UNITED STATES
SECURITY AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM 10-Q
---------------
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2001
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to _____________
Commission file number 0-23280
NEUROBIOLOGICAL TECHNOLOGIES, INC.
(Exact name of Registrant as specified in its charter)
Delaware 94-3049219
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
3260 Blume Drive, Suite 500
Richmond, California 94806
(Address of principal executive offices)
(510) 262-1730
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days: Yes [X] No [_]
Indicate the number of shares outstanding of each of the issuer's classes of the
common stock, as of the latest practical date.
Common Stock, $.001 Par Value 17,560,609 shares outstanding as of January
31, 2002
1
NEUROBIOLOGICAL TECHNOLOGIES, INC.
FORM 10-Q
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (Unaudited) ................................................ 3
Condensed Balance Sheets -- December 31, 2001 and June 30, 2001 ................ 3
Condensed Statements of Operations -- Three and six months ended December 31,
2001 and 2000; Period from August 27, 1987 (inception) through
December 31, 2001 .............................................................. 4
Condensed Statements of Cash Flows -- Six months ended December 31, 2001 and
2000; Period from August 27, 1987 (inception) through December 31, 2001 ........ 5
Notes to Condensed Financial Statements -- December 31, 2001 ................... 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS ............................................. 7
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ...................... 12
PART II. OTHER INFORMATION .............................................................. 13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF THE SECURITY HOLDERS ......................... 13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K ................................................ 13
SIGNATURES .............................................................................. 13
2
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NEUROBIOLOGICAL TECHNOLOGIES, INC.
(A development stage company)
CONDENSED BALANCE SHEETS
December 31, 2001 June 30, 2001
---------------------------------
ASSETS (Unaudited) (Note 1)
Current assets:
Cash and cash equivalents $ 1,747,750 $ 3,626,700
Short-term investments 7,747,059 6,555,575
Interest receivable 162,946 132,044
Prepaid expenses and other 121,093 253,827
----------------------------
Total current assets 9,778,848 10,568,146
Long-term investments -- 861,313
Property and equipment, net 17,138 28,820
----------------------------
$ 9,795,986 $ 11,458,279
============================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 436,773 $ 762,049
----------------------------
Total current liabilities 436,773 762,049
Stockholders' equity:
Convertible preferred stock, $.001 par value, 5,000,000 shares authorized,
2,332,000 issued in series, 1,582,000 outstanding at
December 31, 2001 and June 30, 2001 791,000 791,000
Common stock, $.001 par value, 35,000,000 shares authorized,
17,540,609 and 17,503,699 outstanding at December 31, 2001 and
June 30, 2001, respectively 43,731,558 43,660,557
Deferred compensation (164,251) (191,626)
Deficit accumulated during development stage (34,999,094) (33,563,701)
----------------------------
Total stockholders' equity 9,359,213 10,696,230
----------------------------
$ 9,795,986 $ 11,458,279
============================
See accompanying notes.
3
NEUROBIOLOGICAL TECHNOLOGIES, INC.
(A development stage company)
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
Period from
Three months ended Six months ended August 27, 1987
December 31, December 31, (inception) through
------------------------------------------------------------
2001 2000 2001 2000 December 31, 2001
-----------------------------------------------------------------------------------
REVENUES
License income $ -- $ 2,531,250 $ -- $ 2,531,250 $ 6,881,250
Grant -- -- -- -- 149,444
-----------------------------------------------------------------------------------
Total revenue -- 2,531,250 -- 2,531,250 7,030,694
EXPENSES
Research and development 360,633 318,080 616,194 553,677 28,774,634
General and administrative 529,244 590,617 1,028,934 1,119,288 16,361,486
-----------------------------------------------------------------------------------
Total expenses 889,877 908,697 1,645,128 1,672,965 45,136,120
-----------------------------------------------------------------------------------
Operating income (loss) (889,877) 1,622,553 (1,645,128) 858,285 (38,105,426)
Interest income 93,038 165,703 209,735 311,600 3,148,163
-----------------------------------------------------------------------------------
Income (loss) before income tax expense (796,839) 1,788,256 (1,435,393) 1,169,885 (34,957,263)
Income tax expense -- -- -- -- 41,831
-----------------------------------------------------------------------------------
NET INCOME (LOSS) $ (796,839) $ 1,788,256 $ (1,435,393) $ 1,169,885 $(34,999,094)
===================================================================================
BASIC NET INCOME (LOSS) PER SHARE $ (0.05) $ 0.11 $ (0.08) $ 0.07
============================================================
Shares used in basic net income
(loss) per share calculation 17,508,339 16,103,854 17,506,020 16,221,662
============================================================
DILUTED NET INCOME (LOSS) PER SHARE $ (0.05) $ 0.08 $ (0.08) $ 0.05
============================================================
Shares used in diluted net income
(loss) per share calculation 17,508,339 21,649,320 17,506,020 22,093,828
============================================================
See accompanying notes.
4
NEUROBIOLOGICAL TECHNOLOGIES, INC.
(A development stage company)
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Six months ended Period from
December 31, August 27, 1987
-------------------------------- (inception) through
2001 2000 December 31, 2001
-------------------------------------------------------
OPERATING ACTIVITIES:
Net income (loss) $ (1,435,393) $ 1,169,885 $(34,999,094)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 11,682 10,800 678,387
Gain on sale of property and equipment -- -- (1,500)
Amortization of deferred stock compensation 27,375 27,375 109,499
Issuance of common stock, options and warrants
for license rights and services -- -- 209,975
Changes in assets and liabilities:
Interest receivable (30,902) -- (162,946)
Prepaid expenses and other current assets 132,734 (10,357) (121,093)
Accounts payable and accrued expenses (325,276) (16,153) 436,773
-------------------------------------------------------
Net cash (used in) provided by operating activities (1,619,780) 1,181,550 (33,849,999)
INVESTING ACTIVITIES:
Purchase of investments (9,681,046) (5,135,418) (56,488,486)
Maturity of investments 9,350,875 -- 48,741,427
Purchases of property and equipment, net -- (22,569) (412,463)
Proceeds from sale of property & equipment -- -- 1,500
Additions to patents and licenses -- -- (283,062)
-------------------------------------------------------
Net cash used in investing activities (330,171) (5,157,987) (8,441,084)
FINANCING ACTIVITIES:
Payment of note payable -- -- (200,000)
Proceeds from short-term borrowings -- -- 435,000
Issuance of common stock, net 71,001 574,739 35,645,751
Issuance of preferred stock, net -- -- 8,158,082
-------------------------------------------------------
Net cash provided by financing activities 71,001 574,739 44,038,833
-------------------------------------------------------
(Decrease) increase in cash and cash equivalents (1,878,950) (3,401,698) 1,747,750
Cash and cash equivalents at beginning of period 3,626,700 7,387,076 --
=======================================================
Cash and cash equivalents at end of period $ 1,747,750 $ 3,985,378 $ 1,747,750
=======================================================
SUPPLEMENTAL DISCLOSURES:
Conversion of short-term borrowings to
Series A preferred stock $ -- $ -- $ 235,000
=======================================================
Conversion of preferred stock to common stock $ -- $ 50,000 $ 7,602,082
=======================================================
Deferred stock compensation related to options
granted $ -- $ -- $ 273,750
=======================================================
See accompanying notes
5
NEUROBIOLOGICAL TECHNOLOGIES, INC.
(A development stage company)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
December 31, 2001
NOTE 1-BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial reporting and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnote disclosures required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three and six month
periods ended December 31, 2001 are not necessarily indicative of the results
that may be expected for the fiscal year ended June 30, 2002.
The balance sheet at June 30, 2001 has been derived from the audited
financial statements at that date but does not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements.
For further information, refer to the financial statements and footnotes
included in our annual report on Form 10-K/A for the fiscal year ended
June 30, 2001.
BASIC AND DILUTED NET INCOME (LOSS) PER SHARE
Net income (loss) per share is presented under the requirements of
Financial Accounting Standards Board ("FAS") No. 128, "Earnings per Share."
Basic income (loss) per share is computed based on the weighted average shares
of common stock outstanding and excludes any options, warrants, and convertible
securities. For the three and six month periods ended December 31, 2001,
potentially dilutive securities, such as options, warrants, and convertible
preferred stock, have also been excluded from the computation of diluted net
loss per share as their effect is antidilutive. For the three and six month
periods ended December 31, 2000, diluted earnings per share is computed in the
same manner and also gives effect to all dilutive common equivalent shares
consisting of employee stock options, warrants, and the assumed conversion of
convertible preferred stock. The following table sets forth the computation of
basic and diluted earnings per share.
6
Three Months Ended Six Months Ended
December 31, December 31,
--------------------------------------------------------
2001 2000 2001 2000
Numerator for basic and diluted earnings per
share - net income (loss) $ (796,839) $ 1,788,256 $(1,435,393) $ 1,169,885
========================================================
Weighted average shares outstanding:
Denominator for basic EPS 17,508,339 16,103,854 17,506,020 16,221,662
Common stock equivalents:
- stock options -- 938,730 -- 1,000,000
- warrants -- 2,424,736 -- 2,679,296
- convertible preferred stock -- 2,182,000 -- 2,192,870
--------------------------------------------------------
Denominator for diluted EPS 17,508,339 21,649,320 17,506,020 22,093,828
========================================================
Net income (loss) per share:
Basic $ (0.05) $ 0.11 $ (0.08) $ 0.07
========================================================
Diluted $ (0.05) $ 0.08 $ (0.08) $ 0.05
========================================================
COMPREHENSIVE INCOME (LOSS)
The Company has no items of other comprehensive income (loss), and,
accordingly, its net income (loss) is equal to its comprehensive income (loss).
REVENUE RECOGNITION
Revenue related to license fees with non-cancelable, non-refundable terms
and no future performance obligations are recognized when collection is assured.
Such revenues are deferred and recognized over the performance period if future
performance obligations exist. Non-refundable up-front payments received in
connection with research and development activities are deferred and recognized
on a straight-line basis over the relevant periods specified in the agreement,
generally the research term. Revenue associated with milestones are recognized
as earned, based on completion of development milestones, either upon receipt,
or when collection is assured.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Except for the historical information contained herein, the matters
discussed in this "Management's Discussion and Analysis of Financial Condition
and Results of Operations," and elsewhere in this Form 10-Q are forward-looking
statements that involve risks and uncertainties. The factors listed in the
section captioned "Risk Factors," as well as any cautionary language in this
Form 10-Q, provide examples of risks, uncertainties and events that may cause
our actual results to differ materially from those projected. These
forward-looking statements represent our judgment as of the date of the filing.
We disclaim, however, any intent or obligation to update these forward-looking
statements.
OVERVIEW
Neurobiological Technologies, Inc. ("NTI(R)," "we," "us," "our" or the
"Company") is an emerging drug development company focused on the clinical
development and regulatory approval of neuroscience drugs. We are developing
neuroprotective and neuromodulatory agents to treat progressive neurological
impairments characteristic of various nervous system disorders, including
diabetic
7
neuropathy, brain cancer and AIDS-related dementia. Our strategy is to
in-license and develop early-stage drug candidates that target major medical
needs and that may be rapidly commercialized.
In April 1998, we entered into a strategic research and marketing
cooperation agreement with Merz Pharma KGaA ("Merz") and Children's Medical
Center Corporation to further the clinical development and commercialization of
Memantine. Pursuant to this agreement, NTI and Merz share scientific, clinical
and regulatory information about Memantine, particularly safety data, to
facilitate regulatory review and marketing approval by the Food and Drug
Administration ("FDA") and foreign regulatory authorities. Pursuant to this
agreement, we will share in future revenues from sales of Memantine for all
indications.
In June 2000, Merz entered into an agreement with Forest Laboratories,
Inc. ("Forest") for the development and marketing of Memantine in the United
States for the treatment of Alzheimer's disease, neuropathic pain and
AIDS-related dementia. In August 2000, Merz entered into a strategic license and
cooperation agreement with H. Lundbeck A/S ("Lundbeck") of Copenhagen, Denmark
for the further development and marketing of Memantine for the treatment of
Alzheimer's disease, neuropathic pain and AIDS-related dementia. Lundbeck has
acquired exclusive rights to Memantine in certain European markets, Canada,
Australia and South Africa and semi-exclusive rights to co-market Memantine with
Merz in other markets worldwide, excluding the United States, where Forest has
development rights, and Japan, where Merz has granted development rights to
Suntory Ltd. ("Suntory"). Memantine has been marketed by Merz in Germany since
1989 with the labeling "dementia syndrome."
Since our founding in 1987, we have applied a majority of our resources
to our research and development programs and have generated only limited
operating revenue. Except for fiscal 2001, we have incurred losses in each year
since our inception and we expect to continue to incur losses in the future due
to ongoing research and development efforts.
RESULTS OF OPERATIONS
All of our revenue in fiscal 2001 were license fee payments from Merz
related to our portion of payments received by Merz pursuant to Merz's
agreements with its partners. We received no such payments in the six months
ended December 31, 2001. Our research and development expenses increased to
approximately $361,000 and $616,000 in the three and six months ended December
31, 2001 from approximately $318,000 and $554,000 in the three and six months
ended December 31, 2000. The increases were primarily due to costs associated
with the initiation of long-term toxicology studies for the development of
XERECEPT(TM). General and administrative expenses decreased to approximately
$529,000 and $1,029,000 in the three and six months ended December 31, 2001 from
$591,000 and $1,119,000 in the same periods of the prior year. The decreases
were primarily due to decreased expenditures in activities relating to seeking
financing and corporate partnerships. Interest income decreased to approximately
$93,000 and $210,000 in the three and six months ended December 31, 2001 from
approximately $166,000 and $312,000 in the same periods of the prior year due to
lower average interest rates and lower average invested cash balances.
LIQUIDITY AND CAPITAL RESOURCES
From inception through December 31, 2001, we have raised a total of
approximately $44 million in net proceeds from the sale of common and preferred
stock.
We had available cash and cash equivalents and investments of
approximately $9.5 million as of December 31, 2001. We believe that our capital
resources will be adequate to fund our operations through at least the next
twelve months. In the course of our development activities we have incurred
significant losses, and, although we were profitable in the fiscal year ended
June 30, 2001, we expect to incur additional losses in the fiscal year ending
June 30, 2002. We expect to incur costs in fiscal 2002 primarily for Phase II
and Phase III clinical trials of XERECEPT and CRH-analogues and related
administrative support. Merz and Merz's marketing partners will pay all future
development costs of Memantine.
8
Our future capital requirements will depend on a number of factors,
including:
. the amount of payments received from marketing agreements for Memantine;
. the amount of royalties received from Merz for future sales of Memantine;
. the progress of our clinical development programs;
. the time and cost involved in obtaining regulatory approvals;
. the cost of filing, prosecuting, defending and enforcing patent claims
and other intellectual property rights;
. competing technological and market developments;
. our ability to establish collaborative relationships; and
. the development of commercialization activities and arrangements.
RISK FACTORS
Because all of our potential products are in clinical development, we may not
develop a candidate product that will receive required regulatory approval or be
successfully commercialized.
We are still in the development stage and have no marketable products. As
a result, there is no revenue from product sales, and most of our resources are
dedicated to the development of selected candidate pharmaceutical products. The
results of our preclinical studies and early stage clinical trials are not
necessarily indicative of those that will be obtained upon further clinical
testing in later stage clinical trials. It is possible that none of our
candidate products will receive regulatory approval or be successfully
commercialized.
Our potential products are subject to the risks of failure inherent in the
development of products based on new technologies.
Our potential products are subject to the risks of failure inherent in
the development of products based on new technologies. These risks include the
possibility that the potential products may:
. be found to be unsafe, ineffective or toxic;
. fail to receive necessary regulatory clearances;
. if approved, be difficult to manufacture on a large scale or uneconomical
to market;
. be precluded from marketing by us due to the proprietary rights of third
parties; and
. not be successful because third parties market or may market superior or
equivalent products.
Further, our development activities may not result in any commercially
viable products. We do not expect to be able to commercialize any products for a
number of years, if at all.
We are dependent on Merz and its marketing partners, Forest and Lundbeck, for
the successful commercialization of Memantine.
All of our revenues in fiscal 2001 were license fee payments from Merz
related to our portion of payments received by Merz pursuant to Merz's
agreements with its partners. We received no such payments in the six month
period ended December 31, 2001 and there can be no assurance that we will
receive any payments from Merz in fiscal 2002. The only revenues that we will
receive in the foreseeable future for Memantine are royalties on product sales
by Merz or its marketing partners and our share of payments received by Merz
from its partners. Under certain circumstances, Merz can terminate its agreement
with us upon six months notice. The termination of our agreement with Merz or
any failure by Merz or its partners to successfully commercialize Memantine
after its development would have a material adverse effect on our business,
financial condition and results of operations.
9
Our quarterly operating results may fluctuate significantly in future periods,
and, as a result, our stock price may fluctuate or decline.
To date, our revenues have primarily come from licensing fee payments
from Merz. Licensing fee payments and, therefore, our results of operations, may
vary significantly from quarter to quarter. Accordingly, we believe that
quarter-to-quarter comparisons of our historical results of operations are not
indicative of our future performance.
We have relied and will continue to rely on others for research, development,
manufacture and commercialization of our potential products.
We have entered into various contractual arrangements (many of which are
non-exclusive) with consultants, academic collaborators, licensors, licensees
and others, and we are dependent upon the level of commitment and subsequent
success of these outside parties in performing their responsibilities. Certain
of these agreements place significant responsibility for preclinical testing and
human clinical trials and for preparing and submitting submissions for
regulatory approval for potential products on the collaborator, licensor or
contractor. If the collaborator, licensor or contractor fails to perform, our
business, financial conditions and results may be adversely affected.
We have also relied on scientific, technical, clinical, commercial and
other data supplied and disclosed by others in entering into these agreements.
We have relied on this data in support of applications for human clinical trials
for our potential products. Although we have no reason to believe that this
information contains errors or omissions of fact, it is possible that there are
errors or omissions of fact that would change materially our view of the future
likelihood of FDA approval or commercial viability of these potential products.
We have agreements and licenses with third parties that require us to
pay royalties and make other payments to such parties. Our failure to make such
payments could cause us to lose rights to technology or data under these
agreements.
The FDA and state and local agencies, and comparable agencies and entities in
foreign countries impose substantial requirements on the manufacturing and
marketing of human therapeutics through lengthy and detailed laboratory and
clinical testing procedures, sampling activities and other costly and time
consuming procedures.
Fulfillment of regulatory requirements for marketing human therapeutics
typically takes many years and varies substantially based on the type,
complexity, and novelty of the drug for which approval is sought. Government
regulation may:
. prevent or delay, for a considerable period of time, marketing of any
product that we may develop; and/or
. impose costly procedures upon our activities.
There can be no assurance that FDA or other regulatory approval for any
products developed by NTI will be granted on a timely basis or at all. Any delay
in obtaining, or failure to obtain, required approvals would adversely affect
the marketing of our proposed products and our ability to earn product revenues
or royalties.
In addition, success in preclinical or early stage clinical trials does
not assure success in later stage clinical trials. As with any regulated
product, additional government regulations may be instituted which could delay
regulatory approval of our potential products. Additional government regulations
that might result from future legislation or administrative action cannot be
predicted.
10
Our success will depend, in large part, on our ability to obtain or license
patents, protect trade secrets and operate without infringing upon the
proprietary rights of others.
The patent position of biotechnology firms generally is highly uncertain
because:
. patents involve complex legal and factual issues that have recently been
the subject of much litigation;
. no consistent policy has emerged from the United States Patent and
Trademark Office regarding the breadth of claims allowed or the degree
of protection afforded under biotechnology patents; and
. others may independently develop similar products, duplicate any of our
potential products, or design around the claims of any of our potential
patented products.
In addition, because of the time delay in patent approval and the
secrecy afforded United States patent applications, we do not know if other
applications, which might have priority over our applications, have been filed.
Further, because we have non-exclusive licenses to patent rights covering
certain uses of XERECEPT, others may develop, manufacture and market products
that could compete with those we develop.
As a result of all of these factors, there can be no assurance that
patent applications relating to our potential products or processes will result
in patents being issued, or that patents, if issued, will provide protection
against competitors who successfully challenge our patents, obtain patents that
may have an adverse effect on our ability to conduct business, or be able to
circumvent our patent position.
A number of pharmaceutical and biotechnology companies and research and
academic institutions have developed technologies, filed patent applications or
received patents on various technologies that may be related to our business.
Some of these technologies, applications or patents may conflict with our or any
of our licensors' technologies or patent applications. Such conflict could limit
the scope of the patents, if any, that we may be able to obtain or to which we
have a license or result in the denial of our patent applications or the patent
applications for which we have licenses. In addition, if patents that cover our
activities have been or are issued to other companies, there can be no assurance
that we would be able to obtain licenses to these patents at a reasonable cost,
or be able to develop alternative technology.
Because we do not have our own manufacturing facilities, we face risks from
outsourcing.
Merz and Merz's marketing partners have the responsibility of supplying
Memantine for their clinical trials. We rely on third-party contract
manufacturers to provide us with XERECEPT which is manufactured to our
specifications using established chemical synthesis methods. We have performed
audits on these third-party manufacturers to ensure compliance with the current
Good Manufacturing Practice (cGMP) regulations. We currently have no plans to
build or develop an in-house manufacturing capability for XERECEPT. We believe
that alternative cGMP suppliers of the bulk drug and finished dosage forms of
the product will be available to meet our needs. However, we face certain risks
by outsourcing manufacturing, including:
. the delay of our preclinical and human clinical testing if our
contractors are unable to supply sufficient quantities of product
candidates manufactured in accordance with cGMP on acceptable terms;
. the delay of market introduction and subsequent sales if we should
encounter difficulties establishing relationships with manufacturers to
produce, package and distribute our products; and
. adverse effects on FDA pre-market approval of potential products and
contract manufacturers if they do not adhere to cGMP regulations.
11
Therefore, our dependence on third parties for the manufacture of
products may adversely affect our results of operations and our ability to
develop and deliver products on a timely and competitive basis.
Clinical trials or marketing of any of our potential products may expose us to
liability claims from the use of such products which our insurance may not
cover.
We have a limited amount of product liability insurance to cover
liabilities arising from clinical trials. Our current product liability
insurance does not cover commercial sales of products. We cannot be sure that we
will be able to obtain product liability insurance covering commercial sales or,
if such insurance is obtained, that sufficient coverage can be acquired at a
reasonable cost. An inability to obtain insurance at acceptable cost or
otherwise protect against potential product liability claims could prevent or
inhibit commercialization of any products we develop.
Further reductions in our staff might significantly delay the achievement of
planned development objectives.
Each person currently employed by NTI serves an essential function. Any
reductions in work force could impair our ability to manage ongoing clinical
trials and may have a material adverse effect on our operations.
The market price of our common stock has been, and is likely to continue to be,
highly volatile.
The average daily trading volume of our common stock has been low
compared to that of other biopharmaceutical companies. Our common stock was
delisted from The Nasdaq Stock Market in February 1998 because we failed to meet
the financial conditions necessary to remain listed. In July 2000, we were
approved for listing on The Nasdaq SmallCap Market. However, we may not continue
to qualify for listing on that market.
Factors that may cause volatility in our stock price include:
. the results of preclinical studies and clinical trials by the Company,
Merz or its marketing partners or our competitors;
. other evidence of the safety or efficacy of products of the Company,
Merz or its marketing partners or our competitors;
. announcements of technological innovations or new therapeutic products
by the Company or our competitors;
. developments in patent or other proprietary rights of the Company or our
competitors, including litigation;
. fluctuations in our operating results;
. government regulation and health care legislation; and
. market conditions for life science companies' stocks in general.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
In the normal course of business, our financial position is subject to a
variety of risks, including market risk associated with interest rate movements.
We regularly assess these risks and have established policies and business
practices to protect against these and other exposures. As a result, we do not
anticipate material potential losses in these areas.
The primary objective for our investment activities is to preserve
principal while maximizing yields without significantly increasing risk. This is
accomplished by investing in widely diversified investments, consisting
primarily of investment grade securities. As of December 31, 2001, 100% of our
portfolio will mature in one year or less. A hypothetical 50 basis point
increase in interest rates would not result in a material decrease or increase
in the fair value of our available-for-sale securities. We have no investments
denominated in foreign country currencies and therefore our investments are not
subject to foreign currency exchange risk.
12
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On November 15, 2001, the Company held its Annual Meeting of the Stockholders.
The following matters were voted on at the Annual Meeting of the Stockholders.
(1) The following six directors were elected:
Votes For Withheld
--------- --------
Paul E. Freiman 12,148,208 61,070
Abraham E. Cohen 12,148,208 61,070
Enoch Callaway, M.D 12,146,908 62,370
Theodore L. Eliot, Jr 12,146,908 62,370
Abraham D. Sofaer 12,147,708 61,570
John B. Stuppin 12,147,408 61,870
(2) An amendment to the Amended and Restated 1993 Stock Option Plan of
Neurobiological Technologies, Inc. to increase the number of shares of Common
Stock reserved for issuance by 200,000 to a total of 2,700,000 shares was
approved: For 11,759,333; Against 249,260; Abstain 200,658.
(3) The selection of Ernst & Young LLP as the independent auditors of the
Company for the current year was ratified: For 12,135,468; Against 6,220;
Abstain 67,590.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
None.
(b) Reports:
The Company did not file a report on Form 8-K during the three months ended
December 31, 2001.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
NEUROBIOLOGICAL TECHNOLOGIES, INC.
Dated: February 11, 2002 /s/ Paul E. Freiman
----------------------------
Paul E. Freiman
President, Chief Executive Officer
(Principal Executive and Accounting Officer)
and Director
13