UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~December~~March 31, ~~2009~~2010


o		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 (State or other jurisdiction of incorporation)		94-3049219 (IRS Employer Identification No.)

2000 Powell Street, Suite 800, Emeryville, California 94608
(Address of principal executive offices)

(510) 595-6000
(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 þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, non-accelerated filer or a smaller reporting company. See definition of “accelerated filer”, “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act):


Large Accelerated Filer o		Accelerated Filer o		Non-Accelerated Filer o		Smaller Reporting Company þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes o No þ

Indicate the number of shares outstanding of each of the issuer’s classes of the common stock, as of the latest practicable date.

Common Stock, $0.001 par value: 27,019,805 shares outstanding as of ~~February~~May 1214, 2010.

NEUROBIOLOGICAL TECHNOLOGIES, INC.

FORM 10-Q

TABLE OF CONTENTS

	Page
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (Unaudited)		3
Condensed Consolidated Statement of Net Assets (Liquidation Basis) as of December 31, 2009		3
Condensed Consolidated Statement of Net Assets (Liquidation Basis) as of March 31, 2010		3
Condensed Consolidated Statement of Changes in Net Assets (Liquidation Basis) for the period from December 18, 2009 through December 31, 2009		4
Condensed Consolidated Statement of Changes in Net Assets (Liquidation Basis) for the period from December 18, 2009 through March 31, 2010		4
Condensed Consolidated Balance Sheet as of June 30, 2009		5
Condensed Consolidated Statements of Operations		6
Condensed Consolidated Statements of Cash Flows		7
Notes to Condensed Consolidated Financial Statements		8
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		13
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		1514
ITEM 4. CONTROLS AND PROCEDURES		15
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS		1615
ITEM 1A. RISK FACTORS		1615
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS		1716
ITEM 3. DEFAULTS UPON SENIOR SECURITIES		1716
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS		17
ITEM 4. (REMOVED AND RESERVED)		17
ITEM 5. OTHER INFORMATION		17
ITEM 6. EXHIBITS		17
SIGNATURE		1817
Exhibit 31.1
Exhibit 32.1

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

NEUROBIOLOGICAL TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENT OF NET ASSETS (LIQUIDATION BASIS)

(Unaudited; in thousands)

	December 31,
	March 31, 2010
	2009
ASSETS
Cash and cash equivalents	$	2,~~406~~159
Short-term investments		~~842~~678
		3,248
		2,837
LIABILITIES AND NET ASSETS
Accounts payable		7118
Accrued compensation, including severance		331
Accrued employee severance		183
Accrued professional expenses		3710
Income taxes payable		53
Reserve for estimated costs during the liquidation period		1,~~455~~272
Total liabilities		1,~~947~~536
Net assets in liquidation available to common stockholders	$	1,301

See accompanying notes.

NEUROBIOLOGICAL TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS (LIQUIDATION BASIS) (Unaudited; in thousands)

(Unaudited; in thousands)


	December 18, 2009
	to
	March 31, 2010

Stockholders’ equity as of December 17, 2009	$	3,322
Effects of adopting the liquidation basis of accounting:
Initial adjustment of assets to estimated net realizable value		(521	)
Initial adjustment of liabilities to estimated settlement amounts		(1,500	)


Net assets on liquidation basis as of December 18, 2009		1,301

Change in estimated net realizable value of assets and liabilities		—


Net assets on liquidation basis available to common stockholders as of December 31, 2009		1,301

Change in estimated net realizable value of assets and liabilities		—


Net assets on liquidation basis available to common stockholders as of March 31, 2010	$	1,301

	December 18, 2009
	to
	December 31, 2009
Stockholders’ equity as of December 17, 2009	$	3,322
Effects of adopting the liquidation basis of accounting:
Initial adjustment of assets to estimated net realizable value		(521	)
Initial adjustment of liabilities to estimated settlement amounts		(1,500	)
Net assets on liquidation basis as of December 18, 2009	$	1,301
Change in estimated net realizable value of assets and liabilities		—
Net assets on liquidation basis available to common stockholders as of December 31, 2009	$	1,301

See accompanying notes.

NEUROBIOLOGICAL TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEET (GOING CONCERN BASIS)

(in thousands, except per share amounts)


	June 30, 2009
	*(Note 1)*

ASSETS

Current assets:
Cash and cash equivalents	$	8,230
Short-term investments		15,819
Accounts receivable		184
Prepaid expenses and other current assets		305


Total current assets		24,538

Deposits		52
Property and equipment, net		70


	$	24,660


LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:
Accounts payable	$	21
Accrued professional expenses		493
Accrued compensation, including severance		281
Other accrued liabilities		25
Warrant liability		295


Total current liabilities		1,115


Commitments and contingencies

Stockholders’ equity:

Preferred stock, $0.001 par value, 5,000 shares authorized; 3,000 authorized shares designated as Series A convertible preferred stock, 2,332 Series A shares issued and 494 outstanding		247
Common stock, $0.001 par value, 50,000 shares authorized, 26,930 shares issued and outstanding		27
Additional paid-in capital		145,739
Accumulated deficit		(122,468	)


Total stockholders’ equity		23,545


	$	24,660

See accompanying notes.

NEUROBIOLOGICAL TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (GOING CONCERN BASIS)

(Unaudited; in thousands, except per share amounts)

	From October 1, 2009			From October 1			From July 1, 2009			From July 1, 2008
	From July 1, 2009			From January 1			From July 1, 2008
	through			through			through			~~through~~
	December 17, 2009			~~December~~March 31, ~~2008~~2009			~~December~~March 1731, 2009			~~December 31, 2008~~
	(78 Days)			(Three months)			(170 Days)			(Six months)
	(170 Days;			(Three months;			(Nine months;
REVENUES
	current fiscal year)			prior fiscal year)			prior fiscal year)
Royalty	$	—		$	2,007		$	6,019		$	4,085
REVENUES
Technology sale and collaboration services		—			1,484			7			2,971
Royalty	$	6,019		$	1,505		$	5,590
Total revenues		—			3,491			6,026			7,056
Technology sale and collaboration services		7			1,508			4,479
EXPENSES
Total revenues		6,026			3,013			10,069
Research and development		—			10,392			—			15,844
EXPENSES
General and administrative		663			1,201			1,541			2,532
Research and development		—			1,857			17,701
Total expenses		663			11,593			1,541			18,376
General and administrative		1,541			1,438			3,970
Operating (loss) income		(663	)		(8,102	)		4,485			(11,320	)
Total expenses		1,541			3,295			21,671
Interest income		12			264			44			513
Operating income (loss)		4,485			(282	)		(11,602	)
Gain on sale of long-term investments		145			—			206			170
Interest income		44			136			649
Loss on sale of property and equipment		(28	)		—			(34	)		—
Gain on sale of long-term investments		206			—			170
Non-cash gain on decrease in fair value of warrants		29			—			295			37
Impairment charge for decrease in value of investments		—			(55	)		(55	)
Income (loss) before provision for income taxes		(505	)		(7,838	)		4,996			(10,600	)
Loss on sale of property and equipment		(34	)		—			—
(Benefit) provision for income taxes		(43	)		—			53			—
Non-cash gain (loss) on change in fair value of warrants		295			(230	)		(193	)
NET INCOME (LOSS)	$	(462	)	$	(7,838	)	$	4,943		$	(10,600	)
Income (loss) before provision for income taxes		4,996			(431	)		(11,031	)
BASIC AND DILUTED NET (LOSS) INCOME PER SHARE	$	(0.02	)	$	(0.29	)	$	0.18		$	(0.39	)
Provision for income taxes		53			—			—
Shares used in basic net (loss) income per share calculation		26,984			26,924			26,955			26,924
NET INCOME (LOSS)	$	4,943		$	(431	)	$	(11,031	)
Shares used in diluted net (loss) income per share calculation		26,984			26,924			26,969			26,924
BASIC AND DILUTED NET INCOME (LOSS) PER SHARE	$	0.18		$	(0.02	)	$	(0.41	)
Shares used in basic net income (loss) per share calculation		26,955			26,927			26,925
Shares used in diluted net income (loss) per share calculation		26,969			26,927			26,925

See accompanying notes.

NEUROBIOLOGICAL TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (GOING CONCERN BASIS)

(Unaudited — in thousands)

	From July 1, 2009			From July 1, 2008
	through			through
	December 17, 2009			~~December~~March 31, ~~2008~~2009
	(170 days)			(Six months)
	(170 days;			(Nine months;
	current fiscal year)			prior fiscal year)
OPERATING ACTIVITIES:
Net income (loss)	$	4,943		$	(1011,~~600~~031	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		8			89112
Loss on impairment of asset		—			174
Loss on impairment of assets		—			229
Loss on sale of property and equipment		34			—
Stock-based compensation		156			~~474~~594
Gain on sale of long-term investments		(206	)		(170	)
Non-cash gain on decrease in fair value of warrants		(295	)		(37	)
Non-cash (gain) loss on change in fair value of warrants		(295	)		193
Changes in assets and liabilities:
Accounts receivable		(132	)		~~399~~370
Prepaid expenses and other current assets		(135	)		3186
Accounts payable and accrued liabilities		353			42,~~460~~300
Income taxes payable		53			—
Deferred revenue		—			(24,~~750~~125	)
Net cash provided by (used in) operating activities		4,779			(711,~~958~~342	)
INVESTING ACTIVITIES:
Purchase of investments		(11,088	)		(1933,~~356~~280	)
Maturity and sale of investments		26,270			622,~~288~~688
Purchase of property and equipment		—			(2	)
Sale of property and equipment		—			1
Net cash provided by (used in) by investing activities		15,182			(1310,~~070~~591	)
FINANCING ACTIVITIES:
Proceeds from exercise of stock options and purchases under the employee stock purchase plan		59			1
Redemption of Series A Preferred Stock		(247	)		—
Payment of extraordinary dividends		(25,128	)		—
Net cash (used in) provided by financing activities		(25,316	)		1
Decrease in cash and cash equivalents		(5,355	)		(21,~~027~~932	)
Cash and equivalents at beginning of period		8,230			27,941
Cash and equivalents at end of period	$	2,875		$	6,~~914~~009

See accompanying notes.

NEUROBIOLOGICAL TECHNOLOGIES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~December~~March 31, ~~2009~~2010

(Unaudited) ~~(Tabular amounts in thousands, except per share amounts, percentages and years)~~

(Tabular amounts in thousands, except per share amounts, percentages and years)

1. Basis of Presentation and Summary of Significant Accounting Policies

Company Description

Neurobiological Technologies, Inc. (“NTI” or the “Company”) is a biopharmaceutical company that previously focused on developing investigational drugs for central nervous system conditions. On October 27, 2009, the Company’s stockholders approved the dissolution of the Company pursuant to a plan of complete liquidation and dissolution approved by the Company’s board of directors on August 27, 2009 (the “Plan of Dissolution”). On November 4, 2009, the Company redeemed all of the outstanding shares of Series A Preferred Stock for its liquidation preference of $0.50 per share. Following payment of extraordinary dividends of $0.75 and $0.18 per share of common stock on November 18, 2009 and December 9, 2009, respectively, on December 17, 2009 the Company filed a certificate of dissolution with the Secretary of State of the State of Delaware (the “Certificate of Dissolution”) and completed the voluntary delisting of its common ~~stock~~ stock from the Nasdaq Capital Market. On December 17, 2009, the Company also closed its ~~stock~~ stock transfer books and discontinued recording transfers of its common stock. The Company is in the process of ~~winding~~discharging ~~down~~any ~~its~~ remaining ~~operations~~liabilities under dissolution ~~procedures~~ procedures provided for under the General Corporation Law of the State of Delaware (the “DGCL”)~~, and~~. asThe ~~this process proceeds the~~ Company intends to make at least one additional liquidating distribution to its stockholders at the conclusion of this process, although the amount and timing ~~cannot~~ cannot presently be determined.

Basis of Presentation

The Company adopted the liquidation basis of accounting on December 17, 2009, and on-going adjustments to the estimated liquidation values of assets and liabilities are not reported in a statement of operations — see additional information in “Liquidation Basis of Accounting” below.

The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, NTI-Empire, Inc. All intercompany accounts and transactions have been eliminated. NTI operates in one business segment, the development of pharmaceutical products.

These financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information 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 GAAP for reporting on complete financial statements. These condensed consolidated financial statements should be read in conjunction with the financial statements and notes in the Company’s Annual Report on Form 10-K for the year ended June 30, 2009. The condensed consolidated financial statements reflect all adjustments, which, in the opinion of management, are necessary for a fair presentation of results for the interim periods presented. Such adjustments consist only of normally recurring items. ~~Operating~~The ~~results~~changes ~~for~~in ~~the~~net ~~periods~~assets ~~from~~available ~~October 1,~~to ~~2009~~common ~~and~~stockholders ~~July 1,~~for ~~2009~~the ~~through~~interim ~~December~~reporting periods ended March 1731, ~~2009~~ 2010 are not indicative of ~~the~~ ~~results~~changes in net assets that may be expected for any other interim periods ~~period~~ or for the fiscal year ending June 30, 2010. ~~In particular, the Company adopted the liquidation basis of~~ accounting on December 17, 2009, and on-going adjustments to the estimated liquidation values of assets and liabilities will not be reported in a statement of operations — see additional information in “Liquidation Basis of Accounting” below.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the balances and disclosures. Actual results could differ from these estimates.

The consolidated balance sheet as of June 30, 2009 has been derived from the audited financial statements at that date but as noted above does not include all disclosures required for complete financial statements.

Liquidation Basis of Accounting

Following the filing of the Certificate of Dissolution with the State of Delaware on December 17, 2009, the Company began reporting on a liquidation basis of accounting instead of a going concern basis of accounting. Under the liquidation basis of accounting, the Statement of Net Assets (Liquidation Basis) and Statement of Changes in Net Assets (Liquidation Basis) are the principal financial statements presented. In these statements, the assets are stated at their estimated net realizable value, which is the amount of cash into which an asset is ultimately expected to be converted, less any conversion costs. Liabilities are reported at their estimated settlement amount, which is the amount of cash expected to be paid to liquidate the obligation, including any direct costs of the liquidation. Additionally, the Company has established a reserve for all estimated future general and administrative expenses and other costs expected to be incurred during the liquidation. The reserve for these estimated expenses primarily includes accruals including personnel costs for administrative work which are to be paid on an hourly basis only, professional services, facilities including previously unaccrued future facility lease and other obligations, professional services and legal costs, corporate expenses (insurance, directors’ fees and statutory fees) and estimated expenses to establish a facility to preserve the Company’s continuing interest in a drug being developed by another party. These estimates will be periodically reviewed and adjusted as appropriate. There can be no assurance that these estimated values will ultimately be realized.

The valuation of assets at their net realizable value and liabilities at their anticipated settlement amounts represent estimates, based on present facts and circumstances, of the net realizable value of the assets and the costs associated with carrying out the Plan of Liquidation. ~~The~~Basis ~~actual values and costs associated with carrying out the Plan~~ of ~~Liquidation may differ from amounts reflected in the financial~~Accounting statements because of the inherent uncertainty in estimating future events. These differences may be material. In particular, the estimates of costs will vary with the length of time necessary to complete the liquidation process and resolve potential claims which have not yet been submitted to the Company. Accordingly, it is not possible to predict the timing or aggregate amount which will ultimately be distributed to stockholders and no assurance can be given that the distributions will equal or exceed the estimate presented in the accompanying Statement of Net Assets (Liquidation Basis).

Following the filing of the Certificate of Dissolution with the State of Delaware on December 17, 2009, the Company began reporting on a liquidation basis of accounting instead of a going concern basis of accounting. Under the liquidation basis of accounting, the Statement of Net Assets (Liquidation Basis) and Statement of Changes in Net Assets (Liquidation Basis) are the principal financial statements presented. In these statements, the assets are stated at their estimated net realizable value, which is the amount of cash into which an asset is ultimately expected to be converted, less any conversion costs. Liabilities are reported at their estimated settlement amount, which is the amount of cash expected to be paid to liquidate the obligation, including any direct costs of the liquidation. Additionally, the Company has established a reserve for all estimated future general and administrative expenses and other costs expected to be incurred during the liquidation. The reserve for these estimated expenses primarily includes accruals including personnel costs for administrative work which are to be paid on an hourly basis only, facilities including previously unaccrued future facility lease and other obligations, professional services and legal costs, corporate expenses (insurance, directors’ fees and statutory fees) and estimated expenses to establish a facility to preserve the Company’s continuing interest in XERECEPT^®, which is an investigational drug being developed by another party. These estimates will be periodically reviewed and adjusted as appropriate. There can be no assurance that these estimated values will ultimately be realized.

The valuation of assets at their net realizable value and liabilities at their anticipated settlement amounts represent estimates, based on present facts and circumstances, of the net realizable value of the assets and the costs associated with carrying out the Plan of Dissolution. The actual values and costs associated with carrying out the Plan of Dissolution may differ from amounts reflected in the financial statements because of the inherent uncertainty in estimating future events. These differences may be material. In particular, the estimates of costs will vary with the length of time necessary to complete the liquidation process and resolve potential claims, some of which may not have been submitted to the Company at this time. Accordingly, it is not possible to predict the timing or aggregate amount which will ultimately be distributed to stockholders and no assurance can be given that the distributions will equal or exceed the estimate presented in the accompanying Statement of Net Assets (Liquidation Basis).

Upon transition to the liquidation basis of accounting, the Company recorded the following adjustments to record assets at net realizable value:


Initial Adjustment of Assets to Estimated Net Realizable Value	Amount
Prepaid and other current assets	$	493
Property and equipment		28


	$	521

The adjustments of assets were the result of these assets not having a realizable value upon liquidation of the Company.

The Company was required to make significant estimates and exercise judgment in determining the accrued costs of liquidation at December 17, 2009. The accrued costs of liquidation were recorded as an adjustment of liabilities to estimated settlement amount. Upon transition to the liquidation basis of accounting, the Company accrued the following costs expected to be incurred in liquidation:


Accrued Costs of Liquidation	Amount
Outside services and wind-down expenses	$	1,213
Contractual commitments		287


	$	1,500

Revenue Recognition

Revenues are recognized according to the terms of contractual agreements to which NTI is a party, when the Company’s performance requirements have been fulfilled, the amount is fixed and determinable, and collection is reasonably assured. Revenue from license fees with non-cancelable, non-refundable terms and no future performance obligations is recognized when collection is assured. Milestone payments are recognized when the Company has fulfilled development milestones and collection is assured. Revenue from services performed for other parties is recorded during the period in which the expenses are incurred.

Royalty revenue is recorded when payments are received since the Company is unable to estimate the amount of royalties as they are earned. Revenue from sales of royalty rights is recorded as royalty revenue during the period in which the arrangement is completed and collection is assured.

Revenue arrangements with multiple components are divided into separate units of accounting if certain criteria are met, including whether the delivered component has stand-alone value to the customer, and whether there is objective reliable evidence of the fair value of the undelivered items. Consideration received is allocated among the separate units of accounting based on their relative fair values, and the applicable revenue recognition criteria are identified and applied to each of the units.

2. Investments

Available-for-sale securities were as follows:

	As of December 31,					As of June 30,
	As of March 31, 2010					As of June 30, 2009
	2009					2009
				Estimated					Estimated
	Cost			Fair Value		Cost			Fair Value
Type of security and term
U.S. Government and Agency Obligations
Maturing within one year	$	—		$	—	$	10,292		$	10,292
Auction rate securities (“ARS”)
Maturing in 22 years		~~842~~678	*		~~842~~678		5,527	*		5,527
Total investments	$	~~842~~678		$	~~842~~678	$	15,819		$	15,819

* Cost represents purchase price less impairment charges of $~~158~~122,000 and $1,973,000 on securities still held at ~~December~~March 31, ~~2009~~2010 and June 30, 2009, respectively.

~~The Company’s investments in ARS were structured to provide liquidity via an~~9 auction process that reset the applicable interest rate at predetermined calendar intervals. Beginning in February 2008, failed auctions occurred throughout the ARS market, and since then all auctions for NTI’s ARS have been unsuccessful. While the credit rating of these securities generally remains high and the ARS are paying interest according to their terms, as a result of the potentially long maturity, currently low interest rates and lack of liquidity for ARS, the Company believes the value of the ARS in NTI’s portfolio has been impaired. During the fiscal years ended June 30, 2009 and 2008, the Company recorded other than temporary impairment charges in its realized losses related to the ARS, based on models of discounted future cash flows and assumptions regarding interest rates. Values as of December 31, 2009 for the one security the Company continues to hold are based on models of discounted future cash flows. Other than the realized losses recorded to date for the ARS, as of December 31, 2009, all other realized and unrealized gains and losses on the Company’s investments were not material.

The Company’s investments in ARS were structured to provide liquidity via an auction process that reset the applicable interest rate at predetermined calendar intervals. Beginning in February 2008, failed auctions occurred throughout the ARS market, and since then all auctions for NTI’s ARS have been unsuccessful. While the credit rating of these securities generally remains high and the ARS are paying interest according to their terms, as a result of the potentially long maturity, currently low interest rates and lack of liquidity for ARS, the Company believes the value of the ARS in NTI’s portfolio has been impaired. During the fiscal years ended June 30, 2009 and 2008, the Company recorded other than temporary impairment charges in its realized losses related to the ARS, based on models of discounted future cash flows and assumptions regarding interest rates. The value as of March 31, 2010 for the one security the Company continues to hold is based on models of discounted future cash flows. Other than the realized losses recorded to date for the ARS, as of March 31, 2010, all other realized and unrealized gains and losses on the Company’s investments were not material.

3. Fair Value of Financial Instruments

The following table provides the fair value measurements of the Company’s financial ~~assets~~ ~~as of December 31, 2009,~~ assets according to a hierarchy based on three levels of input objectivity:

Assets at Fair Value as of March 31, 2010

Fair Value Measurements Using Inputs from

Carrying Value

Level 1

Level 2

Level 3

Cash and cash equivalents

2,~~406~~159

—

Auction rate securities

~~842~~678

—

~~842~~678

Total

32,~~248~~837

2,~~406~~159

—

~~842~~678

Level 1 inputs in the table above are quoted prices in active markets for identical assets or liabilities. Level 2 inputs are quoted prices in active markets for similar assets and liabilities, quoted prices in markets that are not active, or other inputs that are observable for the asset or liability. Level 3 inputs are based on management’s own assumptions used to measure the fair value of assets and liabilities, which are supported by little or no market activity. Level 1 and Level 2 inputs are considered observable, while Level 3 inputs are considered unobservable. A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement. The input levels and the methodology used for valuing securities are not necessarily an indication of the credit risk associated with the securities.


	Assets at Fair Value as of June 30, 2009
			Fair Value Measurements Using Inputs from
	Carrying Value		Level 1		Level 2		Level 3
Cash and cash equivalents	$	8,230	$	8,230	$	—	$	—
U.S. government and agency obligations		10,292		—		10,292		—
Auction rate securities		5,527		—		—		5,527


Total	$	24,049	$	8,230	$	10,292	$	5,527

Management believes that the fair value of assets as of March 31, 2010 approximates the net realizable value of these assets in liquidation.

Level 1 inputs in the tables above are quoted prices in active markets for identical assets or liabilities. Level 2 inputs are quoted prices in active markets for similar assets and liabilities, quoted prices in markets that are not active, or other inputs that are observable for the asset or liability. Level 3 inputs are based on management’s own assumptions used to measure the fair value of assets and liabilities, which are supported by little or no market activity. Level 1 and Level 2 inputs are considered observable, while Level 3 inputs are considered unobservable. A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement. The input levels and the methodology used for valuing securities are not necessarily an indication of the credit risk associated with the securities.

Fair values are based on quoted market prices, where available. These fair values are obtained primarily from third party pricing services, which generally use Level 1 or Level 2 inputs for the determination of fair value. Third party pricing services normally derive the security prices through recently reported trades for identical or similar securities making adjustments through the reporting date based upon available market observable information. For securities not actively traded, the third party pricing services may use quoted market prices of comparable instruments or discounted cash flow analyses, incorporating inputs that are currently observable in the markets for similar securities. Inputs that are often used in the valuation methodologies include, but are not limited to, benchmark yields, broker quotes, credit spreads, default rates and prepayment speed. The Company performs a review of the prices received from third parties to determine whether the prices are reasonable estimates of fair value.

The Company’s investments in ARS are classified as Level 2 if they represent ARS with reliable observable inputs, such as recent sales for the same or similar CUSIPs. The Company’s investments in ARS are classified within Level 3 if there are no active markets for the ARS and the Company is unable to obtain independent valuations from market sources. Level 3 ARS were valued using discounted cash flow models, and certain inputs to the cash flow model are unobservable in the market. The changes in Level 3 assets measured at fair value for the period from July 1, 2009 through December 17, 2009 were as follows:


Balance at June 30, 2009	$	5,527
Unrealized gains included in other comprehensive income		—
Sales of securities		(4,685	)
Transfer to Level 2 assets		—

Balance at December 17, 2009	$	842

There were no changes in Level 3 assets measured at fair value for the period from December 18, 2009 through December 31, 2009. The ~~balance~~changes ofin Level 3 ~~securities~~assets measured at ~~December 31,~~ ~~2009~~fair ~~represents~~value ~~one~~for ~~student loan ARS, CUSIP 69847RAA0, issued by Panhandle~~the ~~Plains~~period ~~Student~~from ~~Fin. Corp.~~January 1, ~~with~~2010 athrough ~~maturity date of December~~March 131, ~~2031~~2010 ~~and~~were aas ~~par value of~~follows: ~~$1,000,000.~~


Balance at December 31, 2009	$	842
Unrealized gains included in other comprehensive income		—
Sales of securities		(164	)
Transfer to Level 2 assets		—

Balance at March 31, 2010	$	678

The balance of Level 3 securities at March 31, 2010 represents one student loan ARS, CUSIP 69847RAA0, issued by Panhandle Plains Student Fin. Corp., with a maturity date of December 1, 2031 and a par value of $800,000.

4. Warrant Liability

Under the going concern method of accounting, the fair value of warrants issued by the Company in connection with an April 2007 sale of common stock was recorded as a liability on the consolidated balance sheet based on a Black-Scholes option pricing model, and was marked to market on each financial reporting date. The change in fair value of the warrants was recorded in the consolidated statements of operations as a non-cash gain or loss. Based on the December 17, 2009 closing stock price of $0.11, the warrant exercise price of $16.80 per share and key assumptions including a volatility factor of 1.00, a risk-free interest rate of 1.25% and no dividend yield for the remaining 2¹/4 years until maturity, the warrants had no value at the time of filing the Certificate of Dissolution. Under the liquidation method of accounting, the Company does not believe the warrants will be exercised and accordingly has not assigned any value for their settlement.

5. Stock-based Compensation

The Company ~~recognizes~~previously recognized stock-based compensation expense in its statement of of operations based on estimates of the fair value of employee stock option and stock ~~grant~~ grant awards as measured on the grant date ~~and~~using ~~uses~~ the Black-Scholes option pricing model to to determine the value of the awards granted. ~~The~~Upon filing the Certificate of Dissolution, all stock plans were terminated and, accordingly, the Company ~~amortizes~~has not subsequently provided for any stock option expenses or liabilities. Prior to the termination of the Company’s stock plans, the Company amortized the estimated value of the options as of the grant date over the stock options’ vesting period, which generally ~~ranges~~ranged from one to four years.

Stock-based compensation expense ~~has~~was ~~been~~ recorded in the condensed consolidated statement of operations as follows:

	From October 1, 2009		From October 1, 2008		From July 1, 2009		From July 1, 2008
	From July 1, 2009		From January 1		From July 1, 2008
	through		through		through		~~through~~
	December 17, 2009		~~December~~March 31, ~~2008~~2009		~~December~~March 1731, 2009		~~December 31, 2008~~
	(78 Days)		(Three months)		(170 Days)		(Six months)
	(170 Days;		(Three months;		(Nine months;
General and administrative	$	49	$	133	$	156	$	272
	current fiscal year)		prior fiscal year)		prior fiscal year)
Research and development		—		97		—		202
General and administrative	$	156	$	70	$	342
Total stock-based compensation expense	$	49	$	230	$	156	$	474
Research and development		—		50		252
Total stock-based compensation expense	$	156	$	120	$	594

During the period from July 1, 2009 through December 17, 2009, the Company did not grant any stock-based compensation awards. During the three-month ~~and~~period ~~six-~~ended March 31, 2009 the Company did not grant any stock options. During the nine-month ~~periods ended~~period ~~December~~ended March 31, ~~2008~~2009, the Company granted options to purchase ~~a total of 90,000 and~~ 201,000 shares of common stock~~, respectively,~~ for which the aggregate grant-date fair value was $~~40,000 and $~~117,000~~, respectively~~. OnTo ~~December 17,~~value ~~2009~~these options, the ~~Company~~ ~~terminated~~Company ~~all~~used ~~remaining~~volatility ~~stock~~factors ~~award~~of ~~programs~~0.67 ~~and~~to ~~cancelled~~0.80 ~~all~~for ~~remaining~~the ~~outstanding stock~~Company’s ~~options.~~common ~~Therefore~~stock, asexpected terms of ~~December~~5.5 to 6.25 31years, ~~2009,~~risk ~~there~~free ~~was~~interest norates ~~remaining~~of ~~unrecognized compensation~~2.6% ~~cost related~~ to ~~unvested~~2.8%, ~~stock-based~~and ~~compensation~~no ~~awards~~dividend yield.

6.As of March ~~Income~~31, ~~Taxes~~2010, there was no remaining unrecognized compensation cost related to unvested stock-based compensation awards.

The Company makes certain estimates and judgments in determining income tax expense for financial statement reporting purposes. These estimates and judgments occur in the calculation of certain tax assets and liabilities which arise from differences in the timing of recognition of revenue and expenses for financial statement and tax reporting purposes. As of December 31, 2009, the Company’s net deferred tax assets remain fully offset by a valuation allowance due to the significant uncertainty of the Company’s ability to realize these assets.

~~The provision for income taxes in the amount of $53,000 for the period from July~~6. ~~1, 2009~~Income ~~through December 17, 2009 is comprised of:~~Taxes

	•		$16,000 for federal alternative minimum tax (“AMT”), due to certain limitations on the utilization of prior years net operating loss carryforwards to offset current year alternative taxable income and
	•		$37,000 for California state income taxes, due to temporary provisions enacted in California that prevent utilization of net operating loss carryforwards and research and development tax credit carryforwards.

The Company makes certain estimates and judgments in determining income tax expense for financial statement reporting purposes. These estimates and judgments occur in the calculation of certain tax assets and liabilities which arise from differences in the timing of recognition of revenue and expenses for financial statement and tax reporting purposes. As of March 31, 2010, the Company’s net deferred tax assets remain fully offset by a valuation allowance due to the significant uncertainty of the Company’s ability to realize these assets. The Company has accrued $53,000 as of March 31, 2010 to provide for estimated income taxes based as follows:

•

$16,000 for federal alternative minimum tax (“AMT”), due to certain limitations on the utilization of prior years net operating loss carryforwards to offset current year alternative taxable income and

•

$37,000 for California state income taxes, due to temporary provisions enacted in California that limit utilization of net operating loss carryforwards and research and development tax credit carryforwards.

7. Net Income (Loss) per Share

Basic net income or loss per share is based on the weighted average number of shares of common stock issued and outstanding during the period. Dilutive net income per share is calculated based on the weighted-average number of shares of common stock outstanding as well as other potentially dilutive securities outstanding during the period using the treasury stock method. For the period from July 1, 2009 through December 17, 2009, dilutive securities included options to purchase 90,000 shares of common stock. Because their effect would have been anti-dilutive, dilutive securities excluded options to purchase 727,000 shares of common stock, warrants to purchase 544,000 shares of common stock and the conversion of convertible preferred stock into 71,000 shares of common stock. If the Company had reported net income for the ~~period~~ ~~from October 1, 2009 through December 17, 2009, the dilutive effect of these equity securities would need to be considered. If the Company had reported net income for the~~ three-month and ~~six~~nine-month ~~months~~periods ended ~~December~~March 31, ~~2008~~2009, the dilutive effect of these ~~equity~~ equity instruments (then totaling 2,678,000 shares) would need to be considered.

8. Comprehensive Income (Loss)

The Company’s comprehensive ~~loss was $532,000 for the period from October 1, 2009 through December 17, 2009. The Company’s comprehensive~~ income was the same as net income for the period from July 1, 2009 through December 17, 2009. For the three-month and ~~six~~nine- month periods ended ~~December~~ March 31, ~~2008~~2009, the comprehensive loss was $9383,~~157,~~000 and $12,~~450~~833,000, respectively. The comprehensive income or loss is comprised of the net income or loss and certain changes in equity that are excluded from the Company’s net loss, which for NTI are the unrealized holding gains or loss on available-for-sale investments.

9. Subsequent Events

The Company performed an evaluation of subsequent events through ~~February 12, 2010,~~ the date these financial statements were ~~issued,~~filed. ~~and~~The Company does not believe there were any ~~material~~ material subsequent events that would require further disclosure.

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 referred to 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. The Company’s Annual Report on Form 10-K, filed with the SEC on August 31, 2009, and the Company’s definitive proxy statement, filed with the SEC on September 22, 2009 (the “Proxy Statement”), also contain risk factors that provide examples of risks, uncertainties, and events that may cause our actual results to differ materially from those implied or projected.

Except as may be required by law, we undertake no obligation to update any forward-looking statement to reflect events after the date of this report.

Overview

We are a biopharmaceutical company that previously focused on developing investigational drugs for central nervous system conditions. On October 27, 2009, our stockholders approved the dissolution of the Company pursuant to the Plan of Dissolution approved by our board of directors on August 27, 2009. On November 4, 2009, we redeemed all outstanding shares of Series A Preferred Stock for its liquidation preference of $0.50 per share. Following payment of extraordinary dividends of $0.75 and $0.18 per share of common stock on November 18, 2009 and December 9, 2009, respectively, on December 17, 2009 we filed a Certificate of Dissolution with the Secretary of State of the State of Delaware and delisted our common stock from the Nasdaq Capital Market. On December 17, 2009, we also closed our stock transfer books and discontinued recording transfers of our common stock, although stockholders that held their shares in brokerage account (“street name”) can still generally trade their shares in the Pink Sheets, an electronic bulletin board established for unlisted securities. We are in the process of discharging ~~winding down~~ our remaining ~~operations~~ liabilities under dissolution procedures provided for under the DGCL,. ~~and~~We ~~as this process proceeds we~~ intend to make at least one additional liquidating distribution to stockholders at the conclusion of this process, although the amount and timing cannot presently be determined.

OnCeltic ~~August 12~~Pharmaceuticals, ~~2009,~~to whom we ~~announced~~sold ~~the~~rights ~~termination~~to ofthe ~~our~~investigational ~~license and cooperation~~drug ~~agreement~~XERECEPT® ~~with~~in ~~Merz Pharmaceuticals GmbH~~2005, orcontinues ~~Merz,~~to ~~and~~develop ~~Children’s~~XERECEPT ~~Medical~~for ~~Center Corporation. Under~~ the ~~license~~treatment ~~and~~of ~~cooperation~~brain ~~agreement,~~edema associated aswith ~~amended~~cerebral intumors. ~~2008,~~We ~~we previously~~are ~~received~~entitled ~~quarterly~~to ~~royalty~~receive payments onif ~~sales~~Celtic successfully ofdevelops ~~memantine~~and incommercializes ~~the United States~~XERECEPT, or based onupon athe ~~declining~~net ~~royalty-rate~~proceeds received ~~schedule~~by Celtic, ~~and~~if ~~Merz~~Celtic ~~had~~sells ~~the~~its ~~ability~~rights to ~~terminate~~ ~~the agreement upon six months notice~~XERECEPT. ~~Upon~~We ~~termination~~are ofunable ~~the~~to ~~agreement,~~estimate weif ~~received~~or awhen ~~final~~we ~~royalty~~will ~~payment~~receive ofany ~~$1.1 million~~payments ~~for~~related ~~prior~~to ~~period~~the ~~sales~~development ~~and an additional payment~~ of $4XERECEPT.~~9 million in various installments.~~

Celtic Pharmaceuticals, to whom we sold rights to the investigational drug XERECEPT® in 2005, continues to develop XERECEPT for the treatment of brain edema associated with cerebral tumors. We are entitled to receive payments if Celtic’s successfully develops and commercializes XERECEPT, or based upon the net proceeds received by Celtic, if Celtic sells its rights to XERECEPT. We are unable to estimate if or when we will receive any payments related to the development of XERECEPT.

RESULTS OF OPERATIONS

~~Summary~~Prior to filing the Certificate of Dissolution, we terminated most of the major contracts to which we were a party. During the prior year our operations were primarily focused on developing an investigational drug for treatment of acute ischemic stroke.

~~Prior~~After to filing the Certificate of Dissolution, we ~~terminated~~adopted ~~most~~the liquidation basis of accounting and accordingly do not present a statement of operations for the ~~major~~period ~~contracts~~subsequent to ~~which~~the wefiling. ~~were~~Therefore, a ~~party~~discussion regarding the results of operations is not applicable for periods after December 17, 2009. During the ~~prior~~quarter ~~year~~ended ~~our~~March 31, 2010, ~~operations~~we ~~were~~did ~~primarily focused~~not onmake ~~developing~~any anchanges ~~investigational~~to ~~drug~~the ~~for~~net ~~treatment~~assets ofavailable ~~stroke~~to common stockholders in liquidation.

Revenues

Prior to filing the certificate of dissolution, we recorded revenues of approximately $6.0 million for the 170 days ended December 17, 2009, primarily from receipt of one-time payments following the termination of a contractual agreement between NTI and Merz Pharmaceuticals GmbH. We recorded the entire amount received as revenue because we have no further obligations to Merz. In the prior fiscal year, we earned revenue from a royalty-bearing agreement with Merz, from providing drug development services to a collaborator, and as a result of the amortization of a previously received up-front payment.

Research and Development Expenses

We terminated our research and development programs prior to the beginning of our fiscal year ended June 30, 2010, and accordingly did not have any research and development expenses during the period ended December 17, 2009. Research and development expenses for the prior fiscal year primarily represented costs associated with the product candidate Viprinex, which we were developing in phase 3 clinical trials as a potential treatment for stroke. Clinical work on Viprinex terminated on December 16, 2008 when the clinical trials were unblinded and we learned that the drug candidate’s efficacy did not meet predetermined criteria.

~~RESULTS~~General OFand ~~OPERATIONS~~Administrative Expenses

~~Revenues~~General and administrative expenses were approximately $1.5 million for the 170-day period from July 1, 2009 through December 17, 2009, representing costs associated with the wind-down of the Company’s operations during this period. Costs for the prior fiscal year included general and administrative expenses associated with an operating entity.

The major components of our revenue were as follows (in thousands):

					Variance							Variance
	Most Recent Quarterly				from Period			Year-to-Date Reporting				from Period
	Reporting Period Ended				in Prior			Period Ended				in Prior
	December 17,				Year			December 17,				Year
	2009		2008		2009/2008			2009		2008		2009/2008
Royalty Revenue	$	—	$	2,007	$	(2,007	)	$	6,019	$	4,085	$	1,934
XERECEPT Sale		—		1,375		(1,375	)		—		2,750		(2,750	)
Collaboration Services		—		109		(109	)		7		221		(214	)
Total	$	—	$	3,491	$	(3,491	)	$	6,026	$	7,056	$	(1,030	)

We had no revenues for the quarterly period ended December 17, 2009, the date we filed for dissolution, because we had previously entered into arrangements with our revenue sources to terminate the underlying agreements. For the year-to-date period ended December 17, 2009, the Company received $6 million from Merz Pharmaceuticals GmbH upon the termination of the contractual agreement between NTI and Merz, and recorded the entire amount as revenue, since we have no further obligations under our agreements with Merz. Other revenues were not material in the fiscal 2010 reporting periods. In the prior fiscal year, we earned revenue from a royalty-bearing agreement with Merz, from providing drug development services to a collaborator, and as a result of the amortization of a previously received up-front payment.

Celtic Pharmaceuticals continues to develop XERECEPT®, an investigational drug for edema, which we sold to Celtic in fiscal 2006. We are entitled to future payments upon either Celtic’s marketing of XERECEPT or Celtic’s sale of XERECEPT to another party, but we are not able to estimate if or when either of these events may occur. Unless Celtic successfully receives approval for XERECEPT and markets the drug, or Celtic successfully sells its interest in XERECEPT to another party, we do not expect any future revenue at NTI. Celtic may never receive approval to market XERECEPT and may never enter into an agreement for the sale of XERECEPT.

RESEARCH AND DEVELOPMENT EXPENSES

We terminated our research and development programs prior to the beginning of our fiscal year ended June 30, 2010, and accordingly did not have any research and development expenses during the periods ended December 17, 2009. Research and development expenses for the prior fiscal year primarily represented costs associated with the product candidate Viprinex, which we were developing in phase 3 clinical trials as a potential treatment for stroke. Clinical work on Viprinex terminated on December 16, 2008 when the clinical trials were unblinded and we learned that the drug candidate’s efficacy did not meet predetermined criteria.

GENERAL AND ADMINISTRATIVE EXPENSES

General and administrative expenses were $663,000 for the period from October 1, 2009 through December 17, 2009, a 45% decrease from expenses of $1,201,000 for the three months ended December 31, 2008. The decrease of $538,000 for the fiscal 2010 reporting period as compared to the fiscal 2009 reporting period was primarily due to reduction in personnel costs following the termination of our Viprinex program. In addition, following a successful appeal with the German taxing authorities, during fiscal 2010 we received a refund for VAT taxes that was previously denied. Partially offsetting the lower costs in the fiscal 2010 period were severance costs for terminated personnel.

In the year-to-date period, general and administrative expenses decreased 39% compared to the prior year, for the same reasons as noted in the quarterly period.

Based on the liquidation method of accounting, estimated future costs have been accrued, and the Company does not expect to record additional operating expense, but may adjust its estimates, which will be recorded in the Statement of Changes in Net Assets (Liquidation Basis).

~~INTEREST~~Interest ~~INCOME~~Income

Interest income decreased during the ~~periods~~170-day ~~from~~period ~~October 1,~~in ~~2009~~the ~~and~~most ~~July 1,~~recent ~~2009~~fiscal year ~~through~~as ~~December 17, 2009, when~~ compared to the ~~reporting~~prior year periods ~~ended December 31, 2009,~~ due to payment of extraordinary dividends, and the resulting ~~Company’s~~decrease ~~lower~~in cash and ~~investments~~investment balances, ~~and~~shortly ~~lower~~prior ~~interest~~to ~~rates~~the Company’s filing the Certificate of Dissolution.

~~GAIN~~Gain ONon ~~SALE~~Sale OFof ~~LONG~~Long-~~TERM~~term ~~INVESTMENTS~~Investments

Gain on sale of long-term investments increased during the fiscal 2010 reporting ~~periods~~period due to sales of ARS.

14Non-cash gain (loss) on change in fair value of warrants

~~Table~~Based on declines in NTI’s stock price and decreases in our estimate for stock price volatility during the 170-day period ended December 17, 2009, we recorded a non-cash gain based on the decrease in the estimated fair value of ~~Contents~~warrants issued during a previous financing transaction. In the prior fiscal year we recorded non-cash losses due to the increased volatility of our common stock and its impact on the Black-Scholes option pricing formula.

LOSS ON SALE OF PROPERTY AND EQUIPMENT

Loss on sale of property and equipment during the 2010 reporting periods related to dispositions as the Company prepared for liquidation.

NON-CASH GAIN ON DECREASE IN FAIR VALUE OF WARRANTS

Based on declines in NTI’s stock price and decreases in the Company’s estimate for stock price volatility, the Company recorded non-cash gains based on decreases in the estimated fair value of warrants issued during a previous financing transaction. No further gains or other changes are expected based on the Company’s liquidation accounting.

LIQUIDITY AND CAPITAL RESOURCES

We assess liquidity primarily by the cash which we believe is necessary to fund the wind-down of our operations and our remaining contractual obligations, as well as to allow for reasonable contingencies identified in the dissolution process. Short-term investments are also considered if there is a high assurance of our ability to convert them into cash. Investments such as our ARS, for which we do not believe there is a high assurance of our ability to readily convert to cash, are not considered for this liquidity analysis. Based on our liquidity assessments, and following stockholder approval of our Plan of ~~Liquidation~~Dissolution, on October 27, 2009, our board of directors declared an extraordinary dividend of $0.75 per share, which was paid to our common stockholders on November 18, 2009. On November 19, 2009, following the sale of most of our remaining ARS, our board of directors declared an additional extraordinary dividend of $0.18 per share, which was paid to our common stockholders on December 9, 2009. These ~~two~~ two payments aggregated $0.93 per share, or approximately $25.1 million.

Following completion of the process specified under the DGCL to allow potential claims to be submitted to the Company and resolved, we intend to distribute any ~~additional~~remaining cash to our stockholders. The currently estimated amount of this ~~additional~~remaining cash is approximately $1.3 million and is represented in the financial statements by the “net assets in liquidation available to common stockholders” as of ~~December~~March 31, ~~2009~~2010. In order for ~~the~~this ~~“net~~amount ~~assets in liquidation available~~ to ~~common stockholders” to~~ be ultimately distributed to our stockholders, claims would need to come in at or below our current estimates and costs of the dissolution process would need to come in at or below our current estimates. If either claims or costs are higher, stockholders ~~may~~would ~~not~~ receive ~~any~~less, ~~further~~and it is possible that there could be no further distributions ~~from~~other ~~NTI~~than those which have already been made.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our net assets available to stockholders or other financial statements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

~~Not~~As ~~applicable~~a smaller reporting company, we are not obligated to provide the information required by this item.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Our Acting Chief Executive and Financial Officer is responsible for establishing and maintaining “disclosure controls and procedures” (as defined in the rules promulgated under the Securities Exchange Act of 1934, as amended) for our company. Based on his evaluation of our disclosure controls and procedures (as defined in the rules promulgated under the Securities Exchange Act of 1934), our Acting Chief Executive and Financial Officer concluded that our disclosure controls and procedures were effective as of ~~December~~March 31, ~~2009~~2010, the end of the period covered by this report.

Changes in Internal Control over Financial Reporting

InThere ~~connection~~were ~~with~~no changes in the Company’s ~~filing~~internal acontrol ~~certificate~~over offinancial ~~dissolution on December~~reporting ~~17,~~during ~~2009,~~ the Company ~~terminated all of its employees, and has retained its former Chief Financial Officer and its former Controller on an hourly basis as needed to complete the Company~~’s ~~legal~~last ~~and~~fiscal ~~reporting~~quarter ~~requirements.~~that ~~The responsibilities for internal control over financial reporting~~ have ~~been~~materially ~~consolidated~~affected, toor ~~these two part-time consultants. The~~are ~~Company’s~~reasonably ~~board~~likely ~~of directors serves~~ to ~~oversee~~materially ~~and~~affect, ~~review~~ the Company’s ~~system~~internal ~~of financial~~control over financial reporting.

Other than those stated above, there were no changes in the Company’s internal control over financial reporting during the Company’s last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings.

We are not currently party to any material legal proceedings, although from time to time we may be named as a party to lawsuits in the normal course of business.

Item 1A. Risk Factors.

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended June 30, 2009, filed with the SEC on August 31, 2009, our Definitive Proxy Statement on Schedule 14A filed with the SEC on September 22, 2009, and the following updates to these risk factors. Any of these risks could materially affect our business, financial condition and future results. The risks described below, in our Annual Report on Form 10-K and in the Proxy Statement are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and future results.

We expect to continue to incur the expenses of complying with public company reporting requirements, which ~~may~~will bereduce ~~economically~~the ~~burdensome~~cash available for distribution to stockholders.

Our common stock is ~~currently~~no longer registered under the Exchange Act,. ~~which requires that we~~However, ~~and our officers and directors with respect to Section 16 of the Exchange Act, comply with certain public reporting and proxy statement requirements thereunder. Until~~ we ~~file~~are torequired ~~deregister our common stock, we have an obligation~~ to continue to comply with ~~these~~ the applicable reporting requirements, ~~even~~under ~~though~~Section 15(d) ~~such~~of ~~compliance~~the ~~may~~Exchange beAct ~~economically~~for ~~burdensome~~the ~~and~~remainder of ~~minimal~~ ~~value to~~ our ~~stockholders.~~current ~~Because~~fiscal ~~our~~year ~~initial~~ending ~~request to seek relief from the~~June 30, ~~SEC~~2010. toAs ~~suspend~~a ~~our reporting obligations under the Exchange Act was not successful~~result, we ~~intend~~ expect to continue to ~~comply~~incur ~~with~~ the ~~applicable~~expenses associated with these reporting requirements, ofincluding ~~the~~filing ~~Exchange Act.~~an AsAnnual aReport ~~result,~~on weForm ~~will~~10-K ~~continue~~for ~~to incur~~ the ~~expenses~~fiscal year ~~associated~~ending ~~with~~June 30, ~~these reporting requirements~~2010, which will reduce the cash available for distribution to our stockholders.

If the amount of our contingency reserve is insufficient to satisfy the aggregate amount of our liabilities and other obligations, each stockholder may be liable to our creditors for the amount of liquidating distributions received by such stockholder under the Plan of Dissolution, which could also have adverse tax consequences.

Our corporate existence will continue until at least December 17, 2012, three years from the date we filed the Certificate of Dissolution. However, as a corporation in dissolution, we are not allowed to carry on any business except for the purpose of winding down the business and affairs of the Company. After we filed the Certificate of Dissolution, we commenced the elective dissolution process, under Sections 280 and 281(a) of the DGCL, which involves providing notice of our dissolution to potential claimants and paying or making reasonable provision to pay all claims and obligations, including all contingent, conditional or unmatured contractual or statutory claims, known to us. We may also obtain and maintain insurance coverage or establish and set aside a reasonable amount of cash or other assets as a contingency reserve to satisfy claims against and obligations of the Company. In the event that the amount of the contingency reserve, insurance and other measures calculated to provide for the satisfaction of liabilities and claims are insufficient to satisfy the aggregate amount ultimately found payable in respect of our liabilities and claims against us, each stockholder could be held liable for amounts due to creditors up to the amounts distributed to such stockholder under the Plan of Dissolution. In such event, a stockholder could be required to return any amounts received as distributions pursuant to the Plan of Dissolution. Moreover, for U.S. federal income tax purposes, payments made by a stockholder in satisfaction of our liabilities not covered by the cash or other assets in our contingency reserve or otherwise satisfied through insurance or other reasonable means generally would produce a capital loss for such stockholder in the year the liabilities are paid. The deductibility of any such capital loss generally would be subject to limitations under the Internal Revenue Code of 1986, as amended.

Final liquidating distributions to our stockholders could be delayed or reduced or may never be made.

Any final liquidating distributions we make to our stockholders could be delayed, depending on many factors, including, without limitation:

• if a creditor or other third party seeks an injunction against the making of distributions to our stockholders on the ground that the amounts to be distributed are needed to provide for the satisfaction of our liabilities or other obligations; • if we become a party to lawsuits or other claims asserted by or against us, including any claims or litigation arising in connection with our decision to liquidate and dissolve, payments to suppliers or other vendors or claims from patients in our clinical trials;

16 • if we become a party to lawsuits or other claims asserted by or against us, including any claims or litigation arising in connection with our decision to liquidate and dissolve, payments to suppliers or other vendors or claims from patients in our clinical trials;

~~Table~~• ofif ~~Contents~~we are unable to liquidate our remaining ARS or if such liquidation takes longer than expected;

• if we are unable to ~~liquidate our remaining ARS or if such liquidation takes longer than expected; • if we are unable to~~ resolve claims with creditors or other third parties, or if such resolutions take longer than expected; or • the elective dissolution process is not completed in a timely manner due to all of the steps required to complete such a process, including any potential delay in the Delaware Court of Chancery, which could delay final approval of our petition.

•

the elective dissolution process is not completed in a timely manner due to all of the steps required to complete such a process, including any potential delay in the Delaware Court of Chancery, which could delay final approval of our petition.

Any of the foregoing could delay or substantially diminish the amount available for distribution to our stockholders. In addition, under the DGCL, claims and demands may be asserted against us at any time before December 17, 2012. Accordingly, our board of directors may retain funds to obtain and maintain insurance coverage or establish and set aside a reasonable amount of cash or other assets as a contingency reserve to satisfy claims against and obligations of the Company that may arise during that three-year period. As a result of these factors, we may retain for distribution at a later date, some or all of the estimated amounts that we expect to distribute to our stockholders. At the conclusion of the process for dissolution, there may not be any remaining cash available for distribution to stockholders.

We may not be able to settle all of our obligations to creditors.

~~We have current obligations to creditors.~~ Our estimate of the final distributions to our stockholders takes into account all of our known obligations and our best estimate of the amount reasonably required to satisfy ~~such~~other estimated obligations. As part of the dissolution process, we will attempt to settle ~~those~~all obligations with our creditors. We cannot assure you that we will be able to settle all of these obligations or that they can be settled for the amounts we have estimated for purposes of calculating the likely distribution to ~~stockholders.~~ If we are unable to reach agreement with a creditor relating to an obligation, that creditor may bring a lawsuit against us. Amounts required to settle obligations or defend lawsuits in excess of the estimated amounts will result in distributions to stockholders ~~that are smaller than those that we presently estimate or may eliminate distributions entirely~~.

Although the time-period for known creditors to submit claims to us ended on May 8, 2010, there may be additional unknown creditors that have yet to submit a valid claim. If we are unable to reach agreement with a creditor submitting such a claim, that creditor may bring a lawsuit against us. Amounts required to settle obligations or defend lawsuits in excess of the estimated amounts will result in distributions to stockholders that are smaller than those that we presently estimate or may eliminate distributions entirely.

Our common stock stopped trading on the Nasdaq Capital Market on December 17, 2009, and we closed our stock transfer books as of this date, each of which will make it difficult or impossible for stockholders to trade their shares.

On December 17, 2009, we closed our stock transfer books after we filed the Certificate of Dissolution. We are now prohibited from recording transfers of record ownership of our common stock, and stock certificates evidencing the shares of our common stock are no longer assignable or transferable on our books. Trading of our common stock was halted on the Nasdaq Capital Market as of the beginning of business on December 17, 2009, and trading of our common stock is now conducted in the over-the-counter market on the Pink Sheets, an electronic bulletin board established for unlisted securities. Such trading has reduced the market liquidity of our common stock. As a result, an investor will find it more difficult to dispose of, or obtain accurate quotations for the price of, our common stock.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3. Defaults Upon Senior Securities.

None.

~~Item 4. Submission of Matters to a Vote of Security Holders.~~16

None. Table of Contents

Item 4. (Removed and Reserved).

Not applicable.

Item 5. Other Information.

~~On February 12, 2010, our board of directors appointed Matthew M~~None. ~~Loar, our former~~ Vice President and Chief Financial Officer, as Acting Chief Executive and Financial Officer, and approved an hourly pay rate of $200 to compensate Mr. Loar for his services in that capacity, including his responsibilities for meeting our continuing financial reporting obligations.

Item 6. Exhibits


	31.1			Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	32.1			Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

SIGNATURE

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 12, 2010	/s/ Matthew M. Loar
Dated: May 14, 2010	/s/ Matthew M. Loar
	Matthew M. Loar
	Acting Chief Executive and Financial Officer (Principal Executive, Financial and Accounting Officer)

1817

EXHIBIT INDEX


Exhibit
No.		Description
	31.1	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
	32.1	Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

1918

Filing Compare · NEUROBIOLOGICAL TECHNOLOGIES INC /CA/