Business Context and Reporting Period
The submitted filing is a Form 10-Q for the quarter ended June 30, 2016. The filing identifies the registrant as Neuralstem, Inc., not Palisade Bio, Inc. Neuralstem is a clinical-stage biotechnology company developing NSI-189 small-molecule therapies and NSI-566 neural stem-cell therapies for central nervous system disorders. Its programs remained pre-commercial and generated no meaningful product revenue.
Financial Highlights
| Metric | Three Months Ended June 30 | Six Months Ended June 30 |
|---|---|---|
| Revenue | $2,500 in 2016 and 2015 | $5,000 in 2016 versus $5,417 in 2015 |
| Research and development expense | $2.475 million versus $3.313 million | $5.540 million versus $6.496 million |
| General and administrative expense | $1.362 million versus $1.684 million | $4.533 million versus $3.117 million |
| Operating loss | $3.834 million versus $4.995 million | $10.068 million versus $9.608 million |
| Net loss | $3.853 million versus $5.448 million | $10.458 million versus $10.501 million |
| Loss per share | $0.04 versus $0.06 | $0.11 versus $0.12 |
| Cash and cash equivalents at period-end | $11.129 million versus $4.717 million at December 31, 2015 |
- Six-month operating cash use was $7.060 million, compared with $9.524 million in the prior-year period.
- Investing activities provided $7.389 million, primarily from the maturity of short-term investments.
- Financing activities provided $6.083 million, including approximately $8.309 million of net equity-offering proceeds, partially offset by $2.226 million of debt repayments.
- Current assets were $11.840 million and current liabilities were $8.612 million, producing approximately $3.228 million of working capital.
- Total stockholders’ equity was only $836,000, compared with $4.967 million at December 31, 2015; accumulated deficit was $182.417 million.
- Debt principal outstanding was approximately $6.109 million at June 30, 2016. The loan bears interest at a variable rate based on prime, with a 10% floor, and is secured by substantially all assets, including intellectual property.
- Twenty-two million seven hundred thousand warrants issued in the May financings were classified as derivative liabilities. The derivative liability was $3.825 million at June 30, 2016.
Material Changes Versus the Prior Comparable Period
- Second-quarter R&D expense decreased 25%, primarily because of lower preclinical and manufacturing costs, partly offset by initial Phase 2 major depressive disorder trial costs and severance.
- Six-month R&D expense decreased 15%, while six-month G&A expense increased 45% because of former-CEO severance accruals, accelerated option vesting and compensation for the new CEO.
- Six-month total operating expenses increased 5%, despite lower R&D spending, because of higher G&A costs.
- Net loss improved by approximately $43,000 for the first six months, but the operating loss increased by approximately $460,000.
- The company completed a May public offering and private placement totaling approximately $9.1 million of gross proceeds and $8.2 million of net proceeds, issuing 22.7 million shares and 22.7 million warrants.
- Management implemented a reduction in force and other cost controls. The plan generated approximately $470,000 of charges, including $413,000 of severance and employee payments and $57,000 of non-cash option-modification costs.
- Share-based compensation increased to $2.288 million for the six months from $1.316 million in the prior-year period.
Guidance, Outlook, Risks and Unusual Items
- Management stated that cash on hand and the May financings were expected to fund operations through at least December 31, 2016. Additional financing would be required thereafter, and the filing states that substantial doubt exists about the company’s ability to continue as a going concern.
- The company expected continued operating losses and did not expect to become profitable in the next several years. It anticipated higher R&D spending as the NSI-189 Phase 2 trial progressed.
- The NSI-189 Phase 2 major depressive disorder trial enrolled its first subject in May 2016, with 220 planned participants and data expected in the second half of 2017.
- Neuralstem refocused resources on NSI-189 and sought external funding or partnerships to support the NSI-566 stem-cell program.
- Debt payments of approximately $435,000 per month were expected through March 2017, followed by an approximately $2.8 million balloon payment in April 2017. Failure to comply with debt covenants could lead to acceleration and foreclosure.
- Nasdaq issued deficiencies regarding the $1.00 minimum bid-price requirement and the $35 million market-value-of-listed-securities requirement. The filing states an October 17, 2016 deadline for the bid-price deficiency and a February 2017 deadline for the market-value deficiency, although the source contains inconsistent references to February 6 and February 7.
- On August 10, 2016, a former executive agreed to reimburse the company approximately $670,000 over six years for expenses deemed improperly paid.
- The company reported no current litigation that management believed would materially affect financial condition, results or cash flows.
- Substantially all manufacturing and clinical development activities were outsourced, creating reliance on contract manufacturers, clinical research organizations and clinical sites.
Most Important Facts for Investors to Verify
- Verify the issuer identity: the provided filing is for Neuralstem, Inc., while the request metadata names Palisade Bio, Inc.
- Verify the company’s ability to raise additional capital before cash is exhausted and assess the stated going-concern uncertainty.
- Review debt maturities, required monthly payments, the April 2017 balloon payment and collateral provisions.
- Assess dilution from the May equity financings, 22.7 million derivative warrants, approximately 67.6 million shares reserved for awards and other outstanding securities.
- Monitor the NSI-189 Phase 2 trial, regulatory progress and the expected second-half-2017 data timing.
- Confirm the Nasdaq compliance deadlines and any subsequent extension, reverse split or delisting action.
- Reconcile the filing’s inconsistent February 2017 Nasdaq deadline references and confirm subsequent events after the August 11, 2016 filing date.