News Column

NEURALSTEM, INC. - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

August 8, 2014

FORWARD LOOKING STATEMENTS

Statements in this Quarterly Report that are not strictly historical are forward-looking statements and include statements about products in development, results and analyses of clinical trials and studies, research and development expenses, cash expenditures, licensure applications and approvals, and alliances and partnerships, among other matters. You can identify these forward-looking statements because they involve our expectations, intentions, beliefs, plans, projections, anticipations, or other characterizations of future events or circumstances. These forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties that may cause actual results to differ materially from those in the forward-looking statements as a result of any number of factors. These factors include, but are not limited to, risks relating to our ability to conduct and obtain successful results from ongoing clinical trials, commercialize our technology, obtain regulatory approval for our product candidates, contract with third parties to adequately manufacture our proposed therapeutic products, protect our intellectual property rights and obtain additional financing to continue our development efforts. Some of these factors are more fully discussed, as are other factors, in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013 filed with the SEC on March 10, 2014, as well as in the section of this Quarterly Report entitled "Risk Factors". We do not undertake to update any of these forward-looking statements or to announce the results of any revisions to these forward-looking statements except as required by law. We urge you to read this entire Quarterly Report on Form 10-Q, including the "Risk Factors" section, the financial statements, and related notes. As used in this Quarterly Report, unless the context otherwise requires, the words "we," "us," "our," "the Company," "Neuralstem" and "Registrant" refers to Neuralstem, Inc. and its subsidiaries. Also, any reference to "common shares," "common stock," or "shares" refers to our $.01 par value common stock. The information contained herein is current as of the date of this Quarterly Report (June 30, 2014), unless another date is specified. We prepare our interim financial statements in accordance with U.S. GAAP. Our financials and results of operations for the three- and six-month periods ended June 30, 2014 are not necessarily indicative of our prospective financial condition and results of operations for the pending full fiscal year ending December 31, 2014. The interim financial statements presented in this Quarterly Report as well as other information relating to our company contained in this Quarterly Report should be read in conjunction and together with the reports, statements and information filed by us with the United States Securities and Exchange Commission or SEC.



Our Management's Discussion and Analysis of Financial Condition and Results of Operations or MD&A, is provided in addition to the accompanying financial statements and notes to assist readers in understanding our results of operations, financial condition and cash flows. Our MD&A is organized as follows:

Executive Overview - Discussion of our business and overall analysis of

financial and other highlights affecting the Company in order to provide context for the remainder of MD&A.



Trends & Outlook - Discussion of what we view as the overall trends affecting

our business and the strategy for 2014.



Critical Accounting Policies- Accounting policies that we believe are important

to understanding the assumptions and judgments incorporated in our reported

financial results and forecasts.



Results of Operations- Analysis of our financial results comparing the three-

and six-month periods ended June30, 2014 to the comparable periods of 2013.

Liquidity and Capital Resources- An analysis of cash flows and discussion of

our financial condition and future liquidity needs. Executive Overview We are focused on the development and commercialization of treatments based on human neuronal stem cells and our small molecule compounds. We are headquartered in Germantown, Maryland and have a wholly-owned subsidiary in China. We have developed and maintain a portfolio of patents and patent applications that form the proprietary base for our research and development efforts. We own or exclusively license eighty-seven (87) U.S. and foreign issued patents and fifty-nine (59) U.S. and foreign patent applications in the field of regenerative medicine, related to our stem cell technologies as well as our small molecule compounds. At times we have licensed the use of our intellectual property to third parties. 15 We believe our technology base, in combination with our know-how, and collaborative projects with major research institutions, will facilitate the development and commercialization of products for use in the treatment of a wide array of neurodegenerative conditions and in regenerative repair of acute disease. Regenerative medicine is still an emerging field. Regenerative medicine is the process of creating living, functional tissues to repair or replace tissue or organ function lost due to age, disease, damage, or congenital defects. There can be no assurances that we will ultimately produce any 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 products may not be able to successfully compete against them. All of our research efforts to date are at the pre-clinical or clinical stage of development. We are focused on leveraging our key assets, including our intellectual property, our scientific team and our facilities in order to advance our technologies. In addition, we are pursuing strategic collaborations with members of academia and industry. Clinical Programs We have devoted substantially all our efforts to the development of our stem cell and small molecule compounds and their pre-clinical and clinical development. Below is a description of our four most advanced clinical programs, their intended indication, current stage of development and our expected future development plans. Development Future Program Indication Status Development Plan NSI - 566 Amyotrophic Lateral Ongoing Phase II Dosing in our Phase Sclerosis (ALS) clinical trials II clinical trials has been completed and we have commenced a six month data collection and observation period. NSI - 566 Chronic Spinal Cord Approved to Phase I trial Injury commence Phase I expected to commence clinical trials. during the third quarter of 2014. NSI - 566 Motor deficits due Ongoing combined Dosing commenced to ischemic stroke Phase I/II during the fourth clinical trials quarter of 2013. in China. Phase I expected to be completed in the first quarter of 2015. NSI - 189 Major Depressive Completed Phase Phase II trial Disorder Ia, Phase Ib investigational new trials. drug application expected to be filed in the third quarter of 2014 with the trial commencing in late first quarter of 2015. NSI - 566 (Stem Cells).



Amyotrophic Lateral Sclerosis (ALS)

Amyotrophic lateral sclerosis, or ALS, is a disease of the nerve cells in the brain and spinal cord that control voluntary muscle movement. In ALS, nerve cells (neurons) waste away or die, and can no longer send messages to muscles. This eventually leads to muscle weakening, twitching, and an inability to move the arms, legs, and body. The condition slowly gets worse. When the muscles in the chest area stop working, it becomes hard or impossible to breathe. We believe that NSI-566 may provide an effective treatment for ALS by providing cells which nurture and protect the patients' remaining motor neurons; and possibly repair some motor neurons which were not dead, but diseased. 16 We commenced the Phase I trial for our proposed treatment of ALS at Emory University in Atlanta Georgia. The purpose of the Phase I trial was to evaluate the safety and transplantation technique of our proposed treatment and procedure. The dosing of patients in the Phase I trial, as designed, was completed in August of 2012. We commenced our Phase II clinical trial for ALS in September of 2013. The Phase II dose escalation trial is designed to treat up to 15 ambulatory patients (18 surgeries, the last cohort will be transplanted twice) in six different dosing cohorts, under an accelerated dosing and treatment schedule. We have now completed all of the transplantations. There is a six month observation period after the last surgery before we will have all the data collected. Although initial data from the Phase I and II trials appears promising, the outcome of the trial is uncertain and this trial or future trials may ultimately be unsuccessful. Chronic Spinal Cord Injury A spinal cord injury or SCI generally refers to any injury to the spinal cord that is caused by trauma instead of disease although in some cases, it can be the result of diseases. Chronic Spinal Cord Injury refers to the time after the initial hospitalization. Spinal cord injuries are most often traumatic, caused by lateral bending, dislocation, rotation, axial loading, and hyperflexion or hyperextension of the cord or cauda equina. Motor vehicle accidents are the most common cause of SCIs, while other causes include falls, work-related accidents, sports injuries, and penetrations such as stab or gunshot wounds. In certain instances, SCIs can also be of a non-traumatic origin, as in the case of cancer, infection, intervertebral disc disease, vertebral injury and spinal cord vascular disease. We believe that NSI-566 may provide an effective treatment for Chronic Spinal Cord Injury by "bridging the gap" in the spinal cord created in traumatic spinal cord injury and providing new cells to help transmit the signal from the brain to points at or below the point of injury. During the first quarter of 2013, we received approval from the United States food and drug Administration or FDA to commence our proposed Phase I clinical trial to treat chronic spinal cord injury. The entire trial will take place at The University California, San Diego. We anticipate the trial will commence during the third quarter of 2014.



Motor Deficits Due to Ischemic Stroke

Ischemic strokes, the most common type of stroke, occur as a result of an obstruction within a blood vessel supplying blood to the brain. Post-stroke motor deficits include paralysis in arms and legs and can be permanent. We believe that NSI-566 may provide an effective treatment for restoring motor deficits resulting from Ischemic Stroke by both creating new circuitry in the area of injury and through repairing and or nurturing diseased cells to improve function in patients. In September of 2012, we received approval to commence human clinical trials to treat motor deficits due to ischemic stroke. The trial is being conducted by our wholly owned subsidiary, Neuralstem China, at BaYi Brain Hospital in Beijing, China utilizing our spinal cord stem cells. The trial approval includes a combined phase I/II/III design and will test direct injections of NSI-566 into the brain, the same cell product used in our recently-completed Phase I ALS trial in the United States. The trial commenced in the fourth quarter of 2013 and is designed to enroll up to 118 patients. The first phase of the trial is structured to confirm the maximum safe tolerated dose and we anticipate that it will be completed in the first quarter of 2015.



NSI - 189 (Small Molecule Pharmaceutical Compound).

Major Depression Disorder Major depressive disorder or MDD (also known as recurrent depressive disorder, clinical depression, major depression, unipolar depression, or unipolar disorder) is a mental disorder characterized by episodes of all-encompassing low mood accompanied by low self-esteem and loss of interest or pleasure in normally enjoyable activities. NSI-189 is being developed for the treatment of major depressive disorder and other psychiatric and/or cognitive impairment indications. NSI-189 is the lead compound in our neurogenerative small molecule drug platform. We believe that NSI-189 may provide an effective treatment for patients suffering from MDD by structurally rebuilding the hippocampus. In February of 2011, we commenced the Phase I clinical trial (Phase Ia portion), NSI-189, at California Clinical Trials, LLC, in Glendale, California. The purpose of the Phase Ia portion of the trial was to evaluate the safety of the drug in healthy volunteers. The Phase Ia portion tested a single oral administration of NSI-189 in 24 healthy volunteers and was completed in October of 2011. In December of 2011, we received approval from the FDA to commence the Phase Ib portion of the trial. The purpose of the Phase Ib portion of the clinical trial is to determine the safety of the drug at several dosings in actual MDD patients. The Phase Ib portion consisted of patients with MDD receiving daily doses for 28 consecutive days. That trial is now complete. The data was presented at two conferences American Society of Clinical Psychopharmacology Annual Meeting in Hollywood, Florida and at International College of Neuropyschopharmacology Annual Meeting in Vancouver Canada. Based on the data from the Phase 1b trial, we expect to file for a Phase II trial in MDD in the third or fourth quarter of 2014 and expect the trial would commence near the end of the first quarter of 2015.Although initial data from the Phase Ia/b appears promising, any future trials may ultimately be unsuccessful. 17 Technology Stem Cells. Our technology enables the isolation and large-scale expansion of human neural stem cells from all areas of the developing human brain and spinal cord, thus enabling the generation of physiologically relevant human neurons of all types. We believe that our stem cell technology will assist the body in producing new cells to replace malfunctioning or dead cells as a way 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, 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 or CNS, including: Alzheimer's disease, Parkinson's disease, Multiple Sclerosis, Lou Gehrig's disease or ALS, depression, and injuries to the spinal cord. We own or exclusively license thirty-four (34) U.S. needs updating and foreign issued patents and thirty-eight (38) U.S. and foreign patent applications related to our stem cell technologies. To date we have focused our research efforts on applications involving spinal cord stem cells. We believe we have established "proof of principle" in animal models for important spinal cord cell applications: ALS,Traumatic spinal cord injury and motor deficit due to ischemic stroke. We believe that, if successfully developed, stem cell therapeutics have the potential to provide a broad therapeutic approach comparable to traditional pharmaceuticals and genetically engineered biologics. In the fourth quarter of 2013 we filed an IND to start a trial to treat acute spinal cord injury (within several weeks of the injury) in Seoul Korea. If approved as submitted, this trial will treat complete patients, who are those who have no sensory or motor function below the point of the injury and also progressively incomplete patients, who have varying degrees of each. We expect this trial to start near the end of 2014 or in the first quarter of 2015.



Small Molecule Pharmaceutical Compounds.

We have developed and patented a series of small molecule compounds (low molecular weight organic compounds which can efficiently cross the blood/brain barrier). We believe that these small molecule compounds will stimulate the growth of new neurons in the hippocampus and provide a treatment for depression, and possibly other cognitive impacting diseases. In mice, our research indicated that our small molecule compounds both stimulate neurogenesis of the hippocampus and increase its volume. Additionally, our research also indicates that our small molecule compounds stimulate neurogenesis of human hippocampus-derived neural stem cells in vitro. Our collaborators at MGH have presented the human data from the MDD trial which showed clinically meaningful improvement in multiple standard measures of depression as well as a measure of cognition; and reached statistical significance. Based on this research, we believe that our small molecule compounds may assist in reversing atrophy in the human hippocampus. Such atrophy has been seen in major depression and other disorders. Our small molecule compounds are covered by fifty-three (53) exclusively owned U.S. and foreign issued patents and twenty-one (21) exclusively owned U.S. and foreign patent applications related to our small molecule compounds. Research We have devoted substantial resources to our research programs in order to isolate and develop a series of neural stem cell banks that we believe can serve as a basis for our therapeutic products. Our efforts are directed at developing therapies utilizing our stem cells and small molecule regenerative drugs. This research is conducted internally, through the use of third party laboratories and consulting companies under our direct supervision, and through collaboration with academic institutes. Operating Strategy We generally employ an outsourcing strategy where we outsource our Good Laboratory Practices or GLP preclinical development activities and Good Manufacturing Practices or GMP manufacturing and clinical development activities to contract research organizations or CROs and contract manufacturing organizations or CMOs as well as all non-critical corporate functions. Manufacturing is also outsourced to organizations with approved facilities and manufacturing practices. This outsource model allows us to better manage cash on hand and minimize non-vital expenditures. It also allows for us to operate with relatively fewer employees and lower fixed costs than that required by other companies conducting similar business. Manufacturing We currently manufacture our cells both in-house and on an outsource basis. We outsource the manufacturing of our pharmaceutical compounds to third party manufacturers. We manufacture cells in-house which are not required to meet stringent FDA requirements. We use these cells in our research and collaborative programs. We outsource all the manufacturing and storage of our stem cells and pharmaceuticals compound to be used in clinical and pre-clinical works, and which are accordingly subject to higher FDA requirements, to Charles River Laboratories, Inc., of Wilmington, Massachusetts (stem cells) and Albany Molecular Resources, Inc. ("AMRI") (small molecule). Both the Charles River and AMRI facilities have the capacity to be used for manufacturing under the FDA determined GMP standards in quantities sufficient for our current and anticipated pre-trial and clinical trial needs. We have no quantity or volume commitment with either Charles River Laboratories or AMRI and our cells and pharmaceutical compounds are ordered and manufactured on an as needed basis. Additionally, during the first quarter of 2014, we relocated our headquarters to a facility with GMP manufacturing capability. We anticipate the facility will be ready to commencing manufacturing of our stem cells for our clinical trials by the second quarter of 2015. Such increased manufacturing will supplement our current outsource supply of both stem cells and pharmaceutical compounds. We believe such additional manufacturing capacity will be beneficial as our clinical trials expand by indication, geographic region and to larger patient populations. 18 Employees



As of June 30, 2014, we had 15 full-time employees and one (1) full-time independent contractor. Of these full-time employees and contractor, 11 work on research and development and five (5) in administration. We also use the services of numerous outside consultants in business and scientific matters.

Our Corporate Information We were incorporated in Delaware. Our principal executive offices are located at 20271 Goldenrod Lane, Germantown, Maryland 20876, and our telephone number is (301) 366-4841. Our website is located at www.neuralstem.com. In addition to announcing material financial information through our investor relations website, press releases, SEC filings and public conference calls and webcasts, we also intend to use the following social media channels as a means of disclosing information about the company, its services and other matters and for complying with our disclosure obligations under Regulation FD:



Neuralstem's Twitter Account (https://twitter.com/Neuralstem_Inc)

Neuralstem's Facebook Page (https://www.facebook.com/Neuralstem)

Neuralstem's Company Blog (http://neuralstem.com/neuralstem-ceo-blog)

Neuralstem's Google+ Page (https://plus.google.com/u/0/b/104875574397171789280/104875574397171789280/posts)



Neuralstem's LinkedIn Company Page

(http://www.linkedin.com/company/neuralstem-inc-)

Neuralstem Asia's Weibo Account (http://www.weibo.com/u/3516708787)

Neuralstem Asia's Tencent Weibo Account (http://t.qq.com/neuralstem)

Neuralstem Asia's Facebook Page (https://www.facebook.com/NeuralstemAsia)



Neuralstem Asia's Twitter Account (https://twitter.com/Neuralste_Asia)

The information we post through these social media channels may be deemed material. Accordingly, investors should monitor these accounts and the blog, in addition to following the company's press releases, SEC filings and public conference calls and webcasts. This list may be updated from time to time.

Notwithstanding the forgoing, we have not incorporated by reference into this report the information in, or that can be accessed through, our website, and you should not consider it to be a part of this report. Trends & Outloook Revenue For the six months ended June 30, 2014 and 2013, we generated no revenues from the sale of our proposed therapies based on our stem cell and small molecule technologies. We are mainly focused on: (i) successfully managing our clinical trials, and (ii) preparing for the initiation of clinical trials relating to Chronic Spinal Cord injury. We are also pursuing pre-clinical studies on other central nervous system indications in preparation for additional clinical trials. In prior years, we have licensed the use of certain of our intellectual property to third parties. In the six months ended June 30, 2014 and 2013, we recognized approximately $9,000 and $105,000, respectively of revenue related to up-front payments and ongoing fees under these licenses. On a long-term basis, we anticipate that our revenue will be derived primarily from licensing fees and sales of our cell based therapy and small molecule compounds. Because we are at such an early stage in the clinical trials process, we are not yet able to accurately predict when we will have a product ready for commercialization, if ever. 19



Research and Development Expenses

Our research and development expenses consist primarily of contractor and personnel expenses associated with clinical trials and regulatory submissions; costs associated with preclinical activities such as proof of principle for new indications; toxicology studies; costs associated with cell processing and process development; facilities-related costs and supplies. Clinical trial expenses include payments to research organizations, contract manufacturers, clinical trial sites, consultants and laboratories for testing clinical samples.



We focus on the development of treatment candidates with potential uses in multiple indications, and use employee and infrastructure resources across several projects. Accordingly, many of our costs are not attributable to a specifically identified product and we do not account for internal research and development costs on a project-by-project basis.

For a further description of these clinical trials, see the portion of this report entitled "Clinical Programs."

We expect that research and development expenses, which include expenses related to our ongoing clinical trials, will increase in the future, as funding allows and we proceed with our current and anticipated Phase II trials. To the extent that it is practical, we will continue to outsource much of our efforts, including product manufacture, proof of principle and pre-clinical testing, toxicology, tumorigenicity, dosing rationale, and development of clinical protocol and IND applications. This approach allows us to use the best expertise available for each task and permits staging new research projects to fit available cash resources. We have formed a wholly owned subsidiary in the People's Republic of China. We anticipate that this subsidiary will primarily: (i) conduct pre-clinical research with regard to proposed stem cells therapies, and (ii) oversee our approved future clinical trials in China, including the current trial to treat motor deficits due to ischemic stroke. From inception through June 30, 2014 this subsidiary has incurred expenses of approximately $380,000.



General and Administrative Expenses

General and administrative expenses are primarily comprised of salaries, benefits and other costs associated with our operations including, finance, human resources, information technology, public relations, legal fees, facilities and other external general and administrative services.

Critical Accounting Policies Our condensed financial statements have been prepared in accordance with U.S. GAAP. 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 2 of the Notes to Unaudited Condensed Financial Statements included elsewhere herein describes the significant accounting policies used in the preparation of the 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 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 financial statements are fairly stated in accordance with U.S. GAAP, 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 condensed financial statements: Use of Estimates- Our financial statements prepared in accordance with U.S. GAAP require us 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, we have estimated the expected economic life and value of our patent technology, our net operating loss carryforward and related valuation allowance for tax purposes and our stock -based compensation expenses related to employees, directors, consultants and investment banks. Actual results could differ from those estimates. Fair Value Measurements -The carrying amounts of our short-term financial instruments, which primarily include cash and cash equivalents, other short-term investments, accounts payable and accrued expenses, approximate their fair values due to their short maturities. The fair value of our long-term indebtedness is estimated based on the quoted prices for the same or similar issues or on the current rates offered to the Company for debt of the same remaining maturities. The fair values of our derivative instruments are estimated using level 3 unobservable inputs. 20 Long Lived Intangible Assets- Our long lived intangible assets consist our intellectual property patents including primarily legal fees associated with the filings and in defense of our patents. The assets are amortized on a straight-line basis over the expected useful life which we define as ending on the expiration of the patent group. These assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. We assess this recoverability by comparing the carrying amount of the asset to the estimated undiscounted future cash flows to be generated by the asset. If an asset is deemed to be impaired, we estimate the impairment loss by determining the excess of the asset's carrying amount over the estimated fair value. These determinations use assumptions that are highly subjective and include a high degree of uncertainty. During the three- and six-month periods ended June 30, 2014 and 2013, no impairment losses were recognized. Share-Based Compensation - We account for share-based compensation at fair value; accordingly we expense the estimated fair value of share-based awards over the requisite service period. Share-based compensation cost for stock options and warrants is determined at the grant date using an option pricing model. Option pricing models require us to make assumptions, including expected volatility and expected term of the options. If any of the assumptions we use in the model were to significantly change, stock based compensation expense may be materially different. Share-based compensation cost for restricted stock and restricted stock units is determined at the grant date based on the closing price of our common stock on that date. The value of the award that is ultimately expected to vest is recognized as expense on a straight-line basis over the requisite service period. RESULTS OF OPERATIONS



Comparison of Three Months Ended June 30, 2014 and 2013

Revenue

We did not generate any revenues from the sale of our products in any of the periods presented. For the three months ended June 30, 2014 and 2013, we recognized approximately $5,000 and $3,000, respectively related to the licensing of certain intellectual properties to third parties.

Operating Expenses

Operating expenses for the three months ended June 30, 2014 and 2013 were as follows: Three Months Ended June 30, Increase (Decrease) 2014 2013 $ % Operating Expenses Research and development expenses $ 1,947,558$ 1,906,387$ 41,171 2 % General and administrative expenses 1,481,948 1,281,210 200,738 16 % Depreciation and amortization 86,732 50,505 36,227 72 % Total operating expenses $ 3,516,238$ 3,238,102$ 278,136 9 %



Research and Development Expenses

Our research and development expenses consist primarily of contractor and personnel expenses associated with clinical trials and regulatory submissions; costs associated with preclinical activities such as proof of principle for new indications; toxicology studies; costs associated with cell processing and process development; facilities-related costs and supplies. Clinical trial expenses include payments to research organizations, contract manufacturers, clinical trial sites, consultants and laboratories for testing clinical samples. The increase of approximately $41,000 or 2% in research and development expenses was primarily attributable to increases of $27,000 in travel and related and $23,000 in consulting expenses.



General and Administrative Expenses

General and administrative expenses are primarily comprised of salaries, benefits and other costs associated with our operations including, finance, human resources, information technology, public relations, legal fees, facilities and other external general and administrative services.

The increase of approximately $201,000 or 16% was primarily due to a $160,000 increase in legal and professional fees related to patent, litigation and other corporate matters coupled with $74,000 increase in consulting fees related to our new Board of Director member search. 21



Depreciation and Amortization

The increase of approximately $36,000 or 72% is was due primarily to increased amortization related to additions to our patent assets coupled with depreciation on new assets purchased in current year.



Other expense

Other expense totaled approximately $3,240,000 and $3,016,000 for the three months ended June 30, 2014 and 2013, respectively. Other expense in 2014 consisted primarily of $3,110,000 related to our extension of certain common stock purchase warrants and $398,000 of interest expense principally related to our long-term debt partially offset by $250,000 of income from a legal settlement. Other expense in 2013 consisted primarily of $2,405,000 related to the modification of certain common stock purchase warrants, a $439,000 expense for interest related to the our long-term debt and a $188,000 expense related to the change in fair value of the Company's warrant liabilities.



Comparison of Six Months Ended June 30, 2014 and 2013

Revenue

We did not generate any revenues from the sale of our products in any of the periods presented. For the six months ended June 30, 2014 and 2013, we recognized approximately $9,000 and $105,000, respectively related to the licensing of certain intellectual properties to third parties. The revenue recognized in 2013 includes an up-front fee related to such a license, while the revenue in 2014 includes ongoing fees only.



Operating Expenses

Operating expenses for the six months ended June 30, 2014 and 2013 were as follows: Six Months Ended June 30, Increase (Decrease) 2014 2013 $ %



Operating Expenses Research and development expenses $ 3,518,779$ 3,654,734$ (135,955 )

(4 )%



General and administrative expenses 5,001,307 2,477,050

2,524,257 102 % Depreciation and amortization 177,220 100,598 76,622 76 % Total operating expenses $ 8,697,306$ 6,232,382$ 2,464,924 40 %



Research and Development Expenses

The decrease of approximately $136,000 or 4% in research in development expenses was primarily attributable to a $212,000 decrease in project and lab expenses related to certain projects not continuing into 2014 and the cost of certain studies in 2014 being subsidized by third parties. This was partially offset by increases of $46,000 in consulting expenses and $30,000 in non-cash stock based compensation.



General and Administrative Expenses

The increase of approximately $2,524,000 or 102% was primarily due to a $1,878,000 increase in non-cash stock based compensation expense primarily related to a consultant achieving a performance based milestone which resulted in a term extension of certain common stock purchase warrants. This is coupled with a $390,000 increase in legal and professional fees related to patent, litigation and other corporate matters.



Depreciation and Amortization

The increase of approximately $77,000 or 76% is was due primarily to increased amortization related to additions to our patent assets coupled with depreciation on new assets purchased in current year.



Other expense

Other expense totaled approximately $3,982,000 and $3,714,000 for the six months ended June 30, 2014 and 2013, respectively. Other expense in 2014 consisted primarily of $3,110,000 related to our extension of certain common stock purchase warrants $830,000 of interest expense principally related to our long-term debt and $334,000 related to the change in fair value of the Company's warrant liabilities partially offset by $250,000 of income from a legal settlement. 22 Other expense in 2013 consisted primarily of a $3,072,000 expense related to the modification of certain common stock purchase warrants, $488,000 of interest principally related to our long-term debt and $182,000 related to the change in fair value of the Company's warrant liabilities. Liquidity and Capital Resources Since our inception, we have financed our operations through the sales of our securities, issuance of long term debt, the exercise of investor warrants, and to a lesser degree from grants and research contracts. In January 2014, we received approximately $20 million of gross proceeds from the sale or our securities pursuant to a registered direct offering. Six Months Ended June 30, Increase (Decrease) 2014 2013 $ %



Net cash used in operating activities $ (5,124,872 )$ (5,872,297 )$ 747,425

13 %



Net cash used in investing activities $ (15,392,693 )$ (237,607 )$ (15,155,086 ) (6378 )% Net cash provided by financing activities $ 18,904,872$ 9,832,208

$ 9,072,664 92 % Our cash balance was approximately $15,232,000 at June 30, 2014 compared to $16,846,000 at December 31, 2013. The decrease of $1,614,000 was primarily comprised of our raising $18,630,000, net in our January 2014 registered direct offering, our purchase of $15,000,000 of short-term investments and our cash used in operations.



Net Cash Used in Operating Activities

We used approximately $5,125,000 and $5,872,000 of cash in our operating activities in the six months ended June 30, 2014 and 2013, respectively. The decrease in our use of cash of approximately $747,000 was primarily due to a higher amount of payments of vendor payables in the 2013 period.



Net Cash Used in Investing Activities

We used approximately $15,393,000 and $238,000 of cash in connection with investment activities in the six months ended June 30, 2014 and 2013, respectively. The increase in our use of cash of approximately $15,155,000 was primarily due to our purchase of short term investments using the proceeds from our January 2014 registered direct offering coupled with $145,000 of equipment purchases in 2014.



Net Cash Provided by Financing Activities

Proceeds from financing activities were approximately $18,905,000 and $9,832,000 in the six months ended June 30, 2014 and 2013, respectively. The increase of $11,354,000 was primarily the result of raising approximately $18,630,000, net from our registered direct offering in January 2014 as compared to raising approximately $7,551,000, net from our debt offering in 2013. This was partially offset by our raising approximately $2,397,000 in 2013 compared to $1,784,000 in 2014 from the issuance of common stock from warrant and option exercises. In 2014 we also made $1,425,000 of payments on our long term debt and paid $426,000 in taxes related to stock option exercises.



Future Liquidity and Needs

We have incurred significant operating losses and negative cash flows since inception. We have not achieved profitability and may not be able to realize sufficient revenue to achieve or sustain profitability in the future. We do not expect to be profitable in the next several years, but rather expect to incur additional operating losses. We have limited liquidity and capital resources and must obtain significant additional capital resources in order to sustain our product development efforts, for acquisition of technologies and intellectual property rights, for preclinical and clinical testing of our anticipated products, pursuit of regulatory approvals, acquisition of capital equipment, laboratory and office facilities, establishment of production capabilities, for general and administrative expenses and other working capital requirements. We rely on cash balances and the proceeds from the offering of our securities, exercise of outstanding warrants and grants to fund our operations. We intend to pursue opportunities to obtain additional financing in the future through the sale of our securities and additional research grants. We currently have two shelf registration statements that are effective. On June 19, 2014, our shelf registration statement registering the sale of up to $100 million of our securities was declared effective by the SEC. To date, we currently have not sold any securities under this shelf registration statement. On September 13, 2013, our shelf registration statement (Registration No. 333-190936) registering the sale of up to $50 million of our securities was declared effective by the SEC. To date, we have sold approximately $36.0 million of securities under this shelf registration statement. Additionally, securities sold pursuant to our At the Market Offering Agreement (see below) are being sold pursuant to this registration statement and accordingly, we have reserved the balance of approximately $14.0 million of securities pursuant thereto. We anticipate conducting financing in the future based on our shelf registration statement when and if financing opportunities arise. 23 In October 2013, we entered into an At the Market Offering Agreement with T.R. Winston & Company as our sales agent pursuant to which we can sell up to $25 million of our common stock. The At the Market Offering Agreement was entered into pursuant to a takedown from our shelf registration statement (Registration No. 333-169847). To date we have sold 1,280,047 shares under such agreement at an average price per share of $2.70. Future sales under our agreement are limited to approximately $14.0 million which is the amount available under our shelf registration of which the At the Market Offering Agreement is part of. The source, timing and availability of any future financing will depend principally upon market conditions, interest rates and, more specifically, on our progress in our exploratory, preclinical and future clinical development programs. Funding may not be available when needed, at all, or on terms acceptable to us. Lack of necessary funds may require us, among other things, to delay, scale back or eliminate some or all of our research and product development programs, planned clinical trials, and/or our capital expenditures or to license our potential products or technologies to third parties.


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Source: Edgar Glimpses


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