UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended March 31, 2007
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____ to ____
COMMISSION FILE NUMBER: 000-13347
NEUROLOGIX, INC.
(Exact name of Small Business Issuer in its charter)
DELAWARE 06-1582875
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(State or other jurisdiction of I.R.S. Employer
Incorporation or organization) Identification No.)
ONE BRIDGE PLAZA, FORT LEE, NEW JERSEY 07024
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(Address of principal executive offices)
(201) 592-6451
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(Issuer's telephone number)
N/A
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(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ].
Indicate by checkmark whether the Registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [X].
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
At May 11, 2007 there were outstanding 26,542,924 shares of the Registrant's
Common Stock, $.001 par value.
Transitional Small Business Disclosure Format: Yes [ ] No [X].
PART I. FINANCIAL INFORMATION
Item 1 - Financial Statements
Condensed Balance Sheet (Unaudited) 1
Condensed Statements of Operations (Unaudited) 2
Condensed Statements of Changes in Stockholders' Equity (Deficiency) (Unaudited) 3
Condensed Statements of Cash Flows (Unaudited) 5
Notes to Condensed Financial Statements (Unaudited) 7
Item 2 - Management's Discussion and Analysis or Plan of Operation 11
Item 3 - Controls and Procedures 16
PART II. OTHER INFORMATION 16
Item 6. - Exhibits 16
PART I. FINANCIAL INFORMATION
Item 1 - Financial Statements
-----------------------------
NEUROLOGIX, INC.
(A Development Stage Company)
CONDENSED BALANCE SHEET
(UNAUDITED)
(Amounts in thousands, except share and per share data)
March 31,
2007
---------------
ASSETS
Current assets:
Cash and cash equivalents $9,305
Prepaid expenses and other current assets 278
---------------
Total current assets 9,583
Equipment, less accumulated depreciation of $352 163
Intangible assets, less accumulated amortization of $89 530
Other assets 8
---------------
Total Assets $10,284
===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $848
---------------
Total liabilities 848
---------------
Commitments and contingencies
Stockholders' equity:
Preferred stock; 5,000,000 shares authorized
Series A - Convertible, $.10 par value; 300,000 shares
designated, 645 shares issued and
outstanding with an aggregate
liquidation preference of $645 -
Series B - $.10 par value; 4,000,000 shares
designated, no shares issued and outstanding -
Series C - Convertible, $.10 par value; 700,000
shares designated, 397,595 shares issued and
outstanding with an aggregate liquidation preference
of $13,000,111 40
Common Stock:
$.001 par value; 60,000,000 shares authorized,
26,542,924 issued and outstanding 27
Additional paid-in capital 34,699
Deficit accumulated during the development stage (25,330)
---------------
Total stockholders' equity 9,436
---------------
Total Liabilities and Stockholders' Equity 10,284
===============
See accompanying notes to the unaudited condensed financial statements.
1
NEUROLOGIX, INC.
(A Development Stage Company)
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
(Amounts in thousands, except share and per share data)
For the period February 12,
Three Months 1999 (inception) through
Ended March 31, March 31, 2007
------------------------------------------------
2007 2006
------------------------------------------------
Revenues $ - $ - $ -
Operating expenses:
Research and development 1,003 547 12,402
General and administrative expenses 656 970 10,767
------------------------------------------------
Loss from operations (1,659) (1,517) (23,169)
------------------------------------------------
Other income (expense):
Dividend, interest and other income 115 24 871
Interest expense-related parties - (1) (411)
------------------------------------------------
Other income, net 115 23 460
------------------------------------------------
Net loss $ (1,544) $ (1,494) $ (22,709)
==================
Preferred stock dividends (292) -
--------------------------
Net loss applicable to common stock $ (1,836) $ (1,494)
==========================
Net loss applicable to common stock
per share, basic and diluted $ (0.07) $ (0.06)
==========================
Weighted average common shares outstanding,
basic and diluted 26,542,924 26,542,924
==========================
See accompanying notes to the unaudited condensed financial statements.
2
NEUROLOGIX, INC. AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)
FOR THE PERIOD FROM FEBRUARY 12, 1999 (INCEPTION) THROUGH MARCH 31, 2007
(UNAUDITED)
(In thousands, except share and per share amounts)
Deficit
Series C Preferred Accumulated
Stock Common Stock Additional During the
----------------------------------- Paid-in Unearned Develpment
Shares Amount Shares Amount Capital Compensation Stage Total
---------------------------------------------------------------------------------
Sale of common stock to founders - $ 0 6,004,146 $ 0 $ 4 $ 0 $ 0 $ 4
Net loss - - - - - - (328) (328)
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Balance, December 31, 1999 - 0 6,004,146 0 4 0 (328) (324)
Net loss - - - - - - (1,055) (1,055)
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Balance, December 31, 2000 - 0 6,004,146 0 4 0 (1,383) (1,379)
Stock options granted for services - - - - 9 - - 9
Common stock issued for intangible assets
at $0.09 per share - - 259,491 - 24 - - 24
Net loss - - - - - - (870) (870)
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Balance, December 31, 2001 - 0 6,263,637 0 37 0 (2,253) (2,216)
Retirement of founder shares - - (33,126) - - - - -
Common Stock issued pursuant to license agreement
at $1.56 per share - - 368,761 - 577 (577) - -
Private placement of Series B convertible preferred
stock - - - - 2,613 - - 2,613
Amortization of unearned compensation - - - - - 24 - 24
Net loss - - - - - - (1,310) (1,310)
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Balance, December 31, 2002 - 0 6,599,272 0 3,227 (553) (3,563) (889)
Sale of Common Stock - - 276,054 - 90 (89) - 1
Amortization of unearned compensation - - - - - 164 - 164
Net loss - - - - - - (2,274) (2,274)
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Balance, December 31, 2003 - 0 6,875,326 0 3,317 (478) (5,837) (2,998)
Conversion of note payable to Common Stock at
$2.17 per share - - 1,091,321 1 2,371 - - 2,372
Conversion of mandatory redeemable preferred
stock to Common Stock - - 6,086,991 6 494 - - 500
Conversion of Series B convertible preferred
stock to Common Stock - - 1,354,746 1 (1) - - -
Effects of reverse acquisition - - 7,103,020 14 5,886 - - 5,900
Amortization of unearned compensation - - - - - 202 - 202
Stock options granted for services - - - - 42 (42) - -
Exercise of stock options - - 10,000 - 15 - - 15
Net loss - - - - - - (2,937) (2,937)
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Balance, December 31, 2004 - 0 22,521,404 22 12,124 (318) (8,774) 3,054
Sale of Common Stock through private placement
at an average price of $1.30 per share - - 2,473,914 4 3,062 - - 3,066
Sale of Common Stock at an average price of $1.752
per share and warrants to Medtronic - - 1,141,552 1 2,794 - - 2,795
Amortization of unearned compensation - - - - - 825 - 825
Stock options granted for services - - - - 1,305 (1,305) - -
Exercise of stock options - - 406,054 - 127 - - 127
Net loss - - - - - - (5,345) (5,345)
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Balance, December 31, 2005 - 0 26,542,924 27 19,412 (798) (14,119) 4,522
Sale of Preferred Stock through private placement
at an average price of $35.00 per share 342,857 34 - - 11,578 - - 11,612
Fair value of beneficial conversion rights issued
in connection with issuance of Series C
PreferredStock - - - - 2,621 - - 2,621
Preferred Dividend and accretion of fair value
of beneficial conversion charge 25,298 3 - - (3) - (2,621) (2,621)
Employee share-based compensation expense - - - - 1,193 - - 1,193
Non-employee share-based compensation - - - - 83 - - 83
Reclassification of prior year non-employee
compensation to prepaid expenses - - - - - 487 - 487
Effects of adoption of SFAS 123R - - - - (311) 311 - -
Net loss - - - - - - (7,046) (7,046)
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Balance, December 31, 2006 368,155 $ 37 26,542,924 $ 27 $ 34,573 $ - $ (23,786) $ 10,851
Preferred dividends issued and accrued 29,440 3 - - (3) - - -
Employee share-based compensation expense - - - - 121 - - 121
3
Deficit
Series C Preferred Accumulated
Stock Common Stock Additional During the
----------------------------------- Paid-in Unearned Develpment
Shares Amount Shares Amount Capital Compensation Stage Total
---------------------------------------------------------------------------------
Non-employee share-based compensation - - - - 8 - - 8
Net loss - - - - - - (1,544) (1,544)
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Balance March 31, 2007 397,595 $ 40 26,542,924 $ 27 $ 34,699 $ - $ (25,330) $ 9,436
=================================================================================
See accompanying notes to the unaudited condensed financial statements.
4
NEUROLOGIX, INC.
(A Development Stage Company)
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Amounts in thousands)
Three Months For the period
Ended March 31, February 12, 1999
---------------------------- (inception) through
2007 2006 March 31, 2007
-------------------------------------------------
Operating activities:
Net loss $(1,544) $(1,494) $(22,709)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation 23 15 358
Amortization 10 3 229
Stock options granted for services - - 9
Impairment of intangible assets - - 148
Amortization of non-employee share-based compensation 26 121 1,323
Share-based employee compensation expense 121 121 1,314
Non-cash interest expense - - 378
Changes in operating assets and liabilities
Decrease in prepaid expenses and other current assets 116 147 786
Increase in accounts payable and accrued expenses 119 360 787
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Net cash used in operating activities (1,129) (727) (17,377)
-------------------------------------------------
Investing activities:
Security deposits paid - - (7)
Purchases of equipment (16) (4) (406)
Additions to intangible assets (28) (14) (877)
Purchases of marketable securities - - (12,673)
Proceeds from sale of marketable securities - 1,600 12,673
-------------------------------------------------
Net cash (used in) provided by investing activities (44) 1,582 (1,290)
-------------------------------------------------
Financing activities:
Proceeds from note payable - - 1,100
Borrowings from related party - - 2,000
Cash acquired in Merger - - 5,413
Merger-related costs - - (375)
Payments of capital lease obligations - (4) (99)
Proceeds from exercise of stock options - - 142
Proceeds from issuance of common stock and warrants - - 5,066
Proceeds from issuance of preferred stock - - 14,725
-------------------------------------------------
Net cash (used in) provided by financing activities - (4) 27,972
-------------------------------------------------
Net (decrease) increase in cash and cash equivalents (1,173) 851 9,305
Cash and cash equivalents, beginning of period 10,478 1,255 -
-------------------------------------------------
Cash and cash equivalents, end of period $9,305 $2,106 $9,305
=================================================
Supplemental disclosure of non-cash investing and financing activities:
Dividends on Series C Preferred Stock paid in preferred shares $290 - $904
Accrued dividends on Series C Preferred Stock $2 - $96
Accretion of fair value of beneficial conversion on preferred stock - - $2,621
Issuance of Common Stock to pay debt - - $2,372
Reverse acquisition - net liabilities assumed, excluding cash - - $ (214)
Mandatory redeemable convertible preferred stock converted to Common Stock - - $500
5
Three Months For the period
Ended March 31, February 12, 1999
---------------------------- (inception) through
2007 2006 March 31, 2007
-------------------------------------------------
Common stock issued to acquire intangible assets - - $24
Stock options granted for services - - $1,424
Deferred research and development cost resulting from Medtronic Stock Purchase - - $795
Acquisition of equipment through capital leases - - $106
See accompanying notes to the unaudited condensed financial statements.
6
NEUROLOGIX, INC.
(A Development Stage Company)
Notes to Unaudited Condensed Financial Statements
(In thousands, except for share and per share amounts)
(1) Description of Business
Neurologix, Inc. ("Neurologix" or the "Company"), is engaged in the
research and development of proprietary treatments for disorders of the brain
and central nervous system primarily utilizing gene therapies. These treatments
are designed as alternatives to conventional surgical and pharmacological
treatments. The Company is a developmental stage company and has not generated
any operating revenues.
The Company incurred net losses of $1,544, $1,494 and $22,709 and
negative cash flows from operating activities of $1,129, $727 and $17,377 for
the three months ended March 31, 2007 and 2006 and for the period from February
12, 1999 (inception) to March 31, 2007, respectively. The Company expects that
it will continue to incur net losses and cash flow deficiencies from operating
activities for the foreseeable future.
As of March 31, 2007, the Company had cash and cash equivalents and
short-term investments in marketable securities of $9,305. Management believes
that the Company's current resources will enable it to continue as a going
concern through at least March 31, 2008. Although the Company believes that its
resources are sufficient to initiate a Phase II clinical trial for Parkinson's
disease and to complete a Phase I clinical trial for epilepsy, the Company's
resources are not sufficient to allow it to perform all of the clinical trials
required for drug approval and marketing for either product. Accordingly, it
will, from time to time, continue to seek additional funds through public or
private equity offerings, debt financings or corporate collaboration and
licensing arrangements. The Company does not know whether additional financing
will be available when needed, or if available, will be on acceptable or
favorable terms to it or its stockholders.
(2) Basis of presentation
The accompanying unaudited condensed financial statements of the
Company should be read in conjunction with the audited financial statements and
notes thereto included in the Company's Annual Report on Form 10-KSB for the
year ended December 31, 2006 (the "10-KSB") filed with the Securities and
Exchange Commission (the "SEC") on April 2, 2007. The accompanying financial
statements have been prepared in accordance with accounting principles generally
accepted in the United States ("GAAP") for interim financial information and in
accordance with the instructions to Form 10-QSB and the rules and regulations of
the SEC. Accordingly, since they are interim statements, the accompanying
financial statements do not include all of the information and notes required by
GAAP for complete financial statement presentation. In the opinion of
management, the interim financial statements reflect all adjustments consisting
of normal, recurring adjustments that are necessary for a fair presentation of
the financial position, results of operations and cash flows for the interim
periods presented. Interim results are not necessarily indicative of results for
a full year.
7
(3) Summary of Significant Accounting Policies
(a) Stock-BasedCompensation:
At March 31, 2007 the Company had one active share-based compensation
plan available for employee, non-employee director, and consultant grants. Stock
option awards granted from this plan are granted at the fair market value on the
date of grant, and vest over a period determined at the time the options are
granted, ranging from zero to three years, and generally have a maximum term of
ten years. Certain options provide for accelerated vesting if there is a change
in control (as defined in the plans). When options are exercised, new shares of
the Company's common stock (the "Common Stock") are issued.
Effective January 1, 2006, the Company adopted Statement of Financial
Accounting Standards No. 123R "Share-based Payment" ("SFAS No. 123R") for
employee stock options and other share based compensation using the modified
prospective method. No share-based employee compensation cost had been reflected
in net loss prior to the adoption of SFAS No. 123R.
Under SFAS 123R, compensation expense is recognized for awards that are
granted, modified or cancelled on or after January 1, 2006 as well as for the
portion of awards previously granted that had not vested as of January 1, 2006.
Compensation expense for these previously granted awards is being recognized
over the remaining service period using the compensation cost calculated based
on the same estimate of grant-date fair value previously reported for pro-forma
disclosure purposes under FAS 123R. As of March 31, 2007 total unrecognized
compensation cost related to stock option awards was approximately $316 and the
related weighted-average period over which it is expected to be recognized is
approximately 1.31 years.
The amount of compensation expense recognized under FAS 123R during the
three months ended March 31, 2007 and 2006 was comprised of the following:
Three Months Ended March 31,
2007 2006
-------------------------
Research and development $47 $3
General and administrative 74 118
-------------------------
Share-based compensation expense $121 $121
=========================
Net share-based compensation expenses per basic
and diluted common share $(0.00) $(0.00)
=========================
A summary of option activity as of March 31, 2007 and changes during
the three months then ended is presented below:
Weighted-Average
Shares Subject to Weighted- Average Remaining Contractual
Options Option (000) Exercise Price Term (years) Aggregate Intrinsic Value
------------------------------ ---------- ---------------- --------------------- -------------------------
Outstanding at January 1, 2007 3,016 $1.50
Granted - -
Exercised - -
Forfeited or expired - -
------------------------------------
Outstanding at March 31, 2007 3,016 $1.50 6.90 $0
Exercisable at March 31, 2007 2,269 $1.47 6.20 $0
8
There were no options granted during the three months ended March 31,
2007. The weighted-average grant-date fair value of options granted during the
three months ended March 31, 2006 was $1.29 and was estimated using the Black
Scholes option valuation model.
The fair value of each stock option award is estimated under SFAS No.
123R on the date of the grant using the Black-Scholes option pricing model based
on the assumptions noted in the following table.
Three Months Ended March 31,
---------------------------
2007 2006
---------- -----------
Expected option term * 5
Risk-free interest rate * 4.07%
Expected volatility * 90.3%
Dividend yield * 0%
* There were no options granted during the three months ended
March 31, 2007.
Expected volatility is based on historical volatility of the Common
Stock. The risk-free rate is based on the five year U.S. Treasury security rate.
The expected term represents the period that stock-based awards are expected to
be outstanding based on the simplified method provided in Staff Accounting
Bulletin No. 107 ("SAB 107") which averages an award's weighted average vesting
period and expected term for "plain vanilla" share options. Under SAB 107,
options are considered to be "plain vanilla" if they have the following basic
characteristics: granted "at-the-money"; exerciseability is conditioned upon
service through the vesting date; termination of service prior to vesting
results in forfeiture; limited exercise period following termination of service;
and options are non-transferable and non-hedgeable.
For equity awards to non-employees, the Company also applies the
Black-Scholes method to determine the fair value of such investments in
accordance with FAS 123R and Emerging Issues Task Force Issue 96-18, "Accounting
for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or
in Conjunction with Selling, Goods, or Services." The options granted to
non-employees are re-measured as they vest and the resulting value is recognized
as an expense against our net loss over the period during which the services are
received.
(b) Basic and Diluted Net Loss Per Common Share:
Basic net loss per common share excludes the effects of potentially
dilutive securities and is computed by dividing net loss applicable to Common
Stockholders by the weighted average number of common shares outstanding for the
period. Diluted net income or loss per share is adjusted for the effects of
convertible securities, options, warrants and other potentially dilutive
financial instruments only in the periods in which such effects would have been
dilutive.
The following securities were not included in the computation of
diluted net loss per share because to do so would have had an anti-dilutive
effect for the periods presented:
9
March 31,
----------------------------------
2007 2006
----------------- ----------------
Stock options 3,105,829 2,405,220
Warrants 3,131,585 906,867
Common Stock issuable upon conversion
of Series A Convertible Preferred Stock 645 645
Common Stock issuable upon conversion
of Series C Convertible Preferred Stock 7,817,870 -
(4) Commitments and Contingencies
Consulting Agreement:
Effective February 23, 2007, the Company entered into a consulting
agreement with Martin J. Kaplitt, M.D., the Chairman of the Company's Board of
Directors. Under the terms of this agreement, Dr. Martin Kaplitt will provide
medical and scientific consulting and advisory services to the Company for a one
year period, unless sooner terminated pursuant to its terms. Dr. Martin Kaplitt
will receive annual compensation of $85. Dr. Martin Kaplitt served as the
Executive Chairman of the Company until February 23, 2007, and now serves as
Chairman of the Company's Board of Directors.
Research Agreement:
On March 2, 2007, the Company entered into Amendment No. 2 to the
Clinical Study Agreement with Cornell University for its Medical College
("Cornell") to revise the scope of the research to be performed by Cornell.
Pursuant to the terms of the amended agreement, the Company must make to Cornell
an additional payment of $64, in two equal installments, the first on or about
the effective date of the agreement and the second on July 31, 2007.
Operating Lease Agreement:
On November 3, 2006, the Company entered into a lease with Bridge Plaza
Realty Associates, LLC ("BPRA") for an additional 703 square feet of office
space at One Bridge Plaza, Fort Lee, New Jersey 07024 (the "BPRA Lease"). This
lease commenced on April 13, 2007 upon the completion of build out work
performed by BPRA and will expire three years thereafter. The lease provides for
a base annual rent of approximately $21 for the term of the lease.
In connection with the BPRA Lease, effective February 1, 2008 the
Company will rent from BPRA the 1,185 square feet of office space it currently
rents from Palisade Capital Securities, LLC, an affiliated company. This lease
provides for a base annual rent of $36 through the term of the lease, which
expires in March 2010.
(5) Income Taxes
The Company adopted the provisions of FASB Interpretation No. 48 ("FIN
48") "Accounting for Uncertainty in Income Taxes (an interpretation of FASB
Statement No. 109") on January 1, 2007. This interpretation was issued to
clarify the accounting for uncertainty in the amount of income taxes recognized
in the financial statements by prescribing a recognition
10
threshold and measurement attribute for the financial statement recognition and
measurement of a tax position taken or expected to be taken in a tax return. The
provisions of FIN 48 are effective as of the beginning of 2007, with the
cumulative effect of the change in accounting principle recorded as an
adjustment to retained earnings. Adoption of this new Standard did not have an
impact on the Company's financial position, results of operations or cash flows.
Item 2 - Management's Discussion and Analysis or Plan of Operation
------------------------------------------------------------------
The following discussion and analysis of the Company's financial
condition and results of operations should be read in conjunction with the
Company's unaudited financial statements and related notes included in this
quarterly report on Form 10-QSB (this "Quarterly Report") and the audited
financial statements and notes thereto as of and for the year ended December 31,
2006 included in the Company's Annual Report on Form 10-KSB filed with the SEC
on April 2, 2007. Operating results are not necessarily indicative of results
that may occur in future periods.
Business Overview
The Company is a development stage company that is engaged in the
research and development of proprietary treatments for disorders of the brain
and central nervous system using gene therapy and other innovative therapies.
These treatments are designed as alternatives to conventional surgical and
pharmacological treatments.
To date, the Company has not generated any operating revenues and has
incurred annual net losses. From inception through March 31, 2007, the Company
had an accumulated deficit of $25,330, and it expects to incur additional losses
for the foreseeable future. The Company recognized net losses of $1,544 for the
three months ended March 31, 2007, and $1,494 for the three months ended March
31, 2006.
Since its inception, the Company has financed its operations primarily
through sales of its equity and debt securities. From inception through March
31, 2007, the Company received proceeds primarily from private sales of equity
and debt securities and from the February 2004 merger (the "Merger") of
approximately $24,831 in the aggregate. Although its costs of administration and
public company compliance have increased this year, the Company has devoted a
significant portion of its capital resources to the research and development of
its products.
The Company's primary efforts are directed to develop therapeutic
products (i) to meet the needs of patients suffering from Parkinson's disease
and (ii) the needs of patients suffering from a type of human epilepsy known as
temporal lobe epilepsy or "TLE."
Parkinson's Disease
In October 2006, the Company announced that it had completed its Phase
I clinical trial of gene therapy for Parkinson's disease and presented its
results for the 12 treated subjects at the Annual Meeting of the Society of
Neuroscience in Atlanta. The results indicated that the treatment appears to be
safe and well-tolerated in patients with advanced Parkinson's disease, with no
evidence of adverse effects or immunologic reaction related to the study
11
treatment. The trial, in which treatment was confined to only one side of the
brain, also yielded statistically significant clinical efficacy and
neuro-imaging results.
Since the date of the Merger, the Company has accounted for the direct
costs associated with its Parkinson's project, including research fees, license
fees and pre-clinical and clinical study costs. For the three months ended March
31, 2007 and 2006, the Company has incurred $87 and $38 of these costs,
respectively. The increase is primarily due to increased manufacturing costs
related to product to be used in the Company's planned Phase II clinical trial.
Epilepsy
In October 2004, motivated by encouraging rodent studies, the Company
entered into an agreement with Universidad Federal de Sao Paolo to commence a
non-human primate study for evaluating the toxicity of using its NLX technology
in the brain for the treatment of epilepsy. The Company's approach is based on
the use of the non-pathogenic AAV vector, delivered using standard neurosurgical
techniques. All studies were completed in November 2005 and a detailed analysis
of the rodent studies was presented in December 2005. Results showed that
Neuropeptide Y (NPY) gene transfer reduces spontaneous seizures in an in vivo
model of epilepsy and positively influences the fundamental biological process
that leads to a chronically epileptic state.
Since the date of the Merger, the Company has accounted for the direct
costs associated with its epilepsy project, including research fees, license
fees and pre-clinical and clinical study costs. For the three months ended March
31, 2007 and 2006, the Company has incurred $267 and $1 of these costs,
respectively. The increase is primarily due to costs of manufacturing product in
2007 for the Company's planned Phase I clinical trial.
Other Therapies
The Company will also continue its efforts to develop gene therapy for
the treatment of other neurodegenerative and metabolic disorders under its
research agreements with Cornell and The Ohio State University.
Plan of Operation
Parkinson's Disease
The Company currently plans to conduct a Phase II clinical trial prior
to conducting a pivotal trial for its treatment of Parkinson's disease,
commencing in the second half of 2007. The Phase II trial will be a
multi-center, randomized, controlled study with subjects being treated
bi-laterally. The study will be designed, among other things, to further
establish the effectiveness and safety of the treatment. The scope and timing of
such study will largely depend upon FDA concurrence, the ability to manufacture
product on a timely basis, the availability of funding, the availability of the
catheter system being developed by Medtronic International, Ltd. ("Medtronic")
and other factors.
The Company will also take steps to move toward a pivotal trial for
treatment of Parkinson's disease, and hopes to be in a position to file its
protocol with the FDA in 2009. The
12
Company presently estimates that the pivotal trial could be completed in 2011
and the estimated total costs to reach that milestone are expected to be between
$20,000 and $30,000.
Epilepsy
The Company also intends to increase its efforts on advancing its
product development for the treatment of epilepsy. The Company expects to
commence a Phase I clinical trial in the second half of 2007. The Company
expects the cost of such trial to amount to approximately $1,000. The scope and
timing of such trial will, in large part, depend upon, FDA concurrence and the
successful completion of certain license arrangements.
The Company currently expects that, if the project progresses and
certain other conditions are met, it can file for FDA approval for its epilepsy
product by 2013, and the estimated total costs to reach that milestone are
currently expected to be between $15,000 and $25,000.
The Company has also recently undertaken efforts to develop gene
therapy for the treatment of other neurodegenerative and metabolic disorders,
including Huntington's disease, with a goal of advancing towards an initial
Phase I clinical trial within the next 3 years.
Over the next 12 months, in addition to its normal recurring
expenditures, the Company expects to spend approximately: $1,800 in Phase II
clinical trial expenses with regard to its Parkinson's treatment; $500 in Phase
I clinical trial expenses with regard to its epilepsy product; $1,000 in costs
associated with operating as a publicly traded company, such as legal fees,
accounting fees, insurance premiums, stock market listing fees and investor and
public relations fees; $750 in research and licensing fees; and $300 in expenses
in order to scale up its manufacturing capabilities for the supply of product
for a Parkinson's pivotal trial.
Results of Operations
Three Months Ended March 31, 2007 Compared to the Three Months Ended
March 31, 2006
Revenues. The Company did not generate any operating revenues during
the three months ended March 31, 2007 and 2006.
Costs and Expenses.
Research and Development. Research and development expenses increased
by $456 during the three months ended March 31, 2007 to $1,003 as compared to
$547 during the same period in 2006. The increase is primarily attributable to
$310 in costs incurred in 2007 associated with the manufacturing of product to
be used in the Company's planned clinical trials in 2007. The increase was also
due to $107 in increased personnel costs, primarily as a result of the hiring of
Christine V. Sapan, Ph.D., the Company's Chief Development Officer, in July
2006.
General and Administrative. General and administrative expenses
decreased by $314 to $656 during the three months ended March 31, 2007, as
compared to $970 during the comparable period in 2006. The decrease in 2007 is
primarily due to a decrease in corporate
13
legal fees of $168, as well as decreases in consulting expenses of $94 and
recruiting fees of $63.
Other Income (Net). Other income (net) increased by $92 during the
three months ended March 31, 2007, over the comparable period of 2006. This
increase is primarily attributable to increased interest income earned on funds
received by the Company in May 2006 from its private placement of its Series C
Preferred Stock.
Liquidity and Capital Resources.
--------------------------------
Cash and cash equivalents were $9,305 at March 31, 2007.
The Company is still in the development stage and has not generated any
operating revenues as of March 31, 2007. In addition, the Company will continue
to incur net losses and cash flow deficiencies from operating activities for the
foreseeable future. Management believes that the Company's current resources
will enable it to continue as a going concern through at least March 31, 2008.
Although the Company believes that its resources are sufficient to
commence a Phase II clinical trial for Parkinson's disease and complete a Phase
I clinical trial for epilepsy, the Company's resources are not sufficient to
allow it to perform all of the clinical trials required for drug approval and
marketing, including a pivotal trial for Parkinson's disease. Accordingly, it
will continue to seek additional funds through public or private equity
offerings, debt financings or corporate collaboration and licensing
arrangements. The Company does not know whether additional financing will be
available when needed or, if available, will be on acceptable or favorable terms
to it or its stockholders.
Net cash used in operating activities was $1,129 for the three months
ended March 31, 2007 as compared to $727 during the same period in 2006. The
$402 increase in net cash used in operations was primarily due to a $272
decrease in cash provided by changes to working capital in 2007 and larger net
loss.
Net cash used in investing activities during the three month period
ended March 31, 2007 was $44 as compared to net cash provided by investing
activities of $1,582 during the three months ended March 31, 2006. The
difference is primarily due to the Company redeeming short term investments in
the amount of $1,600 during the three months ended March 31, 2006.
There were no financing activities during the three months ended March
31, 2007. During the three months ended March 31, 2006, cash used in financing
activities was $4.
Recent Accounting Pronouncements
No new accounting pronouncement issued or effective during the fiscal
quarter has had or is expected to have a material impact on the financial
statements.
14
FORWARD LOOKING STATEMENTS
---------------------------
This document includes certain statements of the Company that may
constitute "forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended, and which are made pursuant to the Private Securities
Litigation Reform Act of 1995. These forward-looking statements and other
information relating to the Company are based upon the beliefs of management and
assumptions made by and information currently available to the Company.
Forward-looking statements include statements concerning plans, objectives,
goals, strategies, future events, or performance, as well as underlying
assumptions and statements that are other than statements of historical fact.
When used in this document, the words "expects," "anticipates," "estimates,"
"plans," "intends," "projects," "predicts," "believes," "may" or "should," and
similar expressions, are intended to identify forward-looking statements. These
statements reflect the current view of the Company's management with respect to
future events and are subject to numerous risks, uncertainties, and assumptions.
Many factors could cause the actual results, performance or achievements of the
Company to be materially different from any future results, performance, or
achievements that may be expressed or implied by such forward-looking
statements, including, among other things:
o the inability of the Company to raise additional funds, when
needed, through public or private equity offerings, debt
financings or additional corporate collaboration and licensing
arrangements;
o the inability of the Company to successfully commence the Phase II
clinical trial for Parkinson's disease or the Phase I for temporal
lobe epilepsy; and
Other factors and assumptions not identified above could also cause the
actual results to differ materially from those set forth in the forward-looking
statements. Additional information regarding factors which could cause results
to differ materially from management's expectations is found in the section
entitled "Risk Factors" contained in the Company's 2006 Annual Report on Form
10-KSB. Although the Company believes these assumptions are reasonable, no
assurance can be given that they will prove correct. Accordingly, you should not
rely upon forward-looking statements as a prediction of actual results. Further,
the Company undertakes no obligation to update forward-looking statements after
the date they are made or to conform the statements to actual results or changes
in the Company's expectations.
15
Item 3 - Controls and Procedures
--------------------------------
(a) Disclosure Controls and Procedures. The Company's management, with
the participation of the Company's President and Chief Executive Officer and
Chief Financial Officer, have evaluated the effectiveness of the Company's
disclosure controls and procedures (as such term is defined in Rules 13a-15(e)
and 15d-15(e) under the Exchange Act) as of the end of the most recent period
covered by this report. Based on such evaluation, the Company's President and
Chief Executive Officer and Chief Financial Officer have concluded that, as of
the end of such period, the Company's disclosure controls and procedures are
effective in recording, processing, summarizing and reporting, on a timely
basis, information required to be disclosed by the Company in the reports that
it files or submits under the Exchange Act.
(b) Changes in Internal Control Over Financial Reporting. There have
not been any changes in the Company's internal control over financial reporting
(as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange
Act) during the first quarter of 2007 that have materially affected, or are
reasonably likely to materially affect, the Company's internal control over
financial reporting.
PART II. OTHER INFORMATION
Item 6 - Exhibits
------------------
See Exhibit Index
16
Signatures
----------
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
NEUROLOGIX, INC.
May 14, 2007 /s/ John E. Mordock
-------------------------------------------------------------
John E. Mordock
President and Chief Executive Officer
(as Principal Executive Officer)
May 14, 2007 /s/ Marc L. Panoff
-------------------------------------------------------------
Marc L. Panoff
Chief Financial Officer, Secretary and Treasurer
(as Principal Accounting Officer/Principal Financial Officer)
17
EXHIBIT INDEX
-------------
Exhibit No. Exhibit
----------- ----------
3.1 Restated Certificate of Incorporation of Neurologix, Inc.,
dated May 9, 2007.*
31.1 Rule 13a-14(a)/15d-14(a) Certification of President and Chief
Executive Officer (as Principal Executive Officer).*
31.2 Rule 13a-14(a)/15d-14(a) Certification of Chief Financial
Officer, Secretary and Treasurer (as Principal Accounting
Officer/Principal Financial Officer).*
32.1 Section 1350 Certification of Chief Executive Officer and
Chief Financial Officer, Secretary and Treasurer (as Principal
Accounting Officer/Principal Financial Officer).*
-----------------
* Filed herewith
18