreements described below.
Rule
701
Rule 701
provides that the shares of common stock acquired upon the exercise of currently
outstanding options or other rights granted under our equity plans may be
resold, by persons, other than affiliates, beginning 90 days after the date
of this prospectus, restricted only by the manner of sale provisions of
Rule 144, and by affiliates in accordance with Rule 144, without
compliance with its one-year minimum holding period.
Registration
Statements
We
intend
to file one or more registration statements on Form S-8 under the
Securities Act following this offering to register all shares of our common
stock which have been issued or are issuable upon exercise of outstanding stock
options or other rights granted under our equity plans. These registration
statements are expected to become effective upon filing. Shares covered by
these
registration statements will thereupon be eligible for sale in the public
market, upon the expiration or release from the terms of the lock-up agreements,
to the extent applicable, or subject in certain cases to vesting of such
shares.
Lock-up
Agreements
As
a
condition to our March 2006 private placement, certain stockholders, warrant
holders and option holders, representing 10,392,879 shares of our common stock
on an as converted as exercised basis, have agreed with us not to sell or
otherwise dispose of, directly or indirectly, any shares of our common stock
(or
any security convertible into or exchangeable or exercisable for common stock)
for a period of 12 months following the effectiveness of this registration
statement without the express consent of T.R. Winston &
Company.
SELLING
SHAREHOLDERS
The
following table depicts the total number of common shares beneficially
owned or
acquirable by each of the selling shareholders as of August 25, 2006, the
total
number of common shares they may sell under this prospectus, and the number
of
common shares they will own thereafter assuming the sale of all shares
offered
under this prospectus and further assuming no other acquisitions or dispositions
of common shares. The number and percentage of shares beneficially owned
is
determined in accordance with Rule 13d-3 and 13d-5 of the Exchange Act
which
calculates ownership based solely upon sole or shared voting power or investment
power, and the information is not necessarily indicative of the beneficial
ownership for any other purpose, including the determination of direct
or
indirect pecuniary ownership. We believe that each individual or entity
named
has sole investment and voting power with respect to the securities indicated
as
beneficially owned by them, subject to community property laws, where
applicable, except where otherwise noted.
The
selling shareholders are under no obligation to sell all or any portion of
the
common shares offered for sale under this prospectus.
The
total
number of common shares sold under this prospectus may be adjusted to reflect
adjustments due to stock dividends, stock distributions, splits, combinations,
recapitalizations or the triggering standard of weighted-average and other
anti-dilution protective provisions.
Unless
otherwise stated below, to our knowledge no selling shareholder nor any
affiliate of such shareholder has held any position or office with, been
employed by or otherwise has had any material relationship with us or our
affiliates during the three years prior to the date of this
prospectus.
|
|
Common
Shares
Owned
Before Sale(1)
|
|
|
Common
Shares
Owned
After Sale(2)
|
|
Selling
Shareholder
|
|
Held
Outright
|
|
Warrants/Options
(3)
|
|
Amount
|
|
%
of Class
|
|
Shares
being registered
|
|
Amount
|
|
%
of Class
|
|
Andrew
M. Lessman
|
|
|
250,833
|
|
|
250,833
|
|
|
501,667
|
|
|
1.9
|
%
|
501,667
|
|
-
|
|
|
-
|
|
Ariana
M. McFadyen
|
|
|
50,167
|
|
|
50,167
|
|
|
100,333
|
|
|
*
|
|
100,333
|
|
-
|
|
|
-
|
|
Arthur
M. Margulies
|
|
|
50,167
|
|
|
50,167
|
|
|
100,333
|
|
|
*
|
|
100,333
|
|
-
|
|
|
-
|
|
Aton
Select Fund Limited(4)
|
|
|
150,500
|
|
|
150,500
|
|
|
301,000
|
|
|
1.2
|
%
|
301,000
|
|
-
|
|
|
-
|
|
B&R
Richie's(5)
|
|
|
100,333
|
|
|
100,333
|
|
|
200,667
|
|
|
*
|
|
200,667
|
|
-
|
|
|
-
|
|
Barry
Shemaria
|
|
|
25,083
|
|
|
25,083
|
|
|
50,167
|
|
|
*
|
|
50,167
|
|
-
|
|
|
-
|
|
Benjamin
G. Wells, Trustee, Wells Family Revocable Trust Dtd. 5-
1-91
|
|
|
50,167
|
|
|
50,167
|
|
|
100,333
|
|
|
*
|
|
100,333
|
|
-
|
|
|
-
|
|
Brendon
Myers
|
|
|
100,000
|
|
|
-
|
|
|
100,000
|
|
|
*
|
|
100,000
|
|
-
|
|
|
-
|
|
Brian
Garr
|
|
|
25,083
|
|
|
25,083
|
|
|
50,167
|
|
|
*
|
|
50,167
|
|
-
|
|
|
-
|
|
Bruce
& Jacqueline Barron, Joint Ownership
|
|
|
50,000
|
|
|
-
|
|
|
50,000
|
|
|
*
|
|
50,000
|
|
-
|
|
|
-
|
|
Bruce
B. Allen Trustee of the Bruce and Janet Allen Joint Revocable Trust
dated
7-31-03
|
|
|
50,167
|
|
|
50,167
|
|
|
100,333
|
|
|
*
|
|
100,333
|
|
-
|
|
|
-
|
|
Chaim
Slomluc
|
|
|
50,000
|
|
|
-
|
|
|
50,000
|
|
|
*
|
|
50,000
|
|
-
|
|
|
-
|
|
Chandrasekhar
Polepalle & Suseela Polepalle JTWROS
|
|
|
325,417
|
|
|
125,417
|
|
|
450,834
|
|
|
1.7
|
%
|
450,834
|
|
-
|
|
|
-
|
|
Charles
Abramovitz
|
|
|
50,167
|
|
|
50,167
|
|
|
100,333
|
|
|
*
|
|
100,333
|
|
-
|
|
|
-
|
|
Condor
Financial Management S.A.(6)
|
|
|
50,167
|
|
|
50,167
|
|
|
100,333
|
|
|
*
|
|
100,333
|
|
-
|
|
|
-
|
|
Dan
R. Hamby and Marianne Hamby
|
|
|
40,133
|
|
|
40,133
|
|
|
80,267
|
|
|
*
|
|
80,267
|
|
-
|
|
|
-
|
|
David
Carl Lustig, III
|
|
|
50,167
|
|
|
50,167
|
|
|
100,333
|
|
|
*
|
|
100,333
|
|
-
|
|
|
-
|
|
Donald
L. Stahl
|
|
|
50,167
|
|
|
50,167
|
|
|
100,333
|
|
|
*
|
|
100,333
|
|
-
|
|
|
-
|
|
Equity
Communications, LLC(7)
|
|
|
|
|
|
330,000
|
|
|
330,000
|
|
|
1.3
|
%
|
330,000
|
|
-
|
|
|
-
|
|
Freddie
Bear Partnership(8)
|
|
|
25,083
|
|
|
25,083
|
|
|
50,167
|
|
|
*
|
|
50,167
|
|
-
|
|
|
-
|
|
G.
Tyler Runnels or Jasmine Niklas Runnels TTEES The Runnels Family
Trust dtd
1-11-2000 (29)
|
|
|
112,040
|
|
|
12,040
|
|
|
124,080
|
|
|
*
|
|
124,080
|
|
-
|
|
|
-
|
|
Guy
Clemente (29)
|
|
|
100,000
|
|
|
-
|
|
|
100,000
|
|
|
*
|
|
100,000
|
|
-
|
|
|
-
|
|
Harbans
L. Gulati & Subhash C. Gulati
|
|
|
25,083
|
|
|
25,083
|
|
|
50,167
|
|
|
*
|
|
50,167
|
|
-
|
|
|
-
|
|
Hawkins
Family Trust(9)
|
|
|
50,167
|
|
|
50,167
|
|
|
100,333
|
|
|
*
|
|
100,333
|
|
-
|
|
|
-
|
|
High
Tide, LLC(10)
|
|
|
500,000
|
|
|
-
|
|
|
500,000
|
|
|
1.9
|
%
|
500,000
|
|
-
|
|
|
-
|
|
Ira
Weingarten
|
|
|
25,083
|
|
|
25,083
|
|
|
50,167
|
|
|
*
|
|
50,167
|
|
-
|
|
|
-
|
|
Iroquois
Master Fund, Ltd.(11)
|
|
|
250,833
|
|
|
250,833
|
|
|
501,667
|
|
|
1.9
|
%
|
501,667
|
|
-
|
|
|
-
|
|
J.
Leroy and Joan B. Thompson
|
|
|
12,040
|
|
|
12,040
|
|
|
24,080
|
|
|
*
|
|
24,080
|
|
-
|
|
|
-
|
|
JAG
Multi Investments, LLC(12)
|
|
|
100,333
|
|
|
100,333
|
|
|
200,667
|
|
|
*
|
|
200,667
|
|
-
|
|
|
-
|
|
JAM
Capital Associates, LLC(13)
|
|
|
25,083
|
|
|
25,083
|
|
|
50,167
|
|
|
*
|
|
50,167
|
|
-
|
|
|
-
|
|
James
Karanfilian
|
|
|
25,083
|
|
|
25,083
|
|
|
50,167
|
|
|
*
|
|
50,167
|
|
-
|
|
|
-
|
|
James
McCamant
|
|
|
50,000
|
|
|
-
|
|
|
50,000
|
|
|
*
|
|
50,000
|
|
-
|
|
|
-
|
|
Jay
R. Solan & Sandra S. Solan
|
|
|
225,417
|
|
|
125,417
|
|
|
350,834
|
|
|
1.4
|
%
|
350,834
|
|
-
|
|
|
-
|
|
JMG
Capital Partners, LP(14)
|
|
|
501,667
|
|
|
501,667
|
|
|
1,003,333
|
|
|
3.9
|
%
|
1,003,333
|
|
-
|
|
|
-
|
|
JMG
Triton Offshore Fund, Ltd.(15)
|
|
|
501,667
|
|
|
501,667
|
|
|
1,003,333
|
|
|
3.9
|
%
|
1,003,333
|
|
-
|
|
|
-
|
|
John
G. Korman
|
|
|
50,167
|
|
|
50,167
|
|
|
100,333
|
|
|
*
|
|
100,333
|
|
-
|
|
|
-
|
|
John
H. Dakin
|
|
|
15,050
|
|
|
15,050
|
|
|
30,100
|
|
|
*
|
|
30,100
|
|
-
|
|
|
-
|
|
Jonathan
Meyers
|
|
|
100,333
|
|
|
100,333
|
|
|
200,667
|
|
|
*
|
|
200,667
|
|
-
|
|
|
-
|
|
Joseph
Giamanco
|
|
|
50,167
|
|
|
50,167
|
|
|
100,333
|
|
|
*
|
|
100,333
|
|
-
|
|
|
-
|
|
Joseph
H. Merback & Tema N. Merback Co-TTEE FBO Merback Family Trust UTD
8-30-89 (29)
|
|
|
100,333
|
|
|
100,333
|
|
|
200,667
|
|
|
*
|
|
200,667
|
|
-
|
|
|
-
|
|
Larry
E. Roher
|
|
|
50,167
|
|
|
50,167
|
|
|
100,333
|
|
|
*
|
|
100,333
|
|
-
|
|
|
-
|
|
Leonard
Cohen
|
|
|
50,167
|
|
|
50,167
|
|
|
100,333
|
|
|
*
|
|
100,333
|
|
-
|
|
|
-
|
|
Louis
Albert Lobel
|
|
|
25,083
|
|
|
25,083
|
|
|
50,167
|
|
|
*
|
|
50,167
|
|
-
|
|
|
-
|
|
Martin
Hodas
|
|
|
100,333
|
|
|
100,333
|
|
|
200,667
|
|
|
*
|
|
200,667
|
|
-
|
|
|
-
|
|
|
|
Common
Shares
Owned
Before Sale(1)
|
|
|
|
Common
Shares
Owned
After Sale
|
|
Selling
Shareholder
|
|
Held
Outright
|
|
Warrants/
Options
(3)
|
|
Amount
|
|
%
of Class
|
|
Shares
being registered
|
|
Amount
|
|
%
of Class
|
|
Michael
Berry
|
|
|
50,000
|
|
|
-
|
|
|
50,000
|
|
|
*
|
|
50,000
|
|
|
-
|
|
|
-
|
|
Michael
Diamant
|
|
|
25,083
|
|
|
25,083
|
|
|
50,167
|
|
|
*
|
|
50,167
|
|
|
-
|
|
|
-
|
|
Michael
J. Garr
|
|
|
40,133
|
|
|
40,133
|
|
|
80,266
|
|
|
*
|
|
80,266
|
|
|
-
|
|
|
-
|
|
Michael
W. Engmann
|
|
|
150,500
|
|
|
150,500
|
|
|
301,000
|
|
|
1.2
|
%
|
301,000
|
|
|
-
|
|
|
-
|
|
Mitchell
Sassower
|
|
|
50,167
|
|
|
50,167
|
|
|
100,333
|
|
|
*
|
|
100,333
|
|
|
-
|
|
|
-
|
|
Nathan
Sugerman
|
|
|
100,167
|
|
|
50,167
|
|
|
150,333
|
|
|
*
|
|
150,333
|
|
|
-
|
|
|
-
|
|
New
Horizon Exploration Inc.(16)
|
|
|
25,083
|
|
|
25,083
|
|
|
50,167
|
|
|
*
|
|
50,167
|
|
|
-
|
|
|
-
|
|
Omicron
Master Trust(17)
|
|
|
250,833
|
|
|
250,833
|
|
|
501,667
|
|
|
1.9
|
%
|
501,667
|
|
|
-
|
|
|
-
|
|
Patrick
Hund
|
|
|
75,083
|
|
|
25,083
|
|
|
100,167
|
|
|
*
|
|
100,167
|
|
|
-
|
|
|
-
|
|
PaulPaul
A. Lobel and Laura A. Lobel, Tenants by Entirety
|
|
|
25,083
|
|
|
25,083
|
|
|
50,167
|
|
|
*
|
|
50,167
|
|
|
-
|
|
|
-
|
|
Phillip
S. Sassower Charitable Remainder Annuity Trust '96
(18)
|
|
|
100,333
|
|
|
100,333
|
|
|
200,667
|
|
|
*
|
|
200,667
|
|
|
-
|
|
|
-
|
|
RBC
Dain Rauscher Custodian FBO Gregory B. Pepus IRA
|
|
|
35,117
|
|
|
35,117
|
|
|
70,233
|
|
|
*
|
|
70,233
|
|
|
-
|
|
|
-
|
|
Regal
One Corporation(19)
(30)
|
|
|
1,815,287
|
|
|
1,000,000
|
|
|
2,815,287
|
|
|
10.9
|
%
|
800,000
|
|
|
1,015,287
|
|
|
3.9
|
%
|
Richard
Friedman
|
|
|
50,167
|
|
|
50,167
|
|
|
100,333
|
|
|
*
|
|
100,333
|
|
|
-
|
|
|
-
|
|
Richard
Green
|
|
|
50,000
|
|
|
-
|
|
|
50,000
|
|
|
*
|
|
50,000
|
|
|
-
|
|
|
-
|
|
Richard
Hull
|
|
|
25,083
|
|
|
125,083
|
|
|
150,167
|
|
|
*
|
|
50,167
|
|
|
100,000
|
|
|
*
|
|
Richard
Stone
|
|
|
50,000
|
|
|
-
|
|
|
50,000
|
|
|
*
|
|
50,000
|
|
|
-
|
|
|
-
|
|
Robert
Cohan
|
|
|
50,167
|
|
|
50,167
|
|
|
100,333
|
|
|
*
|
|
100,333
|
|
|
-
|
|
|
-
|
|
Robert
Lempert
|
|
|
20,067
|
|
|
20,067
|
|
|
40,133
|
|
|
*
|
|
40,133
|
|
|
-
|
|
|
-
|
|
Robert
R. Kauffman
|
|
|
75,250
|
|
|
75,250
|
|
|
150,500
|
|
|
*
|
|
150,500
|
|
|
-
|
|
|
-
|
|
Rubicon
Global Value Fund, L.P.(20)
|
|
|
145,483
|
|
|
145,483
|
|
|
290,966
|
|
|
1.1
|
%
|
290,966
|
|
|
-
|
|
|
-
|
|
S&J
Veal, Inc. (21)
|
|
|
25,083
|
|
|
25,083
|
|
|
50,167
|
|
|
*
|
|
50,167
|
|
|
-
|
|
|
-
|
|
S.W.
Bach & Company(22)(28)
|
|
|
|
|
|
127,050
|
|
|
127,050
|
|
|
*
|
|
127,050
|
|
|
-
|
|
|
-
|
|
Sachs
Investing Co.
(23)
|
|
|
50,167
|
|
|
50,167
|
|
|
100,333
|
|
|
*
|
|
100,333
|
|
|
-
|
|
|
-
|
|
Sam
R. Buck
|
|
|
131,437
|
|
|
131,437
|
|
|
262,873
|
|
|
1.0
|
%
|
262,873
|
|
|
-
|
|
|
-
|
|
Silpi
Polepalle
|
|
|
25,083
|
|
|
25,083
|
|
|
50,167
|
|
|
*
|
|
50,167
|
|
|
-
|
|
|
-
|
|
Steven
B. Dunn
|
|
|
500,000
|
|
|
-
|
|
|
500,000
|
|
|
1.9
|
%
|
500,000
|
|
|
-
|
|
|
-
|
|
Steven
Mitchell Sack
|
|
|
172,333
|
|
|
100,333
|
|
|
272,667
|
|
|
1.1
|
%
|
272,667
|
|
|
-
|
|
|
-
|
|
Sylvia
Johe
|
|
|
25,083
|
|
|
25,083
|
|
|
50,167
|
|
|
*
|
|
50,167
|
|
|
-
|
|
|
-
|
|
T.R.
Winston & Company, LLC
(24) (28)
|
|
|
|
|
|
672,950
|
|
|
672,950
|
|
|
2.6
|
%
|
672,950
|
|
|
-
|
|
|
-
|
|
The
JD Group, LLC(25)
|
|
|
|
|
|
1,000,000
|
|
|
1,000,000
|
|
|
3.9
|
%
|
1,000,000
|
|
|
-
|
|
|
-
|
|
Thomas
E. Genna
|
|
|
150,167
|
|
|
50,167
|
|
|
200,333
|
|
|
*
|
|
200,333
|
|
|
-
|
|
|
-
|
|
Thomas
R. Smith
|
|
|
50,167
|
|
|
50,167
|
|
|
100,333
|
|
|
*
|
|
100,333
|
|
|
-
|
|
|
-
|
|
Univest
Management Employee Profit Sharing Plan
(26)
|
|
|
50,167
|
|
|
50,167
|
|
|
100,333
|
|
|
*
|
|
100,333
|
|
|
-
|
|
|
-
|
|
VAR
Growth Corp.(27)
|
|
|
100,000
|
|
|
-
|
|
|
100,000
|
|
|
*
|
|
100,000
|
|
|
-
|
|
|
-
|
|
William
John Reininger
|
|
|
25,083
|
|
|
25,083
|
|
|
50,167
|
|
|
*
|
|
50,167
|
|
|
-
|
|
|
-
|
|
Reserved
Penalty Shares
(31)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
9,153,954
|
|
|
8,296,666
|
|
|
17,450,620
|
|
|
67.2
|
%
|
16,335,333
|
|
|
1,115,287
|
|
|
4.3
|
%
|
*
Less
Than 1%
(1)
|
Pursuant
to Rules 13d-3 and 13d-5 of the Exchange Act, beneficial ownership
includes any common shares as to which a shareholder has sole
or shared
voting power or investment power, and also any common shares
which the
shareholder has the right to acquire within 60 days, including
upon
exercise of common shares purchase options or warrants. There
were
25,820,939 common shares outstanding as of August 25,
2006.
|
(2)
|
Assumes
the sale of all common shares offered under this
prospectus.
|
(3)
|
Unless
otherwise stated, shares underlying warrants/options constitute common
shares issuable upon the exercise of Class A and B warrants in ratio
of
50/50.
|
(4)
|
Dr.
Keicher is the person with voting and dispositive power of Aton Select
Fund Limited.
|
(5)
|
Mr.
Bradley Ross is the person with voting and dispositive power of B&R
Richie's.
|
(6)
|
Mr. Engelhardt
Schreiber is the person with voting and dispositive power of Condor
Financial Management S.A.
|
(7)
|
Mr.
Ira Weingarten is the person with voting and dispositive power of
Equity
Communications, LLC.
|
(8)
|
Mr.
Malcolm R. Currie is the person with voting and dispositive power
of
Freddie Bear Partnership.
|
(9)
|
Mr.
Arthur L. Hawkins is the Trustee and person with voting and dispositive
power of the Hawkins Family Trust.
|
(10)
|
Mr.
Tyler Runnels is the person with voting and dispositive power of
High
Tide, LLC.
|
(11)
|
Mr.
Joshua Silverman is the person with voting and dispositive power
of
Iroquois Master Fund, Ltd.
|
(12)
|
Mr.
Alexander M. Goren is the person with voting and dispositive power
of JAG
Multi Investments, LLC
|
(13)
|
Mr.
Leonard Pearlman is the person with voting and dispositive power
of JAM
Capital Associates, LLC
|
(14)
|
Mr.
Jonathan Glaser is the person with voting and dispositive power of
JMG
Capital Partners, LP
|
(15)
|
Mr.
Jonathan Glaser is the person with voting and dispositive power of
JMG
Triton Offshore Fund, Ltd.
|
(16)
|
Mr.
Rex E. Gifford is the person with voting and dispositive power of
New
Horizon Exploration.
|
(17)
|
Mr.
Bruce Bernstein is the person with voting and dispositive power of
Omicron
Master Trust.
|
(18)
|
Mr.
Phillip S. Sassower is the Trustee and person with voting and dispositive
power of the Philip S. Sassower Charitable Remainder Annuity Trust
`96.
|
(19)
|
The
people with voting and dispositive with regard to the shares is the
board
of directors of Regal One, Inc.
|
(20)
|
Mr.
Steven Shum is the person with voting and dispositive power of Rubicon
Global Value Fund, L.P.
|
(21)
|
Mr.
Scott Turriff is the person with voting and dispositive power of
S&J
Veal, Inc.
|
(22)
|
Mr.
Clemente is the person with voting and dispositive power of S.W.
Bach
& Company.
|
(23)
|
Mr.
Marvin Sach is the person with voting and dispositive power of Sachs
Investment Co.
|
(24)
|
Mr.
Tyler Runnels is the person with voting and dispositive power of
T.R.
Winston & Company, LLC.
|
(25)
|
Mr.
John Davies is the person with voting and dispositive power of the
JD
Group, LLC.
|
(26)
|
Mr.
Frank Gerardi is the person with voting and dispositive power of
Univest
Management Employee Profit Sharing
Plan.
|
(27)
|
Ms.
Doris Sutz is the person with voting and dispositive power of VAR
Growth
Corp.
|
(28)
|
Warrants
received as part of compensation pursuant to a placement agency agreement
between us and the selling shareholders. Accordingly, such shares
are
restricted in accordance with Rule 2710(g)(1) of the NASD Conduct
Rules.
|
(29)
|
The
selling shareholder is an affiliate of a broker-dealer. At the time
of
purchasing the securities, the selling stockholder had no agreement
or
understanding, directly or indirectly, with any person to distribute
such
securities or any securities issuable upon conversion or exercise.
The
selling shareholder purchased the securities in the ordinary course
of
business.
|
(30) |
Includes 500,361
shares to be distributed as a dividend to the shareholders of Regal
One
Corporation which are listed below as “Additional
Selling Shareholders.”
|
(31) |
Includes 100,000 common shares which
we may
become obligated to issue as a penalty related to certain registration
rights. For a more detailed discussion, see that section of this
prospectus entitled “Registration
Rights” |
ADDITIONAL
SELLING SHAREHOLDERS
On January
23, 2006, one of our majority shareholders, Regal One
Corporation, announced a stock dividend of our common shares which it
current holds. The dividend will be issused to Regal One Corporation shareholder
of record on February 15, 2006. As a result, the following Regal
One Corporation shareholders will receive shares of our common stock
as a dividend and be entitled to sell them under this prospectus.
|
Common
Shares
Owned
Before Sale(1)
|
|
|
|
Common
Shares
Owned
After Sale(2)
|
Selling
Shareholder
|
Held
Outright
|
Warrants/
Options(3)
|
Amount
|
|
Shares
being registered
|
|
Amount
|
AB
Investments, Inc (3)
|
134,596
|
-
|
134,596
|
|
134,596
|
|
-
|
Malcolm
R. Currie
|
70,923
|
-
|
70,923
|
|
70,923
|
|
-
|
CB
Family Trust (4)
|
49,053
|
-
|
49,053
|
|
49,053
|
|
-
|
Aaron
Grunfeld
|
42,045
|
-
|
42,045
|
|
42,045
|
|
-
|
Robert
B. Kay
|
36,239
|
-
|
36,239
|
|
36,239
|
|
-
|
Allen
Richard Smith (10)
|
11,680
|
-
|
11,680
|
|
11,680
|
|
-
|
Douglas
Burke (10)
|
11,680
|
-
|
11,680
|
|
11,680
|
|
-
|
Hofer
Family Trust (10)
|
11,680
|
-
|
11,680
|
|
11,680
|
|
-
|
Dieterich
& Associates (5)
|
10,512
|
-
|
10,512
|
|
10,512
|
|
-
|
Michael
Platt
|
8,760
|
-
|
8,760
|
|
8,760
|
|
-
|
Mid
America Capital Corp (6)
|
8,760
|
-
|
8,760
|
|
8,760
|
|
-
|
CJ
Newman
|
8,312
|
-
|
8,312
|
|
8,312
|
|
-
|
Christopher
Dieterich
|
3,504
|
-
|
3,504
|
|
3,504
|
|
-
|
Sandra
Jarrett
|
2,628
|
-
|
2,628
|
|
2,628
|
|
-
|
Gerrish
Family Trust
|
2,208 |
- |
2,208 |
|
2,208 |
|
- |
Gaylan
Rockswold
|
2,173
|
-
|
2,173
|
|
2,173
|
|
-
|
Randall
Jarrett
|
1,752
|
-
|
|
|
|
|
-
|
Frederick
Barak
|
1,109
|
-
|
1,109
|
|
1,109
|
|
-
|
W
J
Reininger
|
1,052
|
-
|
1,052
|
|
1,052
|
|
-
|
Yifal
J Shaham & Brach Shaham
|
1,052
|
-
|
1,052
|
|
1,052
|
|
-
|
Charles
Stevens
|
876
|
-
|
876
|
|
876
|
|
-
|
The
Metaphase Group (7)
|
701
|
-
|
701
|
|
701
|
|
-
|
Don
Gorodetzky
|
482
|
-
|
482
|
|
482
|
|
-
|
Thomas
Baar
|
474
|
-
|
474
|
|
474
|
|
-
|
David
Paletz
|
438
|
-
|
438
|
|
438
|
|
-
|
Smith
Barney Inc
|
373
|
-
|
373
|
|
373
|
|
-
|
Kiki
Borlenghi
|
357
|
-
|
357
|
|
357
|
|
-
|
Louis
D'Alto & Tonian D'Alto
|
357
|
-
|
357
|
|
357
|
|
-
|
Richard
Abruscato
|
357
|
-
|
357
|
|
357
|
|
-
|
The
Rose Group (8)
|
357
|
-
|
357
|
|
357
|
|
-
|
Walter
K Theis
|
263
|
-
|
263
|
|
263
|
|
-
|
Joseph
G Le Bleu
|
228
|
-
|
228
|
|
228
|
|
-
|
Louis
Kulekofsky
|
176
|
-
|
176
|
|
176
|
|
-
|
Susan
Delman
|
176
|
-
|
176
|
|
176
|
|
-
|
Lynette
M Eagan
|
169
|
-
|
169
|
|
169
|
|
-
|
H
T
Frankhouser
|
159
|
-
|
159
|
|
159
|
|
-
|
Stuart
G Mccampbell
|
138
|
-
|
138
|
|
138
|
|
-
|
Eric
Stanton
|
132
|
-
|
132
|
|
132
|
|
-
|
William
E Kearney & Judy J Kearney
|
132
|
-
|
132
|
|
132
|
|
-
|
Small
Business Administration
|
130
|
-
|
130
|
|
130
|
|
-
|
George
C Anderson
|
106
|
-
|
106
|
|
106
|
|
-
|
Leonard
Krasinski
|
97
|
-
|
97
|
|
97
|
|
-
|
Kathryn
J. Roth
|
88
|
-
|
88
|
|
88
|
|
-
|
Lloyd
Peterson
|
88
|
-
|
88
|
|
88
|
|
-
|
Nili
Shamrat
|
88
|
-
|
88
|
|
88
|
|
-
|
Robert
E Hopper & Margaret J Hopper
|
88
|
-
|
88
|
|
88
|
|
-
|
Sean
P Flanagan & Darrelyn A Flanagan
|
88
|
-
|
88
|
|
88
|
|
-
|
Realty
Investment Concepts
|
76
|
-
|
76
|
|
76
|
|
-
|
George
Crile
|
64
|
-
|
64
|
|
64
|
|
-
|
Herbert
J Tamres
|
55
|
-
|
55
|
|
55
|
|
-
|
Aaron
Nachshoni
|
51
|
-
|
51
|
|
51
|
|
-
|
Thomas
L Rotello
|
49
|
-
|
49
|
|
49
|
|
-
|
K
Andrew Kroese
|
44
|
-
|
44
|
|
44
|
|
-
|
Scott
G Hill
|
44
|
-
|
44
|
|
44
|
|
-
|
Sidney
Weisberg
|
44
|
-
|
44
|
|
44
|
|
-
|
Robert
Newell
|
39
|
-
|
39
|
|
39
|
|
-
|
Ahuva
A Rubinstein
|
36
|
-
|
36
|
|
36
|
|
-
|
Terry
V Chastain
|
36
|
-
|
36
|
|
36
|
|
-
|
David
A Moxon & Kelly A Moxon
|
31
|
-
|
31
|
|
31
|
|
-
|
Fred
Magargee & Jill H Magargee
|
29
|
-
|
29
|
|
29
|
|
-
|
Robert
Genova
|
27
|
-
|
27
|
|
27
|
|
-
|
1988
Childrens Trust (9)
|
23
|
-
|
23
|
|
23
|
|
-
|
Harry
Bramson & Laureen Bramson
|
23
|
-
|
23
|
|
23
|
|
-
|
Louis
Anthoney Marks
|
23
|
-
|
23
|
|
23
|
|
-
|
Seymour
Levine
|
23
|
-
|
23
|
|
23
|
|
-
|
Agnes
Ivanovics
|
22
|
-
|
22
|
|
22
|
|
-
|
Frederic
J Greenblatt
|
22
|
-
|
22
|
|
22
|
|
-
|
Jacob
Berlin & Eli Berlin
|
22
|
-
|
22
|
|
22
|
|
-
|
Leon
B Lipkin
|
22
|
-
|
22
|
|
22
|
|
-
|
Marline
Monstein Cust FBO Jeremiah A Monstein
|
22
|
-
|
22
|
|
22
|
|
-
|
Neil
Morchower
|
22
|
-
|
22
|
|
22
|
|
-
|
Richard
A Monstein Cust Sean R Monstein
|
22
|
-
|
22
|
|
22
|
|
-
|
Stewart
R Balikov
|
22
|
-
|
22
|
|
22
|
|
-
|
Asset
Management Consultants Inc
|
18
|
-
|
18
|
|
18
|
|
-
|
Eugene
Andrews
|
18
|
-
|
18
|
|
18
|
|
-
|
John
Cappadora & Eleanor Cappadora
|
18
|
-
|
18
|
|
18
|
|
-
|
Margaret
Tucker Cust FBO Todd Tucker
|
18
|
-
|
18
|
|
18
|
|
-
|
Kevin
James Hopper
|
15
|
-
|
15
|
|
15
|
|
-
|
Albert
Nicholas Casale Lo Cust FBO Alexander T Casale Lo
|
14
|
-
|
14
|
|
14
|
|
-
|
|
Common
Shares
Owned
Before Sale(1)
|
|
|
|
Common
Shares
Owned
After Sale(2)
|
Selling
Shareholder
|
Held
Outright
|
Warrants/
Options(3)
|
Amount
|
|
Shares
being registered
|
|
Amount
|
Daphne
Sela
|
14
|
-
|
14
|
|
14
|
|
-
|
Glenda
Stone
|
14
|
-
|
14
|
|
14
|
|
-
|
Sandra
Lowenstein
|
12 |
- |
12 |
|
12 |
|
- |
Alan
Carus
|
11
|
-
|
11
|
|
11
|
|
-
|
Archie
C Purvis
|
11
|
-
|
11
|
|
11
|
|
-
|
B
Lee Brown & Clara J Brown
|
11
|
-
|
11
|
|
11
|
|
-
|
Linda
G Mayman Cust Elisabeth Mayman
|
11
|
-
|
11
|
|
11
|
|
-
|
Stamatios
Alevras & Matina Alevras
|
11
|
-
|
11
|
|
11
|
|
-
|
Thomas
L Hall
|
11
|
-
|
11
|
|
11
|
|
-
|
William
H Grossman & Sondra Grossman
|
11
|
-
|
11
|
|
11
|
|
-
|
Adrian
W Skramstad
|
11
|
-
|
11
|
|
11
|
|
-
|
Melvin
H Pressman
|
11
|
-
|
11
|
|
11
|
|
-
|
Anthony
Grande & Carolyn Grande
|
9
|
-
|
9
|
|
9
|
|
-
|
Ari
Rosenblatt Md
|
9
|
-
|
9
|
|
9
|
|
-
|
Brad
T Anderson
|
9
|
-
|
9
|
|
9
|
|
-
|
Hugh
R Martin Cust FBO Rodman Martin
|
9
|
-
|
9
|
|
9
|
|
-
|
Richard
A Monstein & Marlene Monstein
|
9
|
-
|
9
|
|
9
|
|
-
|
Roger
Franklin & Joan Franklin
|
9
|
-
|
9
|
|
9
|
|
-
|
Shawn
M Wagmeister
|
9
|
-
|
9
|
|
9
|
|
-
|
Eddy
J Heidt
|
7
|
-
|
7
|
|
7
|
|
-
|
Lana
Speyer
|
7
|
-
|
7
|
|
7
|
|
-
|
Leonard
Maltin
|
7
|
-
|
7
|
|
7
|
|
-
|
Michael
B Lynch Cust FBO Kelly A Condon Lynch
|
7
|
-
|
7
|
|
7
|
|
-
|
Ralph
Curatola
|
7
|
-
|
7
|
|
7
|
|
-
|
Robert
Rub
|
7
|
-
|
7
|
|
7
|
|
-
|
Theodore
H Wielandt
|
7
|
-
|
7
|
|
7
|
|
-
|
Milton
Wolfson
|
6
|
-
|
6
|
|
6
|
|
-
|
Terry
L Wees
|
6
|
-
|
6
|
|
6
|
|
-
|
Zila
Cohen
|
6
|
-
|
6
|
|
6
|
|
-
|
Alice
J Avery
|
5
|
-
|
5
|
|
5
|
|
-
|
B
Frank Ricker & Esther B Ricker
|
5
|
-
|
5
|
|
5
|
|
-
|
Benjamin
Zimmerman & Dina Zimmerman
|
5
|
-
|
5
|
|
5
|
|
-
|
Carol
Brown
|
5
|
-
|
5
|
|
5
|
|
-
|
Charles
G Martignette & Marte C Martignette
|
5
|
-
|
5
|
|
5
|
|
-
|
Debra
Hanson
|
5
|
-
|
5
|
|
5
|
|
-
|
Doris
Eckes Cust FBO Jeanne M Eckes
|
5
|
-
|
5
|
|
5
|
|
-
|
Edwin
H Willis Cust FBO Timothy W Willis
|
5
|
-
|
5
|
|
5
|
|
-
|
Elmer
M Jones
|
5
|
-
|
5
|
|
5
|
|
-
|
Frank
P Marchewka & Helen Marchewka
|
5
|
-
|
5
|
|
5
|
|
-
|
Frank
R Riva
|
5
|
-
|
5
|
|
5
|
|
-
|
Gary
Coblens
|
5
|
-
|
5
|
|
5
|
|
-
|
George
A Fellows Jr & Teresa M Fellows
|
5
|
-
|
5
|
|
5
|
|
-
|
George
Johnson & Hilary Johnson
|
5
|
-
|
5
|
|
5
|
|
-
|
Helen
Fishman & Sanford B Fishman
|
5
|
-
|
5
|
|
5
|
|
-
|
Hope
E Briggs Ttee Hope E Briggs Tr
|
5
|
-
|
5
|
|
5
|
|
-
|
Inter/Media
Time Buying Corp
|
5
|
-
|
5
|
|
5
|
|
-
|
J
Chris Chris
|
5
|
-
|
5
|
|
5
|
|
-
|
John
Sherman
|
5
|
-
|
5
|
|
5
|
|
-
|
Joseph
Buonocore & Ada Buonocore
|
5
|
-
|
5
|
|
5
|
|
-
|
Joseph
Gallo
|
5
|
-
|
5
|
|
5
|
|
-
|
Joseph
R Hardiman
|
5
|
-
|
5
|
|
5
|
|
-
|
Lyman
K Bridgman & Helen E Bridgman
|
5
|
-
|
5
|
|
5
|
|
-
|
Michael
B Lynch
|
5
|
-
|
5
|
|
5
|
|
-
|
Milton
Wolfson & Sydell Wolfson
|
5
|
-
|
5
|
|
5
|
|
-
|
Mina
Wilner & Henry Wilner
|
5
|
-
|
5
|
|
5
|
|
-
|
Paul
Russo & Julia Russo
|
5
|
-
|
5
|
|
5
|
|
-
|
Ralph
O Lux & Marjorie T Lux
|
5
|
-
|
5
|
|
5
|
|
-
|
Rene
Pauly & Martha Paula
|
5
|
-
|
5
|
|
5
|
|
-
|
Renuka
Misra
|
5
|
-
|
5
|
|
5
|
|
-
|
Robert
I Jackson
|
5
|
-
|
5
|
|
5
|
|
-
|
Robert
T Morris & Charles I Skipsey Jr
|
5
|
-
|
5
|
|
5
|
|
-
|
Rodney
Selow Van
|
5
|
-
|
5
|
|
5
|
|
-
|
Roy
T Cogdell
|
5
|
-
|
5
|
|
5
|
|
-
|
Ruth
Comstock
|
5
|
-
|
5
|
|
5
|
|
-
|
William
J Deeb
|
5
|
-
|
5
|
|
5
|
|
-
|
William
Ruben Willis
|
5
|
-
|
5
|
|
5
|
|
-
|
Bannon
Loren Lomahquahu
|
4
|
-
|
4
|
|
4
|
|
-
|
Brady
Baker
|
4
|
-
|
4
|
|
4
|
|
-
|
Brittni
Baker
|
4
|
-
|
4
|
|
4
|
|
-
|
Clay
Baker
|
4
|
-
|
4
|
|
4
|
|
-
|
Daphne
M Piket
|
4
|
-
|
4
|
|
4
|
|
-
|
E
F
Hutton & Co Inc
|
4
|
-
|
4
|
|
4
|
|
-
|
Earl
Edden Co
|
4
|
-
|
4
|
|
4
|
|
-
|
Efraim
Rubinstein
|
4
|
-
|
4
|
|
4
|
|
-
|
Eli
Bucksbaum
|
4
|
-
|
4
|
|
4
|
|
-
|
Frank
Georgiana
|
4
|
-
|
4
|
|
4
|
|
-
|
Frederic
R Stanton
|
4
|
-
|
4
|
|
4
|
|
-
|
Jacob
Kelley
|
4
|
-
|
4
|
|
4
|
|
-
|
James
R Hopper
|
4
|
-
|
4
|
|
4
|
|
-
|
Jessica
Kelley
|
4
|
-
|
4
|
|
4
|
|
-
|
Kaci
Baker
|
4
|
-
|
4
|
|
4
|
|
-
|
Laura
Beth Baker
|
4
|
-
|
4
|
|
4
|
|
-
|
Max
Bucksbaum
|
4
|
-
|
4
|
|
4
|
|
-
|
Michael
Taliadoros
|
4
|
-
|
4
|
|
4
|
|
-
|
Otto
Johnson
|
4
|
-
|
4
|
|
4
|
|
-
|
Pamela
H Philyaw
|
4
|
-
|
4
|
|
4
|
|
-
|
William
M Singer & Sadie Singer
|
4
|
-
|
4
|
|
4
|
|
-
|
Alex
Mitchell & Stanley Mitchell
|
3
|
-
|
3
|
|
3
|
|
-
|
Alice
Blackley
|
3
|
-
|
3
|
|
3
|
|
-
|
Ann
Mcwilliams
|
3
|
-
|
3
|
|
3
|
|
-
|
Ansel
Goldberg & Traute Goldberg
|
3
|
-
|
3
|
|
3
|
|
-
|
Anthony
J Luisi
|
3
|
-
|
3
|
|
3
|
|
-
|
Anthony
Marra
|
3
|
-
|
3
|
|
3
|
|
-
|
Avron
Steir & Enid Steir
|
3
|
-
|
3
|
|
3
|
|
-
|
Betty
Mainous
|
3
|
-
|
3
|
|
3
|
|
-
|
Cam
Co
|
3
|
-
|
3
|
|
3
|
|
-
|
Charles
Haravay
|
3
|
-
|
3
|
|
3
|
|
-
|
David
Zoni
|
3
|
-
|
3
|
|
3
|
|
-
|
Edward
Gold
|
3
|
-
|
3
|
|
3
|
|
-
|
Edward
J Mccormack
|
3
|
-
|
3
|
|
3
|
|
-
|
Edward
P Berzenski & Mary A Berzenski
|
3
|
-
|
3
|
|
3
|
|
-
|
Edward
R Walsh
|
3
|
-
|
3
|
|
3
|
|
-
|
Edythe
Reusch Fares
|
3
|
-
|
3
|
|
3
|
|
-
|
Eric
M Stoller
|
3
|
-
|
3
|
|
3
|
|
-
|
Fannie
Rosenberg & Lilian Kamos
|
3
|
-
|
3
|
|
3
|
|
-
|
Frances
Luisi
|
3
|
-
|
3
|
|
3
|
|
-
|
George
Chiulli
|
3
|
-
|
3
|
|
3
|
|
-
|
Gideon
J Barness
|
3
|
-
|
3
|
|
3
|
|
-
|
Howard
Hyde
|
3
|
-
|
3
|
|
3
|
|
-
|
James
E Brann
|
3
|
-
|
3
|
|
3
|
|
-
|
Joesph
P Thomas Di
|
3
|
-
|
3
|
|
3
|
|
-
|
John
Bator & Agnes Bator
|
3
|
-
|
3
|
|
3
|
|
-
|
John
J Flynn & Jeannette M Flynn
|
3
|
-
|
3
|
|
3
|
|
-
|
Joseph
J Mccananagh
|
3
|
-
|
3
|
|
3
|
|
-
|
Joseph
Rosati & Carmel Rosati
|
3
|
-
|
3
|
|
3
|
|
-
|
Judith
Mae Bailyn Ttee Judith Mae Bailyn Tr
|
3
|
-
|
3
|
|
3
|
|
-
|
Kenneth
D Cooley & Mary A Cooley
|
3
|
-
|
3
|
|
3
|
|
-
|
Manfredi
& Levine Professional
|
3
|
-
|
3
|
|
3
|
|
-
|
Maura
E Freeman
|
3
|
-
|
3
|
|
3
|
|
-
|
Maureen
Lynch
|
3
|
-
|
3
|
|
3
|
|
-
|
Michael
P Traner
|
3
|
-
|
3
|
|
3
|
|
-
|
Michael
Vipiani
|
3
|
-
|
3
|
|
3
|
|
-
|
Orson
Smith
|
3
|
-
|
3
|
|
3
|
|
-
|
Raymond
E Anthony & Gloria M Anthony
|
3
|
-
|
3
|
|
3
|
|
-
|
Richard
Monstein
|
3
|
-
|
3
|
|
3
|
|
-
|
Robert
E Garst
|
3
|
-
|
3
|
|
3
|
|
-
|
Ronald
A Pressman
|
3
|
-
|
3
|
|
3
|
|
-
|
Sam
B Clonts
|
3
|
-
|
3
|
|
3
|
|
-
|
Sigrid
B Rice
|
3
|
-
|
3
|
|
3
|
|
-
|
Sterling
Grace & Co
|
3
|
-
|
3
|
|
3
|
|
-
|
Sylvia
Zweibon
|
3
|
-
|
3
|
|
3
|
|
-
|
Theresa
Votta
|
3
|
-
|
3
|
|
3
|
|
-
|
Vernon
R Eidenire & Claire V Eidenire
|
3
|
-
|
3
|
|
3
|
|
-
|
Wilder
A Johnson & Astrid Johnson
|
3
|
-
|
3
|
|
3
|
|
-
|
Anette
Zoni
|
2
|
-
|
2
|
|
2
|
|
-
|
Anita
Pearl Tignish
|
2
|
-
|
2
|
|
2
|
|
-
|
Ann
Del Smith
|
2
|
-
|
2
|
|
2
|
|
-
|
August
Scognamiglio
|
2
|
-
|
2
|
|
2
|
|
-
|
Conseco
|
2
|
-
|
2
|
|
2
|
|
-
|
David
Miller
|
2
|
-
|
2
|
|
2
|
|
-
|
Derek
G Fuelling
|
2
|
-
|
2
|
|
2
|
|
-
|
Douglas
B Travis Cust FBO Lara C Travis
|
2
|
-
|
2
|
|
2
|
|
-
|
Edith
Brand
|
2
|
-
|
2
|
|
2
|
|
-
|
Ella
Wilke
|
2
|
-
|
2
|
|
2
|
|
-
|
Eve
S Miller Cust FBO Peter J Miller
|
2
|
-
|
2
|
|
2
|
|
-
|
F
I
Dupont Glore Forgan & Co
|
2
|
-
|
2
|
|
2
|
|
-
|
Floyd
T Neth
|
2
|
-
|
2
|
|
2
|
|
-
|
Gedalyahu
Salamon
|
2
|
-
|
2
|
|
2
|
|
-
|
Gene
Hiller & Betty Ann Hiller
|
2
|
-
|
2
|
|
2
|
|
-
|
Gerald
Segel
|
2
|
-
|
2
|
|
2
|
|
-
|
Gladys
M Wielandt
|
2
|
-
|
2
|
|
2
|
|
-
|
Grace
O Brien
|
2
|
-
|
2
|
|
2
|
|
-
|
Henry
E Engel & Margurite Engel
|
2
|
-
|
2
|
|
2
|
|
-
|
Hugh
R Martin
|
2
|
-
|
2
|
|
2
|
|
-
|
Hyman
Feinstein
|
2
|
-
|
2
|
|
2
|
|
-
|
Jack
M Burr
|
2
|
-
|
2
|
|
2
|
|
-
|
James
Dex Camak
|
2
|
-
|
2
|
|
2
|
|
-
|
James
Ellis
|
2
|
-
|
2
|
|
2
|
|
-
|
James
M Morgan
|
2
|
-
|
2
|
|
2
|
|
-
|
John
J Crowley Cust FBO Joseph Crowley
|
2
|
-
|
2
|
|
2
|
|
-
|
Judith
Zamojcin
|
2
|
-
|
2
|
|
2
|
|
-
|
Karon
L Spivey
|
2
|
-
|
2
|
|
2
|
|
-
|
M
Rimson & Company Inc
|
2
|
-
|
2
|
|
2
|
|
-
|
Maurice
Leff
|
2
|
-
|
2
|
|
2
|
|
-
|
Michael
Torres
|
2
|
-
|
2
|
|
2
|
|
-
|
Milton
Friedman Cust Joel Friedman
|
2
|
-
|
2
|
|
2
|
|
-
|
Miriam
Husid
|
2
|
-
|
2
|
|
2
|
|
-
|
Osma
J Carnes & Minnie G Carnes
|
2
|
-
|
2
|
|
2
|
|
-
|
Philip
Samuel Cadwallader
|
2
|
-
|
2
|
|
2
|
|
-
|
Richard
M Bond & Carol B Bond
|
2
|
-
|
2
|
|
2
|
|
-
|
Ronald
Miller
|
2
|
-
|
2
|
|
2
|
|
-
|
Ruby
Share Cust FBO Karen Beth Share
|
2
|
-
|
2
|
|
2
|
|
-
|
Silene
M Irving
|
2
|
-
|
2
|
|
2
|
|
-
|
Stephen
Mallor
|
2
|
-
|
2
|
|
2
|
|
-
|
Virginia
T Norris
|
2
|
-
|
2
|
|
2
|
|
-
|
William
J Mcmahan
|
2
|
-
|
2
|
|
2
|
|
-
|
William
R Norris Jr & Janet L Norris
|
2
|
-
|
2
|
|
2
|
|
-
|
William
Sidney Caruthers
|
2
|
-
|
2
|
|
2
|
|
-
|
William
Weatherford
|
2
|
-
|
2
|
|
2
|
|
-
|
|
Common
Shares
Owned
Before Sale(1)
|
|
|
|
Common
Shares
Owned
After Sale(2)
|
Selling
Shareholder
|
Held
Outright
|
Warrants/
Options(3)
|
Amount
|
|
Shares
being registered
|
|
Amount
|
A
C
Allyn & Co
|
1
|
-
|
1
|
|
1
|
|
-
|
Abe
Cohen
|
1
|
-
|
1
|
|
1
|
|
-
|
Ada
Mckay Leitner
|
1
|
-
|
1
|
|
1
|
|
-
|
Adam
Aislie Morgan
|
1
|
-
|
1
|
|
1
|
|
-
|
Aida
L Johns
|
1
|
-
|
1
|
|
1
|
|
-
|
Albert
Martinelli & Lily Martinelli
|
1
|
-
|
1
|
|
1
|
|
-
|
Aldo
H Fontana
|
1
|
-
|
1
|
|
1
|
|
-
|
Alex
Gee
|
1
|
-
|
1
|
|
1
|
|
-
|
Alexander
F Handel & Marguerite W Handel
|
1
|
-
|
1
|
|
1
|
|
-
|
Alfred
B Antonacci
|
1
|
-
|
1
|
|
1
|
|
-
|
Alfred
P Vasconi & Shirley L Vasconi
|
1
|
-
|
1
|
|
1
|
|
-
|
Algis
Gurinskas
|
1
|
-
|
1
|
|
1
|
|
-
|
Alice
Orr Moore
|
1
|
-
|
1
|
|
1
|
|
-
|
Allen
Bessen
|
1
|
-
|
1
|
|
1
|
|
-
|
Allen
Glasser
|
1
|
-
|
1
|
|
1
|
|
-
|
Alonzo
L Brewington
|
1
|
-
|
1
|
|
1
|
|
-
|
Alva
C Roig
|
1
|
-
|
1
|
|
1
|
|
-
|
Alvin
Franklin
|
1
|
-
|
1
|
|
1
|
|
-
|
Anette
M Preddy
|
1
|
-
|
1
|
|
1
|
|
-
|
Anna
C Lump
|
1
|
-
|
1
|
|
1
|
|
-
|
Anne
Finkelstein
|
1
|
-
|
1
|
|
1
|
|
-
|
Annelle
D Humphreys
|
1
|
-
|
1
|
|
1
|
|
-
|
Anthony
Marle Van
|
1
|
-
|
1
|
|
1
|
|
-
|
Ara
Thomasian
|
1
|
-
|
1
|
|
1
|
|
-
|
Arthur
D Martin Jr
|
1
|
-
|
1
|
|
1
|
|
-
|
Arthur
E Fontana
|
1
|
-
|
1
|
|
1
|
|
-
|
Bartholomew
J Mccarthy
|
1
|
-
|
1
|
|
1
|
|
-
|
Bayard
T Kiliani
|
1
|
-
|
1
|
|
1
|
|
-
|
Beatrice
S Rokes
|
1
|
-
|
1
|
|
1
|
|
-
|
Benjamin
G Cromwell
|
1
|
-
|
1
|
|
1
|
|
-
|
Benjamin
Klopman & Rose Klopman
|
1
|
-
|
1
|
|
1
|
|
-
|
Benjamin
Slade & Iola K Slade
|
1
|
-
|
1
|
|
1
|
|
-
|
Bernard
Jaffe & Roberta Jaffe
|
1
|
-
|
1
|
|
1
|
|
-
|
Bertha
Grant & Albert Grant
|
1
|
-
|
1
|
|
1
|
|
-
|
Bertna
Albares
|
1
|
-
|
1
|
|
1
|
|
-
|
Betty
Kennedy Cust FBO Abby H Kennedy
|
1
|
-
|
1
|
|
1
|
|
-
|
Bjarne
M Olsen & Helen R Olsen
|
1
|
-
|
1
|
|
1
|
|
-
|
Borah
J White Cust Phillip R White
|
1
|
-
|
1
|
|
1
|
|
-
|
Bradford
H Wick & Ruth V Wick
|
1
|
-
|
1
|
|
1
|
|
-
|
Buddy
Patton
|
1
|
-
|
1
|
|
1
|
|
-
|
Burton
J Askowith
|
1
|
-
|
1
|
|
1
|
|
-
|
C
Gregory Spangler
|
1
|
-
|
1
|
|
1
|
|
-
|
C
Howard Sweatt
|
1
|
-
|
1
|
|
1
|
|
-
|
Caleb
J Massee
|
1
|
-
|
1
|
|
1
|
|
-
|
Carl
L Phinney
|
1
|
-
|
1
|
|
1
|
|
-
|
Carl
Swanson
|
1
|
-
|
1
|
|
1
|
|
-
|
Carmen
P Jordan & Carolyn J Jordan
|
1
|
-
|
1
|
|
1
|
|
-
|
Charles
A Leamon
|
1
|
-
|
1
|
|
1
|
|
-
|
Charles
F Wood Jr
|
1
|
-
|
1
|
|
1
|
|
-
|
Charles
H Longenecker & Irene B Longenecker
|
1
|
-
|
1
|
|
1
|
|
-
|
Charles
Iannacone
|
1
|
-
|
1
|
|
1
|
|
-
|
Charles
J Finck
|
1
|
-
|
1
|
|
1
|
|
-
|
Charles
Masten
|
1
|
-
|
1
|
|
1
|
|
-
|
Charles
W Byrd
|
1
|
-
|
1
|
|
1
|
|
-
|
Charles
Webb & Lillian M Webb
|
1
|
-
|
1
|
|
1
|
|
-
|
Claus
A Fritzen & Dorothy Fritzen
|
1
|
-
|
1
|
|
1
|
|
-
|
Cleo
B Wagoner & Vera J Wagoner
|
1
|
-
|
1
|
|
1
|
|
-
|
Collie
Collins & Sandra Collins
|
1
|
-
|
1
|
|
1
|
|
-
|
Corinne
B Hallemeyer
|
1
|
-
|
1
|
|
1
|
|
-
|
Corman
C Smith
|
1
|
-
|
1
|
|
1
|
|
-
|
Craig
A Nalen
|
1
|
-
|
1
|
|
1
|
|
-
|
Cynthia
Colvin
|
1
|
-
|
1
|
|
1
|
|
-
|
D
M
Fowle
|
1
|
-
|
1
|
|
1
|
|
-
|
David
H Densmore & Edith C Densmore
|
1
|
-
|
1
|
|
1
|
|
-
|
David
J Conner
|
1
|
-
|
1
|
|
1
|
|
-
|
David
M Jacobson
|
1
|
-
|
1
|
|
1
|
|
-
|
David
Rosendahl
|
1
|
-
|
1
|
|
1
|
|
-
|
David
S Susner & Anne Susner
|
1
|
-
|
1
|
|
1
|
|
-
|
Delafield
& Delafield
|
1
|
-
|
1
|
|
1
|
|
-
|
Denise
E Christman Cust FBO Celeste Edan Christman
|
1
|
-
|
1
|
|
1
|
|
-
|
Dianne
Munch
|
1
|
-
|
1
|
|
1
|
|
-
|
Don
Sands
|
1
|
-
|
1
|
|
1
|
|
-
|
Donald
& Co
|
1
|
-
|
1
|
|
1
|
|
-
|
Donald
A Oliveira & Odette Oliveira
|
1
|
-
|
1
|
|
1
|
|
-
|
Donald
F Mora
|
1
|
-
|
1
|
|
1
|
|
-
|
Donald
O Featherman & Susan Featherman
|
1
|
-
|
1
|
|
1
|
|
-
|
Donald
S White
|
1
|
-
|
1
|
|
1
|
|
-
|
Donald
W Sine &
|
1
|
-
|
1
|
|
1
|
|
-
|
Dora
Crumley
|
1
|
-
|
1
|
|
1
|
|
-
|
Dorothy
C Nold
|
1
|
-
|
1
|
|
1
|
|
-
|
Dorothy
K Tonelli & Ruth Ankstutis
|
1
|
-
|
1
|
|
1
|
|
-
|
Douglas
G Mahon Jr Cust Fbo Stephen Mahon
|
1
|
-
|
1
|
|
1
|
|
-
|
Edgar
D Ross
|
1
|
-
|
1
|
|
1
|
|
-
|
Edmond
F Cycler Jr & Alice C Cycler
|
1
|
-
|
1
|
|
1
|
|
-
|
Edward
F Adams
|
1
|
-
|
1
|
|
1
|
|
-
|
Edward
F Sturcken
|
1
|
-
|
1
|
|
1
|
|
-
|
Edward
J Ober & Myrna G Ober
|
1
|
-
|
1
|
|
1
|
|
-
|
Edward
P Tonelli & Dorothy K Tonelli
|
1
|
-
|
1
|
|
1
|
|
-
|
Edwin
Beards Lee
|
1
|
-
|
1
|
|
1
|
|
-
|
Edwin
V Tier & Lawana M Tier
|
1
|
-
|
1
|
|
1
|
|
-
|
Eleanor
I Demeo
|
1
|
-
|
1
|
|
1
|
|
-
|
Elizabeth
Bell
|
1
|
-
|
1
|
|
1
|
|
-
|
Elizabeth
Johnson
|
1
|
-
|
1
|
|
1
|
|
-
|
Ella
Blumberg
|
1
|
-
|
1
|
|
1
|
|
-
|
Ellen
M Schlangen
|
1
|
-
|
1
|
|
1
|
|
-
|
Ellsworth
Hoppe Cust FBO Cheryl F Hoppe
|
1
|
-
|
1
|
|
1
|
|
-
|
Emily
A Mardirosian
|
1
|
-
|
1
|
|
1
|
|
-
|
Emily
W Longbottom
|
1
|
-
|
1
|
|
1
|
|
-
|
Emma
Freni
|
1
|
-
|
1
|
|
1
|
|
-
|
Ernest
Amaral & Mary F Amaral
|
1
|
-
|
1
|
|
1
|
|
-
|
Ernest
M Drucker
|
1
|
-
|
1
|
|
1
|
|
-
|
Esther
Horowitz
|
1
|
-
|
1
|
|
1
|
|
-
|
Eugene
Fuhrer
|
1
|
-
|
1
|
|
1
|
|
-
|
Eugene
Neuman
|
1
|
-
|
1
|
|
1
|
|
-
|
Eugene
Stricker & Libby Stricker
|
1
|
-
|
1
|
|
1
|
|
-
|
|
Common
Shares
Owned
Before Sale(1)
|
|
|
|
Common
Shares
Owned
After Sale(2)
|
Selling
Shareholder
|
Held
Outright
|
Warrants/
Options(3)
|
Amount
|
|
Shares
being registered
|
|
Amount
|
Faye
Glasser
|
1
|
-
|
1
|
|
1
|
|
-
|
Foster
Curry
|
1
|
-
|
1
|
|
1
|
|
-
|
Frances
L Ferguson
|
1
|
-
|
1
|
|
1
|
|
-
|
Francis
P Mckeon
|
1
|
-
|
1
|
|
1
|
|
-
|
Frank
A Lay
|
1
|
-
|
1
|
|
1
|
|
-
|
Frank
B Wise Jr & Elizabeth B Wise
|
1
|
-
|
1
|
|
1
|
|
-
|
Frank
Berrell
|
1
|
-
|
1
|
|
1
|
|
-
|
Frank
C Nunes Jr
|
1
|
-
|
1
|
|
1
|
|
-
|
Frank
Catanzaro
|
1
|
-
|
1
|
|
1
|
|
-
|
Frank
D Newman Cust FBO Frank D Newman Ii
|
1
|
-
|
1
|
|
1
|
|
-
|
Frank
P Thompson
|
1
|
-
|
1
|
|
1
|
|
-
|
Frank
Turone
|
1
|
-
|
1
|
|
1
|
|
-
|
Frank
W Murphy
|
1
|
-
|
1
|
|
1
|
|
-
|
Frank
Ziesler & Mildred Ziesler
|
1
|
-
|
1
|
|
1
|
|
-
|
Fred
A Traver & Lillian A Traver
|
1
|
-
|
1
|
|
1
|
|
-
|
Fred
Kosak
|
1
|
-
|
1
|
|
1
|
|
-
|
Frederick
L Heller & Grace E Heller
|
1
|
-
|
1
|
|
1
|
|
-
|
Gary
N Jarvela
|
1
|
-
|
1
|
|
1
|
|
-
|
Gary
R Perrine & Rebecca C Perrine
|
1
|
-
|
1
|
|
1
|
|
-
|
George
Andrews & Agnes Andrews
|
1
|
-
|
1
|
|
1
|
|
-
|
George
E Partelow Jr
|
1
|
-
|
1
|
|
1
|
|
-
|
George
F D Pridmore & Joan L Pridmore
|
1
|
-
|
1
|
|
1
|
|
-
|
George
J Demetree
|
1
|
-
|
1
|
|
1
|
|
-
|
George
R Kinzie Jr & Noel De Lesdernier
|
1
|
-
|
1
|
|
1
|
|
-
|
George
Sarantos
|
1
|
-
|
1
|
|
1
|
|
-
|
Gerald
F Reynolds
|
1
|
-
|
1
|
|
1
|
|
-
|
Giovanni
Barsotti & Gina Barsotti
|
1
|
-
|
1
|
|
1
|
|
-
|
Gordon
R Wright
|
1
|
-
|
1
|
|
1
|
|
-
|
Gordon
Takahashi
|
1
|
-
|
1
|
|
1
|
|
-
|
Grace
Scaduto
|
1
|
-
|
1
|
|
1
|
|
-
|
Guy
W Botts
|
1
|
-
|
1
|
|
1
|
|
-
|
Hans
J Felsch & Celina C Felsch
|
1
|
-
|
1
|
|
1
|
|
-
|
Harold
Goldberg & Recia Goldberg
|
1
|
-
|
1
|
|
1
|
|
-
|
Harold
Ross & Rebecca Ross
|
1
|
-
|
1
|
|
1
|
|
-
|
Harry
A Kingsland & Tommy E Kingsland
|
1
|
-
|
1
|
|
1
|
|
-
|
Harry
B Johnson & Phyllis M Johnson
|
1
|
-
|
1
|
|
1
|
|
-
|
Harry
Macklin & Sybil Macklin
|
1
|
-
|
1
|
|
1
|
|
-
|
Harvey
R Lorber
|
1
|
-
|
1
|
|
1
|
|
-
|
Harvey
Wiener & Celia Wiener
|
1
|
-
|
1
|
|
1
|
|
-
|
Helen
T Doyle
|
1
|
-
|
1
|
|
1
|
|
-
|
Henry
B Traver Jr & Eva M Traver
|
1
|
-
|
1
|
|
1
|
|
-
|
Henry
E Invester
|
1
|
-
|
1
|
|
1
|
|
-
|
Henry
E Smith
|
1
|
-
|
1
|
|
1
|
|
-
|
Henry
F Drews
|
1
|
-
|
1
|
|
1
|
|
-
|
Hensberry
& Company
|
1
|
-
|
1
|
|
1
|
|
-
|
Herbert
S Massey
|
1
|
-
|
1
|
|
1
|
|
-
|
Hilda
Grant
|
1
|
-
|
1
|
|
1
|
|
-
|
Homer
R Medlock Jr
|
1
|
-
|
1
|
|
1
|
|
-
|
Howard
C Lotton
|
1
|
-
|
1
|
|
1
|
|
-
|
Howard
L Jones
|
1
|
-
|
1
|
|
1
|
|
-
|
Irvin
D Black
|
1
|
-
|
1
|
|
1
|
|
-
|
Irving
Ehrlich & Sally Ehrlich
|
1
|
-
|
1
|
|
1
|
|
-
|
Irwin
H Brooks & Gladys B Brooks
|
1
|
-
|
1
|
|
1
|
|
-
|
J
E
Harvey
|
1
|
-
|
1
|
|
1
|
|
-
|
Jack
Kennedy Cust FBO Liz Kennedy
|
1
|
-
|
1
|
|
1
|
|
-
|
Jack
S Crusoe
|
1
|
-
|
1
|
|
1
|
|
-
|
James
Drew Gilleland
|
1
|
-
|
1
|
|
1
|
|
-
|
James
Graham Chapman Jr
|
1
|
-
|
1
|
|
1
|
|
-
|
James
J Duane & Co
|
1
|
-
|
1
|
|
1
|
|
-
|
James
K Rush
|
1
|
-
|
1
|
|
1
|
|
-
|
James
L Mcdonald & Mary W Mcdonald
|
1
|
-
|
1
|
|
1
|
|
-
|
James
N Robson Jr & Cora H Robson
|
1
|
-
|
1
|
|
1
|
|
-
|
James
Spaulding & Donna Spaulding
|
1
|
-
|
1
|
|
1
|
|
-
|
James
W Bashan & Alfreda R Basham
|
1
|
-
|
1
|
|
1
|
|
-
|
James
W Cunning
|
1
|
-
|
1
|
|
1
|
|
-
|
Jane
Staly
|
1
|
-
|
1
|
|
1
|
|
-
|
Jeannette
S Poel
|
1
|
-
|
1
|
|
1
|
|
-
|
Jim
L Jennings
|
1
|
-
|
1
|
|
1
|
|
-
|
Joanne
P Snider & Margaret Zilliax
|
1
|
-
|
1
|
|
1
|
|
-
|
Joel
Michaely
|
1
|
-
|
1
|
|
1
|
|
-
|
John
A Makuch
|
1
|
-
|
1
|
|
1
|
|
-
|
John
D Colligan
|
1
|
-
|
1
|
|
1
|
|
-
|
John
H Parker & Jeanne C Parker
|
1
|
-
|
1
|
|
1
|
|
-
|
John
H Slaughter
|
1
|
-
|
1
|
|
1
|
|
-
|
John
L Dickson & Jean A Dickson
|
1
|
-
|
1
|
|
1
|
|
-
|
John
P Shewman
|
1
|
-
|
1
|
|
1
|
|
-
|
John
W Prichard
|
1
|
-
|
1
|
|
1
|
|
-
|
John
W Trevethan
|
1
|
-
|
1
|
|
1
|
|
-
|
John
Yelvington
|
1
|
-
|
1
|
|
1
|
|
-
|
Joseph
Barcikai
|
1
|
-
|
1
|
|
1
|
|
-
|
Joseph
S Vecchione
|
1
|
-
|
1
|
|
1
|
|
-
|
Judith
A W Wawro
|
1
|
-
|
1
|
|
1
|
|
-
|
Judith
Schneider & Sheldon Schneider
|
1
|
-
|
1
|
|
1
|
|
-
|
|
Common
Shares
Owned
Before Sale(1)
|
|
|
|
Common
Shares
Owned
After Sale(2)
|
Selling
Shareholder
|
Held
Outright
|
Warrants/
Options(3)
|
Amount
|
|
Shares
being registered
|
|
Amount
|
Kathleen
K Phillips
|
1
|
-
|
1
|
|
1
|
|
-
|
Kay
S Ranches Inc
|
1
|
-
|
1
|
|
1
|
|
-
|
Kenneth
A Goerke & Sally Goerke
|
1
|
-
|
1
|
|
1
|
|
-
|
Kenneth
C Wittich & Clara A Wittich
|
1
|
-
|
1
|
|
1
|
|
-
|
Kenneth
G Ketchum & Anita M Ketchum
|
1
|
-
|
1
|
|
1
|
|
-
|
Kenneth
J Fullerton
|
1
|
-
|
1
|
|
1
|
|
-
|
Kenneth
L Menown
|
1
|
-
|
1
|
|
1
|
|
-
|
Kevin
F Cunningham
|
1
|
-
|
1
|
|
1
|
|
-
|
La
Verne Stone Cust FBO Keith J Stone
|
1
|
-
|
1
|
|
1
|
|
-
|
Laird
Bissell & Meeds Inc
|
1
|
-
|
1
|
|
1
|
|
-
|
Lassor
H Grosberg
|
1
|
-
|
1
|
|
1
|
|
-
|
Lathrop
B Flintom Jr
|
1
|
-
|
1
|
|
1
|
|
-
|
Leba
Rae Mccoy
|
1
|
-
|
1
|
|
1
|
|
-
|
Leba
Ray Mccoy & Robert S Gold
|
1
|
-
|
1
|
|
1
|
|
-
|
Leo
H Zindler Jr
|
1
|
-
|
1
|
|
1
|
|
-
|
Leon
R Cardwell
|
1
|
-
|
1
|
|
1
|
|
-
|
Leona
M Malphurs
|
1
|
-
|
1
|
|
1
|
|
-
|
Leonard
N Klein & Florence C Klein
|
1
|
-
|
1
|
|
1
|
|
-
|
Leone
& Pollack
|
1
|
-
|
1
|
|
1
|
|
-
|
Leroy
Hallman
|
1
|
-
|
1
|
|
1
|
|
-
|
Loene
J Stoer
|
1
|
-
|
1
|
|
1
|
|
-
|
Louis
C Miller & Gwendolyn E Miller
|
1
|
-
|
1
|
|
1
|
|
-
|
Louis
Guillerme Cust FBO Allan Jacques Guillerme
|
1
|
-
|
1
|
|
1
|
|
-
|
Louise
M Clements
|
1
|
-
|
1
|
|
1
|
|
-
|
Lucy
Pepe
|
1
|
-
|
1
|
|
1
|
|
-
|
M
Doris Leibold Cust FBO Jean Ellen Leibold
|
1
|
-
|
1
|
|
1
|
|
-
|
M
Josephine Dawson
|
1
|
-
|
1
|
|
1
|
|
-
|
M
S
Wien & Co
|
1
|
-
|
1
|
|
1
|
|
-
|
Madge
Wilson
|
1
|
-
|
1
|
|
1
|
|
-
|
Manola
Miranda
|
1
|
-
|
1
|
|
1
|
|
-
|
Margaret
E Lyons
|
1
|
-
|
1
|
|
1
|
|
-
|
Margaret
J Becker
|
1
|
-
|
1
|
|
1
|
|
-
|
Margo
Simpson
|
1
|
-
|
1
|
|
1
|
|
-
|
Maria
Montanino
|
1
|
-
|
1
|
|
1
|
|
-
|
Marie
L Ebbitt
|
1
|
-
|
1
|
|
1
|
|
-
|
Marie
P Salvini & Emil R Salvini
|
1
|
-
|
1
|
|
1
|
|
-
|
Mark
Renneker
|
1
|
-
|
1
|
|
1
|
|
-
|
Marlene
G Hamilton
|
1
|
-
|
1
|
|
1
|
|
-
|
Martin
Karasick
|
1
|
-
|
1
|
|
1
|
|
-
|
Mary
C Logue
|
1
|
-
|
1
|
|
1
|
|
-
|
Mary
Lena Faulk
|
1
|
-
|
1
|
|
1
|
|
-
|
Maureen
Grady
|
1
|
-
|
1
|
|
1
|
|
-
|
Maurice
Deutsch & Harriet Deutsch
|
1
|
-
|
1
|
|
1
|
|
-
|
May
C Edwards & Carol May Edwards
|
1
|
-
|
1
|
|
1
|
|
-
|
Meredith
M Amphlett & Mary M Amphlett
|
1
|
-
|
1
|
|
1
|
|
-
|
Merle
L Long
|
1
|
-
|
1
|
|
1
|
|
-
|
Michael
E Gorman
|
1
|
-
|
1
|
|
1
|
|
-
|
Michael
Pfundstein & Hilda H Pfundstein
|
1
|
-
|
1
|
|
1
|
|
-
|
Michael
Renneker
|
1
|
-
|
1
|
|
1
|
|
-
|
Miguel
Regaldo
|
1
|
-
|
1
|
|
1
|
|
-
|
Mildred
S Montgomery
|
1
|
-
|
1
|
|
1
|
|
-
|
Milton
J Pearl
|
1
|
-
|
1
|
|
1
|
|
-
|
Miriam
H Epps Van
|
1
|
-
|
1
|
|
1
|
|
-
|
Mizpah
G Albury
|
1
|
-
|
1
|
|
1
|
|
-
|
Morris
H Furay & Agnes E Furay
|
1
|
-
|
1
|
|
1
|
|
-
|
Nancy
B Howard
|
1
|
-
|
1
|
|
1
|
|
-
|
Nancy
Gaines Goff
|
1
|
-
|
1
|
|
1
|
|
-
|
NCC
& Co
|
1
|
-
|
1
|
|
1
|
|
-
|
Nicholas
S Pazar
|
1
|
-
|
1
|
|
1
|
|
-
|
Nick
Sacco
|
1
|
-
|
1
|
|
1
|
|
-
|
Noah
Griver Cust FBO David Allen Griver
|
1
|
-
|
1
|
|
1
|
|
-
|
Oram
Kerr
|
1
|
-
|
1
|
|
1
|
|
-
|
Orlen
D Kepler & Waneta L Kepler
|
1
|
-
|
1
|
|
1
|
|
-
|
Oscar
Wohl
|
1
|
-
|
1
|
|
1
|
|
-
|
|
Common
Shares
Owned
Before Sale(1)
|
|
|
|
Common
Shares
Owned
After Sale(2)
|
Selling
Shareholder
|
Held
Outright
|
Warrants/
Options(3)
|
Amount
|
|
Shares
being registered
|
|
Amount
|
Parts
Service Corporation
|
1
|
-
|
1
|
|
1
|
|
-
|
Paul
Hanzlik & Frances Hanzlik
|
1
|
-
|
1
|
|
1
|
|
-
|
Paul
Vincent Kennedy & Sylvia A Kennedy
|
1
|
-
|
1
|
|
1
|
|
-
|
Pauline
Maslynsky
|
1
|
-
|
1
|
|
1
|
|
-
|
Pearl
Meppen Drabkin & Bernice Meppen Susskind
|
1
|
-
|
1
|
|
1
|
|
-
|
Peter
Lowden & Grace Lowden
|
1
|
-
|
1
|
|
1
|
|
-
|
Peter
P Rana & Lola I Rana
|
1
|
-
|
1
|
|
1
|
|
-
|
Philip
Schless
|
1
|
-
|
1
|
|
1
|
|
-
|
Pierre
L Steward
|
1
|
-
|
1
|
|
1
|
|
-
|
Poo
Quong Chin
|
1
|
-
|
1
|
|
1
|
|
-
|
Ralph
H Jensen
|
1
|
-
|
1
|
|
1
|
|
-
|
Ralph
Ragonese
|
1
|
-
|
1
|
|
1
|
|
-
|
Ray
R Poynter Jr & Mary Gleason
|
1
|
-
|
1
|
|
1
|
|
-
|
Rex
Estorffe
|
1
|
-
|
1
|
|
1
|
|
-
|
Richard
B Vavra
|
1
|
-
|
1
|
|
1
|
|
-
|
Richard
F Dalton
|
1
|
-
|
1
|
|
1
|
|
-
|
Richard
Guttler
|
1
|
-
|
1
|
|
1
|
|
-
|
Richard
L Lehmann
|
1
|
-
|
1
|
|
1
|
|
-
|
Richard
P Myers
|
1
|
-
|
1
|
|
1
|
|
-
|
Richard
S Berger & Shelia Berger
|
1
|
-
|
1
|
|
1
|
|
-
|
Richard
W Morris
|
1
|
-
|
1
|
|
1
|
|
-
|
Richardt-Alyn
& Co
|
1
|
-
|
1
|
|
1
|
|
-
|
Robert
A Craig
|
1
|
-
|
1
|
|
1
|
|
-
|
Robert
A Sims
|
1
|
-
|
1
|
|
1
|
|
-
|
Robert
Block & Hinda Block
|
1
|
-
|
1
|
|
1
|
|
-
|
Robert
C May & Betty J May
|
1
|
-
|
1
|
|
1
|
|
-
|
Robert
C Whitehead Jr
|
1
|
-
|
1
|
|
1
|
|
-
|
Robert
G Covel Jr
|
1
|
-
|
1
|
|
1
|
|
-
|
Robert
H Jenkins & E Nelda Jenkins
|
1
|
-
|
1
|
|
1
|
|
-
|
Robert
H Woodward Cust FBO Carol Ann Woodward
|
1
|
-
|
1
|
|
1
|
|
-
|
Robert
J Bell
|
1
|
-
|
1
|
|
1
|
|
-
|
Robert
J Bishop
|
1
|
-
|
1
|
|
1
|
|
-
|
Robert
M Jugan & Sandra Jugan
|
1
|
-
|
1
|
|
1
|
|
-
|
Robert
P Grady
|
1
|
-
|
1
|
|
1
|
|
-
|
Robert
P Mosier & Ray T Ensor
|
1
|
-
|
1
|
|
1
|
|
-
|
Robert
R Lowe
|
1
|
-
|
1
|
|
1
|
|
-
|
Robert
R Smith
|
1
|
-
|
1
|
|
1
|
|
-
|
Robert
W Barker & Dorothy Josephine Barker
|
1
|
-
|
1
|
|
1
|
|
-
|
Roscoe
Johnson
|
1
|
-
|
1
|
|
1
|
|
-
|
Rose
Pietro Di
|
1
|
-
|
1
|
|
1
|
|
-
|
Rosina
Entrement Md
|
1
|
-
|
1
|
|
1
|
|
-
|
Roslynne
D Bloom
|
1
|
-
|
1
|
|
1
|
|
-
|
Roy
D Baldwin & Jane A Baldwin
|
1
|
-
|
1
|
|
1
|
|
-
|
Roy
T Hawk & Elizabeth L Hawk
|
1
|
-
|
1
|
|
1
|
|
-
|
Royer
Securities Company
|
1
|
-
|
1
|
|
1
|
|
-
|
Rupert
E Dunkum Jr
|
1
|
-
|
1
|
|
1
|
|
-
|
Rupert
E Dunkum Jr Cust FBO Laura Maxine Dunkum
|
1
|
-
|
1
|
|
1
|
|
-
|
Russell
& Sake
|
1
|
-
|
1
|
|
1
|
|
-
|
S
A
Welch
|
1
|
-
|
1
|
|
1
|
|
-
|
Sara
Ann Rydstrom
|
1
|
-
|
1
|
|
1
|
|
-
|
Shearson
Hammil & Co Inc
|
1
|
-
|
1
|
|
1
|
|
-
|
Sheldon
Gordel
|
1
|
-
|
1
|
|
1
|
|
-
|
Shirley
G Inman Cust FBO Scott D Inman
|
1
|
-
|
1
|
|
1
|
|
-
|
Sophia
Koslow
|
1
|
-
|
1
|
|
1
|
|
-
|
Stafford
C Delesdernier
|
1
|
-
|
1
|
|
1
|
|
-
|
Stanley
C Thomas & Doris Brooks
|
1
|
-
|
1
|
|
1
|
|
-
|
Stanley
Kasper & Mary L Kasper
|
1
|
-
|
1
|
|
1
|
|
-
|
Stanley
Zuppke & Alice G Zuppke
|
1
|
-
|
1
|
|
1
|
|
-
|
Stephen
Savino
|
1
|
-
|
1
|
|
1
|
|
-
|
Sue
Oldham Cheney
|
1
|
-
|
1
|
|
1
|
|
-
|
Suzanne
K Jones
|
1
|
-
|
1
|
|
1
|
|
-
|
Syd
Polansky & Arnold Polansky
|
1
|
-
|
1
|
|
1
|
|
-
|
Sydney
M Jaffe & Rita D Jaffe
|
1
|
-
|
1
|
|
1
|
|
-
|
T
Lee Terry
|
1
|
-
|
1
|
|
1
|
|
-
|
Therese
Lynch & Claude J Lynch
|
1
|
-
|
1
|
|
1
|
|
-
|
Thomas
J Haydon & Velma M Haydon
|
1
|
-
|
1
|
|
1
|
|
-
|
Thomas
K Hickman
|
1
|
-
|
1
|
|
1
|
|
-
|
Thomas
N Canning & Norma E Canning
|
1
|
-
|
1
|
|
1
|
|
-
|
Thomas
W Sullivan
|
1
|
-
|
1
|
|
1
|
|
-
|
Titusville
Elks Lodge
|
1
|
-
|
1
|
|
1
|
|
-
|
Tom
W Westing
|
1
|
-
|
1
|
|
1
|
|
-
|
|
Common
Shares
Owned
Before Sale(1)
|
|
|
|
Common
Shares
Owned
After Sale(2)
|
Selling
Shareholder
|
Held
Outright
|
Warrants/
Options(3)
|
Amount
|
|
Shares
being registered
|
|
Amount
|
Vahak
Gadarian & Aza Gadarian
|
1
|
-
|
1
|
|
1
|
|
-
|
Verdery
A Clark
|
1
|
-
|
1
|
|
1
|
|
-
|
Victor
J Connor & Maureen Connor
|
1
|
-
|
1
|
|
1
|
|
-
|
Victor
Seaberg & Lucy S Seaberg
|
1
|
-
|
1
|
|
1
|
|
-
|
Virginia
A Burr Cust FBO Bonnie Sue Burr
|
1
|
-
|
1
|
|
1
|
|
-
|
Walter
D Griffin & Constance C Griffin
|
1
|
-
|
1
|
|
1
|
|
-
|
Walter
G Giblin
|
1
|
-
|
1
|
|
1
|
|
-
|
Walter
Hudzik
|
1
|
-
|
1
|
|
1
|
|
-
|
Walter
Waligunda
|
1
|
-
|
1
|
|
1
|
|
-
|
Wanda
Ashe
|
1
|
-
|
1
|
|
1
|
|
-
|
Wayne
R Collins
|
1
|
-
|
1
|
|
1
|
|
-
|
Wego
& Co
|
1
|
-
|
1
|
|
1
|
|
-
|
Weigerco
|
1
|
-
|
1
|
|
1
|
|
-
|
Wilfred
Desilets
|
1
|
-
|
1
|
|
1
|
|
-
|
William
A Dobson Jr & Frances Dobson
|
1
|
-
|
1
|
|
1
|
|
-
|
William
A Robertson & Nancy Robertson
|
1
|
-
|
1
|
|
1
|
|
-
|
William
A Swartman
|
1
|
-
|
1
|
|
1
|
|
-
|
William
B Holmes
|
1
|
-
|
1
|
|
1
|
|
-
|
William
D Gorman & Harriet W Gorman
|
1
|
-
|
1
|
|
1
|
|
-
|
William
E Griess Jr
|
1
|
-
|
1
|
|
1
|
|
-
|
William
F Mount
|
1
|
-
|
1
|
|
1
|
|
-
|
William
G Moller
|
1
|
-
|
1
|
|
1
|
|
-
|
William
H Reynolds & Ann Jane Reynolds
|
1
|
-
|
1
|
|
1
|
|
-
|
William
J Davis
|
1
|
-
|
1
|
|
1
|
|
-
|
William
Jerchau
|
1
|
-
|
1
|
|
1
|
|
-
|
William
L Garrott
|
1
|
-
|
1
|
|
1
|
|
-
|
William
M Burr
|
1
|
-
|
1
|
|
1
|
|
-
|
William
P Murchison Cust FBO Robert B Hunt
|
1
|
-
|
1
|
|
1
|
|
-
|
William
R Overfield
|
1
|
-
|
1
|
|
1
|
|
-
|
William
Strauss Cust FBO Barry Strauss
|
1
|
-
|
1
|
|
1
|
|
-
|
William
T Sacco
|
1
|
-
|
1
|
|
1
|
|
-
|
William
W Bauer
|
1
|
-
|
1
|
|
1
|
|
-
|
William
W Heath
|
1
|
-
|
1
|
|
1
|
|
-
|
Winifred
D Mawhood Ross
|
1
|
-
|
1
|
|
1
|
|
-
|
Woodrow
W Strickland
|
1
|
-
|
1
|
|
1
|
|
-
|
Zack
Crumpton & Helen C Crumpton
|
1
|
-
|
1
|
|
1
|
|
-
|
Unknown(11)
|
71,759
|
-
|
71,759
|
|
71,759
|
|
-
|
|
|
|
|
|
|
|
|
Total
|
500,361
|
|
500,361
|
|
500,361
|
|
|
*
Less
Than 1%
(1)
|
Pursuant
to Rules 13d-3 and 13d-5 of the Exchange Act, beneficial
ownership
includes any common shares as to which a shareholder has
sole or shared
voting power or investment power, and also any common shares
which the
shareholder has the right to acquire within 60 days, including
upon
exercise of common shares purchase options or warrants. There
were
25,820,939 common shares outstanding as of August 25,
2006.
|
(2)
|
Assumes
the sale of all common shares offered under this
prospectus.
|
(3)
|
Allen
Gelbard is the person with voting and dispositive power of AB Investments,
Inc.
|
(4)
|
The
Estate of Richard G. Babbit is the entity with voting and dispositive
power of the CB Family Trust.
|
(5)
|
Christopher
Dietrich is the person with voting and dispositive power of Dietrich
&
Associates.
|
(6)
|
CJ
Newman is the person with voting and dispositive power of Mid America
Capital Corp.
|
(7)
|
Richard
Hull is the person with voting and dispositive power of The Metaphase
Group.
|
(8)
|
Jeff
Rose is the person with voting and dispositive power of The Rose
Group.
|
(9)
|
William
E. Kearney is the person with voting and dispositive power of the
1988
Childrens Trust.
|
(10)
|
The
shares are subject to an administrative hold by Regal One Corporation.
|
(11)
|
The
shares are held in street name.
|
REGISTRATION
RIGHTS
The
holders of 5,016,667 shares of our common stock and the holders of
8,146,667 shares of our common stock issuable upon exercise of warrants and
options are entitled to rights with respect to the registration of their
shares
under the Securities Act of 1933. We are also registering an additional 100,000
common shares which we may become obligated to issue in the event we incur
additional penalties pursuant to our registration rights agreements. These
registration rights are contained in the registration rights agreements entered
into with certain investors as well as embedded in agreements detailing the
holders' rights under their individually granted warrants and options. In
addition to the common shares to be registered pursuant to the registration
rights agreement, we are also voluntarily registering 3,072,000 common shares
and common shares issuable upon the exercise of certain options and warrants
issued to our investors, consultants and advisors.
From
January 8 through March 8 2006, we raised $5,000,000 in gross proceeds from
the
private placement of units consisting of one share of common stock, ½ class “A”
warrant, and ½ class “B” warrant, to 64 investors. The offering was effected
through T.R. Winston & Company, a registered broker-dealer, as placement
agent, pursuant to which we sold:
·
|
5,000,000
common shares;
|
·
|
2,500,000
class 'A' warrants, each warrant entitling the holder to purchase
one
share of common stock for $1.50;
and
|
·
|
2,500,000
class 'B' warrants, each warrant entitling the holder to purchase
one
share of common stock for $2.00;
|
In
connection with the offering, we issued to T.R. Winston & Company and S.W.
Bach & Company as placement agent's purchase warrants entitling them to
purchase a total of 800,000 common shares at $1.10 per share.
As
part
of the private placement, we entered into a registration rights agreements
with
the investors under which we agreed to file the registration statement of which
this prospectus is a part in order to register (1) the common shares issued
in
the private placement; and (2) the common shares issuable upon the exercise
of
the class “A”
and “B” warrants.
The
registration rights agreement required us to use our best efforts
to:
· |
file the registration statement as soon as reasonably
practicable after the first closing for the offering, but in no event
more
than 30 days following the closing of the minimum offering amount,
which
closing occurred on February 23, 2006 (“Filling
Deadline”); |
· |
have
the registration agreement declared effective within 180 days after
the
closing of the minimum offering amount (“Effectiveness Deadline”);
and
|
· |
maintain
the registration statement continuously effective until the date
that the
shares covered by this prospectus may be sold pursuant to Rule 144
of the
Securities Act without any
restrictions.
|
If
we
fail to file the registration statement within the 30 days, have the
registration statement declared effective within 180 days, or the registration
statement does not stay effective for any 45 consecutive day period: (i)
the
shares underlying the “A” and “B” warrants will be increased by one percent (1%)
for each 30 day period subject to proration for any partial period; and (ii)
we
will be obligated to issue additional shares equal to one percent (1%) of
the
common shares sold in the offering for each 30 day period and subject to
proration for any partial period.
In
addition to the forgoing, Regal One Corporation, one of our largest
shareholders, agreed that if we fail to meet either the Filing Deadline or
Effectiveness Deadline, that for each day following such 30 day or 180 day
period, as the case may be, the Company will cancel 3,000 shares of Neuralstem's
common stock which Regal One currently owns, up to a maximum of 1,000,000
cancelled shares.
We
filed
our initial registration statement as required under the registration rights
agreement on March 31, 2006 after hours and it has a filing date of April
3,
2006. Accordingly, we have incurred a penalty of 9 days and are already
obligated to issue 15,000 additional common shares, 7,500 addition
class A warrant shares and 7,500 additional class B warrant shares.
Additionally, 27,000 common shares held by Regal One Corporation are subject
to
cancellation. As stated above, we are registering an additional 100,000 common
shares reserved for issuance in the event we incur additional
penalties.
PLAN
OF DISTRIBUTION
The
selling shareholders and each of their respective donees, transferees, pledges
or other successors in interest (to the extent permitted under this plan of
distribution as described below) may, from time to time, sell any or all of
their shares of common stock offered for sale under this prospectus on any
stock
exchange, market or trading facility on which the shares are traded or in
private transactions. The selling shareholders will sell at a price of $1.00
per
share until our shares are quoted on the OTC Bulletin Board and thereafter
at
prevailing market prices or privately negotiated prices. The selling
shareholders may use any one or more of the following methods when selling
shares:
·
|
ordinary
brokerage transactions and transactions in which the broker-dealer
solicits the purchaser;
|
·
|
block
trades in which the broker-dealer will attempt to sell the shares
as agent
but may position and resell a portion of the block as principal to
facilitate the transaction;
|
·
|
purchases
by a broker-dealer as principal and resale by the broker-dealer for
its
account;
|
·
|
an
exchange distribution in accordance with the rules of the applicable
exchange;
|
·
|
privately-negotiated
transactions;
|
·
|
short
sales that are not violations of the laws and regulations of any
state or
the United States;
|
·
|
broker-dealers
may agree with the selling shareholders to sell a specified number
of such
shares at a stipulated price per
share;
|
·
|
through
the writing of options on the
shares;
|
·
|
a
combination of any such methods of sale;
and
|
·
|
any
other method permitted pursuant to applicable
law.
|
The
selling shareholders may also sell shares under Rule 144 under the Securities
Act, if available, rather than under this Prospectus unless they entered into
the lock-up agreement. The selling shareholders shall have the sole and absolute
discretion not to accept any purchase offer or make any sale of shares if they
deem the purchase price to be unsatisfactory at any particular
time.
The
selling shareholders may also engage in puts, calls and other transactions
in
our securities or derivatives of our securities and may sell or deliver shares
in connection with these trades.
The
selling shareholders or their respective pledgees, donees, transferees or other
successors in interest, may also sell the shares directly to market makers
acting as principals and/or broker-dealers acting as agents for themselves
or
their customers. Such broker-dealers may receive compensation in the form of
discounts, concessions or commissions from the selling shareholders and/or
the
purchasers of shares for whom such broker-dealers may act as agents or to whom
they sell as principal or both, which compensation as to a particular
broker-dealer might be in excess of customary commissions. Market makers and
block purchasers purchasing the shares will do so for their own account and
at
their own risk. It is possible that a selling stockholder will attempt to sell
shares of common stock in block transactions to market makers or other
purchasers at a price per share which may be below the market price. The selling
shareholders cannot assure that all or any of the shares offered in this
Prospectus will be issued to, or sold by, the selling shareholders.
Further, the other selling shareholders and any brokers, dealers or agents,
upon
affecting the sale of any of the shares offered in this Prospectus, will be
deemed to be "underwriters." Accordingly, any commissions received by such
broker-dealers or agents and any profit on the resale of the shares purchased
by
them may be deemed to be underwriting commissions or discounts under the
Securities Act.
We
are
required to pay all fees and expenses incident to the registration of the
shares, including fees and disbursements of counsel to the selling shareholders,
but excluding brokerage commissions or underwriter discounts.
The
selling shareholders, alternatively, may sell all or any part of the shares
offered in this prospectus through an underwriter. No selling stockholder has
entered into any agreement with a prospective underwriter and there is no
assurance that any such agreement will be entered into.
The
shares of common stock underlying the warrants issued to those selling
shareholders who, as indicated in the Selling Shareholder table above, received
such warrants as part of compensation pursuant to a placement agency agreement
between us and such selling shareholders are restricted in accordance with
Rule
2710(g)(1) of the NASD Conduct Rules. Accordingly, those selling shareholders
shall not directly or indirectly offer, sell, agree to offer or sell, transfer,
assign, pledge, hypothecate or subject to hedging, short sale, derivative,
put
or call transaction such shares for a period of 180 days after the effective
date of this registration statement.
The
selling shareholders may pledge their shares to their brokers under the margin
provisions of customer agreements. If a selling stockholder defaults on a margin
loan, the broker may, from time to time, offer and sell the pledged shares.
The
selling shareholders and any other persons participating in the sale or
distribution of the shares will be subject to applicable provisions of the
Securities Exchange Act of 1934, as amended, and the rules and regulations
under
such act, including, without limitation, Regulation M. These provisions may
restrict certain activities of, and limit the timing of purchases and sales
of
any of the shares by the selling shareholders or any other such person. In
the
event that the selling shareholders are deemed affiliated purchasers or
distribution participants within the meaning of Regulation M, then the selling
shareholders will not be permitted to engage in short sales of common stock.
Furthermore, under Regulation M, persons engaged in a distribution of securities
are prohibited from simultaneously engaging in market making and certain other
activities with respect to such securities for a specified period of time prior
to the commencement of such distributions, subject to specified exceptions
or
exemptions. In regards to short sells, the selling stockholder can only cover
its short position with the securities they receive from us upon conversion.
In
addition, if such short sale is deemed to be a stabilizing activity, then the
selling stockholder will not be permitted to engage in a short sale of our
common stock. All of these limitations may affect the marketability of the
shares.
We
have
agreed to indemnify the selling shareholders, or their transferees or assignees,
against certain liabilities, including liabilities under the Securities Act
of
1933, as amended, or to contribute to payments the selling shareholders or
their
respective pledgees, donees, transferees or other successors in interest, may
be
required to make in respect of such liabilities.
If
the
selling shareholders notify us that they have a material arrangement with a
broker-dealer for the resale of the common stock, then we would be required
to
amend the registration statement of which this Prospectus is a part, and file
a
Prospectus supplement to describe the agreements between the selling
shareholders and the broker-dealer.
TRANSFER
AGENT
The
transfer agent for our common shares is American Stock Transfer, 59 Maiden
Lane,
Plaza Level, New York, NY 10038. We act as our own transfer agent with regard
to
our outstanding common share purchase options and warrants.
LEGAL
MATTERS
The
validity of the shares of common stock being offered hereby will be passed
upon
for us by Dieterich & Associates, Los Angeles, California. Christopher
Dieterich, principal of Dieterich & Associates, is a shareholder of Regal
One Corporation and, as such, will receive a portion of the shares pursuant
to
the dividend declared by Regal One.
EXPERTS
Our
financial statements as of December 31, 2005 and the related condensed
consolidated statements of operations, shareholders' deficit and cash flows
for
the period from January 1, 2004 through December 31, 2005 appearing in this
Prospectus and registration statement have been audited by George Brenner,
independent registered public accountant, as set forth on this report thereon
appearing elsewhere in this Prospectus, and are included in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing. George Brenner has no interest in the shares being registered in
this
filing.
INDEMNIFICATION
OF DIRECTORS AND OFFICERS
The
Corporation Laws of the State of Delaware and the Company's Bylaws provide
for
indemnification of the Company's Directors for expenses actually and necessarily
incurred by them in connection with the defense of any action, suit or
proceeding in which they, or any of them, are made parties, or a party, by
reason of having been Director(s) or Officer(s) of the corporation, or of such
other corporation, except, in relation to matter as to which any such Director
or Officer or former Director or Officer or person shall be adjudged in such
action, suit or proceeding to be liable for negligence or misconduct in the
performance of duty. Furthermore, the personal liability of the Directors
is limited as provided in the Company's Articles of Incorporation.
Insofar
as indemnification for liabilities arising under the Securities Act of 1933
may
be permitted to directors, officers or persons controlling the Company pursuant
to the foregoing provisions, the Company has been informed that in the opinion
of the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act of 1933 and is therefore
unenforceable.
WHERE
YOU CAN FIND MORE INFORMATION
We
have
filed with the SEC a registration statement on Form SB-2 under the Securities
Act with respect to the shares of common stock offered hereby. This prospectus,
which constitutes a part of the registration statement, does not contain all
of
the information set forth in the registration statement or the exhibits and
schedules filed therewith. For further information about us and the common
stock
offered hereby, reference is made to the registration statement and the exhibits
and schedules filed therewith. Statements contained in this prospectus regarding
the contents of any contract or any other document that is filed as an exhibit
to the registration statement are not necessarily complete, and each such
statement is qualified in all respects by reference to the full text of such
contract or other document filed as an exhibit to the registration statement.
A
copy of the registration statement and the exhibits and schedules filed
therewith may be inspected without charge at the public reference room
maintained by the SEC, located at 450 Fifth Street, N.W., Room 1200, Washington,
D.C. 20549, and copies of all or any part of the registration statement may
be
obtained from such offices upon the payment of the fees prescribed by the SEC.
Please call the SEC at 1-800-SEC-0330 for further information about the public
reference room. The SEC also maintains an Internet web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the SEC. The address of the site
is
www.sec.gov.
FINANCIAL
INFORMATION
Report
of Independent Registered Public Accounting Firm
To
the
Board of Directors
Neuralstem,
Inc.
I
have
audited the accompanying balance sheets of Neuralstem, Inc. as of December
31,
2005 and 2004, and the related statements of operations, stockholders' deficit,
and cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. My responsibility is to express
an
opinion on these financial statements based on my audits.
I
conducted my audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that
I plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining,
on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. I believe that my audits provide a reasonable
basis for my opinion.
In
my
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Neuralstem, Inc. as of December
31,
2005 and 2004 and the results of its operations, stockholders' deficit and
cash
flows for the years then ended, in conformity with U.S. generally accepted
accounting principles.
As
discussed in Note 9 to the financial statements, the Company has restated
its
financial statements for the years ended December 31, 2005 and 2004 for not
properly accounting for certain warrants for common stock granted and
shares issued which were not accounted for as deemed interest.
George
Brenner, CPA
Los
Angeles, California
March
29,
2006 (except for Note 9, August 16, 2006)
NEURALSTEM,
INC.
BALANCE
SHEETS
|
|
December
31,
2005
|
|
December
31,
2004
|
|
|
|
(Restated)
|
|
(Restated)
|
|
ASSETS
|
|
|
CURRENT
ASSETS
|
|
|
|
|
|
|
|
Cash
|
|
$
|
526,381
|
|
$
|
39,054
|
|
Total
current assets
|
|
|
526,381
|
|
|
39,054
|
|
Property
and equipment, net
|
|
|
29,138
|
|
|
61,069
|
|
Intangible
assets, net
|
|
|
14,327
|
|
|
15,980
|
|
Total
assets
|
|
|
569,846
|
|
|
116,103
|
|
LIABILITIES
AND STOCKHOLDERS' DEFICIT
|
|
|
CURRENT
LIABILITIES
|
|
|
|
|
|
|
|
Notes
payable to bank including accrued interest
|
|
$
|
116,255
|
|
$
|
118,000
|
|
Note
payable, current portion
|
|
|
8,946
|
|
|
-
|
|
Accounts
payable and accrued expenses
|
|
|
683,803
|
|
|
683,118
|
|
Deferred
compensation
|
|
|
192,620
|
|
|
202,620
|
|
Total
current liabilities
|
|
|
1,001,624
|
|
|
1,003,738
|
|
Notes
payable, stockholder
|
|
|
-
|
|
|
60,000
|
|
Note
payable, long-term portion
|
|
|
28,395
|
|
|
-
|
|
Total
liabilities
|
|
|
1,030,019
|
|
|
1,063,738
|
|
STOCKHOLDERS'
DEFICIT
|
|
|
|
|
|
|
|
Preferred
stock: $0.01 par value; authorized 7,000,000 shares; issued and
outstanding -- and 6,318,201 shares at December 31, 2005 and 2004,
respectively
|
|
$
|
-
|
|
$
|
63,182
|
|
Common
stock: $0.01 par value; authorized 75,000,000 shares; issued and
outstanding: 20,608,272 and 2,016,586 shares at December 31, 2005
and
2004, respectively
|
|
|
206,083
|
|
|
20,166
|
|
Additional
paid-in capital
|
|
|
34,665,982
|
|
|
32,762,748
|
|
Common
stock payable for 226,000of unissued shares of common
stock
|
|
|
113,000
|
|
|
-
|
|
Accumulated
deficit
|
|
|
(35,445,238
|
)
|
|
(33,793,731
|
)
|
Total
stockholders' deficit
|
|
|
(460,173
|
)
|
|
(947,635
|
)
|
Total
liabilities and stockholders' deficit
|
|
$
|
569,846
|
|
$
|
116,103
|
|
See
Accompanying Notes to Financial Statements.
NEURALSTEM,
INC.
STATEMENTS
OF OPERATIONS
|
|
Year
ended December 31,
|
|
|
|
2005
|
|
2004
|
|
|
|
(Restated)
|
|
(Restated)
|
|
Revenues
|
|
$
|
309,142
|
|
$
|
125,457
|
|
Operating
expenses
|
|
|
|
|
|
|
|
Research
and development costs
|
|
|
568,299
|
|
|
428,402
|
|
General,
selling and administrative expenses
|
|
|
1,256,278
|
|
|
555,080
|
|
Depreciation
and amortization
|
|
|
51,923
|
|
|
155,555
|
|
|
|
|
1,876,500
|
|
|
1,139,037
|
|
Operating
loss
|
|
|
(1,567,358
|
)
|
|
(1,013,580
|
)
|
Nonoperating
income (expense)
|
|
|
|
|
|
|
|
Interest
|
|
|
7,888
|
|
|
4,233
|
|
Other
income
|
|
|
-
|
|
|
2,702
|
|
Forgiveness
of debt
|
|
|
10,735
|
|
|
-
|
|
Loss
on sale of assets
|
|
|
-
|
|
|
(842,719
|
)
|
Interest
expense
|
|
|
(102,772
|
)
|
|
(7,527,179
|
)
|
Net
loss
|
|
$
|
(1,651,507
|
)
|
$
|
(9,376,543
|
)
|
Net
loss per share, basic
|
|
$
|
(0.16
|
)
|
$
|
(4.65
|
)
|
Average
number of shares of common stock outstanding
|
|
|
10,422,872
|
|
|
2,016,586
|
|
See
Accompanying Notes to Financial Statements.
NEURALSTEM,
INC.
STATEMENTS
OF STOCKHOLDERS' DEFICIT
|
|
|
|
|
|
|
|
|
|
Common
|
|
Additional
|
|
|
|
|
|
|
|
Preferred
Stock
|
|
Common
Stock
|
|
Stock
|
|
Paid-In
|
|
Accumulated
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Payable
|
|
Capital
|
|
Deficit
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2003
|
|
|
2,272,177
|
|
$
|
22,722
|
|
|
2,016,586
|
|
$
|
20,166
|
|
|
-
|
|
$
|
26,005,868
|
|
$
|
(24,417,188
|
)
|
$
|
1,631,568
|
|
Beneficial
conversion feature of convertible notes payable
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
270,831
|
|
|
-
|
|
|
270,831
|
|
Conversion
of convertible notes payable which includes 3,125,000 preferred series
C
shares issued and accounted for as deemed interest valued at $5,000,000
or
$1.60 per share
|
|
|
4,046,024
|
|
|
40,460
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
6,486,049
|
|
|
-
|
|
|
6,526,509
|
|
Net
loss, December 31, 2004
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(9,376,543
|
)
|
|
(9,376,543
|
)
|
Balance,
December 31, 2004 (Restated)
|
|
|
6,318,201
|
|
|
63,182
|
|
|
2,016,586
|
|
|
20,166
|
|
|
-
|
|
|
32,762,748
|
|
|
(33,793,731
|
)
|
|
(947,635
|
)
|
Conversion
of preferred stock
|
|
|
(6,318,201
|
)
|
|
(63,182
|
)
|
|
14,182,399
|
|
|
141,824
|
|
|
-
|
|
|
(78,642
|
)
|
|
-
|
|
|
-
|
|
Issuance
of common stock for satisfaction of note payable totaling
$60,000
|
|
|
-
|
|
|
-
|
|
|
120,000
|
|
|
1,200
|
|
|
-
|
|
|
58,800
|
|
|
-
|
|
|
60,000
|
|
Issuance
of common stock for services, $0.50 per share
|
|
|
-
|
|
|
-
|
|
|
120,000
|
|
|
1,200
|
|
|
-
|
|
|
58,800
|
|
|
-
|
|
|
60,000
|
|
Issuance
of common stock for services, $0.50 per share
|
|
|
-
|
|
|
-
|
|
|
78,000
|
|
|
780
|
|
|
-
|
|
|
38,220
|
|
|
-
|
|
|
39,000
|
|
Issuance
of common stock at $0.50 per share, includes 1,845,287 shares issued
for
offering related expense
|
|
|
-
|
|
|
-
|
|
|
4,091,287
|
|
|
40,913
|
|
|
-
|
|
|
1,082,087
|
|
|
-
|
|
|
1,123,000
|
|
Warrants
for 1,599,000 shares of common stock granted for services
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
660,472
|
|
|
-
|
|
|
660,472
|
|
Securities payable consisting
of: (i) 26,000 common shares at $0.50 per share; and
(ii) 200,000 common shares $.50, and a warrant for 200,000 common
shares exercisable at $.50 per share relating to the note
payable.
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
113,000
|
|
|
83,497
|
|
|
-
|
|
|
196,497
|
|
Net
loss, December 31, 2005
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(1,651,507
|
)
|
|
(1,651,507
|
)
|
Balance,
December 31, 2005 (Restated)
|
|
|
-
|
|
|
-
|
|
|
20,608,272
|
|
$
|
206,083
|
|
$
|
113,000
|
|
$
|
34,665,982
|
|
$
|
(35,445,238
|
)
|
$
|
(460,173
|
)
|
See
Accompanying Notes to Financial Statements.
NEURALSTEM,
INC.
STATEMENTS
OF CASH FLOWS
|
|
Year
ended December 31,
|
|
|
|
2005
|
|
2004
|
|
|
|
(Restated)
|
|
(Restated)
|
|
Cash
Flows From Operating Activities
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(1,651,507
|
)
|
$
|
(9,376,543
|
)
|
Adjustments
to reconcile net loss to cash used in operating
activities:
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
51,923
|
|
|
155,555
|
|
Loss
on disposition of assets
|
|
|
-
|
|
|
842,719
|
|
Non-cash
interest on notes payable related party
|
|
|
-
|
|
|
(2,427
|
)
|
Interest
expense - stock based
|
|
|
-
|
|
|
7,272,119
|
|
Interest
amortization of beneficial conversion feature
|
|
|
-
|
|
|
220,341
|
|
Stock
and warrant based compensation
|
|
|
842,969
|
|
|
-
|
|
Changes
in assets and liabilities
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
-
|
|
|
17,882
|
|
Prepaid
expenses
|
|
|
-
|
|
|
52,193
|
|
Other
assets
|
|
|
-
|
|
|
10,840
|
|
Accounts
payable and accrued expenses
|
|
|
38,026
|
|
|
82,741
|
|
Deferred
compensation
|
|
|
(10,000
|
)
|
|
253,871
|
|
Accrued
interest on convertible notes
|
|
|
-
|
|
|
34,506
|
|
Net
cash used in operating activities
|
|
|
(728,589
|
)
|
|
(436,203
|
)
|
Cash
Flows From Investing Activities
|
|
|
|
|
|
|
|
Purchase
of property and equipment
|
|
|
(18,339
|
)
|
|
-
|
|
Proceeds
from sale of property and equipment
|
|
|
-
|
|
|
100,857
|
|
Net
cash provided by investing activities
|
|
|
(18,339
|
)
|
|
100,857
|
|
Cash
Flows From Financing Activities
|
|
|
|
|
|
|
|
Issuance
of common stock
|
|
|
1,123,000
|
|
|
-
|
|
Proceeds
from notes payable
|
|
|
-
|
|
|
60,000
|
|
Proceeds
from common stock payable
|
|
|
113,000
|
|
|
-
|
|
Proceeds
from convertible notes payable
|
|
|
-
|
|
|
361,000
|
|
Payments
on notes payable
|
|
|
(1,745
|
)
|
|
(47,568
|
)
|
Net
cash provided by financing activities
|
|
|
1,234,255
|
|
|
373,432
|
|
Net
increase (decrease) in cash
|
|
|
487,327
|
|
|
38,086
|
|
Cash,
beginning of period
|
|
|
39,054
|
|
|
968
|
|
Cash,
end of period
|
|
$
|
526,381
|
|
$
|
39,054
|
|
Supplemental
Information
|
|
|
|
|
|
|
|
Beneficial
conversion feature on issuance of debt
|
|
$
|
-
|
|
$
|
6,207
|
|
Preferred
stock issued for debt
|
|
$
|
-
|
|
$
|
479,987
|
|
Issuance
of 120,000 shares of common stock for debt
|
|
$
|
60,000
|
|
$
|
-
|
|
Conversion
of 6,254,402 shares of preferred stock to 14,182,399 shares of common
stock
|
|
$
|
62,544
|
|
$
|
|
|
Conversion
of notes payable to preferred stock
|
|
$
|
-
|
|
$
|
1,526,509
|
|
Conversion
of note payable to convertible note payable
|
|
$
|
-
|
|
$
|
40,000
|
|
Conversion
of an accrued liability into a note payable
|
|
$
|
37,341
|
|
$
|
-
|
|
See
Accompanying Notes to Financial Statements.
Note
1. Nature
of Business and Significant Accounting Policies
Nature
of business:
Neuralstem,
Inc. (“Company”) is a biopharmaceuticals company that is utilizing its
proprietary human neural stem cell technology to create a comprehensive platform
for the treatment of central nervous system diseases. The Company will
commercialize this technology as a tool for use in the next generation of
small-molecule drug discovery and to create cell therapy biotherapeutics to
treat central nervous system diseases for which there are no cures. The Company
was founded in 1996, incorporated in 1997, and currently occupies lab and
office space in Gaithersburg, Maryland.
Inherent
in the Company's business are various risks and uncertainties, including its
limited operating history, the fact that Neuralstem's technologies are new
and
may not allow the Company or its customers to develop commercial products,
regulatory requirements associated with drug development efforts and the intense
competition in the genomics industry. The Company's success depends, in part,
upon successfully raising additional capital, prospective product development
efforts, the acceptance of the Company's solutions by the marketplace, and
approval of the Company's solutions by various governmental
agencies.
The
Company has incurred cumulative losses of approximately $35,445,238 since
inception and reported a net loss of approximately $1,651,507 for the year
ended
December 31, 2005. In order to further its research and develop its products,
the Company will require additional financing until such time that revenue
streams are of sufficient volume to generate positive cash flow from operations.
Possible sources of funds are strategic alliances, additional equity offerings,
grants and contracts, and research and development funding from third parties.
Management intends to raise additional capital and remains committed to taking
all appropriate and necessary actions to effect timely cost reductions and
cash
preservation measures in the event anticipated revenue and cash flow
expectations are not substantially met. Subsequent to December 31, 2005, the
Company had raised $4,550,000 in equity funding (see Note 8).
A
summary of the Company's significant accounting policies is as
follows:
Estimates
The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash
and Equivalents
For
the
Statements of Cash Flows, all highly liquid investments with maturity of three
months or less are considered to be cash equivalents. There were no cash
equivalents as of December 31, 2005 and December 31, 2004.
Note
1. Nature of Business and Significant Accounting Policies
(continued)
Property
and Equipment
Property
and equipment is stated at cost and depreciated on a straight-line basis over
the estimated useful lives ranging from three to seven years. Expenditures
for
maintenance and repairs are charged to operations as incurred.
Recoverability
of Long-Lived Assets and Identifiable Intangible Assets
Long-lived
assets and certain identifiable intangible assets to be held and used are
reviewed for impairment when events or changes in circumstances indicate that
the carrying amount of such assets may not be recoverable. Determination of
recoverability is based on an estimate of undiscounted future cash flows
resulting from the use of the asset and its eventual disposition. In the event
that such cash flows are not expected to be sufficient to recover the carrying
amount of the assets, the assets are written down to their estimated fair
values. Long-lived assets and certain identifiable intangible assets to be
disposed of are reported at the lower of carrying amount or fair value less
cost
to sell.
Fair
Value of Financial Instruments
The
fair
values of financial instruments are estimated based on market rates based upon
certain market assumptions and information available to management. The
respective carrying value of certain on-balance-sheet financial instruments
approximated their fair values. These financial instruments include cash,
accounts payable and notes payable. Fair values were assumed to approximate
carrying values for cash and payables due to the short-term nature or that
they
are payable on demand.
Revenue
Recognition
To
date,
revenue has been derived primarily from providing treated samples for gene
expression data from stem cell experiments and from providing services under
a
federal grant program sponsored by the Defense Advanced Research Projects Agency
(DARPA) $70,000 and $125,000 in 2005 and 2004, respectively. Revenue is
recognized when there is persuasive evidence that an arrangement exists,
delivery of goods and services has occurred, the price is fixed and
determinable, and collection is reasonably assured.
Research
and Development
Research
and development costs are charged to operations when incurred.
Note
1. Nature of Business and Significant Accounting Policies
(continued)
Income
taxes
Income
taxes are provided for using the liability method of accounting in accordance
with SFAS No. 109“Accounting
for Income Taxes.”
A
deferred tax asset or liability is recorded for all temporary differences
between financial and tax reporting. Temporary differences are the differences
between the reported amounts of assets and liabilities and their tax basis.
Deferred tax assets are reduced by a valuation allowance when, in the opinion
of
management, it is more likely than not that some portion or all of the deferred
tax assets will not be realized. Deferred tax assets and liabilities are
adjusted for the effect of changes in tax laws and rates on the date of
enactment.
Stock
- Based Compensation
The
Company recognizes expenses for stock-based compensation arrangements in
accordance with provisions of Accounting Principles Board (APB) Opinion No.
25,
“
Accounting for Stock Issued to Employees,”
and
related Interpretations. Accordingly, compensation cost is recognized for the
excess of the estimated fair value of the stock at the grant date over the
exercise price, if any. The Company accounts for equity instruments issued
to
non-employees in accordance with EITF 96-18,“Accounting
for Equity Instruments that are Issued to Other Than Employees for Acquiring,
or
in Conjunction with Selling Good or Services.”
Accordingly, the estimated fair value of the equity instrument is recorded
on
the earlier of the performance commitment date or the date the services required
are completed.
The
FASB
issued SFAS No.148, "Accounting for Stock-Based Compensation - Transition
and
Disclosure." This statement amends SFAS No.123, "Accounting for Stock-Based
Compensation," to provide alternative methods of transition for a voluntary
change to the fair value-based method of accounting for stock-based employee
compensation. Pursuant to SFAS No.123, the Company would expense the fair
market
value of stock options newly granted to third parties and disclose the pro
forma
results based on the fair value of options/warrants granted to employees.
No
stock-based employee compensation cost is reflected in net income, as all
options granted to employees had an exercise price equal to the market value
of
the underlying common stock on the date of grant. The following table
illustrates the effect on net income and earnings per share if the Company
had
applied the fair value recognition provisions of FASB Statement No. 123,
Accounting for Stock-Based Compensation, to stock-based employee
compensation.
|
|
2005
|
|
2004
|
|
Net
loss, as reported
|
|
$
|
(1,651,507
|
)
|
$
|
(9,376,543
|
)
|
Add:
total stock-based compensation as
|
|
|
|
|
|
|
|
determined
under SFAS 123
|
|
|
(147,605 |
) |
|
- |
|
|
|
|
|
|
|
|
|
Pro
forma net loss
|
|
$
|
(1,799,112
|
)
|
$
|
(9,376,543
|
)
|
|
|
|
|
|
|
|
|
Basic
loss per share:
|
|
|
|
|
|
|
|
As
reported
|
|
$
|
(0.16
|
)
|
$
|
(4.65
|
)
|
Pro
forma
|
|
$
|
(0.17
|
)
|
$
|
(4.65
|
)
|
Comprehensive
Loss
Statement
of Financial Accounting Standard (SFAS) No. 130“Reporting
Comprehensive Income,”
requires
the presentation of comprehensive income or loss and its components as part
of
the financial statements. For the years ended December 31, 2005 and 2004, the
Company's net loss reflects comprehensive loss and, accordingly, no additional
disclosure is required.
Recent
Accounting Pronouncements
In
November 2004, the FASB issued SFAS No. 151, “Inventory Costs, an
amendment of Accounting Research Bulletin No. 43, Chapter 4” (“SFAS
No. 151”). SFAS No. 151 requires that abnormal amounts of idle
facility expense, freight, handling costs and wasted materials (spoilage) be
recorded as current period charges and that the allocation of fixed production
overheads to inventory be based on the normal capacity of the production
facilities. SFAS No. 151 becomes effective for our Company on
January 1, 2006. The Company does not believe that the adoption of SFAS
No. 151 will have a material impact on our financial
statements.
Note
1. Nature of Business and Significant Accounting Policies
(continued)
In
December 2004, the FASB issued SFAS No. 123 (revised 2004),
“Share-Based Payment.” SFAS No. 123R replaced SFAS No. 123 and superseded
Accounting Principles Board Opinion No. 25. SFAS No. 123R will require
compensation costs related to share-based payment transactions to be recognized
in the financial statements. On April 14, 2005, the Securities and Exchange
Commission issued an announcement amending the compliance dates for the FASB's
SFAS 123R that addresses accounting for equity based compensation arrangements.
Under SFAS 123R registrants would have been required to implement the standard
as of the beginning of the first interim or annual period that begins after
June
15, 2005. The Commission's new rule will allow companies to implement SFAS
123R
at the beginning of the next fiscal year after June 15, 2005. The Company
anticipates adopting SFAS 123R in the first quarter 2006. The Company does
not
believe that the adoption of SFAS No. 123R will have a material impact on
our financial statements.
In
December 2004, the FASB issued SFAS No. 153, “Exchanges of Nonmonetary
Assets, an amendment of APB Opinion No. 29” (“SFAS No. 153”). SFAS
No. 153 is based on the principle that exchanges of nonmonetary assets
should be measured based on the fair value of the assets exchanged. APB Opinion
No. 29, “Accounting for Nonmonetary Transactions,” provided an exception to
its basic measurement principle (fair value) for exchanges of similar productive
assets. Under APB Opinion No. 29, an exchange of a productive asset for a
similar productive asset was based on the recorded amount of the asset
relinquished. SFAS No. 153 eliminates this exception and replaces it with
an exception of exchanges of nonmonetary assets that do not have commercial
substance. SFAS No. 153 became effective for our Company as of July 1,
2005. The Company will apply the requirements of SFAS No. 153 on any future
nonmonetary exchange transactions.
In
March 2005, the FASB issued FASB Interpretation ("FIN") No. 47
"Accounting for Conditional Asset Retirement Obligations--an Interpretation
of
FASB Statement No. 143" ("FIN No. 47"). FIN No. 47 clarifies the
timing of liability recognition for legal obligations associated with the
retirement of a tangible long-lived asset when the timing and/or method of
settlement are conditional on a future event. FIN No. 47 is effective for
us no later than December 31, 2005. We do not expect that the adoption of
FIN No. 47 will have a material impact on our financial condition or
results of operations.
In
May 2005,
the FASB
issued SFAS No. 154, “Accounting Changes and Error Corrections, a
replacement of APB No. 20 and FASB Statement No. 3” (“SFAS
No. 154”). SFAS No. 154 requires retrospective application to
prior periods' financial statements of a voluntary change in accounting
principle unless it is impracticable. APB Opinion No. 20 “Accounting
Changes,” previously required that most voluntary changes in accounting
principle be recognized by including in net income of the period of the change
the cumulative effect of changing to the new accounting principle. This
statement is effective for our Company as of January 1, 2006. The Company
does not believe that the adoption of SFAS No. 154 will have a material
impact on our financial statements.
Note
2. Stockholders' Deficit
Common
stock
The
authorized stock of the Company consists of 7,000,000 shares of preferred stock
with a par value of $0.01 and 75,000,000 shares of common stock with par value
of $0.01. The preferred stock is divided into A, B, and C Series.
In
November 2004, the Company effectuated a reverse stock split, where three (3)
shares of common stock were issued for every ten (10) shares of common stock
previously owned. The prior information has been adjusted to reflect the reverse
stock split. In conjunction with the conversion of the preferred stock, the
Company amended the Articles of Incorporation to authorize 75,000,000 shares
of
common stock, without reauthorization of the preferred shares.
During
the year ended December 31, 2005, the Company sold 2,246,000 shares of common
stock for a total consideration of $1,123,000 or $0.50 per share. In conjunction
with the sale of these shares, the Company issued 1,845,287 shares of common
stock and warrants for 1,000,000 shares of common stock with an exercise
price of $5.00 per for services performed related to capital raised. The
1,845,287 shares and related warrants have been treated as an offering
expense and have been netted against the total proceeds raised of
$1,123,000.
Preferred
Series A & B Stock
The
Company issued 1,047,588 shares of Series A Preferred Stock and 719,895 shares
of Series B Preferred Stock as of December 31, 2005 and 2004. The holders of
the
Series A and B Preferred Stock are entitled to noncumulative dividends of 8%
per
annum, on the original issue price of $7.64 per share, when and if declared
by
the board of directors. The preferred stockholders have a liquidation preference
above all other classes of stock equal to $7.64 per share plus all declared
and
unpaid dividends. The liquidation price per share is subject to adjustment
for
certain dilutive events, as defined.
At
any
time, a preferred stockholder has the option to convert their shares into shares
of common stock on a basis of 1 preferred shares for 0.3 common share. The
conversion rate is subject to adjustment for certain dilutive events, as
defined. Shares of Series A & B Preferred Stock automatically converts into
common stock upon the closing of an underwritten public offering in which the
Company's per share price is at least $3.00 and the gross proceeds to the
Company exceed $7.5 million or upon the election of a majority of the preferred
stockholders.
The
preferred stockholders are entitled to the number of votes that equals the
number of shares of common stock into which such shares could be converted,
as
defined. The vote or written consent of the majority of the preferred
stockholders is required to (i) effect of validate a change in the authorized
number of shares of preferred; (ii) a redeem, repurchase, pay dividends or
make
any other distribution to common stockholders; or (iii) effect any action
resulting in the payment or declaration of dividends on any class of
stock.
Note
2. Stockholders' Deficit (continued)
Preferred
Series C Shares
During
2003, the Company issued 504,694 Series C Preferred Stock at $1.60 per share.
Each share of Series C Preferred Stock is convertible to 3 shares of common
stock. Stock issuance costs of $27,506 were offset against the additional paid
in capital from the sale of stock.
On
October 6, 2003, the Company issued “Option Promissory Notes” (Notes) totaling
$605,000. The Notes are convertible to Series C Preferred Stock at the same
terms and conditions as the Series C Preferred Stock outstanding on the
effective date of the Notes, at any time before the Due Date, in lieu of cash
repayment. The current terms are to convert the Notes at $1.60 per share of
Series C Preferred Stock.
Additionally,
the Notes granted the holder the option to acquire their
pro
rata
share,
based on the principal balance of the Note as a percentage of the Aggregate
Note, if any, of up to $5 million of equity in Neuralstem, Inc. under the
same
terms and conditions as the Series C Preferred Stock of an exercise price
of
$1.60 per share on or before October 6, 2008 (the Option). The price per
share
of the equity to be purchased under the Option shall increase by 10% on every
six month anniversary starting after April 6, 2004. The option may be exercised
in whole or in part at any time during the period between the date of the
Note
and the expiration date of the Option at the Holder's discretion. The options
were valued using the Black-Scholes model for option valuation. The assumptions
used in arriving at the fair value of these options under the Black-Scholes
option pricing model include stock price of $1.60 at the date of grant; expected
life of 1 year; volatility of 134%; and discount rate of 4.29%. The $5 million
of equity equates to 3,125,000 shares of Series C Preferred Stock. A beneficial
conversion feature of the Notes of $2,539,004 was recorded to additional
paid in
capital on October 6, 2003. Beneficial conversion feature results from the
allocation of proceeds to the options and the effective conversion rate of
the
notes being below the fair value of the Series C Preferred Stock. Interest
expense of $10,577 was recorded for the period ended December 31, 2003. The
entire beneficial conversion feature was expensed as interest expense in
November 2004, as the convertible debt was converted to Preferred Series
C
shares.
In
October 2004, the Company issued additional Notes to officers of the Company
in
lieu of $479,988 in accrued salary and consulting fees. The new Notes had
the
same terms and conditions and Options as the Notes issued in 2003 which included
the option to acquire their
pro
rata
share of
the 3,125,000 shares of the Series C Preferred Stock. The Options for the
Notes
issued in 2004 were also valued using the Black-Scholes model. The assumptions
used in arriving at the fair value of these options under the Black-Scholes
option pricing model include stock price of $1.60 at the date of grant; expected
life of 1 year; volatility of 1%; and discount rate of 4.29%. The pro-rata
portion of the $5 million, 1,093,480 shares of the 3,125,000 are allocated
to
the new Notes. The beneficial conversion feature allocated to these Notes
recorded $270,831 to additional paid in capital on October 25, 2004. This
conversion feature was converted to interest expense in November 2004, as
the
convertible debt was converted to Preferred Series C shares.
In
November 2004, the Board of Directors approved the conversion of all Notes
to
Series C Preferred Stock. In consideration of monthly accrued interest
on the
Notes and as an incentive for the noteholders to convert the Notes into
Series C
Preferred Stock, the Company agreed to issue the shares offered in the
Option
totaling 3,125,000, without consideration which the Company recorded deemed
interest expense of $5,000,000 equal to what would otherwise should have
been
received in cash by the Company if it had not forego the exercise price
of such
Options. It is the Company’s management belief that its decision to forego the
cash consideration related to the exercise price of such Options induced
the noteholders in converting such Notes to Series C Preferred Stock. The
business purpose of us offering the inducement was; (i) to decrease our
liabilities in order to facilitate
our ability to raise capital; and (ii) to avoid any possible default on
the
notes as we did not have sufficient
cash to repay the notes.
Note
2. Stockholders'
Deficit (continued)
Preferred
shares were allocated as follows:
|
|
|
Preferred
|
|
|
Conversion
Factor
|
|
|
Common
|
|
Series
A
|
|
|
1,047,588
|
|
|
1-for-0.3
|
|
|
314,276
|
|
Series
B
|
|
|
719,895
|
|
|
|
|
|
215,969
|
|
Series
C
|
|
|
4,550,718
|
|
|
1-for-3
|
|
|
13,652,154
|
|
|
|
|
6,318,201
|
|
|
|
|
|
14,182,399
|
|
In
2005,
the shareholders of preferred series A, B and C, totaling 6,298,562 shares
were
converted into 14,182,399 shares of common stock. As of December 31, 2005,
there
were no outstanding preferred shares.
Stock
Options
In
1997,
the Company adopted a stock incentive plan (the Plan) to provide for the
granting of stock awards, such as stock options and restricted common stock
to
employees, directors and other individuals as determined by the Board of
Directors. The Company reserved 2.7 million shares of common stock for issuance
under the Plan. At December 31, 2002, 816,084 options were outstanding with
216,040 options exercisable. During 2003, the Company reduced operations and
terminated employment with all employees. The Plan was discontinued, terminating
all options outstanding.
In
July
2005, the Company granted options for 2,400,000 shares of common stock to two
of
its officers with an exercise price of $0.50 vesting annually on the anniversary
grant date over a four year period with a ten year life which non were vested
as
of December 31, 2005. The fair value of these options under the Black-Scholes
option pricing model totaled $0.49 per share. The assumptions used in arriving
at the fair value of these options under the Black-Scholes option pricing model
include stock price of $0.50 at the date of grant; expected life of 5.5 years;
volatility of 224%; and discount rate of 4.1%.
Stock
Warrants
During
the year ended December 31, 2005, the Company issued warrants to various
consultants for 1,599,000 shares of common stock with an exercise
price ranging from $0.05 to $2.00 per share with expirations
from 2007 to 2017. The warrants were issued for consulting services performed
which had been valued at approximately $660,000 and expensed for the year ended
December 31, 2005. The warrants were valued using the Black Scholes option
pricing model based on the following assumptions: stock price of at date of
issuance of $0.50; expected life of 1.5 years; volatility rate of 224%; and
discount rate of 4.1%.
Note
2. Stockholders'
Deficit (continued)
During
the year ended December 31, 2005, the Company issued warrants for 200,000
shares
of common stock with an exercise price of $0.50 expiring in 2008 related
to a
note payable. The warrants were issued related to a note payable which had
been
valued at approximately $84,000 and was deemed as interest expense for the
year
ended December 31, 2005. The options were valued using the Black Scholes
option
pricing model based on the following assumptions: stock price of at date
of
issuance of $0.50; expected life of 2 years; volatility rate of 224%; and
discount rate of 4.1%.
Warrants
to purchase common stock were issued to certain stockholders and consultants.
The
following table summarizes information about stock warrants at December 31,
2005
which all are currently exercisable:
Exercise
Price
|
|
|
Outstanding
Warrants
|
|
|
Expiration
Date
|
|
$10.00
|
|
|
100,000
|
|
|
2006
|
|
$
0.50
|
|
|
1,000,000
|
|
|
2007
|
|
$
0.50
|
|
|
320,000
|
|
|
2008
|
|
$
0.50
|
|
|
330,000
|
|
|
2010
|
|
$
0.05
|
|
|
49,000
|
|
|
2017
|
|
$
2.00
|
|
|
100,000
|
|
|
2016
|
|
$
5.00
|
|
|
1,000,000
|
|
|
2016
|
|
Net
loss per common share
Net
loss
per share is calculated in accordance with SFAS No. 128, “Earnings
Per Share.”
The
weighted-average number of common shares outstanding during each period is
used
to compute basic loss per share. Diluted loss per share is computed using the
weighted averaged number of shares and dilutive potential common shares
outstanding. Dilutive potential common shares are additional common shares
assumed to be exercised. Dilutive loss per share is excluded from the
calculation because the effect would be anti-dilutive.
Common
stock payable for 226,000 unissued shares of common stock
During
the year ending December 31, 2005, the Company received $113,000 for 226,000
shares of its common stock. As of December 31, 2005, the Company had not issued
any of the 226,000 shares of common stock. However, the 226,000 unissued shares
of common stock have been included in the net loss per share computation in
the
accompanying statement of operations. The Company was not able to issue these
shares as of December 31, 2005 but anticipates issuing these unissued shares
in
2006.
Note
3. Property and Equipment
The
major
classes of property and equipment consist
of the following:
|
|
2005
|
|
2004
|
|
Computers
and office equipment
|
|
$
|
301,892
|
|
$
|
300,053
|
|
Lab
equipment
|
|
|
524,336
|
|
|
507,836
|
|
|
|
$
|
826,228
|
|
$
|
807,889
|
|
Less
accumulated depreciation and amortization
|
|
|
(797,090
|
)
|
|
(746,820
|
)
|
Property
and equipment, net
|
|
$
|
29,138
|
|
$
|
61,069
|
|
Depreciation
expense for the years ended December 31, 2005 and 2004 was $50,270 and $153,800,
respectively. During year ended December 31, 2004, the Company sold certain
lab
equipment which resulted in a loss totaling $842, 719 and has been reflected
in
the accompanying statements of operation within nonoperating income
(loss).
Note
4. Intangible Assets
The
Company holds patents related to its stem cell research. Patent filing costs
were capitalized and are being amortized over the life of the patents. The
company has determined that the intangibles purchased have a seventeen year
useful life. The provisions of SFAS No. 142“Goodwill
and Other Intangible Assets”
require
the completion of an annual impairment test with any impairments recognized
in
current earnings. The Company determined that no impairment to the assigned
values had occurred. The Company's intangible assets and accumulated
amortization consisted of the following at December 31, 2005 and
2004:
|
|
2005
|
|
2004
|
|
|
|
|
Gross
|
|
|
Accumulated
Amortization
|
|
|
Gross
|
|
|
Accumulated
Amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patent
filing fees
|
|
$
|
24,796
|
|
$
|
(10,469
|
)
|
$
|
24,796
|
|
$
|
(8,816
|
)
|
Amortization
expense for the years ended December 31, 2005 and 2004 was $1,653 and $1,755,
respectively.
Note
5. Notes payable
As
described in Note 2, on October 6, 2003, the Company issued “Option Promissory
Notes” (Notes) totaling $605,000, convertible to Series C Preferred Stock. The
Notes carry a stated interest rate of 5%, payable quarterly beginning January
1,
2004. Fifty percent of the principal was due on October 3, 2004 and fifty
percent due on October 3, 2005. The shares were converted to Series C Preferred
Stock in November 2004, without payments of principal or interest on the Notes.
As of December 31, 2005, the Note was fully paid.
In
April
2005, the Company received a notice from the Department of Economic Development
(“DED”) from the County of Montgomery, Alabama whereby provisions of a $40,000
grant received in 2001 were not fully satisfied. As a result, the Company
was
required to return the grant. In 2004, the Company recorded an accrued liability
for this amount. In 2005, the Company reclassified the accrued liability
as a
note payable since the notice from DED provided provisions for the grant
funds
to be returned over a five year period, in monthly payments of both principal
and interest, interest rate of 5% and maturing in May 2010. As of December
31,
2005, the balance related to this note totaled $37,341.
In
November 2001, the Company entered into an agreement with a bank to borrow
$625,000. The note was renegotiated in May 2002 to require principal payments
of
$25,000 per month beginning August 2002 and to accrue interest at the prime
rate
plus 1.5% with the balance of principal and accrued interest due on December
9,
2002. The note was renegotiated in December 2002 to require principal payments
of $25,000 per month through February 2003, increasing to $40,000 per month
starting March 2003, and to accrue interest at the prime rate plus 1.5% with
the
balance of principal and accrued interest due on June 20, 2003. Substantially
all of the Company's assets provide collateral for the borrowings. As of
December 31, 2005 and 2004, the balance related to this note totaled $116,255
and $118,000, respectively. The note was paid in 2006, see Note 8.
Note
5. Notes payable (continued)
As
of
December 31, 2004, a stockholder's note payable totaling $60,000 was unsecured,
bearing no interest and due on demand. In January 2005, the Company satisfied
full payment of this note with 120,000 shares of its common stock at $0.50
per
share.
Notes
payable at December 31, 2005 and 2004 are as follows:
|
|
2005
|
|
2004
|
|
Note
payable to Bank, interest at prime rate plus $1.5%, due June 20,
2003,
collateralized by all assets of the Company and guaranteed by an
officer
of the Company
|
|
$
|
116,255
|
|
$
|
118,000
|
|
Note
payable, stockholder
|
|
|
-
|
|
|
60,000
|
|
Note
payable
|
|
|
37,341
|
|
|
-
|
|
|
|
|
153,596
|
|
|
178,000
|
|
Current
portion of note payable
|
|
|
(125,201
|
)
|
|
118,000
|
|
|
|
|
|
|
|
|
|
Long-term
portion of note payable
|
|
$
|
28,395
|
|
$
|
60,000
|
|
Note
6. Income Taxes
We
did
not provide any current or deferred U.S. federal income tax provision or benefit
for any of the periods presented because we have experienced operating losses
since inception. We provided a full valuation allowance on the net deferred
tax
asset, consisting of net operating loss carryforwards, because management has
determined that it is more likely than not that we will not earn income
sufficient to realize the deferred tax assets during the carryforward
period.
The
tax
effects (computed at a 35% effective tax rate) of significant temporary
differences representing deferred tax assets for December 31, 2005 and 2004
are
as follows:
|
|
2005
|
|
2004
|
|
Deferred
tax assets:
|
|
|
|
|
|
|
|
Net
operating loss carryforward
|
|
$
|
8,425,356
|
|
$
|
8,118,339
|
|
Research
and development
|
|
|
361,860
|
|
|
361,860
|
|
Start-up
costs
|
|
|
6,276
|
|
|
8,368
|
|
Depreciation
|
|
|
30,092
|
|
|
30,092
|
|
Stock
Compensation Expense
|
|
|
450,318
|
|
|
2,697,778
|
|
Deferred
liabilities
|
|
|
47,532
|
|
|
47,532
|
|
Other
|
|
|
140,328
|
|
|
139,003
|
|
|
|
|
|
|
|
|
|
Deferred
tax liabilities
|
|
|
9,461,762
|
|
|
11,402,972
|
|
Net
deferred tax assets
|
|
|
-
|
|
|
-
|
|
Valuation
allowance
|
|
|
(9,461,762
|
)
|
|
(11,402,972
|
)
|
Net
deferred tax asset
|
|
$
|
0
|
|
$
|
0
|
|
At
December 31, 2005, the Company has net operating loss carryforward of
approximately $24.1 million. The Company has also reported certain other tax
credits, the benefit of which has been deferred. The Company's NOL carryforward
and credits will begin to expire in the tax year 2012. The timing and manner
in
which these net operating loss carryforward and credits may be utilized in
any
year by the Company will be limited to the Company's ability to generate future
earning and also may be limited by certain provision of the U.S. tax
code.
Note
7. Commitments and Contingencies
In
February 2004, the Company entered into a new license agreement (lease) for
facilities in Montgomery County Maryland. The term of the license agreement
is
effective from March 1, 2004 through January 31, 2005. The Company has an option
to request renewal of the license for two (2) additional terms of one year
each.
The
monthly payments for the agreement are for $3,530 per month for the initial
term
of the agreement. The two renewal terms have monthly payments of
$4,271.
On
November 1, 2005, the Company amended and extended its employment agreements
dated January 1, 1997 with Richard Garr and Karl Johe for an additional seven
(7) years which includes a base salary of $240,000 per year for each officer.
On
July 28, 2005, the Company granted both Mr. Garr and Mr. Johe stock options
for
1,200,000 shares of the Company's common stock each vesting annually over a
four
year period with an exercise price of $0.50 per share. Termination prior to
full
term on the contract would cost the Company $240,000 per year unserved, or
as
much as $1,680,000 per contract, and immediate vesting of all outstanding
options.
Note
8. Subsequent Events
From
January 2006 through February 2006, the Company raised $4,540,000 (net of
offering expenses of $460,000) through a Limited Offering Memorandum. Each
Unit
sold consisted of one share of common stock, ½ “A” Warrant to Purchase A share
of Common Stock at $1.50 per share, and ½ `B” Warrant to Purchase A Share of
Common Stock at $2.00 per share. The Limited Offering Memorandum includes a
provision for registration rights of the common stock and shares underlying
the
Series A and B Warrants. The registration rights require the Company to file
a
registration statement on Form SB-2 within 30 days from the closing of the
minimum offering and have the registration statement declared effective within
180 days. In the even the registration statement is not declared effective
within 180 days from the closing of the minimum offering, the number of shares
within each unit shall increase by one percent (1%) for each 30 day period
(pro
rata) beyond the 180 days.
In
March
2006, the Company paid off in full a note payable totaling $116,255 as of
December 31, 2005, plus interest accrued during 2006, as described in Note
5.
Note
9.
Restatements
For
the
year ended December 31, 2005, the Company did not account for common stock,
warrants, and options to its consultants and note payable
conversion properly resulting in additional expenses of $773,000 to
operations.
For
the
year ended December 31, 2004, the Company did not appropriately account for
3,125,000 shares issued to Option Promissory Notes holder which resulted in
an
additional $5,000,000 of deemed interest expense to operations as discussed
in
Note 2;
incorrectly valued the beneficial conversion feature expenses resulting in
an
additional $2,272,119 of interest expense.
NEURALSTEM,
INC.
BALANCE
SHEET
(Unaudited)
|
|
June
30,
2006
|
|
|
|
|
|
ASSETS
|
|
|
|
CURRENT
ASSETS
|
|
|
|
Cash
|
|
$
|
3,202,703
|
|
Prepaid
expenses
|
|
|
15,021
|
|
Total
current assets
|
|
|
3,217,724
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
52,409
|
|
Other
assets
|
|
|
6,306
|
|
Intangible
assets, net
|
|
|
13,501
|
|
|
|
|
|
|
Total
assets
|
|
$
|
3,289,940
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
CURRENT
LIABILITIES
|
|
|
|
|
Note
payable, current portion
|
|
$
|
7,529
|
|
Accounts
payable and accrued expenses
|
|
|
380,868
|
|
Warrants
liability
|
|
|
4,953,216
|
|
Total
current liabilities
|
|
|
5,341,613
|
|
|
|
|
|
|
Note
payable, long-term portion
|
|
|
24,630
|
|
Total
liabilities
|
|
|
5,366,243
|
|
|
|
|
|
|
STOCKHOLDERS’
EQUITY
|
|
|
|
|
Preferred
stock: $0.01 par value; authorized 7,000,000
shares; no shares issued and outstanding
|
|
$
|
-
|
|
Common
stock: $0.01 par value; authorized 75,000,000
shares; 25,608,272 shares issued and
outstanding
|
|
|
256,083
|
|
Additional
paid-in capital
|
|
|
34,618,529
|
|
Common
stock receivable for 27,000 shares
|
|
|
(27
|
)
|
Common
stock payable for 241,000 of
unissued shares of common stock
|
|
|
128,000
|
|
Accumulated
deficit
|
|
|
(37,078,888
|
)
|
|
|
|
|
|
Total
stockholders’ equity
|
|
|
(2,076,303
|
)
|
|
|
|
|
|
Total
liabilities and stockholders’ equity
|
|
$
|
3,289,940
|
|
See
Accompanying Notes to Financial Statements.
NEURALSTEM,
INC.
STATEMENTS
OF OPERATIONS
(Unaudited)
|
|
Three
months ended June 30,
|
|
Six
months ended June 30,
|
|
|
|
2006
|
|
2005
|
|
2006
|
|
2005
|
|
Revenues
|
|
$
|
24,724
|
|
$
|
50,000
|
|
$
|
59,211
|
|
$
|
157,813
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development costs
|
|
|
474,593
|
|
|
53,860
|
|
|
824,592
|
|
|
144,949
|
|
General,
selling and administrative expenses
|
|
|
303,994
|
|
|
32,971
|
|
|
452,558
|
|
|
101,758
|
|
Depreciation
and amortization
|
|
|
12,981
|
|
|
13,394
|
|
|
25,962
|
|
|
25,962
|
|
|
|
|
791,568
|
|
|
100,225
|
|
|
1,303,112
|
|
|
272,669
|
|
Operating
loss
|
|
|
(766,844
|
)
|
|
(50,225
|
)
|
|
(1,243,901
|
)
|
|
(114,856
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonoperating
income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
|
26,673
|
|
|
-
|
|
|
37,163
|
|
|
-
|
|
Interest
expense
|
|
|
(417
|
)
|
|
-
|
|
|
(8,696
|
)
|
|
-
|
|
Loss
related to adjustment of warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability
to fair value
|
|
|
-
|
|
|
-
|
|
|
(388,401
|
)
|
|
-
|
|
Other
expense
|
|
|
(9,938
|
)
|
|
-
|
|
|
(29,815
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(750,526
|
)
|
$
|
(50,225
|
)
|
$
|
(1,633,650
|
)
|
$
|
(114,856
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss per share, basic
|
|
$
|
(0.03
|
)
|
$
|
(0.01
|
)
|
$
|
(0.07
|
)
|
$
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
number of shares of
common stock outstanding
|
|
|
25,608,272
|
|
|
6,318,201
|
|
|
24,082,587
|
|
|
6,318,201
|
|
See
Accompanying Notes to Financial Statements.
NEURALSTEM,
INC.
STATEMENT
OF STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
Common
|
|
Common
|
|
Additional
|
|
|
|
|
|
|
|
Preferred
Stock
|
|
Common
Stock
|
|
Stock
|
|
Stock
|
|
Paid-In
|
|
Accumulated
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Receivable
|
|
Payable
|
|
Capital
|
|
Deficit
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2005
|
|
|
-
|
|
$
|
-
|
|
|
20,608,272
|
|
$
|
206,083
|
|
$
|
-
|
|
$
|
113,000
|
|
$
|
34,665,982
|
|
$
|
(35,445,238
|
)
|
|
(460,173
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of common stock for cash proceeds
of $4,550,000 (net of offering expense
of $450,000), $1.00 per share
|
|
|
-
|
|
|
-
|
|
|
5,000,000
|
|
|
50,000
|
|
|
-
|
|
|
-
|
|
|
4,500,000
|
|
|
-
|
|
|
4,550,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognition
of warrants liability for “A”
and “B” warrants for 2,500,000 shares
of common stock each, associated
with sale of 5,000,000 shares
of common stock
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(4,550,00
|
)
|
|
-
|
|
|
(4,550,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vesting
of warrants for 6,000 shares of
common stock related to consultant
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
2,520
|
|
|
-
|
|
|
2,520
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivable
for return of 18,000 shares of
common stock
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(27
|
)
|
|
-
|
|
|
27
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Penalty
for late filing of registration Statement
related to Private Placement Offering
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
15,000
|
|
|
-
|
|
|
-
|
|
|
15,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(1,633,650
|
)
|
|
(1,633,650
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
June 30, 2006
|
|
|
-
|
|
|
-
|
|
|
25,608,272
|
|
$
|
256,083
|
|
$
|
(27
|
)
|
$
|
128,000
|
|
$
|
34,618,529
|
|
$
|
(37,078,888
|
)
|
$
|
(2,076,303
|
)
|
See
Accompanying Notes to Financial Statements.
NEURALSTEM,
INC.
STATEMENTS
OF CASH FLOWS
(Unaudited)
|
|
Six
months ended June 30,
|
|
|
|
2006
|
|
2005
|
|
Cash
Flows From Operating Activities
|
|
|
|
|
|
Net
loss
|
|
$
|
(1,633,650
|
)
|
$
|
(114,856
|
)
|
Adjustments
to reconcile net loss to cash used in operating
activities:
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
26,788
|
|
|
25,962
|
|
Stock
based expenses
|
|
|
32,335
|
|
|
-
|
|
Loss
related to adjustment of warrants liability to fair value
|
|
|
388,401
|
|
|
-
|
|
Changes
in assets and liabilities
|
|
|
|
|
|
|
|
Prepaid
expenses
|
|
|
(15,021
|
)
|
|
-
|
|
Other
assets
|
|
|
(6,306
|
)
|
|
-
|
|
Accounts
payable and accrued expenses
|
|
|
(302,935
|
)
|
|
(153,223
|
)
|
Deferred
compensation
|
|
|
(192,620
|
)
|
|
-
|
|
Net
cash used in operating activities
|
|
|
(1,703,008
|
)
|
|
(242,117
|
)
|
|
|
|
|
|
|
|
|
Cash
Flows From Investing Activities
|
|
|
|
|
|
|
|
Purchase
of property and equipment
|
|
|
(49,233
|
)
|
|
(1,840
|
)
|
Net
cash used in investing activities
|
|
|
(49,233
|
)
|
|
(1,840
|
)
|
|
|
|
|
|
|
|
|
Cash
Flows From Financing Activities
|
|
|
|
|
|
|
|
Issuance
of common stock
|
|
|
4,550,000
|
|
|
153,223
|
|
Proceeds
from notes payable
|
|
|
-
|
|
|
113,500
|
|
Payments
on notes payable
|
|
|
(121,437
|
)
|
|
(60,000
|
)
|
Net
cash provided by financing activities
|
|
|
4,428,563
|
|
|
206,723
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash
|
|
|
2,676,322
|
|
|
(37,234
|
)
|
|
|
|
|
|
|
|
|
Cash,
beginning of period
|
|
|
526,381
|
|
|
39,054
|
|
|
|
|
|
|
|
|
|
Cash,
end of period
|
|
$
|
3,202,703
|
|
$
|
1,820
|
|
|
|
|
|
|
|
|
|
See
Accompanying Notes to Financial Statements.
Note
1. Summary
of Significant Accounting Policies
Basis
of Presentation:
The
accompanying unaudited financial statements have been prepared in accordance
with Securities and Exchange Commission requirements for interim financial
statements. Therefore, they do not include all of the information and footnotes
required by accounting principles generally accepted in the United States
for
complete financial statements. The financial statements should be read in
conjunction with Neuralstem, Inc.’s (the “Company”) annual financial statements
for the years ended December 31, 2005 and 2004.
The
interim financial statements present the balance sheet, statements of
operations, stockholders' equity and cash flows of the Company. The financial
statements have been prepared in accordance with accounting principles generally
accepted in the United States.
The
interim financial information is unaudited. In the opinion of management,
all
adjustments necessary to present fairly the financial position as of June
30,
2006 and the results of operations and cash flows presented herein have been
included in the financial statements. All such adjustments are the recurring
and
normal nature. Interim results are not necessarily indicative of results
of
operations for the full year.
Estimates
The
preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions
that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements
and
the reported amounts of revenues and expenses during the reporting period.
Because of the use of estimates inherent in the financial reporting process,
actual results could differ significantly from those estimates.
New
Accounting Pronouncement Adoption
On
January 1, 2006, the Company adopted Statement of Financial Accounting Standards
No. 123R (“SFAS 123R”), “Share-Based Payment.” The Company will continue to
follow the intrinsic value model under APB Opinion No. 25 for those employee
stock option awards granted and unmodified prior to the adoption of SFAS
123R as
permitted by paragraph 83 of the new guidance.
Note
2. Stockholders’
Equity
From
January 2006 through February 2006, the Company raised $4,550,000 (net of
offering expenses of $450,000) through a Limited Offering Memorandum. Each
Unit
sold consisted of one share of common stock, ½ “A” Warrant to Purchase A share
of Common Stock at $1.50 per share, and ½ ‘B” Warrant to Purchase A Share of
Common Stock at $1.00 per share. These warrants have a life of 10
years.
Note
3. Notes
payable
In
November 2001, the Company entered into an agreement with a bank to borrow
$625,000. The note was renegotiated in May 2002 to require principal payments
of
$25,000 per month beginning August 2002 and to accrue interest at the prime
rate
plus 1.5% with the balance of principal and accrued interest due on December
9,
2002. The note was renegotiated in December 2002 to require principal payments
of $25,000 per month through February 2003, increasing to $40,000 per month
starting March 2003, and to accrue interest at the prime rate plus 1.5% with
the
balance of principal and accrued interest due on June 20, 2003. Substantially
all of the Company’s assets provide collateral for the borrowings. As of March
31, 2006, the entire outstanding balance was fully paid.
Note
4. Warrants
liability and common stock payable
Pursuant
to the terms of the PPM as discussed in Note 2, the Company entered into
a
registration rights agreement which requires the Company to file a registration
statement in order to register (1) the common shares issued in the PPM; and
(2)
the common shares issuable upon the exercise of the class “A” and “B” warrants.
The registration rights agreement require the Company to file a registration
statement as soon as reasonably practicable after the first closing for the
offering, but in no event more than 30 days following the closing of the
minimum
offering amount, which the closing occurred on February 23, 2006. If the
Company
fail to do so: (i) the shares underlying the “A” and “B” warrants would be
increased by one percent (1%) for each 30 day period; and (ii) we would be
obligated to issue additional shares equal to one percent (1%) for each 30
day
period of the common shares sold in the offering. The registration rights
agreement also require the Company on a best effort basis to have the
registration statement declared effective within 180 days after the minimum
closing and maintain the registration statement continuously effective until
the
date that the shares covered by the PPM may be sold pursuant to Rule 144
of the
Securities Act without any restrictions.
The
Company filed its registration statement on April 3, 2006 which was considered
9
days late pursuant to the terms of the PPM. As a result, the Company is
obligated to issue an additional 15,000 shares of common stock; “A” warrants for
7,500 shares of common stock and “B” warrants for 7,500 shares of common stock
as a penalty for not meeting the 30 day period timeline to file the registration
statement. As of June 30, 2006, the Company recorded a common stock payable
for
15,000 shares of common stock penalty for a total value of $15,000 and
warrants
liability for the “A” and “B” warrants penalty of $14,815 which have been
recorded as part of “General, selling and administrative” within the statments
of operations.
The
Company will be reserving approximately 100,000 shares of common stock for
potential penalties associated with the PPM, 50,000 for common stock penalty
and
25,000 for “A” and “B” warrants, respectively, which the amount to be set aside
as a reserve is not necessarily indicative of actual penalties to be
incurred.
The
“A”
and “B” warrants associated with the PPM have been recorded as a liability in
accordance with Emerging Issued Task Force No. 00-19. The “A” and “B” warrants
fair value totaled $4,938,401 under the Black-Scholes options pricing model.
The
entire net proceeds of $4,550,000 from the PPM have been allocated as a warrant
liability. The difference between the fair values of the “A” and “B” warrants
and the net proceeds totaling $388,401 have been recorded as a loss related
to
adjustment of warrants liability to fair value.
The
fair
value of the for the “A” and “B” warrant, to include the penalty warrants, were
calculated under Black-Scholes option pricing model using the following
assumptions: (1) stock price of $1.00; expected life of 5 years; volatility
rate
of 224%; and discount rate of 4.1%.
Note
5. Common
stock receivable
Common
stock receivable relates to a penalty provision of an agreement with its
placement agent/consultant for not having its registration statement filed
within 30 days following the closing of the minimum offering amount of the
PPM.
The total penalty assessed on the placement agent/consultant totaled 27,000
shares of common stock. As June 30, 2006, the Company accrued $27 as a common
stock receivable for 27,000 shares
PART
II
INFORMATION
NOT REQUIRED IN PROSPECTUS
Indemnification
Of Directors & Officers
The
Corporation Laws of the State of Delaware and the Company's Bylaws provide
for
indemnification of the Company's Directors for expenses actually and necessarily
incurred by them in connection with the defense of any action, suit or
proceeding in which they, or any of them, are made parties, or a party, by
reason of having been Director(s) or Officer(s) of the corporation, or of such
other corporation, except, in relation to matter as to which any such Director
or Officer or former Director or Officer or person shall be adjudged in such
action, suit or proceeding to be liable for negligence or misconduct in the
performance of duty. Furthermore, the personal liability of the Directors
is limited as provided in the Company's Articles of Incorporation.
Insofar
as indemnification for liabilities arising under the Securities Act of 1933
may
be permitted to directors, officers or persons controlling the Company pursuant
to the foregoing provisions, the Company has been informed that in the opinion
of the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act of 1933 and is therefore
unenforceable.
Other
Expenses of Issuance & Distribution
The
following table sets forth an itemization of all estimated expenses, all of
which we will pay, in connection with the issuance and distribution of the
securities being registered:
SEC
Registration Fee
|
|
$
|
2,505.18
|
|
Financial
Printer to EDGARize and Print Registration Statement
|
|
|
3,000.00
|
*
|
Tranfer
Agent Fees, including Printing and Engraving Stock
Certificates
|
|
|
1,000.00
|
*
|
Legal
Fees and Expense
|
|
|
0.00
|
(1)
|
Accounting
Fees and Expenses
|
|
|
15,000.00
|
*
|
Miscellaneous
|
|
|
2,000.00
|
*
|
Total
|
|
$
|
23,505.18
|
*
|
*Estimated
(1)
|
Legal
Fees and Expenses associated with the filing of this registration
are
being paid for by Regal One Corporation pursuant to their agreement
with
the Company.
|
Recent
Sales of Unregistered Securities
The
following information is given with regard to unregistered securities sold
during the preceding three years, to August, 2006, including the dates and
amounts of securities sold, the persons to whom we sold the securities, the
consideration received in connection with such sales and, if the securities
were
issued or sold other than for cash, the description of the transaction and
the
type and amount of consideration received.
·
|
On
October 6, 2003, we sold “Option Promissory Notes” totaling $605,000 to a
group of accredited investors. The notes are convertible into series
C
preferred stock at any time before the maturity date. The notes also
contain an option allowing the holder to purchase up to $5 million
of
equity under the same terms and conditions as the series C preferred
stock.
|
·
|
In
October of 2004, we issued additional “Option Promissory Notes” in lieu of
$479,988 in accrued salary and consulting fees to our officers, directors
and consultants.
|
·
|
In
late 2004 we issued a note to Stanley Westreich in exchange for
$60,000.
|
·
|
In
November of 2004, we effectuated a 10 for 3 reverse split. The split
resulted in an adjustment to the conversion price of the Option Promissory
Note and in the conversion rates of the preferred stock. At this
time, we
also completed the exchange of all the outstanding Option Promissory
Notes
in shares of our series C preferred stock. At the time, the series
C
preferred stock was convertible into shares of common stock on a
1 for 3
basis. After the exchange, there were no Option Promissory Notes
outstanding.
|
·
|
In
early 2005, we completed the exchange of all our outstanding preferred
shares (Series A, B & C) into shares of common stock. The exchange
ratio was as follows:
|
Series
|
|
Conversion
Ratio
|
|
Common
Shares Issued
|
Preferred
A
|
|
1-for-0.3
|
|
314,276
|
Preferred
B
|
|
|
|
215,969
|
Preferred
C
|
|
1-for
-3
|
|
13,652,154
|
After
the
exchange, there were no shares of preferred stock outstanding.
·
|
On
March 21, 2005, we issued Thomas Freeman, M.D. an option to purchase
49,000 common shares at $.05 per shares pursuant to a scientific
advisory
letter of agreement. These options vest as follows: (i) 25,000
options
vest immediately; and (ii) 24,000 options vest monthly at a rate
of 2,000
per month for so long as Mr. Freeman continues to provide us
services. The
option will expire if not exercised within 12 years. The advisory
letter
of agreement also provides that if Mr. Freeman is still proving
services
as of August 25, 2006 and the agreement has not been terminated,
he will
receive an additional 2,000 common shares per month. As of August
25,
2006, the agreement is still effective. Accordingly, Mr. Freeman
has
received an additional 6,000 shares pursuant
thereto.
|
·
|
On
March 22, 2005, we converted a note payable to Stanley Westreich
in the
amount of $60,000, and all accrued interest thereon, into 120,000
shares
of our common stock.
|
·
|
On
May 23, 2005, we granted Richard A. Hull, PhD warrants to purchase
100,000
common shares at $2.00 per share as consideration for services to
be
provided pursuant to a business advisory services contract. The warrants
allow for cashless exercise and contain certain anti-dilution and
price
adjustment provisions for stock splits, dividends and recapitalizations.
The warrants are fully vested on the grant date and expire if not
exercised 10 years after the Company's securities start trading on
a
national exchange or over the
counter.
|
·
|
On
July 28, 2005, we issued to Karl Johe, our Chief Scientific Officer,
options to purchase 1,200,000 common shares at $.50 per share. These
options vest annually at a rate of 300,000 per year and will expire
if not
exercised within ten years. Additionally, these options are subject
to
certain accelerated vesting conditions more fully described in Mr.
Johe's
employment agreement attached as an exhibit to this
prospectus.
|
·
|
On
July 28, 2005, we issued to I. Richard Garr, our Chief Executive
Officer,
options to purchase 1,200,000 common shares at $.50 per share. These
options vest annually at a rate of 300,000 per year and will expire
if not
exercised within ten years. Additionally, these options are subject
to
certain accelerated vesting conditions more fully described in Mr.
Garr's
employment agreement attached as an exhibit to this
prospectus.
|
·
|
On
September 15, 2005, we issued Regal One Corporation, 1,845,287 shares
of
our common stock and a warrant to purchase an additional 1,000,000
common
shares at $5.00 per share. The shares and warrant were issued in
exchange
for services as well as Regal One Corporation's commitment to finance
certain costs and expense relating to our funding and the filing
of this
registration statement.
|
|
On
September 26, 2005, we completed the private placement of 1,272,000
common
shares to a group of investors at a per share price of $.50. Gross
proceeds from the offering totaled
$636,000.
|
·
|
On
October 15, 2005, we granted the J.D. Group, LLC warrants to purchase
1,000,000 common shares at $.50 per share as consideration for services
to
be provided pursuant to a business advisory services contract. The
warrants allow for cashless exercise and contain certain anti-dilution
and
price adjustment provisions for stock splits, dividends and
recapitalizations. The warrants are fully vested on the granted date
and
expire 9 months after the Company's common shares begin trading on
a
national exchange or over the
counter.
|
·
|
On
November 1, 2005, we issued Equity Communications, LLC a
warrant to purchase 330,000 common shares at $.50 per share pursuant
to an amended financial public relations service agreement. This
warrant vest immediately and expire if not exercised by November 1,
2010.
|
·
|
On
November 7, 2005, we issued to a consultant 120,000 shares of our
common
stock in fully satisfaction of consulting fees earned and not paid,
including interest thereon, in the amount of $60,000. As additional
consideration, we also issued the consultant a warrant to
purchase 120,000 shares at $.50 per share. The warrant is fully vested
and
expires three years from the grant date if not
exercised.
|
·
|
On
November 7, 2005, we converted a note in the amount of $100,000 to
200,000
shares of our common stock. As additional consideration, we also
issued
the note holder a warrant to purchase 200,000 shares at $.50 per
share. The warrant is fully vested and expires three years from the
grant date if not exercised. As a result of an oversight, the shares
were
not physically issued until the
2nd
quarter of 2006.
|
·
|
On
November 14, 2005, we issued Einhorn Associates 78,000 common shares
pursuant to a settlement agreement related to fees and services
performed.
|
·
|
On
December 23, 2005, we completed the private placement of 1,000,000
common
shares to a group of investors at a per share price of $.50. Gross
proceeds from the offering totaled $500,000. As a
result of an oversight, a portion of the shares were not physically
issued
until the 2nd
quarter of 2006.
|
·
|
On
March 3, 2006, we completed a private placement through T.R. Winston
&
Company pursuant to which we sold 5,000,000 units to 64 investors
at a
price of $1.00 per unit, for gross proceeds of $5,000,000. Each unit
sold
consists of:
|
·
|
½
class “A” warrant to purchase common shares;
and
|
·
|
½
class “B” warrant to purchase common
shares.
|
In
total,
we issued 5,000,000 common shares and 2,500,000 class “A” warrants and 2,500,000
class “B” warrants. The class “A” warrants are exercisable at $1.50 per share
and the class “B” warrants are exercisable at $2.00 per share. Both class “A”
and “B” warrants are redeemable by the company upon the occurrence of certain
events.
·
|
On
March 3, 2006, under the terms of our selling agent agreement with
T.R.
Winston & Company, we issued a placement agent warrant to purchase
800,000 common shares at $1.10 per
share.
|
Exhibits
The
following exhibits are included as part of this Form SB-2. References to "the
Company" in this Exhibit List mean Neuralstem, Inc., a Delaware
corporation.
Exhibit
Number
|
|
Description
|
3.1
|
|
Articles
of Incorporation of Neuralstem, Inc., as amended
|
3.2
|
|
Corporate
Bylaws for Neuralstem, Inc.
|
4.1
|
|
Option
& Promissory Note Agreement between Neuralstem, Inc. and Stanley
Westreich, dated October 6, 2003
|
4.2
|
|
2005
Stock Option Plan
|
4.3
|
|
Form
of Stock Lockup Agreement
|
4.4
|
|
Non-qualified
Stock Option Agreement between Neuralstem, Inc. and Richard Garr,
dated
July 28, 2005
|
4.5
|
|
Non-qualified
Stock Option Agreement between Neuralstem, Inc. and Karl Johe,
dated July
28, 2005
|
4.7
|
|
Form
of $5.00 Option
|
4.8
|
|
September
2005 Stock Subscription Agreement
|
4.9
|
|
Consulting
Fee Conversion Agreement and Stock Option Grant between Neuralstem,
Inc.
and Merrill Solomon, dated November 7, 2005
|
4.10
|
|
Debt
Conversion Agreement and Stock Option Grant between Neuralstem,
Inc. and
Stanley Westreich
,
dated November 7, 2005.
|
4.11
|
|
Common
Stock Purchase Agreement between Neuralstem, Inc. and High Tide,
LLC and
Steven B. Dunn, dated December 23, 2005
|
4.12
|
|
March
5, 2006 Private Placement Memorandum
|
4.13
|
|
Form
of Placement Agent Warrant
|
4.14
|
|
Form
of $1.50 Warrant (Series “A”)
|
4.15
|
|
Form
of $2.00 Warrant (Series “B”)
|
4.16
|
|
Subscription
Agreement for March Private Placement
|
4.17
|
|
Equity
Investment and Share Purchase Agreement between Neuralstem, Inc.
and Regal
One Corporation, effective June 22, 2005 and amended September
15,
2005
|
5.1
|
|
Legal
opinion and consent of Dieterich and Associates
|
10.1
|
|
Employment
Agreement between CNS Stem Cell Technology, Inc. and I. Richard
Garr,
dated January 1, 1997 and Amendment, dated November 1,
2005
|
10.2
|
|
Employment
Agreement between CNS Stem Cell Technology, Inc. and Karl Johe,
dated
January 1, 1997 and Amendment, dated November 1, 2005
|
|
|
Material
Transfer and Research Agreement between Neuralstem, Inc. and the
Regents
of the University of John Hopkins, dated March 2, 2001
|
10.4
|
|
Research
Agreement between Neuralstem, Inc. and the Regents of the University
of
California, San Diego, dated May 15, 2002
|
10.5
|
|
License
Agreement between Neuralstem, Inc. and the Maryland Economic Development
Corporation, dated Febraury 1, 2004, and Amendment, dated March
14,
2004
|
10.6
|
|
Non-Exclusive
Limited License and Material Transfer Agreement between Neuralstem,
Inc.
and A-T Children's Project, dated December 22, 2004
|
10.7
|
|
Exclusive
License Agreement between Neuralstem, Inc. and Biomedical Research
Models,
Inc., dated February 7, 2005 and Amendment, dated May 20,
2006
|
10.8
|
|
Scientific
Advisory Letter & Stock Option Agreement between Neuralstem, Inc. and
Thomas Freemen, dated March 21, 2005
|
10.9
|
|
Laboratory
Services and Confidentiality Agreement between Neuralstem, Inc.
and
Biopharmaceutical Services, a division of Charles River Laboratories,
dated May 11, 2005
|
10.10
|
|
Business
Advisory Services and Warrant Agreement between Neuralstem, Inc.
and
Richard A. Hull, PhD, dated May 23, 2005
|
10.11
|
|
Limited
Exclusive License Agreement between Neuralstem, Inc. and High Med
Technologies, Inc., dated July 7, 2005
|
10.12
|
|
Consulting
Agreement for Financial Public Relations Services and Non-Qualified
Stock
Option as Amended between Neuralstem, Inc. and Equity Communications,
LLC,
dated August 29, 2005 and November 1, 2005
|
10.13
|
|
Research
Agreement between Neuralstem, Inc. and the Regents of the University
of
Southern Florida, dated September 21,
2005
|
10.14
|
|
Business
Advisory Services and Warrant Agreement between Neuralstem, Inc.
and the
J.D. Group, LLC, dated October 15, 2005
|
10.15
|
|
Consulting
Fee Conversion Agreement between Neuralstem, Inc. and Einhorn Associates,
Inc., dated November 14, 2005
|
10.16
|
|
Lease
of Vivarium Room between Neuralstem Inc. and Perry Scientific,
dated
February 14, 2006
|
10.17
|
|
Research
Agreement between Neuralstem, Inc. and the Regents of the University
of
Central Florida, dated March 1, 2006
|
14.1
|
|
Neuralstem
Code of Ethics
|
23.1
|
|
Consent
of Dieterich & Associates (included with Exhibit
5.1)
|
23.2
|
|
Consent
of Neuralstem's Auditors
|
99.1
|
|
Grant
Number 1 R43 MH071958-01A2 from the National Institute of Mental
Health to
Neuralstem, Inc., issued September 30, 2005
|
99.2
|
|
Grant
Number 3 R43 MH071958-01A2S1 from the National Institute of Mental
Health
to Neuralstem, Inc., issued November 22, 2005
|
99.3
|
|
Award
Conditions and Information for National Institute of Health
Grants
|
Undertakings
The
undersigned registrant hereby undertakes to:
(1)
File, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement
to:
(i)
Include any Prospectus required by Section 10(a)(3) of the Securities Act of
1933, as amended (the "Securities Act");
(ii)
Reflect in the Prospectus any facts or events which, individually or together,
represent a fundamental change in the information in the registration statement;
and notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of the securities offered would
not exceed that which was registered) and any deviation from the low or high
end
of the estimated maximum offering range may be reflected in the form of
Prospectus filed with the Commission pursuant to Rule 424(b) under the
Securities Act if, in the aggregate, the changes in volume and price represent
no more than a 20% change in the maximum aggregate offering price set forth
in
the "Calculation of Registration Fee" table in the effective registration
statement; and
(iii)
Include any additional or changed material information on the plan of
distribution.
(2)
For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial
bona
fide offering.
(3)
File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the
offering.
(4)
For purposes of determining any liability under the Securities Act, treat the
information omitted from the form of Prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
Prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act as part of this registration statement as of the time
it was declared effective.
(5)
For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of Prospectus as a new
registration statement for the securities offered in the registration statement,
and that offering of the securities at that time as the initial bona fide
offering of those securities.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by
such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
SIGNATURES
In
accordance with the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all
of the
requirements for filing on Form SB−2 and authorized this registration statement
to be signed on its behalf by the undersigned, in the City of Rockville,
State
of Maryland, on August 25, 2006.
|
|
|
|
NEURALSTEM,
INC.
|
|
|
|
|
By: |
/s/
I Richard Garr |
|
I
Richard Garr |
|
Chief
Executive Officer |
|
(principal executive
officer) |
|
|
|
|
|
|
|
By: |
/s/ I Richard Garr |
|
I.
Richard Garr |
|
Chief Financial Officer |
|
(principal accounting
officer) |
In
accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities
and
on the dates stated:
KNOW
ALL MEN BY THESE PRESENTS, that
each
person whose signature appears below hereby constitute and appoint I. Richard
Garr, as the undersigned's true and lawful attorneys−in−fact and agents, each
with full power of substitution and resubstitution for such person and in
such
person's name, place and stead, in any and all capacities, to sign a
registration statement on form SB−2 with respect to Neuralstem, Inc, a Delaware
corporation (the "registrant"),
and
to further sign any and all amendments thereto (including post−effective
amendments, exhibits thereto, and other documents in connection therewith
to
this registration statement and any later registration statement filed by
the
registrant under Rule 462(b) of the Securities Act of 1933, which relates
to
this registration statement) and, to file the same with exhibits thereto
and
other documents in connection therewith with the SEC, granting unto said
attorneys−in−fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done,
as
fully to all intents and purposes as such person might or could do in person,
hereby ratifying and confirming all that each of said attorneys−in−fact and
agents, or any of them, or their substitute or substitutes may lawfully do
or
cause to be done by virtue hereof.
By:
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/s/
I. Richard
Garr
I.
Richard Garr
|
Chief
Executive Officer, Chief Financial Officer, President and Director,
Principal Accounting Officer
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August
25, 2006
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By:
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/s/ Karl
Johe
.
Karl
Johe
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Chief
Scientific Officer, Chairman of the Board and Director
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August
25, 2006
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