Blueprint
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
(Mark One)
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☑
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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For the quarterly period ended December 31, 2017
or
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☐
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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For the transition period from
to
.
Commission File Number: 001-37761
VistaGen Therapeutics, Inc.
(Exact name of registrant as specified in its charter)
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Nevada
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20-5093315
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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343 Allerton Avenue
South San Francisco, CA 94080
(Address of principal executive offices including zip
code)
(650) 577-3600
(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 ☒ No ☐
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 ☒
No ☐
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer,
or a smaller reporting company. See the definitions of “large
accelerated filer,” “accelerated filer” and
“smaller reporting company” in Rule 12b-2 of the
Exchange Act.
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Large accelerated filer
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[ ]
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Accelerated filer
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[ ]
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Non-Accelerated filer
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[ ]
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Smaller reporting company
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[X]
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Emerging growth company
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[ ]
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(do not check if a smaller reporting company)
If an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act.
[ ]
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act). Yes
☐ No ☒
As of February 9, 2018, 22,902,615 shares of the registrant’s
common stock, $0.001 par value, were issued and
outstanding.
VistaGen Therapeutics, Inc.
Quarterly Report on Form 10-Q
for the Quarter Ended December 31, 2017
TABLE OF CONTENTS
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Page
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1
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2
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3
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4
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5
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16
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31
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31
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31
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66
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66
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67
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68
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PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
(Unaudited)
VISTAGEN THERAPEUTICS,
INC.
Condensed Consolidated Balance Sheets
Amounts
in Dollars
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ASSETS
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Current
assets:
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Cash
and cash equivalents
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$13,031,800
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$2,921,300
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Prepaid
expenses and other current assets
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940,400
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456,600
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Total
current assets
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13,972,200
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3,377,900
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Property
and equipment, net
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222,800
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286,500
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Security
deposits and other assets
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47,800
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47,800
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Total
assets
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$14,242,800
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$3,712,200
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LIABILITIES AND STOCKHOLDERS’ EQUITY
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Current
liabilities:
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Accounts
payable
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$509,300
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$867,300
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Accrued
expenses
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770,900
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443,000
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Current
notes payable
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43,700
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54,800
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Capital
lease obligations
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2,600
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2,400
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Total
current liabilities
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1,326,500
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1,367,500
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Non-current
liabilities:
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Accrued
dividends on Series B Preferred Stock
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2,344,400
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1,577,800
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Deferred
rent liability
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299,100
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139,200
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Capital
lease obligations
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10,000
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11,900
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Total
non-current liabilities
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2,653,500
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1,728,900
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Total
liabilities
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3,980,000
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3,096,400
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Commitments
and contingencies
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Stockholders’
equity:
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Preferred
stock, $0.001 par value; 10,000,000 shares authorized at December
31, 2017 and March 31, 2017:
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Series
A Preferred, 500,000 shares authorized, issued and outstanding at
December 31, 2017
and
March 31, 2017
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500
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500
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Series
B Preferred; 4,000,000 shares authorized at December 31, 2017 and
March 31, 2017;
1,160,240
shares issued and outstanding at December 31, 2017 and March 31,
2017
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1,200
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1,200
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Series
C Preferred; 3,000,000 shares authorized at December 31, 2017 and
March 31, 2017;
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2,318,012
shares issued and outstanding at December 31, 2017 and March 31,
2017
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2,300
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2,300
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Common
stock, $0.001 par value; 100,000,000 and 30,000,000 shares
authorized at December 31, 2017
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and March 31, 2017, respectively; 22,723,504 and 8,974,386 shares
issued and outstanding at
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December
31, 2017 and March 31, 2017, respectively
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22,700
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9,000
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Additional
paid-in capital
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166,669,200
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146,569,600
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Treasury
stock, at cost, 135,665 shares of common stock held at December 31,
2017 and March 31, 2017
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(3,968,100)
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(3,968,100)
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Accumulated
deficit
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(152,465,000)
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(141,998,700)
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Total
stockholders’ equity
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10,262,800
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615,800
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Total
liabilities and stockholders’ equity
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$14,242,800
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$3,712,200
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See accompanying notes to Condensed Consolidated Financial
Statements.
VISTAGEN THERAPEUTICS,
INC.
STATEMENT OF OPERATIONS
Amounts
in Dollars, except share amounts
UNAUDITED
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Three Months Ended December 31,
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Nine Months Ended December 31,
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Revenues:
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Sublicense
revenue
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$-
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$1,250,000
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$-
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$1,250,000
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Total
revenues
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-
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1,250,000
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-
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1,250,000
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Operating
expenses:
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Research
and development
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1,601,800
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1,611,000
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5,124,600
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4,042,800
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General
and administrative
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1,266,000
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2,276,600
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4,997,400
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4,907,800
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Total
operating expenses
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2,867,800
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3,887,600
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10,122,000
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8,950,600
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Loss
from operations
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(2,867,800)
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(2,637,600)
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(10,122,000)
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(7,700,600)
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Other
expenses, net:
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Interest
expense, net
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(2,000)
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(900)
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(7,700)
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(3,700)
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Loss
on extinguishment of accounts payable
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(135,000)
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-
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(135,000)
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-
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Loss
before income taxes
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(3,004,800)
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(2,638,500)
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(10,264,700)
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(7,704,300)
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Income
taxes
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-
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(2,400)
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(2,400)
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Net
loss and comprehensive loss
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(3,004,800)
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(2,638,500)
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(10,267,100)
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(7,706,700)
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Accrued
dividend on Series B Preferred stock
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(263,000)
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(237,700)
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(766,600)
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(1,018,500)
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Deemed
dividend from trigger of down round
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provision
feature
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(199,200)
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-
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(199,200)
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-
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Deemed
dividend on Series B Preferred Units
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-
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-
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-
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(111,100)
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Net
loss attributable to common stockholders
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$(3,467,000)
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$(2,876,200)
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$(11,232,900)
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$(8,836,300)
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Basic
and diluted net loss attributable to common
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stockholders
per common share
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$(0.25)
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$(0.34)
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$(1.03)
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$(1.23)
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Weighted
average shares used in computing basic
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and
diluted net loss attributable to common
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stockholders
per common share
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13,895,642
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8,381,824
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10,947,556
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7,181,307
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See accompanying notes to Condensed Consolidated Financial
Statements.
VISTAGEN THERAPEUTICS INC.
STATEMENT OF CASH FLOWS
Amounts in Dollars
UNAUDITED
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Nine Months Ended December 31,
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Cash
flows from operating activities:
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Net
loss
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$(10,267,100)
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$(7,706,700)
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Adjustments
to reconcile net loss to net cash used in operating
activities:
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Depreciation
and amortization
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65,300
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37,600
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Stock-based
compensation
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1,386,900
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573,900
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Expense related to modification of warrants, including
exchange of warrants
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for
common stock
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292,700
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427,500
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Amortization
of deferred rent
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159,900
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20,400
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Fair
value of common stock granted for services
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1,554,800
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1,217,500
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Fair
value of Series B Preferred stock granted for services
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-
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375,000
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Fair
value of warrants granted for services
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-
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240,300
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Loss
on extinguishment of accounts payable
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135,000
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-
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Changes
in operating assets and liabilities:
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Sublicense
fee receivable
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-
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(1,250,000)
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Prepaid
expenses and other current assets
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259,600
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22,000
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Accounts
payable and accrued expenses, including accrued
interest
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(41,800)
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74,200
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Net
cash used in operating activities
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(6,454,700)
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(5,968,300)
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Cash
flows from property and investing activities:
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Purchases
of equipment
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(1,600)
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(9,900)
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Net
cash used in investing activities
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(1,600)
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(9,900)
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Cash
flows from financing activities:
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Net
proceeds from issuance of common stock and warrants, including
Units
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16,721,900
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9,785,000
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Net
proceeds from issuance of Series B Preferred Units
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-
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278,000
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Repayment
of capital lease obligations
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(1,700)
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(800)
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Repayment
of notes payable
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(153,400)
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(140,500)
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Net
cash provided by financing activities
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16,566,800
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9,921,700
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Net
increase in cash and cash equivalents
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10,110,500
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3,943,500
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Cash
and cash equivalents at beginning of period
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2,921,300
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428,500
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Cash
and cash equivalents at end of period
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$13,031,800
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$4,372,000
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Supplemental
disclosure of noncash activities:
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Insurance
premiums settled by issuing note payable
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$142,400
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$117,500
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Accrued
dividends on Series B Preferred
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$766,600
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$780,800
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Accrued
dividends on Series B Preferred settled upon conversion by
issuance
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of
common stock
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$-
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$1,768,800
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Deemed
dividend from trigger of down round provision feature
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$199,200
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$-
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See accompanying notes to Condensed Consolidated Financial
Statements.
VISTAGEN THERAPEUTICS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
FOR THE NINE MONTHS ENDED DECEMBER 31, 2017
AMOUNTS IN DOLLARS, except shares
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Balances at March 31, 2017
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500,000
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$500
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1,160,240
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$1,200
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2,318,012
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$2,300
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8,974,386
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$9,000
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$146,569,600
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$(3,968,100)
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$(141,998,700)
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$615,800
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Proceeds from sale of common stock and warrants for cash in
September
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2017
Public Offering, net of underwriting discount and
expenses
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-
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-
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-
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-
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-
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-
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1,371,430
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1,300
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2,023,200
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-
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-
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2,024,500
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Proceeds from sale of common stock and warrants for cash in
December
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2017
Public Offering, net of underwriting discount and
expenses
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-
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-
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-
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-
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-
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-
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10,000,000
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10,000
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13,614,000
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-
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-
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13,624,000
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Proceeds from sale of common stock and warrants for cash
in
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private
placement offerings
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-
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-
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-
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-
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-
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-
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616,323
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600
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1,072,600
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-
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-
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1,073,200
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Accrued
dividends on Series B Preferred stock
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-
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-
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-
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-
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-
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-
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-
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-
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(766,600)
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-
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-
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(766,600)
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Stock-based
compensation expense
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-
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-
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-
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-
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-
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-
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-
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-
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1,386,900
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-
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-
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1,386,900
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Fair
value of common stock granted for services
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-
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-
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-
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-
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-
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-
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1,072,500
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1,100
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1,693,100
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-
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-
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1,694,200
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Fair
value of common stock granted in settlement of accounts
payable
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-
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-
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-
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-
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-
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-
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500,000
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500
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584,500
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-
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-
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585,000
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Increase
in fair value attributable to warrant modifications
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-
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-
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-
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-
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-
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-
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-
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-
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292,700
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-
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-
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292,700
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Deemed
dividend from trigger of down round provision feature
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-
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-
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-
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-
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-
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-
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-
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-
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199,200
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-
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(199,200)
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-
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Proceeds
from exercise of warrants
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-
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-
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-
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-
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-
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-
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188,865
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200
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-
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-
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-
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200
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Net
loss for the nine months ended December 31, 2017
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-
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-
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-
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-
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-
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-
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-
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-
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-
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-
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(10,267,100)
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(10,267,100)
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Balances at December 31, 2017
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500,000
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$500
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1,160,240
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$1,200
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2,318,012
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$2,300
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22,723,504
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$22,700
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$166,669,200
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$(3,968,100)
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$(152,465,000)
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$10,262,800
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See accompanying notes to Condensed Consolidated Financial
Statements.
VISTAGEN THERAPEUTICS,
INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Description of Business
Overview
VistaGen Therapeutics, Inc. (NASDAQ: VTGN), a Nevada corporation,
is a clinical-stage biopharmaceutical company focused on developing
new generation medicines for depression and other central nervous
system (CNS) disorders.
AV-101 is our oral CNS product candidate in Phase 2 clinical
development in the United States, initially as a new generation
adjunctive treatment for Major Depressive Disorder
(MDD) in patients with an inadequate response to
standard antidepressants approved by the U.S. Food and Drug
Administration (FDA). AV-101’s mechanism of action
(MOA) involves both NMDA (N-methyl-D-aspartate) and
AMPA (alpha-amino-3-hydroxy-5-methyl-4-isoxazolepropionic acid)
receptors in the brain responsible for fast excitatory synaptic
activity throughout the CNS. AV-101’s MOA is
fundamentally different from all standard FDA-approved
antidepressants, as well as all atypical antipsychotics, such as
aripiprazole, often used adjunctively with standard
antidepressants. We believe AV-101 also has potential to treat
several additional CNS indications where modulation of the
NMDA receptors, activation of AMPA pathways and/or key active
metabolites of AV-101 may achieve therapeutic
benefit, including, among
others, as a non-opioid alternative for neuropathic pain and for
Parkinson’s disease levodopa -induced dyskinesia
(PD
LID).
Clinical studies conducted at the U.S. National Institute of Mental
Health (NIMH), part of the U.S. National Institutes of Health
(NIH), by Dr. Carlos Zarate, Jr., Chief of the
NIMH’s Experimental Therapeutics & Pathophysiology Branch
and its Section on Neurobiology and Treatment of Mood and Anxiety
Disorders, have focused on the antidepressant effects of ketamine
hydrochloride injection (ketamine), an ion-channel blocking NMDA receptor
antagonist approved by the FDA as an anesthetic, in MDD patients
with inadequate responses to multiple standard antidepressants.
These NIMH studies, as well as clinical research at Yale University
and other academic institutions in the U.S., have demonstrated
ketamine’s robust antidepressant effects in
treatment-resistant MDD patients within twenty-four hours of a
single sub-anesthetic dose administered by intravenous
(IV) injection.
We believe orally administered AV-101 may have potential to deliver
ketamine-like antidepressant effects, without ketamine’s
psychological side effects and other safety concerns, and without
the need for IV administration. As published in the October 2015
issue of the peer-reviewed, Journal of Pharmacology and
Experimental Therapeutics, in an article titled, The prodrug 4-chlorokynurenine
causes ketamine-like antidepressant effects, but not side effects,
by NMDA/glycineB-site inhibition, using well-established preclinical models of
depression, AV-101 was shown to induce fast-acting, dose-dependent,
persistent and statistically significant antidepressant-like
responses following a single treatment. These responses were
equivalent to those seen with a single sub-anesthetic control dose
of ketamine. In addition, these studies confirmed that the
fast-acting antidepressant effects of AV-101 were mediated through
both inhibiting the glycine binding (GlyB) site of the NMDA receptor and activating the
AMPA receptor pathway in the brain.
In October 2017, we received FDA authorization to launch our
180-patient Phase 2 multi-center, multi-dose, double blind,
placebo-controlled efficacy and safety study of AV-101 as a new
generation adjunctive treatment for MDD patients with an inadequate
therapeutic response to standard, FDA-approved antidepressants
(the AV-101 MDD Phase 2 Adjunctive
Treatment Study ,
and in December 2017 the FDA granted Fast Track Designation to
AV-101 for development as a potential adjunctive treatment for
MDD. We intend to launch the AV-101 MDD Phase 2 Adjunctive
Treatment Study in the first quarter of 2018 with Dr. Maurizio
Fava, Professor of Psychiatry at Harvard Medical School and
Director, Division of Clinical Research, Massachusetts General
Hospital (MGH) Research Institute, as the Principal
Investigator. Dr. Fava was the co-Principal Investigator with
Dr. A. John Rush of the STAR*D study, the largest clinical trial
conducted in depression to date, whose findings were published in
journals such as the New England Journal of
Medicine (NEJM) and the Journal of the American
Medical Association (JAMA). We expect top line results of the AV-101 MDD
Phase 2 Adjunctive Treatment Study to be available in the first
half of 2019. In addition, pursuant to our Cooperative
Research and Development Agreement (CRADA) with the NIMH, the NIMH is currently funding,
and Dr. Zarate, as Principal Investigator, and his team are
currently conducting, a small Phase 2 clinical study of AV-101 as a
monotherapy in subjects with treatment-resistant MDD
(the NIMH AV-101 MDD Phase 2
Monotherapy Study).
VistaStem Therapeutics (VistaStem) is our wholly owned subsidiary focused on
applying human pluripotent stem cell (hPSC) technology to discover, rescue, develop and
commercialize (i) proprietary new chemical entities
(NCEs) for CNS and other diseases and (ii) regenerative
medicine (RM) involving hPSC-derived blood, cartilage, heart
and liver cells. Our internal drug rescue programs are
designed to utilize CardioSafe
3D, our customized cardiac
bioassay system, to develop small molecule NCEs for our
pipeline. To advance potential RM applications of our cardiac
stem cell technology, in December 2016, we exclusively sublicensed
to BlueRock Therapeutics LP, a next generation RM company
established by Bayer AG and Versant Ventures (BlueRock
Therapeutics), rights to
certain proprietary technologies relating to the production of
cardiac stem cells for the treatment of heart disease
(the BlueRock
Agreement). In a manner
similar to our exclusive sublicense agreement with BlueRock
Therapeutics, we may pursue additional RM collaborations or
out-licensing transactions involving blood, cartilage, and/or liver
cells derived from hPSCs for (A) cell-based therapy, (B) cell
repair therapy, and/or (C) tissue engineering.
Subsidiaries
As noted above, VistaStem is our wholly-owned subsidiary. Our
Condensed Consolidated Financial Statements in this Quarterly
Report on Form 10-Q (Report) also include the accounts of VistaStem’s
two wholly-owned inactive subsidiaries, Artemis Neuroscience, Inc.,
a Maryland corporation, and VistaStem Canada, Inc., a corporation
organized under the laws of Ontario, Canada.
Note 2. Basis of Presentation
The accompanying unaudited Condensed Consolidated Financial
Statements have been prepared in accordance with accounting
principles generally accepted in the United States
(U.S.
GAAP) for interim financial
information and with the instructions to Form 10-Q and
Rule 8-03 of Regulation S-X. Accordingly, they do not contain
all of the information and footnotes required for complete
consolidated financial statements. In the opinion of management,
the accompanying unaudited Condensed Consolidated Financial
Statements reflect all adjustments, which include only normal
recurring adjustments, necessary to present fairly our interim
financial information. The accompanying Condensed Consolidated
Balance Sheet at March 31, 2017 has been derived from our audited
consolidated financial statements at that date but does not include
all disclosures required by U.S. GAAP. The operating results
for the three and nine months ended December 31, 2017 are not
necessarily indicative of the operating results to be expected for
our fiscal year ending March 31, 2018, or for any other future
interim or other period.
The accompanying unaudited Condensed Consolidated Financial
Statements and notes to Condensed Consolidated Financial Statements
should be read in conjunction with our audited Consolidated
Financial Statements for our fiscal year ended March 31, 2017
contained in our Annual Report on Form 10-K, as filed with the
Securities and Exchange Commission (SEC) on June 29, 2017.
The accompanying unaudited Condensed Consolidated Financial
Statements have been prepared assuming we will continue as a going
concern. As a company having not yet developed commercial products
or achieved sustainable revenues, we have experienced recurring
losses and negative cash flows from operations resulting in a
deficit of $152.5 million accumulated from inception (May 1998)
through December 31, 2017. We expect losses and negative cash flows
from operations to continue for the foreseeable future as we engage
in further development of AV-101, initially as an adjunctive
treatment for MDD, and subsequently as a potential new treatment
alternative for other CNS-related conditions, as well as exploring
and potentially executing drug rescue and development opportunities
using CardioSafe 3D.
From our inception through December 31, 2017, we have financed our
operations and technology acquisitions primarily through the
issuance and sale of our equity and debt securities for cash
proceeds of approximately $61.4 million, as well as from an
aggregate of approximately $17.6 million of government research
grant awards, strategic collaboration payments, intellectual
property sublicensing and other revenues. We have also issued
equity securities with an approximate value at issuance of $33.6
million in non-cash settlements of certain liabilities, including
liabilities for professional services rendered to us or as
compensation for such services. Additionally, pursuant to our
February 2015 CRADA with the NIH, substantial ongoing Phase 2
clinical development activities relating to the NIMH AV-101
MDD Phase 2 Monotherapy Study are being sponsored in full, at no
cost to us other than supplying clinical trial material, by the
NIMH under the direction of Dr. Carlos Zarate Jr. as Principal
Investigator.
At
December 31, 2017, we had a cash and cash equivalents balance of
$13.0 million. We believe this amount is sufficient to enable us to
fund our planned operations for at least 12 months following the
issuance of the financial statements included in this
Report.
In December 2017, we completed an underwritten public offering of
shares of our common stock and warrants to purchase shares of our
common stock at a combined public offering price of $1.50 per share
and related warrant under our Registration Statement on Form S-1
(Registration No. 333-221009), resulting in gross proceeds of $15.0
million (the December 2017 Public
Offering). In September 2017,
we completed an underwritten public offering pursuant to which we
offered and sold shares of our common stock and warrants resulting
in gross proceeds of approximately $2.4 million (the
September 2017
Public Offering) under our
Registration Statement on Form S-3 (Registration No. 333-215671)
(the S-3
Registration Statement). (See
Note 7, Capital Stock,
for additional information regarding
the December 2017 Public Offering and the September 2017 Public
Offering.) Subject to certain restrictions, the S-3 Registration
Statement remains available for future sales of our equity
securities in one or more public offerings from time to time. While
we may make additional sales of our equity securities under the S-3
Registration Statement, we do not have an obligation to do so. As
we have been in the past, we expect that, if necessary, we will be
successful in raising additional capital from the sale of our
equity securities either in one or more public offerings or in one
or more private placement transactions with individual accredited
investors or institutions.
In addition to the sale of our equity securities, we may also seek
to enter additional research and development collaborations that
could generate revenue or provide substantial funding for
development of AV-101 and additional product candidates. We may
also seek additional government grant awards or agreements similar
to our current CRADA with the NIMH, which provides for the NIMH to
fully fund the NIMH AV-101 MDD Phase 2 Monotherapy Study. Such
strategic collaborations may provide non-dilutive resources to
advance our strategic initiatives while reducing a portion of our
future cash outlays and working capital requirements. In a manner
similar to the BlueRock Agreement, we may also pursue similar
arrangements with third-parties covering other of our intellectual
property. Although we may seek additional collaborations with the
U.S. government or other third-parties that could generate revenue
and/or non-dilutive funding for development of AV-101 and other
product candidates and technologies, as well as new government
grant awards and/or agreements similar to our CRADA with NIMH, no
assurance can be provided that any such collaborations, awards or
agreements will occur in the future.
Our future working capital requirements will depend on many
factors, including, without limitation, the scope and nature of
opportunities related to our success and the success of certain
other companies in clinical trials, including our development and
commercialization of AV-101, initially as an adjunctive treatment
for MDD, and as a potential treatment option for other CNS
conditions, as well as various potential applications of our stem
cell technology platform, the availability of, and our ability to
obtain, government grant awards and agreements, and our ability to
enter into collaborations on terms acceptable to us. To further
advance the clinical development of AV-101 and opportunities
related to our stem cell technology platform, as well as support
our operating activities, we plan to continue to carefully manage
our routine operating costs, including our employee headcount and
related expenses, as well as costs relating to regulatory
consulting, contract research and development, investor relations
and corporate development, legal, acquisition and protection of
intellectual property, public company compliance and other
professional services and operating costs.
Notwithstanding the foregoing, there can be no assurance that, if
needed, future financing will be available in sufficient amounts,
in a timely manner, or on terms acceptable to us, if at all. If we
are unable to obtain substantial additional financing on a timely
basis when needed, our business, financial condition, and results
of operations may be harmed, the price of our stock may decline, we
may be required to reduce, defer, or discontinue certain of our
research and development activities and we may not be able to
continue as a going concern. As noted above, these
Condensed Consolidated Financial Statements do not include any
adjustments that might result from the negative outcome of this
uncertainty.
Note 3. Summary of Significant Accounting
Policies
Use of Estimates
The preparation of financial statements in conformity with
U.S. GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at
the date of the financial statements, and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates. Significant estimates
include those relating to share-based compensation, and assumptions
that have been used historically to value warrants and warrant
modifications. With the exception of the $1.25 million of
sublicense revenue recorded in the quarter ended December 31, 2016
under the BlueRock Agreement, we do not currently have, nor have we
had during the periods covered by this report, any arrangements
requiring the recognition of revenue.
Research and Development Expenses
Research and development expenses are composed of both internal and
external costs. Internal costs include salaries and
employment-related expenses of our scientific personnel and direct
project costs. External research and development expenses consist
primarily of costs associated with nonclinical and clinical
development of AV-101, now in Phase 2 clinical development,
initially for MDD, stem cell technology-related research and
development costs, and costs related to the filing, maintenance and
prosecution of patents and patent applications, technology licenses
and protection of other intellectual property. All such costs are
charged to expense as incurred.
Stock-Based Compensation
We recognize compensation cost for all stock-based awards to
employees or consultants based on the grant date fair value of the
award. Non-cash stock-based compensation expense is recognized over
the period during which the employee or consultant is required to
perform services in exchange for the award, which generally
represents the scheduled vesting period. We have no awards with
market or performance conditions. For equity awards to
non-employees, we re-measure the fair value of the awards as they
vest and the resulting change in value is recognized as an expense
during the period over which the services are
performed.
The table below summarizes stock-based compensation expense
included in the accompanying Condensed Consolidated Statements of
Operations and Comprehensive Loss for the three and nine months
ended December 31, 2017 and 2016.
|
|
|
|
December 31,
|
December 31,
|
|
|
|
|
|
|
|
|
|
|
Research
and development expense:
|
|
|
|
|
Stock
option grants
|
$299,100
|
$113,900
|
$627,400
|
$239,900
|
|
299,100
|
113,900
|
627,400
|
239,900
|
General
and administrative expense:
|
|
|
|
|
Stock
option grants
|
390,200
|
153,300
|
759,500
|
334,000
|
|
390,200
|
153,300
|
759,500
|
334,000
|
Total
stock-based compensation expense
|
$689,300
|
$267,200
|
$1,386,900
|
$573,900
|
In April 2017, our Board approved the grant of options to purchase
an aggregate of 880,000 shares of our common stock at an exercise
price of $1.96 per share to the independent members of our Board,
our officers and our employees. In September 2017, our stockholders
approved an amendment to our 2016 Amended and Restated Stock
Incentive Plan (the 2016 Plan) to increase the number of shares issuable
thereunder from 3.0 million shares to 10.0 million shares.
Following that approval, our Board authorized the grant of options
to purchase an aggregate of 770,000 shares of our common stock at
an exercise price of $1.56 per share to the independent members of
our Board, our officers, employees and certain consultants. We
valued the options granted in April 2017 and September 2017 using
the Black-Scholes Option Pricing Model and the following weighted
average assumptions:
Assumption:
|
|
|
Market
price per share at grant date
|
$1.96
|
$1.56
|
Exercise
price per share
|
$1.96
|
$1.56
|
Risk-free
interest rate
|
2.02%
|
1.99%
|
Contractual
or estimated term in years
|
6.48
|
6.70
|
Volatility
|
83.24%
|
92.29%
|
Dividend
rate
|
0.0%
|
0.0%
|
Shares
|
880,000
|
770,000
|
|
|
|
Fair Value per share
|
$1.42
|
$1.20
|
In June 2016, our Board approved the grant of options to purchase
an aggregate of 655,000 shares of our common stock at an exercise
price of $3.49 per share to the independent members of our Board
and to our officers, including our then-newly-hired Chief Medical
Officer. In September 2016, the Board approved the grant of an
option to purchase 125,000 shares of our common stock at an
exercise price of $4.27 per share to another then-newly-hired
officer. We valued the options granted in June 2016 and September
2016 using the Black-Scholes Option Pricing Model and the following
weighted average assumptions:
Assumption:
|
|
|
Market
price per share at grant date
|
$3.49
|
$4.27
|
Exercise
price per share
|
$3.49
|
$4.27
|
Risk-free
interest rate
|
1.34%
|
1.29%
|
Contractual
or estimated term in years
|
6.68
|
6.25
|
Volatility
|
81.69%
|
83.26%
|
Dividend
rate
|
0.0%
|
0.0%
|
Shares
|
655,000
|
125,000
|
|
|
|
Fair Value per share
|
$2.50
|
$3.05
|
At December 31, 2017, there were stock options outstanding to
purchase 3,279,871 shares of our common stock at a weighted average
exercise price of $3.23 per share.
See
Note 9, Subsequent Events,
for information regarding option grants made during February
2018.
Comprehensive Loss
We have no components of other comprehensive loss other than net
loss, and accordingly our comprehensive loss is equivalent to our
net loss for the periods presented.
Income (Loss) per Common Share
Basic
net income (loss) per share of
common stock excludes the effect of dilution and is computed by
dividing net income (loss) by
the weighted-average number of shares of common stock outstanding
for the period. Diluted net income
(loss) per share of common stock reflects the potential
dilution that could occur if securities or other contracts to issue
shares of common stock were exercised or converted into shares of
common stock.
As a result of our net loss for the periods presented,
potentially dilutive securities were excluded from the computation
of net loss per share, as their effect would be antidilutive. For
the three and nine-month periods ended December 31, 2017 and 2016,
the accrual for dividends on our Series B 10% Convertible Preferred
Stock (Series B Preferred)
is treated as a deduction from our net loss to arrive at net loss
attributable to common stockholders for those periods.
Additionally, in 2017, the deemed dividend attributable to the
trigger of the down round provision feature, and, in 2016, the
deemed dividend attributable to our sale and issuance of Series B
Preferred Units, each consisting of one share of Series B Preferred
and a five-year warrant to purchase one share of our common stock
for $7.00, each represent further deductions from our net loss to
arrive at net loss attributable to common stockholders for those
periods.
Potentially
dilutive securities excluded in determining diluted net loss
attributable to common stockholders per common share are as
follows:
|
|
|
|
|
|
|
|
Series A Preferred stock issued and
outstanding (1)
|
750,000
|
750,000
|
Series B Preferred stock issued and
outstanding (2)
|
1,160,240
|
1,160,240
|
Series C Preferred stock issued and
outstanding (3)
|
2,318,012
|
2,318,012
|
Outstanding
options under the Amended and Restated 2016 (formerly 2008) and
1999 Stock Incentive Plans
|
3,279,871
|
1,659,324
|
Outstanding
warrants to purchase common stock
|
16,918,292
|
4,550,370
|
Total
|
24,426,415
|
10,437,946
|
____________
|
|
|
|
|
(1) Assumes exchange under the
terms of the October 11, 2012 Note Exchange and Purchase Agreement,
as amended
|
(2) Assumes exchange under the
terms of the Certificate of Designation of the Relative Rights and
Preferences of the Series B 10% Convertible Preferred Stock,
effective May 5, 2015
|
(3) Assumes exchange under the
terms of the Certificate of Designation of the Relative Rights and
Preferences of the Series C Convertible Preferred Stock, effective
January 25, 2016
|
Fair Value Measurements
We do not use derivative instruments for hedging of market risks or
for trading or speculative purposes. We carried no assets or
liabilities at fair value at December 31, 2017 or March 31,
2017.
Recent Accounting Pronouncements
Except
as described below, there have been no recent accounting
pronouncements or changes in accounting pronouncements during the
nine months ended December 31, 2017, as compared to the recent
accounting pronouncements described in our Form 10-K for the fiscal
year ended March 31, 2017, that are of significance or potential
significance to us.
In July
2017, the Financial Accounting Standards Board (FASB) issued Accounting Standards
Update (ASU) 2017-11,
“Earnings Per Share (Topic 260); Distinguishing Liabilities
from Equity (Topic 480); Derivatives and Hedging (Topic 815): Part
I: Accounting for Certain Financial Instruments with Down Round
Features; Part II: Replacement of the Indefinite Deferral for
Mandatorily Redeemable Financial Instruments of Certain Nonpublic
Entities and Certain Mandatorily Redeemable Noncontrolling
Interests with a Scope Exception” (ASU 2017-11). Part I of this ASU
provides that an entity will no longer have to consider “down
round” features (i.e., a provision in an equity-linked
financial instrument, such as a free-standing warrant, or an
embedded feature, such as a conversion option in a convertible
instrument, that reduces the exercise price of such instrument if
the entity subsequently sells stock for a lower price or issues an
equity-linked instrument with a lower exercise price) when
determining whether certain equity-linked financial instruments or
embedded features are indexed to its own stock. The definition of a
down round feature in ASU 2017-11 excludes standard anti-dilution
provisions related to changes in an entity’s capital
structure. Accounting Standards Codification Topic 815-40,
“Derivatives and Hedging–Contracts in Entity’s
Own Equity” (ASC
815-40) requires that a freestanding equity-linked financial
instrument be indexed to the issuer’s own stock to be
classified as equity. An equity-linked embedded feature that meets
the definition of a derivative may avoid bifurcation and derivative
accounting if it is indexed to the issuer’s own stock. Under
the terms of prior guidance, a freestanding financial instrument or
embedded feature was not considered indexed to the issuer’s
own stock if it had a down round provision. Consequently, the
freestanding financial instrument was classified as a liability (or
asset), and if it met the definition of a derivative, was measured
at fair value with changes in fair value recorded through earnings.
Similarly, an embedded feature was bifurcated and separately
accounted for as a derivative if it met all other criteria for
bifurcation under ASC 815-40. The bifurcated embedded feature was
also measured at fair value through earnings. Under the provisions
of ASU 2017-11, an entity that presents earnings per share
(EPS) under Accounting
Standards Codification Topic 260, “Earnings Per Share”
will recognize the effect of a down round feature in a freestanding
equity-classified financial instrument only when it is triggered.
The effect of triggering such a feature will be recognized as a
dividend and a reduction to income available to common shareholders
in basic EPS. The new guidance requires new disclosures for
financial instruments with down round features and other terms that
change conversion or exercise prices. Part I of ASU 2017-11 is
effective for fiscal years beginning after December 15, 2018, and
interim periods therein, however early adoption is permitted. We
early-adopted ASU 2017-11 effective with our quarter ended
September 30, 2017 and applied its guidance to certain of the
warrants issued in the September 2017 Public Offering, as described
more completely in Note 7, Capital
Stock. No retrospective adjustments to our financial
statements were required as a result of our adoption of ASU
2017-11.
In
February 2016, the FASB issued ASU No. 2016-2,
“Leases.” This ASU requires substantially all leases,
including operating leases, to be recognized by lessees on their
balance sheet as a right-of-use asset and corresponding lease
liability. This ASU is effective for our interim and annual
reporting periods beginning April 1, 2019 and early adoption is
permitted. We are currently evaluating the impact that the adoption
of this ASU will have on our financial statements.
In
March 2016, the FASB issued ASU No. 2016-09, “Improvements to
Employee Share-Based Payment Accounting,” which simplified
several aspects of the accounting for share-based payments,
including immediate recognition of all excess tax benefits and
deficiencies in the income statement, changing the threshold to
qualify for equity classification up to the employees’
maximum statutory tax rates, allowing an entity-wide accounting
policy election to either estimate the number of awards that are
expected to vest or account for forfeitures as they occur, and
clarifying the classification on the statement of cash flows for
the excess tax benefit and employee taxes paid when an employer
withholds shares for tax-withholding purposes. This ASU became
effective for our interim and annual reporting periods beginning
April 1, 2017, and the adoption of this standard did not have a
material impact on our financial statements. Pursuant to our
adoption of this standard, we elected to account for the impact of
option forfeitures as they occur.
Note 4. Prepaid Expenses and Other Current
Assets
Prepaid expenses and other current assets are composed of the
following at December 31, 2017 and March 31, 2017:
|
|
|
|
|
|
|
|
|
AV-101
materials and services
|
$770,500
|
$352,800
|
Insurance
|
72,300
|
85,800
|
Professional
services
|
48,000
|
-
|
Public
offering expenses
|
25,900
|
11,600
|
All
other
|
23,700
|
6,400
|
|
$940,400
|
$456,600
|
Note 5. Accrued Expenses
Accrued expenses are composed of the following at December 31, 2017
and March 31, 2017:
|
|
|
|
|
|
|
|
|
Accrued
AV-101 development and related expenses
|
$565,700
|
$402,400
|
Accrued
professional services
|
97,100
|
37,000
|
Accrued
compensation
|
105,000
|
-
|
All
other
|
3,100
|
3,600
|
|
$770,900
|
$443,000
|
Note 6. Notes Payable
The following table summarizes our unsecured promissory notes at
December 31, 2017 and March 31, 2017.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.95%
and 8.25% Notes payable to insurance
|
|
|
|
|
|
|
premium
financing company (current)
|
$43,700
|
$-
|
$43,700
|
$54,800
|
$-
|
$54,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
notes payable to unrelated parties
|
$43,700
|
$-
|
$43,700
|
$54,800
|
$-
|
$54,800
|
less:
current portion
|
(43,700)
|
-
|
(43,700)
|
(54,800)
|
-
|
(54,800)
|
Net
non-current portion
|
$-
|
$-
|
$-
|
$-
|
$-
|
$-
|
In May 2017, we executed a 7.95% promissory note
in the principal amount of $142,400 in connection with insurance
policy premiums. The note is payable in monthly installments of
$14,800, including principal and interest, through March 2018, and
had a remaining outstanding balance of $43,700 at December 31,
2017. In February 2017, we executed a promissory note in the
principal amount of $60,700 in connection with other insurance
policy premiums. That note was payable in monthly installments of
$6,300, including principal and interest, and was paid in full at
December 31, 2017.
Note 7. Capital Stock
At our
Annual Meeting of Stockholders on September 15, 2017, as approved
by and recommended to our stockholders by our Board of Directors,
our stockholders approved an amendment to our Restated and Amended
Articles of Incorporation to increase the authorized number of
shares of common stock that we may issue from 30.0 million shares
to 100.0 million shares. The amendment became effective on
September 15, 2017, upon our filing of a certificate of amendment
with the Nevada Secretary of State.
Common Stock and Warrants Issued in December 2017
Underwritten Public
Offering
On December 13, 2017, we completed the December 2017 Public
Offering, resulting in gross proceeds of $15.0 million, pursuant to
which we offered and sold shares of our common stock and warrants
to purchase shares of our common stock at a combined public
offering price of $1.50 per shares and related warrant. We issued
an aggregate of 10,000,000 shares of our common stock and warrants
to purchase up to 10,000,000 shares of our common stock at an
exercise price of $1.50 per share (the December 2017 Offering
Warrants). The common stock and
the shares of common stock underlying the December 2017 Offering
Warrants issued in the December 2017 Public Offering were offered,
issued and sold pursuant to our Registration Statement on Form S-1
(Registration No. 333-221009) that was declared effective by
the Securities and Exchange Commission (the Commission) on December 11, 2017.
The December 2017 Offering Warrants
are exercisable at any time through December 13, 2022, have no
anti-dilution or other exercise price or share reset features,
except as is customary with respect to a change in our capital
structure in the event of a stock split or dividend, and do not
contain any cashless exercise features as long as our Registration
Statement on Form S-1 (Registration No. 333-221009) is effective.
Accordingly, we have accounted for the December 2017 Offering
Warrants as equity warrants. We received net proceeds of
approximately $13.6 million from the December 2017 Public Offering,
after deducting underwriter’s commission and other expenses
related to the offering.
Common Stock and Warrants Issued in September 2017
Underwritten Public
Offering
On September 6, 2017, we completed the September 2017 Public
Offering, resulting in gross proceeds of approximately $2.4
million, pursuant to which we offered and sold shares of our common
stock and warrants to two of our existing institutional investors.
We issued an aggregate of 1,371,430 shares of our common stock,
Series A1 Warrants to purchase up to 1,388,931 shares of common
stock and Series A2 Warrants to purchase up to 503,641 of common
stock (collectively, the Warrants), each exercisable for $1.82 per share in the
September 2017 Public Offering. The Series A1 Warrants will be
exercisable by the investors for a five-year period commencing on
March 7, 2018, and the Series A2 Warrants were immediately
exercisable at any time through September 6, 2022. The common stock
and the shares of common stock underlying the Warrants issued in
the September 2017 Public Offering were offered, issued and sold
pursuant to our S-3 Registration Statement (Registration No.
333-215671) that had previously been declared effective by
the Commission to cover this and potential future sales of our
equity securities in one or more public offerings from time to
time. We received net proceeds of
approximately $2.0 million from the September 2017 Public Offering,
after deducting underwriter’s commission and other expenses
related to the offering.
The Series A1 Warrants to purchase an aggregate of 1,388,931 shares
of our common stock issued in the September 2017 Public Offering
have no anti-dilution or other exercise price or share reset
features, except as is customary with respect to a change in our
capital structure in the event of a stock split or dividend, and,
accordingly, we have accounted for them as equity warrants.
The Series A2 Warrants to purchase an aggregate of 503,641
shares of our common stock contained anti-dilution protection
provisions that became effective upon the issuance of common stock
in the December 2017 Public Offering at a price below their
then-current $1.82 per share exercise price. The anti-dilution
protection provisions in the Series A2 Warrants constituted a down
round feature subject to the guidance in ASU 2017-11. Since the
Series A2 Warrants contained no other provisions which required
their treatment as liability warrants rather than equity warrants,
including exercise price or share
reset features, except as is customary with respect to a change in
our capital structure in the event of a stock split or dividend and
which are also present in the Series A1 Warrants, we also accounted
for the Series A2 Warrants as equity warrants.
Our
sale of units consisting of common stock and warrants in the
December 2017 Public Offering at an offering price of $1.50 per
unit triggered the anti-dilution provisions of the Series A2
Warrants. In accordance with the anti-dilution terms and formula
contained in the Series A2 warrants, the exercise price of the
Series A2 Warrants was reduced to $0.001 per share. In December
2017, certain holders exercised the reset Series A2 warrants to
purchase an aggregate of 188,865 shares of our common stock from
which we received nominal cash proceeds. In accordance with the
guidance in ASU 2017-11, we recognized the effect of triggering the
down round feature as a dividend in our Condensed Consolidated
Statement of Stockholders’ Equity for the nine months ended
December 31, 2017 and as an addition to net loss attributable to
common stockholders and in our calculation of basic and fully
diluted earnings per share in our Condensed Consolidated Statement
of Operations for the three and nine months ended December 31,
2017.
We
calculated the dividend from the trigger of the down round
provision feature, $199,200, using the
Black Scholes Option Pricing Model and the assumptions indicated in
the table below:
Assumption:
|
|
|
Market
price per share
|
$1.17
|
$1.17
|
Exercise
price per share
|
$1.82
|
$0.001
|
Risk-free
interest rate
|
2.09%
|
2.09%
|
Remaining
contractual term in years
|
4.73
|
4.73
|
Volatility
|
97.8%
|
97.8%
|
Dividend
rate
|
0.0%
|
0.0%
|
|
|
|
Number
of warrant shares
|
503,641
|
503,641
|
Fair value per share
|
$0.77
|
$1.17
|
Common Stock and Warrants Issued in Private Placements
During
the quarter ended June 30, 2017, in self-placed private placement
transactions, we accepted subscription agreements from individual
accredited investors, pursuant to which we sold to such investors
units, at a weighted average purchase price of $2.00 per unit,
consisting of an aggregate of 437,751 unregistered shares of our
common stock and warrants, exercisable through April 30, 2021, to
purchase an aggregate of 218,875 unregistered shares of our common
stock at a weighted average exercise price of $3.99 per share. The
purchasers of the units have no registration rights with respect to
the shares of common stock, warrants or the shares of common stock
issuable upon exercise of the warrants comprising the units sold.
The warrants are not exercisable until six months and one day
following the date of issuance. We received aggregate cash proceeds
of $873,300 in connection with these self-placed private placement
transactions, and the entire amount of the proceeds was credited to
stockholders’ equity.
During
the quarter ended September 30, 2017, in a self-placed private
placement transaction, we sold to an accredited investor units
consisting of 28,572 shares of our unregistered common stock and
warrants exercisable through April 30, 2021 to purchase 28,572
unregistered shares of our common stock at an exercise price of
$4.00 per share. The purchaser of the units has no registration
rights with respect to the shares of common stock, warrants or the
shares of common stock issuable upon exercise of the warrants
comprising the units sold. The warrants are not exercisable until
six months and one day following the date of issuance. We received
cash proceeds of $50,000 from this sale of our securities, and the
entire amount of the proceeds was credited to stockholders’
equity.
During
the quarter ended December 31, 2017, in a self-placed private
placement transaction, we sold to an accredited investor units
consisting of 150,000 shares of our unregistered common stock and
warrants exercisable through November 30, 2021 to purchase 150,000
unregistered shares of our common stock at an exercise price of
$2.00 per share. The purchaser of the units has no registration
rights with respect to the shares of common stock, warrants or the
shares of common stock issuable upon exercise of the warrants
comprising the units sold. The warrants are not exercisable until
six months and one day following the date of issuance. We received
cash proceeds of $150,000 from this sale of our securities, and the
entire amount of the proceeds was credited to stockholders’
equity.
Issuance of Common Stock to Professional Services Providers and in
Settlement of Accounts Payable
During the quarter ended June 30, 2017, we issued 25,000
shares of our unregistered common stock having a fair value on the
date of issuance of $49,800 as partial compensation to an investor
relations service provider.
During
the quarter ended September 30, 2017, we issued an aggregate of
927,500 unregistered shares of our common stock, of which 477,500
shares were issued from our 2016 Plan, for various professional
services, including contract research, legal, investor relations
and financial advisory services. The common stock issued had an
aggregate fair value of $1,503,600 on the dates issued, of which
all but $139,300 has been recognized as noncash expense through
December 31, 2017. The un-expensed portion at December 31, 2017 is
being recognized in expense ratably through July 2019 in accordance
with the terms of work orders for certain contract research
services to be provided through that period.
During
the quarter ended December 31, 2017, we issued an aggregate of
70,000 unregistered shares of our common stock, all of which were
issued from our 2016 Plan for additional investor relations and
financial advisory services. The common stock issued had an
aggregate fair value of $140,800 on the dates issued.
During
the quarter ended December 31, 2017, we also issued 500,000
unregistered shares of our common stock having a fair value at the
time of issuance of $585,000 and a cash payment of $76,500 to our
contract manufacturing organization (CMO) in exchange for and settlement of
$526,500 of open accounts payable for services provided by the CMO
relating to production of AV-101 drug substance. We recognized a
corresponding loss on settlement of accounts payable in the amount
of $135,000 for the quarter ended December 31, 2017.
Modification of Warrants Issued in Private Placements
During the quarter ended September 30, 2017, our Board of Directors
(Board) authorized the modification of outstanding
warrants issued in private placement transactions between March
2017 and June 2017 to reduce the exercise prices and increase the
number of shares issuable thereunder. We calculated the fair value
of the warrant immediately before and after the modification using
the Black Scholes Option Pricing Model and the weighted average
assumptions indicated in the table below. We recognized the
additional fair value, $279,700, as warrant modification expense,
included as a component of general and administrative expenses, in
our Condensed Consolidated Statement of Operations and
Comprehensive Loss for the quarter ended September 30,
2017.
Assumption:
|
|
|
Market
price per share
|
$1.54
|
$1.54
|
Exercise
price per share
|
$3.99
|
$2.00
|
Risk-free
interest rate
|
1.62%
|
1.62%
|
Remaining
contractual term in years
|
3.62
|
3.62
|
Volatility
|
95.5%
|
95.5%
|
Dividend
rate
|
0.0%
|
0.0%
|
|
|
|
Number
of warrant shares
|
247,500
|
495,001
|
Weighted average fair value per share
|
$0.71
|
$0.92
|
During the quarter ended December 31, 2017, the Board authorized
the modification of outstanding warrants issued in private
placement transactions between August 2017 and November 2017 to
reduce the exercise prices of the warrants. We calculated the fair
value of the warrants immediately before and after the modification
using the Black Scholes Option Pricing Model and the weighted
average assumptions indicated in the table below. We recognized the
additional fair value, $13,000, as warrant modification expense,
included as a component of general and administrative expenses, in
our Condensed Consolidated Statement of Operations and
Comprehensive Loss for the quarter ended December 31,
2017.
Assumption:
|
|
|
Market
price per share
|
$1.14
|
$1.14
|
Exercise
price per share
|
$2.32
|
$1.58
|
Risk-free
interest rate
|
2.12%
|
2.12%
|
Remaining
contractual term in years
|
3.85
|
3.85
|
Volatility
|
98.7%
|
98.7%
|
Dividend
rate
|
0.0%
|
0.0%
|
|
|
|
Number
of warrant shares
|
178,572
|
178,572
|
Weighted average fair value per share
|
$0.64
|
$0.71
|
Warrants Outstanding
Following the warrant issuances in the December 2017 Public
Offering, the September 2017 Public Offering, and in our
self-placed private placement transactions and the warrant
modifications and exercises described above, at December 31, 2017,
we had outstanding warrants to purchase shares of our common stock
at a weighted average exercise price of $2.80 per share as
follows:
|
|
Warrants Outstanding at December 31, 2017
|
|
|
|
$0.001
|
9/6/2022
|
314,776
|
$1.50
|
11/30/2021
to 12/13/2022
|
10,150,000
|
$1.82
|
9/6/2022
to 3/7/2023
|
1,388,931
|
$2.00
|
4/30/2021
|
523,573
|
$3.51
|
12/31/2021
|
50,000
|
$4.50
|
9/26/2019
|
25,000
|
$5.30
|
5/16/2021
|
2,705,883
|
$6.00
|
9/26/2019
to 11/30/2019
|
97,750
|
$7.00
|
12/11/2018
to 3/3/2023
|
1,346,931
|
$8.00
|
3/25/2021
|
185,000
|
$10.00
|
11/15/2017
to 1/11/2020
|
20,000
|
$20.00
|
9/15/2019
|
110,448
|
|
16,918,292
|
Of the warrants outstanding at December 31, 2017, 2,705,883 shares
of common stock underlying the warrants exercisable at $5.30 per
share issued in our May 2016 public offering, 1,388,931 shares of
common stock underlying the warrants exercisable at $1.82 per share
issued in our September 2017 Public Offering and 10,000,000 shares
of common stock underlying the warrants exercisable at $1.50 per
share issued in our December 2017 Public Offering are registered
for resale by the warrant holders. At December 31, 2017, warrants
to purchase an aggregate of 314,776 registered shares of our common
stock remain subject to down round anti-dilution protection
features. The common shares issuable upon exercise of our remaining
outstanding warrants are unregistered. All of the outstanding
warrants are exercisable by the holders only by payment in cash of
the stated exercise price per share.
Note 8. Related Party Transactions
Cato Holding Company (CHC), doing business as Cato BioVentures
(CBV), is the parent of Cato Research Ltd.
(CRL). CRL is a contract research, development and
regulatory services organization (CRO) recently engaged by us for a wide range of
material aspects related to the nonclinical and clinical
development and regulatory affairs associated with our efforts to
develop and commercialize AV-101 for MDD and other potential CNS
indications. CBV is among our largest institutional stockholders at
December 31, 2017, holding approximately 4.2% of our outstanding
common stock. In October 2012, we issued certain unsecured
promissory notes in the aggregate principal amount of approximately
$1.3 million to CBV and CRL (the Cato Notes) as payment in full for all contract research and
development services and regulatory advice previously rendered
to us by CRL for nonclinical and Phase 1 development of AV-101. In
June 2015, the Cato Notes and additional amounts payable to CRL for
CRO services related to AV-101 were extinguished in exchange for
our issuance of an aggregate of 328,571 shares of Series B
Preferred stock to CBV, which shares of Series B Preferred stock
were automatically converted in accordance with their terms into an
equal number of registered shares of our common stock as a result
of our May 2016 public offering.
In July
2017, we entered into a Master Services Agreement (MSA) with CRL, which replaced a
substantially similar May 2007 master services agreement, pursuant
to which CRL may assist us in the evaluation, development,
commercialization and marketing of our potential product
candidates, including AV-101, and provide regulatory and strategic
consulting services as requested from time to time. Specific
projects or services are and will be delineated in individual work
orders negotiated from time-to-time under the MSA. Under the terms of work orders issued pursuant to
the July 2017 MSA and our May 2007 master services agreement with
CRL, we incurred expenses of $292,700 and $101,900 during the
quarters ended December 31, 2017 and 2016, respectively, and
$904,900 and $180,100 in the nine-month periods ended December 31,
2017 and 2016, respectively. During the nine months ended December
31, 2017, we have issued an aggregate of 350,000 unregistered
shares of our common stock to CRL under the terms of certain work
orders for current and future CRO services relating to our
development of AV-101 for MDD, the fair value of which represented
approximately $443,000 of the reported CRO expense for the nine
months then ended. We anticipate periodic expenses for CRO services
from CRL related to nonclinical and clinical development of, and
regulatory affairs related to, AV-101 and other potential product
candidates will increase in future periods. In December 2017, we
executed a work order with CRL for CRO services to be performed in
conducting the AV-101 MDD Phase 2 Adjunctive Treatment Study and
pursuant to which we became immediately obligated for an initial
payment of $461,700, which amount is reflected in Accrued
liabilities and Prepaid expenses in our Condensed Consolidated
Balance Sheet at December 31, 2017.
Note 9. Subsequent Events
We have
evaluated subsequent events through February 9, 2018 and have
identified the following matters requiring disclosure:
Exercise of Warrants
In
January 2018, the holders of Series A2 warrants to purchase an
aggregate of 314,774 shares of our common stock exercised all of
such warrants at the reset exercise price of $0.001 per share, as
described in Note 7, Capital
Stock, from which we received nominal cash proceeds.
Following these exercises, none of our outstanding warrants have
down round anti-dilution protection features.
Grant of Options from 2016 Plan
On
February 2, 2018, the Compensation Committee of the Board approved
the grant of options to independent members of the Board, officers
and employees and certain professional service providers to
purchase an aggregate of 2,150,000 shares of our common stock at an
exercise price of $1.16 per share, the quoted closing price of our
common stock on the Nasdaq Capital Markets on the date of the
grant. The options are vested 25% upon grant with the remaining
shares vesting ratably over the next twenty-four
months.
Item 2.
|
|
MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q (Report) includes
forward-looking statements. All statements contained in this Report
other than statements of historical fact, including statements
regarding our future results of operations and financial position,
our business strategy and plans, and our objectives for future
operations, are forward-looking statements. The words
“believe,” “may,” “estimate,”
“continue,” “anticipate,”
“intend,” “expect” and similar expressions
are intended to identify forward-looking statements. We have based
these forward-looking statements largely on our current
expectations and projections about future events and trends that we
believe may affect our financial condition, results of operations,
business strategy, short-term and long-term business operations and
objectives and financial needs. These forward-looking statements
are subject to a number of risks, uncertainties and assumptions.
Our business is subject to significant risks including, but not
limited to, our ability to obtain substantial additional financing,
the results of our research and development efforts, the results of
nonclinical and clinical testing, the effect of regulation by the
U.S. Food and Drug Administration (FDA) and other agencies, the
impact of competitive products, product development,
commercialization and technological difficulties, the effect of our
accounting policies, and other risks as detailed in the section
entitled “Risk Factors” in this
Report. Further, even if our product candidates appear
promising at various stages of development, our share price may
decrease such that we are unable to raise additional capital
without significant dilution or other terms that may be
unacceptable to our management, Board and
stockholders.
Moreover, we operate in a very competitive and rapidly changing
environment. New risks emerge from time to time. It is not possible
for our management or Board to predict all risks, nor can we assess
the impact of all factors on our business or the extent to which
any factor, or combination of factors, may cause actual results to
differ materially from those contained in any forward-looking
statements we may make. In light of these risks, uncertainties and
assumptions, the future events and trends discussed in this Report
may not occur and actual results could differ materially and
adversely from those anticipated or implied in the forward-looking
statements.
You should not rely upon forward-looking statements as predictions
of future events. The events and circumstances reflected in the
forward-looking statements may not be achieved or occur. Although
we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results,
levels of activity, performance or achievements. We are under no
duty to update any of these forward-looking statements after the
date of this Report or to conform these statements to actual
results or revised expectations. If we do update one or more
forward-looking statements, no inference should be drawn that we
will make additional updates with respect to those or other
forward-looking statements.
Business Overview
We are a clinical-stage biopharmaceutical company focused on
developing new generation medicines for depression and other
central nervous system (CNS) disorders. Unless the context otherwise
requires, the words “VistaGen Therapeutics,
Inc.”
“VistaGen,” “we,” “the Company,” “us” and “our” refer to VistaGen Therapeutics, Inc., a
Nevada corporation. All references to future quarters and years in
this Report refer to calendar quarters and calendar years, unless
reference is made otherwise.
AV-101 is our oral CNS product candidate in Phase 2 clinical
development in the United States, initially as a new generation
adjunctive treatment for Major Depressive Disorder
(MDD) in patients with an inadequate response to
standard antidepressants approved by the U.S. Food and Drug
Administration (FDA). AV-101’s mechanism of action
(MOA) involves both NMDA (N-methyl-D-aspartate) and
AMPA (alpha-amino-3-hydroxy-5-methyl-4-isoxazolepropionic acid)
receptors in the brain responsible for fast excitatory synaptic
activity throughout the CNS. AV-101’s MOA is
fundamentally different from all standard FDA-approved
antidepressants, as well as all atypical antipsychotics, such as
aripiprazole, often used adjunctively with standard
antidepressants. We believe AV-101 also has potential to treat
several additional CNS indications where modulation of the
NMDA receptors, activation of AMPA pathways and/or key active
metabolites of AV-101 may achieve therapeutic
benefit, including, among
others, as a non-opioid alternative for neuropathic pain and for
Parkinson’s disease levodopa -induced dyskinesia
(PD
LID).
Clinical studies conducted at the U.S. National Institute of Mental
Health (NIMH), part of the U.S. National Institutes of Health
(NIH), by Dr. Carlos Zarate, Jr., Chief of the
NIMH’s Experimental Therapeutics & Pathophysiology Branch
and its Section on Neurobiology and Treatment of Mood and Anxiety
Disorders, have focused on the antidepressant effects of ketamine
hydrochloride injection (ketamine), an ion-channel blocking NMDA receptor
antagonist approved by the FDA as an anesthetic, in MDD patients
with inadequate responses to multiple standard antidepressants.
These NIMH studies, as well as clinical research at Yale University
and other academic institutions in the U.S., have demonstrated
ketamine’s robust antidepressant effects in
treatment-resistant MDD patients within twenty-four hours of a
single sub-anesthetic dose administered by intravenous
(IV) injection.
We believe orally administered AV-101 may have potential to deliver
ketamine-like antidepressant effects, without ketamine’s
psychological side effects and other safety concerns, and without
the need for IV administration. As published in the October 2015
issue of the peer-reviewed, Journal of Pharmacology and
Experimental Therapeutics, in an article titled, The prodrug 4-chlorokynurenine
causes ketamine-like antidepressant effects, but not side effects,
by NMDA/glycineB-site inhibition, using well-established preclinical models of
depression, AV-101 was shown to induce fast-acting, dose-dependent,
persistent and statistically significant antidepressant-like
responses following a single treatment. These responses were
equivalent to those seen with a single sub-anesthetic control dose
of ketamine. In addition, these studies confirmed that the
fast-acting antidepressant effects of AV-101 were mediated through
both inhibiting the glycine binding (GlyB) site of the NMDA receptor and activating the
AMPA receptor pathway in the brain.
In October 2017, we received FDA authorization to launch our
180-patient Phase 2 multi-center, multi-dose, double blind,
placebo-controlled efficacy and safety study of AV-101 as a new
generation adjunctive treatment for MDD patients with an inadequate
therapeutic response to standard, FDA-approved antidepressants
(the AV-101 MDD Phase 2 Adjunctive
Treatment Study),
and in December 2017 the FDA granted Fast Track Designation to
AV-101 for development as a potential adjunctive treatment for
MDD. We intend to launch the AV-101 MDD Phase 2 Adjunctive
Treatment Study in the first quarter of 2018 with Dr. Maurizio
Fava, Professor of Psychiatry at Harvard Medical School and
Director, Division of Clinical Research, Massachusetts General
Hospital (MGH) Research Institute, as the Principal
Investigator. Dr. Fava was the co-Principal Investigator with
Dr. A. John Rush of the STAR*D study, the largest clinical trial
conducted in depression to date, whose findings were published in
journals such as the New England Journal of
Medicine (NEJM) and the Journal of the American
Medical Association (JAMA). We expect top line results of the AV-101 MDD
Phase 2 Adjunctive Treatment Study to be available in the first
half of 2019. In addition, pursuant to our Cooperative
Research and Development Agreement (CRADA) with the NIMH, the NIMH is currently funding,
and Dr. Zarate, as Principal Investigator, and his team are
currently conducting, a small Phase 2 clinical study of AV-101 as a
monotherapy in subjects with treatment-resistant MDD
(the NIMH AV-101 MDD Phase 2
Monotherapy Study).
VistaStem Therapeutics (VistaStem) is our wholly owned subsidiary focused on
applying human pluripotent stem cell (hPSC) technology to discover, rescue, develop and
commercialize (i) proprietary new chemical entities
(NCEs) for CNS and other diseases and (ii) regenerative
medicine (RM) involving hPSC-derived blood, cartilage, heart
and liver cells. Our internal drug rescue programs are
designed to utilize CardioSafe
3D, our customized cardiac
bioassay system, to develop small molecule NCEs for our
pipeline. To advance potential RM applications of our cardiac
stem cell technology, in December 2016, we exclusively sublicensed
to BlueRock Therapeutics LP, a next generation RM company
established by Bayer AG and Versant Ventures (BlueRock
Therapeutics), rights to
certain proprietary technologies relating to the production of
cardiac stem cells for the treatment of heart disease
(the BlueRock
Agreement). In a manner
similar to our exclusive sublicense agreement with BlueRock
Therapeutics, we may pursue additional RM collaborations or
out-licensing transactions involving blood, cartilage, and/or liver
cells derived from hPSCs for (A) cell-based therapy, (B) cell
repair therapy, and/or (C) tissue
engineering.
AV-101 and Major Depressive Disorder
Background
The World Health Organization (WHO) estimates that 300 million people worldwide are
affected by depression. According to the NIH, major depression is
one of the most common mental disorders in the U.S. The NIMH
reports that, in 2016, approximately 16 million adults in the U.S.
had at least one major depressive episode in the past year.
According to the U.S. Centers for Disease Control and Prevention
(CDC) in an August 2017 report, one in eight Americans
over the age of 12 reported taking a standard, FDA-approved
antidepressant in the previous month.
Most standard antidepressants target chemical imbalances in the
brain related to neurotransmitter reuptake inhibition –
either serotonin (antidepressants known as SSRIs) or serotonin/norepinephrine (antidepressants
known as SNRIs). Nearly two out of every three drug-treated
depression patients do not obtain adequate therapeutic benefit from
their initial treatment with a standard antidepressant. Even when
effective, these standard antidepressants take many weeks to
achieve adequate therapeutic effects. After multiple treatment
attempts involving many different standard antidepressants, nearly
one out of every three drug-treated depression patients still do
not achieve adequate therapeutic benefits from their antidepressant
medication. Such patients with an inadequate response to
standard antidepressants often seek to augment their treatment
regimen by adding an atypical antipsychotic drug (a drug such as
aripiprazole), despite only modest potential therapeutic benefit
and the significant risk of additional side effects from such
adjunctive drugs.
All standard antidepressants have risks of side effects, including,
among others, anxiety, metabolic syndrome, sleep disturbance and
sexual dysfunction. Adjunctive use of atypical antipsychotics to
augment inadequately performing standard antidepressants may
increase the risk of significant side effects, including, tardive
dyskinesia, substantial weight gain, diabetes and heart disease,
while offering only a modest potential increase in therapeutic
benefit.
AV-101
AV-101 is our oral CNS product candidate in Phase 2 development in
the United States, initially focused as a new generation
antidepressant for the adjunctive treatment of MDD patients with an
inadequate therapeutic response to standard, FDA-approved
antidepressants. As published in the October 2015 issue of the
peer-reviewed, Journal of Pharmacology and
Experimental Therapeutics, in an article titled, “The prodrug
4-chlorokynurenine causes ketamine-like antidepressant effects, but
not side effects, by NMDA/glycineB-site
inhibition,” using well-established preclinical models
of depression, AV-101 was shown to induce fast-acting,
dose-dependent, persistent and statistically significant
ketamine-like antidepressant effects following a single treatment,
responses equivalent to those seen with a single sub-anesthetic
control dose of ketamine, but without the negative side effects
seen with ketamine. In addition, these studies confirmed that the
antidepressant effects of AV-101 were mediated through both
inhibition of the GlyB site of NMDA receptors and activation of the
AMPA receptor pathway in the brain, a key final common pathway
feature of certain new generation antidepressants such as ketamine
and AV-101, each with a MOA that is fundamentally different from
all standard antidepressants and atypical antipsychotics used
adjunctively to augment them.
We have completed two NIH-funded, randomized, double blind,
placebo-controlled AV-101 Phase 1 safety studies. Currently,
pursuant to our CRADA with the NIMH and Dr. Carlos Zarate, Jr., the
NIMH is currently funding, and Dr. Zarate, as Principal
Investigator, and his team are currently conducting, the NIMH
AV-101 MDD Phase 2 Monotherapy Study.
In October 2017, we received
authorization from the FDA to proceed, under our Investigational
New Drug (IND) application, with the AV-101 MDD Phase 2
Adjunctive Treatment Study, which will test the safety, efficacy
and tolerability of AV-101 as an adjunctive treatment of MDD in
adult patients with an inadequate therapeutic response to standard,
FDA-approved antidepressants. We intend to launch the AV-101 MDD
Phase 2 Adjunctive Treatment Study in the first quarter of 2018,
and expect top line results to be available in the first half of
2019. In connection with our preparation for this study, as well as
potential Phase 3 development and commercialization of AV-101, we,
together with our CMO, developed a novel process for the production
of AV-101 drug substance. We believe our new proprietary production
process will significantly improve AV-101 manufacturing efficiency,
thereby reducing the current and future cost of manufacturing
AV-101 drug substance and improving the yield of AV-101 drug
substance manufactured. Additionally, in December 2017 the FDA
granted Fast Track Designation to AV-101 for development as a
potential adjunctive treatment for MDD. The FDA’s Fast
Track Designation is a process designed to facilitate the
development and expedite the review of drugs to treat serious
conditions and unmet medical needs. With Fast Track Designation,
there is an increased possibility for a priority review of AV-101
by the FDA.
We believe preclinical studies and Phase 1 safety studies support
our hypothesis that AV-101 also has potential as a non-opioid
treatment alternative for neuropathic pain, as well as several
additional CNS indications where modulation of the
NMDA receptors, activation of AMPA pathways and/or key active
metabolites of AV-101 may achieve therapeutic
benefit, including PD LID,
epilepsy, and Huntington’s disease. We are beginning to plan
additional Phase 2 clinical studies to further evaluate the
therapeutic potential of AV-101 beyond MDD, however we do not
intend to initiate such studies in 2018.
CardioSafe 3D™; NCE Drug Rescue and Regenerative
Medicine
VistaStem Therapeutics is our wholly owned subsidiary focused on
applying hPSC technology to discover, rescue, develop and
commercialize proprietary small molecule NCEs for CNS and other
diseases, as well as potential cellular therapies involving stem
cell-derived blood, cartilage, heart and liver cells.
CardioSafe 3D™ is our
customized in vitro cardiac bioassay system capable of
predicting potential human heart toxicity of small molecule
NCEs in vitro, long before they are ever tested in animal and
human studies. Potential commercial applications of our stem cell
technology platform involve using CardioSafe 3D internally for NCE drug discovery and
drug rescue to expand our proprietary drug candidate pipeline. Drug
rescue involves leveraging substantial prior research and
development investments by pharmaceutical companies and others
related to public domain NCE programs terminated before FDA
approval due to heart toxicity risks and RM and cellular therapies.
To advance potential RM applications of our cardiac stem cell
technology, in December 2016, we exclusively sublicensed to
BlueRock Therapeutics LP, a next generation regenerative medicine
company established by Bayer AG and Versant Ventures, rights to
certain proprietary technologies relating to the production of
cardiac stem cells for the treatment of heart disease. In a manner
similar to the BlueRock Agreement, we may also pursue additional
potential RM applications using blood, cartilage, and/or liver
cells derived from hPSCs for (A) cell-based therapy (injection of
stem cell-derived mature organ-specific cells obtained through
directed differentiation), (B) cell repair therapy (induction of
regeneration by biologically active molecules administered alone or
produced by infused genetically engineered cells), or (C) tissue
engineering (transplantation of in vitro grown complex tissues) using hPSC-derived
blood, bone, cartilage, and/or liver cells.
Financial Operations Overview and Results of
Operations
Our critical accounting policies and estimates and recent
accounting pronouncements are disclosed in our Annual Report on
Form 10-K for the fiscal year ended March 31, 2017, as filed with
the SEC on June 29, 2017, and in Note 3 to the accompanying
unaudited Condensed Consolidated Financial Statements included in
Part 1, Item 1 of this Report.
Summary
Net Loss
We
generated $1.25 million of sublicense revenue from the BlueRock
Agreement in December 2016. However, we have not yet achieved
recurring revenue-generating status from any of our product
candidates or technologies. Since our
inception in May 1998, we have devoted substantially all of our
time and efforts to developing our lead CNS product candidate,
AV-101, from early nonclinical studies to our ongoing Phase 2
clinical development program in MDD, as well as stem cell
technology research and development, bioassay development, small
molecule drug development, and creating, protecting and patenting
intellectual property related to our product candidates and
technologies, with the corollary initiatives of recruiting and
retaining personnel and raising working capital. As of
December 31, 2017, we had an accumulated deficit of approximately
$152.5 million. Our net loss for the nine months ended December 31,
2017 and 2016 was approximately $10.3 million and $7.7 million,
respectively. We expect losses to continue for the foreseeable
future, primarily related to our further development of AV-101 for
the adjunctive treatment of MDD and other CNS
indications.
Summary of the Nine Months Ended December 31, 2017
During the nine months ended December 31, 2017, we have continued
to (i) advance nonclinical, including manufacturing, and clinical
development of AV-101 as a potential new generation antidepressant
and as a potential new therapeutic alternative for several other
CNS indications with significant unmet medical need, (ii) expand
the regulatory and intellectual property foundation to support
broad clinical development and, ultimately, commercialization of
AV-101 in the U.S. and foreign markets, and (iii) on a limited
basis, advance the predictive toxicology capabilities of
CardioSafe
3D for small molecule new chemical
entity drug rescue and development applications and collaborative
regenerative medicine opportunities related to our cardiac stem
cell technology platform.
Pursuant to our CRADA with the NIH, the NIH continues to fund, and
Dr. Carlos Zarate Jr. of the NIMH continues to conduct, the NIMH
AV-101 MDD Phase 2 Monotherapy Study at no cost to us other than
supplying clinical trial material.
We continue to prepare for the launch of our AV-101 MDD Phase 2
Adjunctive Treatment Study with initiatives that have significantly
improved the efficiency of our AV-101 manufacturing processes and
are making available sufficient quantities of AV-101 to enable a
comprehensive initiation of the study. We currently anticipate the
launch of the AV-101 MDD Phase 2 Adjunctive Treatment Study, with
Dr. Maurizio Fava of Harvard Medical School serving as Principal
Investigator, in the first quarter of 2018.
Additionally, we are pursuing initiatives to secure a broad
spectrum of intellectual property protection for AV-101 covering
multiple CNS indications. We have filed and are pursuing
several patent applications in Europe, the U.S. and other selected
regions. Several of these patent applications have already been
granted or allowed, on both (i) certain novel therapeutic methods
of use of AV-101, including depression, and (ii) certain novel
methods of producing AV-101. In Europe, the European Patent Office
(EPO) recently granted our
patent related to methods of treating depression with AV-101 and
certain other neurological indications. In the U.S. and other
selected regional markets, we are currently pursuing a counterpart
AV-101 patent application similar to the patent granted by the EPO.
Although the U.S. Patent and Trademark Office (USPTO) has not yet allowed the
counterpart application filed in the U.S., we believe that our
counterpart patent applications under review by the USPTO and other
countries ultimately will be granted.
In the
U.S., Europe and other selected regional markets, we are also
prosecuting patent applications related to novel methods of
producing AV-101. The USPTO recently granted a patent covering our
manufacturing process and the Chinese counterpart has also been
granted. We have submitted a counterpart application to the EPO,
which has not yet been approved. However, given that the USPTO has
granted a patent in the U.S., we believe our counterpart patent
application at the EPO ultimately will be granted.
The USPTO has also recently issued a patent related to
methods for producing, from human pluripotent stem cells (hPSCs),
hematopoietic precursor stem cells, which are stem cells that give
rise to all of the blood cells and most of the bone marrow cells in
the body. VistaGen holds an exclusive license to this patent from
the University Health Network (UHN). The technology covered by the
patent has the potential to impact both direct and supportive
therapy for autoimmune disorders and cancer, with CAR-T cell
applications, and foundational technology which may provide
approaches for producing bone marrow stem cells for bone marrow
transfusions.
In December 2017, we completed an underwritten public offering,
resulting in gross proceeds of $15.0 million, during which we
offered and sold shares of our common stock and warrants to
purchase shares of our common stock at a combined public offering
price of $1.50 per share and related warrant (the
December 2017
Public Offering). We issued an
aggregate of 10,000,000 shares of our common stock and warrants to
purchase up to 10,000,000 shares of our common stock at an exercise
price of $1.50 per share (the December 2017 Offering
Warrants). The December 2017 Offering Warrants are
exercisable at any time through December 13, 2022, and do not
contain any cashless exercise features as long as our Registration
Statement on Form S-1 (Registration No. 333-221009) (the
S-1) is effective. We received net proceeds of
approximately $13.6 million from the December 2017 Public Offering,
after deducting underwriter’s commission and other expenses
related to the offering. The common stock and the shares of common
stock underlying the December 2017 Offering Warrants issued in the
December 2017 Public Offering were offered, issued and sold
pursuant to the S-1.
In September 2017, we completed an underwritten public offering,
pursuant to which we sold 1,371,430 shares of our common stock and
Series A1 Warrants to purchase up to 1,388,931 shares of common
stock and Series A2 Warrants to purchase up to 503,641 shares of
common stock (collectively, the Warrants), each initially exercisable for $1.82 per share
to two of our existing institutional investors, resulting in net
proceeds of approximately $2.0 million (the September 2017 Public
Offering). The Series A1
Warrants will be exercisable for a five-year period commencing on
March 7, 2018, and the Series A2 Warrants are exercisable at any
time and expire on September 6, 2022. The common stock and the
shares of common stock underlying the Warrants issued in the
September 2017 Public Offering were sold pursuant to our
effective Registration Statement on Form S-3 (Registration
No. 333-215671) to cover this and potential future sales of our
equity securities in one or more public offerings from time to
time. Consistent with the
anti-dilution protection provisions of the Series A2 Warrants, the
exercise price of such warrants was reduced upon the closing of the
December 2017 Public Offering. At the date of this Report, all of
the Series A2 Warrants have been exercised at the reset exercise
price as a result of the December 2017 Public Offering.
Following these exercises, none of our outstanding warrants have
down round anti-dilution protection features.
During the nine months ended December 31, 2017, we entered into
self-placed private placement transactions with individual
accredited investors, pursuant to which we sold units consisting of
an aggregate of 616,323 shares of our unregistered common stock
and, after adjustments, warrants which are not exercisable until
six months and one day following issuance and expire between April
30, 2021 and November 30, 2022, to purchase an aggregate of 616,323
unregistered shares of our common stock at a weighted average fixed
exercise price of approximately $2.00 per share. We received
aggregate cash proceeds of approximately $1.1 million in these
self-placed private placement transactions.
In July 2017, we appointed Mark Wallace, M.D.,
Distinguished Professor of Clinical Anesthesiology at the
University of California, San Diego, to our Clinical and Regulatory
Advisory Board to assist us in advancing development of AV-101 as a
potential non-opioid treatment alternative for neuropathic pain.
Dr. Wallace is an internationally recognized leader in the field of
multi-modal pain management, with over 30 years of professional
experience, board certifications, licensures, honors/awards,
grants, articles and abstracts.
As a
matter of course, we continue to minimize, to the greatest extent
possible, cash commitments and expenditures for both internal and
external research and development and general and administrative
services. To further advance the
nonclinical and clinical development of AV-101 and our stem cell
technology platform, as well as support our operating activities,
we continue to carefully manage our routine operating costs,
including our internal employee related expenses, as well as
external costs relating to regulatory consulting, contract research
and development, investor relations and corporate development,
legal, acquisition and protection of intellectual property, public
company compliance and other professional services and internal
costs.
Results of Operations
Comparison of Three Months Ended December 31, 2017 and
2016
The following table summarizes the results of our operations,
including both cash and noncash components, for the three months
ended December 31, 2017 and 2016 (amounts in
thousands).
|
Three Months Ended December 31,
|
|
|
|
|
|
|
Sublicense
revenue
|
$-
|
$1,250
|
Operating
expenses:
|
|
|
Research
and development
|
1,602
|
1,611
|
General
and administrative
|
1,266
|
2,276
|
Total
operating expenses
|
2,868
|
3,887
|
|
|
|
Loss
from operations
|
(2,868)
|
(2,637)
|
|
|
|
Interest
expense, net
|
(2)
|
(1)
|
Loss
on extinguishment of accounts payable
|
(135)
|
-
|
|
|
|
Loss
before income taxes
|
(3,005)
|
(2,638)
|
Income
taxes
|
-
|
-
|
|
|
|
Net
loss
|
(3,005)
|
(2,638)
|
Accrued
dividend on Series B Preferred Stock
|
(263)
|
(238)
|
Deemed
dividend from trigger of down round
|
|
|
provision
feature
|
(199)
|
-
|
Net
loss attributable to common stockholders
|
$(3,467)
|
$(2,876)
|
Revenue
We recognized $1.25 million in sublicense revenue pursuant to the
BlueRock Therapeutics Agreement in the quarter ended December 31,
2016. While we may potentially receive additional payments and
royalties under the BlueRock Therapeutics Agreement in the future,
in the event certain performance-based milestones and commercial
sales are achieved, we reported no revenue for the quarter ended
December 31, 2017 and we presently have no recurring revenue
generating arrangements with respect to AV-101 or other potential
product candidates. There can be no assurance that the BlueRock
Agreement will provide additional revenue to us in the near term or
at all.
Research and Development Expense
Research and development expense, including both cash and noncash
components, totaled $1.6 million for each of the quarters ended
December 31, 2017 and 2016. Noncash expenses, including stock
compensation, depreciation and a portion of rent expense in both
periods and a portion of AV-101 project expenses in the quarter
ended December 31, 2017, totaled approximately $385,000 and
$215,000 for the quarters ended December 31, 2017 and 2016,
respectively. While total research and development expense remains
essentially unchanged, we have continued our focus on nonclinical
and clinical development of AV-101, particularly our preparations
for the launch of the AV-101 MDD Phase 2 Adjunctive Treatment
Study, which is currently anticipated in the first quarter of 2018.
The following table indicates the primary components of research
and development expense for each of the periods (amounts in
thousands):
|
Three Months Ended December 31,
|
|
|
|
|
|
|
Salaries
and benefits
|
$347
|
$302
|
Stock-based
compensation
|
299
|
114
|
Consulting
and other professional services
|
7
|
(139)
|
Technology
licenses and royalties, including UHN
|
149
|
293
|
Project-related
research and supplies:
|
|
|
AV-101
|
665
|
894
|
Stem
cell and all other
|
15
|
50
|
|
680
|
944
|
Rent
|
104
|
88
|
Depreciation
|
16
|
8
|
All
other
|
-
|
1
|
|
|
|
Total
Research and Development Expense
|
$1,602
|
$1,611
|
The increase in salaries and benefits expense reflects the impact
of modest salary increases granted to our Chief Medical Officer
(CMO) and Chief Scientific Officer
(CSO)
in July 2017 and to the non-officer members of our scientific staff
in June 2017 and to bonus payments made to scientific staff members
in December 2017, offset by the impact of a staff position
terminated in April 2017.
Noncash stock-based compensation expense increased in the current
period primarily from the routine amortization of option grants
made to our CSO, CMO and scientific staff in September 2017, April
2017 and November 2016. Grants awarded after December 2016 account
for approximately $199,000 of 2017 expense. Expense attributable to
these grants is generally being amortized over two-year to
four-year vesting periods, based on the terms of the respective
grants. Additionally, substantially all option grants made prior to
September 2015 were fully-vested and fully-expensed prior to June
30, 2017.
Consulting services reflects fees paid or accrued for scientific,
nonclinical and clinical development and regulatory advisory
services rendered to us by third-parties, primarily by members of
our scientific and CNS clinical and regulatory advisory boards. The
reduction in expense in the current period primarily reflects the
change in terms of consulting agreements with our stem cell-related
scientific advisory board members. Consulting expense in 2016
reflected the impact of the rationalization of the agreements and
accruals related to such advisory board members.
Technology license expense reflects both recurring annual license
fees as well as legal counsel and other costs related to patent
prosecution and protection pursuant to our stem cell technology
license agreements or that we have elected to pursue for commercial
purposes. We recognize these costs as they are invoiced to us by
the licensors or counsel and they do not occur ratably throughout
the year or between years. In both periods, this expense includes
legal counsel and other costs we have incurred to advance pending
patent applications in the U.S. and numerous foreign countries with
respect to AV-101 and our stem cell technology platform. Technology
license-related expense for 2016 also includes net expense of
$158,000 related to the sublicense consideration paid to UHN
pursuant to the BlueRock Therapeutics Agreement plus additional
fees and expenses related to two new stem cell technology related
licenses acquired from UHN, net of amounts previously accrued in
connection with our prior Sponsored Research Collaboration
Agreement (SRCA) with UHN, and $55,000 representing the fair
value of a warrant granted to intellectual property counsel as
partial compensation for services.
AV-101 project expenses for the quarters ended December 31, 2017
and 2016 include continuing costs incurred to develop more
efficient and cost-effective proprietary manufacturing methods for
AV-101, and to produce clinical trial material for the AV-101 MDD
Phase 2 Adjunctive Treatment Study, as well as costs incurred for
certain other nonclinical studies to facilitate further clinical
development of AV-101 in MDD and potentially for other indications,
and to comply with applicable FDA regulations. We expect these
expenses to increase materially over the next several quarters as
we initiate and conduct the AV-101 MDD Phase 2 Adjunctive Treatment
Study. AV-101 expenses in 2016 also included initial costs for
preparation of the IND and trial protocol submission to the FDA to
obtain approval for the AV-101 MDD Phase 2 Adjunctive Treatment
Study. Stem cell and other project related expenses reflects costs
associated with our in-house stem cell technology-related
initiatives in both years, and, in 2016, our participation in the
FDA’s Comprehensive In Vitro Proarrhythmia Assay
(CiPA) project.
The increase in rent expense for the quarter ended December 31,
2017 reflects higher commercial property rents prevalent in the
South San Francisco real estate market and recognized in our
November 2016 lease amendment extending the lease of our
headquarters facilities in South San Francisco by five years from
July 31, 2017 to July 31, 2022 and the related accounting for the
extension amendment.
General and Administrative Expense
General and administrative expense, including both cash and noncash
components, decreased by 44% to approximately $1.3 million from
$2.3 million for the quarters ended December 31, 2017 and 2016,
respectively. Noncash expense accounted for approximately $485,000
and $1,486,000 for the quarters ended December 31, 2017 and 2016,
respectively, including, in both periods, stock compensation
expense, a portion of investor relations and investment banking
expenses, warrant modification expense, and a portion of rent
expense. The overall decrease in general and administrative
expenses resulted primarily from decreased professional services
expenses, notably attributable to a decrease in noncash expense
attributable to grants of common stock for services, a decrease in
noncash warrant modification expense, partially offset by increased
salary and benefits and noncash stock compensation expenses. The
following table indicates the primary components of general and
administrative expenses, including the cash and noncash components,
for each of the periods (amounts in thousands):
|
Three Months Ended December 31,
|
|
|
|
|
|
|
Salaries
and benefits
|
$339
|
$257
|
Stock-based
compensation
|
390
|
153
|
Board
fees
|
39
|
36
|
Legal,
accounting and other professional fees
|
44
|
1,017
|
Investor
relations
|
232
|
241
|
Insurance
|
60
|
38
|
Travel
expenses
|
33
|
54
|
Rent
and utilities
|
69
|
63
|
Warrant
modification expense
|
13
|
370
|
All
other expenses
|
47
|
47
|
|
$1,266
|
$2,276
|
The increase in salaries and benefits primarily reflects the impact
of modest salary increases granted in July 2017 to our Chief
Executive Officer (CEO) and Chief Financial Officer (CFO), and in January 2017 and July 2017 to our Vice
President-Corporate Development (VP-Corporate
Development) and, in June 2017,
to a non-officer member of our administrative staff as well as
bonus payments in December 2017 to our VP-Corporate Development and
an administrative staff member.
Stock based compensation expense increased in the current period
primarily as a result of the routine amortization of option grants
to independent members of our Board and our CEO, CFO, VP Corporate
Development and administrative staff in September 2017, April 2017
and November 2016, plus the new-hire grant made to our VP-Corporate
Development in September 2016. Grants awarded after December 2016
account for approximately $274,000 of 2017 expense. Expense
attributable to these grants is generally being amortized over a
two-year to four-year vesting period, based on the terms of the
respective grants. Additionally, substantially all option grants
made prior to September 2015 were fully-vested and fully-expensed
prior to June 30, 2017.
Board fees includes fees recognized for the services of independent
members of our Board. The Board modified committee assignments
effective in April 2017, resulting in the slight increase in
current year expense.
Legal, accounting and other professional fees for the quarters
ended December 31, 2017 and 2016 includes cash expense related to
routine legal services as well as accounting expense related to the
review of the financial statements for the third quarter of each
fiscal year. Other professional fees for the quarter ended December
31, 2016 additionally included noncash expense related to grants of
an aggregate of 220,000 unregistered shares of our common stock
valued on the respective grant dates at an aggregate of $862,800
plus aggregate cash payments of $80,000 to investment professionals
for financial advisory and corporate development
services.
Investor relations expense includes the fees of our various
external service providers for a broad spectrum of investor
relations, market awareness and strategic advisory and support
functions, as well as initiatives that included numerous meetings
in multiple U.S. markets and other communication activities focused
on expanding market awareness of the Company, including among
registered investment professionals and investment advisors, and
individual and institutional investors. In the quarters ended
December 31, 2017 and 2016, in addition to cash fees and expenses
we incurred, we granted an aggregate of 70,000 and 35,000
unregistered shares of our common stock, respectively, to certain
investor relations, market awareness and strategic business
advisory service providers for their services and recognized
noncash expense of $84,000 and $137,800, respectively, representing
the fair value of the stock at the time of
issuance.
In both periods, travel expense reflects costs associated with
management presentations to and meetings in multiple U.S. markets
with existing and potential individual and institutional investors,
investment professionals and advisors, media, and securities
analysts, as well as various investor relations, market awareness
and corporate development and partnering initiatives. Travel
expenses for the quarter ended December 31, 2017 were primarily
related to advancing the consummation of the December 2017 Public
Offering.
The increase in rent expense for the quarter ended December 31,
2017 reflects higher commercial property rents prevalent in the
South San Francisco real estate market and recognized in our
November 2016 lease amendment extending the lease of our
headquarters facilities by five years from July 31, 2017 to July
31, 2022 and the related accounting for the extension
amendment.
During the quarter ended December 31, 2017, we modified outstanding
warrants issued in private placement transactions between August
2017 and November 2017 to purchase an aggregate of 178,572 shares
of our common stock to reduce the exercise prices from a weighted
average of $2.32 per share to a weighted average of $1.58 per
share. We recognized the calculated increase in the fair value of
the warrants, $13,000, as noncash warrant modification expense.
During the quarter ended December 31, 2016, we entered into warrant
exchange agreements with certain warrant holders pursuant to which
the warrant holders exchanged outstanding warrants to purchase an
aggregate of 163,044 shares of our common stock for an aggregate of
110,008 shares of our unregistered common stock. We
accounted for these transactions as warrant modifications,
resulting in our recognition of $293,300 in noncash expense in the
quarter ended December 31, 2016. During that quarter we also
modified an outstanding warrant to reduce the exercise price from
$8.00 per share to $3.51 per share and increase the number of
shares exercisable under the warrant from 25,000 shares to 50,000
shares, recognizing $76,900 in noncash expense as the incremental
fair value attributable to the modification.
Interest and Other Expenses
Interest expense totaled $2,000 for the quarter ended December 31,
2017 compared to $900 reported for the quarter ended December 31,
2016. Interest expense in both periods relates to interest paid on
insurance premium financing and on a capital lease of office
equipment.
During
the quarter ended December 31, 2017, we issued 500,000 unregistered
shares of our common stock having a fair value at the time of
issuance of $585,000 and a cash payment of $76,500 to a contract
manufacturing organization in settlement of $526,500 of open
accounts payable. We recognized a corresponding loss on settlement
of accounts payable in the amount of $135,000 for the
quarter.
We
recognized $263,000 and $237,700 for
the quarters ended December 31, 2017 and 2016, respectively,
representing the 10% cumulative dividend payable on our Series B
Preferred as an additional deduction in arriving at net loss
attributable to common stockholders in the accompanying
Condensed Consolidated Statement of Operations and Comprehensive
Loss included in Part I of this Report. There have been no
conversions of outstanding shares of our Series B Preferred stock
into shares of our common stock since August 2016.
Our
sale of units consisting of common stock and warrants in the
December 2017 Public Offering at an offering price of $1.50 per
unit triggered the anti-dilution provisions of the Series A2
Warrants to purchase an aggregate of 503,641 shares of our common
stock issued in the September 2017 Public Offering. In accordance
with the anti-dilution terms and formula contained in the Series A2
warrants, the exercise price of the Series A2 Warrants was reduced
from the initial exercise price of $1.82 per share to $0.001 per
share. We recognized the effect of triggering the down round
feature, $199,200, as a further addition to net loss attributable
to common stockholders and in our calculation of basic and fully
diluted earnings per share in our accompanying Condensed
Consolidated Statement of Operations and Comprehensive Loss and as
a dividend in our Condensed Consolidated Statement of
Stockholders’ Equity included in Part I of this
Report.
Comparison of Nine Months Ended December 31, 2017 and
2016
The following table summarizes the results of our operations,
including both cash and noncash components, for the nine months
ended December 31, 2017 and 2016 (amounts in
thousands).
|
Nine Months Ended December 31,
|
|
|
|
|
|
|
Sublicense
revenue
|
$-
|
$1,250
|
Operating
expenses:
|
|
|
Research
and development
|
5,125
|
4,043
|
General
and administrative
|
4,997
|
4,908
|
Total
operating expenses
|
10,122
|
8,951
|
|
|
|
Loss
from operations
|
(10,122)
|
(7,701)
|
|
|
|
Interest
expense (net)
|
(8)
|
(4)
|
Loss
on extinguishment of accounts payable
|
(135)
|
-
|
|
|
|
Loss
before income taxes
|
(10,265)
|
(7,705)
|
Income
taxes
|
(2)
|
(2)
|
|
|
|
Net
loss
|
(10,267)
|
(7,707)
|
Accrued
dividend on Series B Preferred Stock
|
(767)
|
(1,018)
|
Deemed
dividend from trigger of down round
|
|
provision
feature
|
(199)
|
-
|
Deemed dividend on Series B Preferred Stock
|
-
|
(111)
|
Net
loss attributable to common stockholders
|
$(11,233)
|
$(8,836)
|
Revenue
We recognized $1.25 million in sublicense revenue pursuant to the
BlueRock Therapeutics Agreement in the nine months ended December
31, 2016. While we may potentially receive additional payments and
royalties under the BlueRock Therapeutics Agreement in the future,
in the event certain performance-based milestones and commercial
sales are achieved, we reported no revenue for the nine months
ended December 31, 2017 and we presently have no recurring revenue
generating arrangements with respect to AV-101 or other potential
product candidates. There can be no assurance that the BlueRock
Agreement will provide additional revenue to us in the near term or
at all.
Research and Development Expense
Research and development expense, including both cash and noncash
components, totaled $5.1 million for the nine months ended December
31, 2017, an increase of approximately 27% compared to the $4.0
million reported for the nine months ended December 31, 2016.
Noncash expenses totaled approximately $1,228,000 and $346,000 in
the nine months ended December 31, 2017 and 2016, respectively,
including stock compensation, depreciation and a portion of rent
expense in both periods, and a portion of AV-101 project expenses
in the nine months ended December 31, 2017. The increase in
research and development expense in 2017 reflects our continued
focus on nonclinical and clinical development of AV-101,
particularly our preparations for the launch of the AV-101 MDD
Phase 2 Adjunctive Treatment Study, which is currently anticipated
in the first quarter of 2018. The following table indicates the
primary cash and noncash components of research and development
expense for each of the periods (amounts in
thousands):
|
Nine Months Ended December 31,
|
|
|
|
|
|
|
Salaries
and benefits
|
$1,231
|
$1,013
|
Stock-based
compensation
|
627
|
240
|
Consulting
and other professional services
|
23
|
(81)
|
Technology
licenses and royalties
|
309
|
547
|
Project-related
research and supplies:
|
|
|
AV-101
|
2,465
|
1,963
|
Stem
cell and all other
|
105
|
129
|
|
2,570
|
2,092
|
Rent
|
308
|
206
|
Depreciation
|
54
|
25
|
All
other
|
3
|
1
|
|
|
|
Total
Research and Development Exp |