UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 
Washington, DC 20549
 
Form 10-Q
(Mark One)
 
 
 
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 30, 2019
or
 
 
 
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from                      to                      .
 
Commission File Number: 001-37761
 
VistaGen Therapeutics, Inc.
(Exact name of registrant as specified in its charter)
 
 
 
Nevada
 
20-5093315
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
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 every Interactive Data File required to be submitted 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 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.
 
 
Large accelerated filer
 [  ]
Accelerated filer
[  ]
Non-Accelerated filer
 [  ]
Smaller reporting company
[X]
 
 
Emerging growth 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
 
Securities registered pursuant to Section 12(b) of the Act:
 
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, par value $0.001 per share
VTGN
Nasdaq Capital Market
 
As of November 6, 2019, 43,222,965 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 September 30, 2019
 
 
TABLE OF CONTENTS
 
 
Page
 
 
 
 
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64
 
 
 
 
 
-i-
 
 
PART I. FINANCIAL INFORMATION
 
Item 1. Condensed Consolidated Financial Statements (Unaudited)
 
VISTAGEN THERAPEUTICS, INC.
 
CONDENSED CONSOLIDATED BALANCE SHEETS
(Amounts in Dollars, except share amounts)
 
 
 
September 30,
 
 
 March 31,
 
 
 
 2019
 
 
 2019
 
 
 
(Unaudited)
 
 
(Note 2)
 
 
 
 
 
 
 
 
 ASSETS
 
 
 
 
 
 
 Current assets:
 
 
 
 
 
 
 Cash and cash equivalents
 $4,072,400 
 $13,100,300 
 Receivable from supplier
  - 
  300,000 
 Prepaid expenses and other current assets
  604,500 
  250,900 
 Total current assets
  4,676,900 
  13,651,200 
 Property and equipment, net
  260,600 
  312,700 
 Right of use asset - operating lease
  3,750,200 
  - 
 Security deposits and other assets
  47,800 
  47,800 
 Total assets
 $8,735,500 
 $14,011,700 
 
    
    
 LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY
    
    
 Current liabilities:
    
    
 Accounts payable
 $1,449,800 
 $1,055,000 
 Accrued expenses
  2,215,500 
  1,685,600 
 Current notes payable
  159,300 
  57,300 
 Operating lease oligation
  289,600 
  - 
 Financing lease obligation
  3,100 
  3,000 
 Total current liabilities
  4,117,300 
  2,800,900 
 
    
    
 Non-current liabilities:
    
    
 Accrued dividends on Series B Preferred Stock
  4,364,500 
  3,748,200 
 Deferred rent liability
  - 
  381,100 
 Operating lease obligation
  3,879,400 
  - 
 Financing lease obligation
  4,700 
  6,300 
 Total non-current liabilities
  8,248,600 
  4,135,600 
 Total liabilities
  12,365,900 
  6,936,500 
 
    
    
 Commitments and contingencies
    
    
 
    
    
Stockholders’ (deficit) equity:
    
    
 
Preferred stock, $0.001 par value; 10,000,000 shares authorized at September 30, 2019 and March 31, 2019:
 
    
Series A Preferred, 500,000 shares authorized, issued and outstanding at September 30, 2019 and March 31, 2019
 $500
 
 $500
 
Series B Preferred; 4,000,000 shares authorized at September 30, 2019 and March 31, 2019; 1,160,240 shares
    
    
issued and outstanding at September 30, 2019 and March 31, 2019
  1,200 
  1,200 
 
Series C Preferred; 3,000,000 shares authorized at September 30, 2019 and March 31, 2019; 2,318,012 share
    
    
issued and outstanding at September 30, 2019 and March 31, 2019
  2,300 
  2,300 
 
Common stock, $0.001 par value; 175,000,000 and 100,000,000 shares authorized at September 30, 2019 and
    
    
March 31, 2019, respectively; 42,758,630 shares issued and outstanding at September 30, 2019 and March 31, 2019
  42,800
 
  42,800
 
 Additional paid-in capital
  192,970,100 
  192,129,900 
 Treasury stock, at cost, 135,665 shares of common stock held at September 30, 2019 and March 31, 2019
  (3,968,100)
  (3,968,100)
 Accumulated deficit
  (192,679,200)
  (181,133,400)
 Total stockholders’ (deficit) equity
  (3,630,400)
  7,075,200 
 Total liabilities and stockholders’ (deficit) equity
 $8,735,500 
 $14,011,700 
 
See accompanying notes to Condensed Consolidated Financial Statements.
 
 
 
-1-
 
 
VISTAGEN THERAPEUTICS, INC.
 
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)
(Amounts in dollars, except share amounts)
 
 
 
 Three Months Ended September 30,
 
 
 Six Months Ended September 30,
 
 
 
2019
 
 
2018
 
 
 2019
 
 
2018
 
Operating expenses:
 
 
 
 
 
 
 
 
 
 
 
 
 Research and development
 $4,205,200 
 $5,261,100 
 $8,519,100 
 $8,004,800 
 General and administrative
  1,146,100 
  2,171,000 
  3,056,200 
  3,637,300 
  Total operating expenses
  5,351,300 
  7,432,100 
  11,575,300 
  11,642,100 
Loss from operations
  (5,351,300)
  (7,432,100)
  (11,575,300)
  (11,642,100)
Other income (expenses), net:
    
    
    
    
 Interest income (expense), net
  15,400 
  (2,900)
  31,900 
  (5,000)
Loss before income taxes
  (5,335,900)
  (7,435,000)
  (11,543,400)
  (11,647,100)
Income taxes
  - 
  - 
  (2,400)
  (2,400)
Net loss and comprehensive loss
 $(5,335,900)
 $(7,435,000)
 $(11,545,800)
 $(11,649,500)
 
    
    
    
    
   Accrued dividend on Series B Preferred stock
  (313,800)
  (283,600)
  (616,300)
  (557,100)
 
    
    
    
    
Net loss attributable to common stockholders
 $(5,649,700)
 $(7,718,600)
 $(12,162,100)
 $(12,206,600)
 
    
    
    
    
Basic and diluted net loss attributable to common
    
    
    
    
     stockholders per common share
 $(0.13)
 $(0.30)
 $(0.29)
 $(0.50)
 
    
    
    
    
Weighted average shares used in computing
    
    
    
    
 basic and diluted net loss attributable to common
    
    
    
    
 stockholders per common share
  42,622,965 
  25,815,245 
  42,622,965 
  24,267,816 
 
 
See accompanying notes to Condensed Consolidated Financial Statements.
 
 
 
-2-
 
 
VISTAGEN THERAPEUTICS, INC.
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Amounts in Dollars)
 
 
 
 
 Six Months Ended September 30,
 
 
 
2019
 
 
2018
 
 Cash flows from operating activities:
 
 
 
 
 
 
  Net loss
 $(11,545,800)
 $(11,649,500)
 
 Adjustments to reconcile net loss to net cash used in operating activities:
 
    
   Depreciation and amortization
  52,100 
  37,900 
   Stock-based compensation
  1,456,500 
  1,785,000 
   Amortization of fair value of common stock issued for services
  92,100 
  207,300 
   Fair value of common stock issued for product licenses and option
  - 
  2,250,000 
   Amortization of fair value of warrants issued for services
  13,800 
  25,100 
   Changes in operating assets and liabilities:
    
    
    Receivable from supplier
  300,000 
  - 
    Prepaid expenses and other current assets
  (229,200)
  365,400 
    Right of use asset - operating lease
  164,900 
  - 
    Operating lease liability
  (127,100)
  - 
    Accounts payable and accrued expenses
  924,500 
  (212,300)
    Deferred rent
  - 
  128,000 
     Net cash used in operating activities
  (8,898,200)
  (7,063,100)
 
    
    
 Cash flows from property and investing activities:
    
    
  Construction of tenant improvements
  - 
  (169,800)
     Net cash used in investing activities
  - 
  (169,800)
 
    
    
 Cash flows from financing activities:
    
    
  Net proceeds from issuance of common stock and warrants, including Units
  - 
  4,778,700 
  Proceeds from exercise of warrants
  - 
  7,500 
  Repayment of financing lease obligation
  (1,500)
  (1,300)
  Repayment of notes payable
  (128,200)
  (98,700)
     Net cash (used in) provided by financing activities
  (129,700)
  4,686,200 
 Net decrease in cash and cash equivalents
  (9,027,900)
  (2,546,700)
 Cash and cash equivalents at beginning of period
  13,100,300 
  10,378,300 
 Cash and cash equivalents at end of period
 $4,072,400 
 $7,831,600 
 
    
    
 Supplemental disclosure of noncash activities:
    
    
    Insurance premiums settled by issuing note payable
 $230,200 
 $160,500 
    Accrued dividends on Series B Preferred
 $616,300 
 $557,100 
 
 
See accompanying notes to Condensed Consolidated Financial Statements.
 
 
 
 
-3-
 
 
 
VISTAGEN THERAPEUTICS, INC.
 
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ (DEFICIT) EQUITY
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2019 AND 2018
(Unaudited)
(Amounts in Dollars, except share amounts)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Additional
 
 
 
 
Stockholders'
 
 
Series A Preferred Stock
 
 
Series B Preferred Stock
 
 
Series C Preferred Stock
 
 
 Common Stock
 
 
 Paid-in
 
 
Treasury
 
 
Accumulated
 
Equity
 
 
 Shares
 
 
 Amount
 
 
 Shares
 
 
 Amount
 
 
 Shares
 
 
 Amount
 
 
 Shares
 
 
 Amount
 
 
 Capital
 
 
Stock
 
 
Deficit
 
 
(Deficit)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balances at March 31, 2018
  500,000 
 $500 
  1,160,240 
 $1,200 
  2,318,012 
 $2,300 
  23,068,280 
 $23,100 
 $167,401,400 
 $(3,968,100)
 $(156,543,800)
 $6,916,600 
 
    
    
    
    
    
    
    
    
    
    
    
    
Proceeds from sale of common stock and warrants for
  - 
  - 
  - 
  - 
  - 
  - 
  40,000 
  - 
  50,000 
  - 
  - 
  50,000 
Proceeds from exercise of warrants
  - 
  - 
  - 
  - 
  - 
  - 
  5,000 
  - 
  7,500 
  - 
  - 
  7,500 
Accrued dividends on Series B Preferred stock
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  (273,500)
  - 
  - 
  (273,500)
Stock-based compensation expense
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  612,600 
  - 
  - 
  612,600 
Fair value of common stock issued for services
  - 
  - 
  - 
  - 
  - 
  - 
  100,000 
  100 
  122,900 
  - 
  - 
  123,000 
 
    
    
    
    
    
    
    
    
    
    
    
    
Net loss for the quarter ended June 30, 2018
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  (4,214,500)
  (4,214,500)
 
    
    
    
    
    
    
    
    
    
    
    
    
Balances at June 30, 2018
  500,000 
 $500 
  1,160,240 
 $1,200 
  2,318,012 
 $2,300 
  23,213,280 
 $23,200 
 $167,920,900 
 $(3,968,100)
 $(160,758,300)
 $3,221,700 
 
    
    
    
    
    
    
    
    
    
    
    
    
Proceeds from sale of common stock and warrants for cash in private placement offering
  - 
  - 
  - 
  - 
  - 
  - 
  3,783,000 
  3,800 
  4,725,000 
  - 
  - 
  4,728,800 
Accrued dividends on Series B Preferred stock
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  (283,600)
  - 
  - 
  (283,600)
Stock-based compensation expense
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  1,172,400 
  - 
  - 
  1,172,400 
Fair value of common stock issued for PH94B license and PH10 option
  - 
  - 
  - 
  - 
  - 
  - 
  1,630,435 
  1,600 
  2,248,400 
  - 
  - 
  2,250,000 
Fair value of common stock and warrants issued for services
  - 
  - 
  - 
  - 
  - 
  - 
  50,000 
  100 
  334,800 
  - 
  - 
  334,900 
 
    
    
    
    
    
    
    
    
    
    
    
    
Net loss for the quarter ended September 30, 2018
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  (7,435,000)
  (7,435,000)
 
    
    
    
    
    
    
    
    
    
    
    
    
Balances at September 30, 2018
  500,000 
 $500 
  1,160,240 
 $1,200 
  2,318,012 
 $2,300 
  28,676,715 
 $28,700 
 $176,117,900 
 $(3,968,100)
 $(168,193,300)
 $3,989,200 
 
    
    
    
    
    
    
    
    
    
    
    
    
Balances at March 31, 2019
  500,000 
 $500 
  1,160,240 
 $1,200 
  2,318,012 
 $2,300 
  42,758,630 
 $42,800 
 $192,129,900 
 $(3,968,100)
 $(181,133,400)
 $7,075,200 
 
    
    
    
    
    
    
    
    
    
    
    
    
Accrued dividends on Series B Preferred stock
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  (302,500)
  - 
  - 
  (302,500)
Stock-based compensation expense
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  1,063,000 
  - 
  - 
  1,063,000 
Net loss for the quarter ended June 30, 2019
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  (6,209,900)
  (6,209,900)
 
    
    
    
    
    
    
    
    
    
    
    
    
Balances at June 30, 2019
  500,000 
 $500 
  1,160,240 
 $1,200 
  2,318,012 
 $2,300 
  42,758,630 
 $42,800 
 $192,890,400 
 $(3,968,100)
 $(187,343,300)
 $1,625,800 
 
    
    
    
    
    
    
    
    
    
    
    
    
Accrued dividends on Series B Preferred stock
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  (313,800)
  - 
  - 
  (313,800)
Stock-based compensation expense
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
 393,500
  - 
  - 
 393,500
 
    
    
    
    
    
    
    
    
    
    
    
    
Net loss for the quarter ended September 30, 2019
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  (5,335,900)
  (5,335,900)
 
    
    
    
    
    
    
    
    
    
    
    
    
Balances at September 30, 2019
  500,000 
 $500 
  1,160,240 
 $1,200 
  2,318,012 
 $2,300 
  42,758,630 
 $42,800 
 $192,970,100
 $(3,968,100)
 $(192,679,200)
 $(3,630,400)
 
See accompanying notes to Condensed Consolidated Financial Statements.
 
-4-
 
 
 
VISTAGEN THERAPEUTICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
Note 1.  Description of Business
 
VistaGen Therapeutics. Inc., a Nevada corporation (which may be referred to as VistaGen, the Company, we, our, or us), is a clinical-stage biopharmaceutical company committed to developing differentiated new generation medications for central nervous system (CNS) diseases and disorders with high unmet need. Our product candidate portfolio includes three differentiated clinical-stage candidates, AV-101, PH10 and PH94B, which we are developing for multiple CNS indications. We aim to become a fully-integrated biopharmaceutical company that develops and commercializes innovative CNS therapies for large and growing mental health and neurology markets where current treatments are inadequate to meet the needs of millions of patients and caregivers worldwide.
 
AV-101 (4-Chlorokynurenine or 4-Cl-KYN) belongs to a new generation of investigational medicines in neuropsychiatry and neurology known as NMDA (N-methyl-D-aspartate) glutamate receptor modulators. The NMDA receptor is a pivotal receptor in the brain and abnormal NMDA function is associated with multiple CNS diseases and disorders, including major depressive disorder (MDD), chronic neuropathic pain, epilepsy, levodopa-induced dyskinesia and many others. AV-101 is an oral prodrug of 7-Cl-KYNA which binds uniquely at the glycine site of the NMDA receptor. We are developing AV-101 initially for the treatment of MDD, a serious neurobiologically-based mood disorder which is a leading cause of disability globally, affecting approximately 17 million adults in the United States and nearly 300 million people worldwide according to the U.S. National Institutes of Health (NIH). AV-101 is currently in development in the U.S. as an adjunctive or add-on treatment (together with current FDA-approved antidepressants (SSRIs and SNRIs)) through the ELEVATE study, our U.S. multi-center, randomized, double-blind, placebo-controlled Phase 2 clinical study to evaluate the efficacy and safety of adjunctive use of AV-101 in adult MDD patients who have an inadequate response to standard FDA-approved oral antidepressant therapy (the ELEVATE Study). In addition to the ELEVATE Study, we are collaborating with Baylor College of Medicine (Baylor) and the U.S. Department of Veterans Affairs (VA) on a small Phase 1b clinical trial of AV-101 in healthy volunteer U.S. Military Veterans from Operation Enduring Freedom, Operation Iraqi Freedom or Operation New Dawn to define a dose-response relationship between AV-101 and relevant biomarkers related to NMDA receptor function and other biomarkers possibly related to suicidal ideation in U.S. Military Veterans (the Baylor Study). The FDA has granted Fast Track designation for development of AV-101 as an add-on, or adjunctive, treatment for MDD. We believe AV-101 has potential as a novel treatment for multiple additional CNS indications, including as a non-opioid treatment for chronic neuropathic pain, for which the FDA has granted a second AV-101 Fast Track designation, as well as a novel oral therapy for dyskinesia associated with levodopa therapy for Parkinson’s disease and suicidal ideation.
 
PH10 is a novel, rapid-acting CNS neuroactive nasal spray for MDD. Administered in microgram doses, PH10 activates nasal chemosensory receptors that, in turn, engage neural circuits that lead to rapid antidepressant effects without the psychological side effects, systemic exposure or safety concerns often associated with current oral antidepressants and ketamine-based therapies (intravenous ketamine or esketamine nasal spray) (KBT). In an exploratory 30-patient Phase 2a clinical study, PH10 was well-tolerated and, at microgram doses, demonstrated rapid-onset antidepressant effects, as measured by the Hamilton Depression Rating Scale (HAM-D), without psychological side effects or safety concerns. Based on positive results from this exploratory Phase 2a study, we are planning Phase 2b clinical development of PH10 in 2020, initially as a new stand-alone treatment for MDD. In a manner similar to the potential of AV-101, with its exceptional safety profile during clinical development to date, PH10 also has potential to change the current paradigm for treatment of treatment-resistant depression (TRD) with KBT, which must be administered in a clinical setting, by enabling those who respond to KBT to transition to more convenient home-based use of PH10 to maintain the initial therapeutic benefits of KBT. 
 
PH94B is also a novel, rapid-acting CNS neuroactive nasal spray administered in microgram doses. We are initially developing PH94B for treatment of social anxiety disorder (SAD), which affects over 20 million Americans and, according to the NIH, is the third most common psychiatric condition after depression and substance abuse. A person with SAD feels symptoms of anxiety or fear in certain social situations, such as meeting new people, dating, being on a job interview, answering a question in class, or having to talk to a cashier in a store. Doing everyday things in front of people - such as eating or drinking in front of others or using a public restroom - also causes anxiety or fear. The person is afraid that he or she will be humiliated, judged, and rejected.  The fear that people with SAD have in social situations is so strong that they feel it is beyond their ability to control. As a result, it gets in the way of going to work, attending school, or doing everyday things. People with SAD may worry about these and other things for weeks before they happen. Sometimes, they end up staying away from places or events where they think they might have to do something that will embarrass them.  Some people with SAD do not have anxiety in social situations but have performance anxiety instead. They feel physical symptoms of anxiety in performance situations, such as giving a speech, playing a sports game, or dancing or playing a musical instrument on stage.  SAD usually starts during youth in people who are extremely shy. Without treatment, social anxiety disorder can last for many years or a lifetime and prevent a person from reaching his or her full potential. Unfortunately, SAD often predisposes to depression and substance abuse. Only three drugs, all antidepressants, are approved by the U.S Food and Drug Administration (FDA) specifically for treatment of SAD. However, for treatment of both MDD and SAD, current oral antidepressants (ADs) have slow onset of effect (often several weeks to months) and significant side effects that may make them inadequate treatment alternatives for many individuals affected by MDD and SAD.
 
PH94B is fundamentally differentiated from all current treatments for SAD. PH94B activates nasal chemosensory receptors that, in turn, engage neural circuits that lead to rapid suppression of fear and anxiety. In clinical studies to date, PH94B has not shown psychological side effects, systemic exposure, sedation or other safety concerns often associated with current antidepressants approved by the FDA for treatment of SAD, as well as benzodiazepines and beta blockers, which are not approved by the FDA to treat SAD but are often prescribed for treatment of SAD off-label. In a peer-reviewed, published double-blind, placebo-controlled Phase 2 clinical trial, PH94B neuroactive nasal spray was significantly more effective than placebo in reducing public-speaking and social interaction anxiety on laboratory challenges of individuals with SAD within 10 to 15 minutes of self-administration.  Based on its novel mechanism of pharmacological action, rapid-onset of therapeutic effects and exceptional safety and tolerability profile in Phase 2 clinical trials to date, we are preparing to begin pivotal Phase 3 development of PH94B neuroactive nasal spray to become the first FDA-approved on-demand treatment for SAD. Additional potential CNS indications for PH94B include, general anxiety disorder (GAD), peripartum anxiety, preoperative anxiety, panic disorder and post-traumatic stress disorder (PTSD).
 

 
 
 
-5-
 
 
 
In addition to our current CNS product candidates, we have pipeline-enabling programs through our wholly-owned subsidiary, VistaStem Therapeutics (VistaStem). VistaStem is focused on applying pluripotent stem cell (hPSC) technology to discover, rescue, develop and commercialize proprietary new chemical entities (NCEs) for CNS and other diseases and 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 discover and develop small molecule NCEs for our CNS pipeline or for out-licensing. To advance potential RM applications of our cardiac stem cell technology, we have sublicensed to BlueRock Therapeutics LP, a next generation cell therapy and RM company recently acquired by Bayer AG (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 the BlueRock Agreement, we may pursue additional collaborations or licensing transactions involving blood, cartilage, and/or liver cells derived from hPSCs for cell-based therapy, cell repair therapy, RM and/or tissue engineering.
 
Subsidiaries
 
As noted above, VistaStem, a California corporation, 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 and 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, 2019 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 six months ended September 30, 2019 are not necessarily indicative of the operating results to be expected for our fiscal year ending March 31, 2020, or for any other future interim or other period.
 
The accompanying unaudited Condensed Consolidated Financial Statements and notes to the Condensed Consolidated Financial Statements contained in this Report should be read in conjunction with our audited Consolidated Financial Statements for our fiscal year ended March 31, 2019 contained in our Annual Report on Form 10-K, as filed with the Securities and Exchange Commission (SEC) on June 25, 2019.
 
The accompanying unaudited Condensed Consolidated Financial Statements have been prepared assuming we will continue as a going concern. As a clinical-stage biopharmaceutical 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 approximately $192.7 million accumulated from inception (May 1998) through September 30, 2019. We expect losses and negative cash flows from operations to continue for the foreseeable future as we engage in further development of AV-101, PH94B and PH10, execute our drug rescue programs and pursue potential drug development and regenerative medicine opportunities.
 
Since our inception in May 1998 through September 30, 2019, 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 $79.0 million, as well as from an aggregate of approximately $17.7 million of government research grant awards (excluding the fair market value of government sponsored and funded clinical trials), strategic collaboration payments, intellectual property sublicensing and other revenues. Additionally, we have issued equity securities with an approximate value at issuance of $38.1 million in noncash acquisitions of product licenses and in settlements of certain liabilities, including liabilities for professional services rendered to us or as compensation for such services.
 
At September 30, 2019, we had cash and cash equivalents of approximately $4.1 million. As disclosed in Note 11, Subsequent Events, since September 30, 2019, we have completed a self-placed private placement of units consisting of unregistered shares of our common stock and warrants to purchase unregistered shares of our common stock pursuant to which we have received cash proceeds of $600,000 (the Fall 2019 Private Placement). Nevertheless, we believe that our cash position at September 30, 2019, including the proceeds from the Fall 2019 Private Placement, considered with our recurring and anticipated losses, negative cash flows from operations and stockholders’ deficit make it probable, in the absence of additional financing, that we will not have sufficient resources to fund our planned operations for the twelve months following the issuance of these financial statements, during which time we plan to finalize the ELEVATE Study, prepare for and potentially launch Phase 3 clinical trials of AV-101 and/or PH94B, prepare for additional Phase 2 clinical studies and certain nonclinical studies involving AV-101, PH10 and PH94B and prepare for a Phase 2b clinical trial of PH10, and raises substantial doubt that we can continue as a going concern. When necessary and advantageous, we plan to raise additional capital, primarily through the sale of our equity securities in one or more private placements to accredited investors or in public offerings. Subject to certain restrictions, our Registration Statement on Form S-3 (Registration No. 333-234025) (the S-3 Registration Statement), which became effective on October 7, 2019, is 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, when and as 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.
 
 
 
-6-
 
 
In addition to the potential sale of our equity securities, we may also seek to enter research, development and/or commercialization collaborations that could generate revenue or provide funding, including non-dilutive funding, for development of AV-101, PH94B, PH10 and/or additional product candidates. We may also seek additional government grant awards or agreements similar to our relationships with Baylor and the VA in connection with the Baylor 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. We may also pursue intellectual property arrangements similar to the BlueRock Agreement with other parties. Although we may seek additional collaborations that could generate revenue and/or provide non-dilutive funding for development of AV-101, PH94B, PH10 or other product candidates, as well as new government grant awards and/or agreements, 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 our current product candidates and various 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, PH94B, PH10 and, to a lesser extent, 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 future financings or government or other strategic collaborations will be available to us 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 in 2019 and beyond, 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, right-of-use assets and lease liabilities and assumptions that have been used historically to value warrants and warrant modifications. With the exception of the BlueRock Agreement pursuant to which we recorded sublicense revenue in the third quarter of our fiscal year ended March 31, 2017, 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, including stock-based compensation expense, of scientific personnel and direct project costs.  External research and development expenses consist primarily of costs associated with clinical and non-clinical development of AV-101, PH94B, PH10, and stem cell research and development costs, and costs related to the application and prosecution of patents related to those product candidates and, to a lesser extent, our stem cell technology platform. All such costs are charged to expense as incurred. We also record accruals for estimated ongoing clinical trial costs. Clinical trial costs represent costs incurred by contract research organizations (CROs) and clinical trial sites. Progress payments are generally made to CROs, clinical sites, investigators and other professional service providers. We analyze the progress of the clinical trial, including levels of subject enrollment, invoices received and contracted costs when evaluating the adequacy of accrued liabilities. Significant judgments and estimates must be made and used in determining the clinical trial accrual in any reporting period. Actual results could differ from those estimates under different assumptions. Revisions are charged to research and development expense in the period in which the facts that give rise to the revision become known. Costs incurred in obtaining product or technology licenses are charged immediately to research and development expense if the product or technology licensed has not achieved regulatory approval or reached technical feasibility and has no alternative future uses. In September and October 2018, we acquired exclusive worldwide licenses to develop and commercialize PH94B and PH10, respectively, by issuing an aggregate of 2,556,361 unregistered shares of our common stock having an issuance-date fair market value of $4,250,000. Since, at the date of each acquisition, neither product candidate had achieved regulatory approval and each will require significant additional development and expense, we expensed the costs related to acquiring the licenses and the option during our fiscal year ended March 31, 2019.
 
 
 
 
-7-
 
 
Stock-Based Compensation
 
We recognize compensation cost for all stock-based awards to employees and non-employee consultants based on the grant date fair value of the award.  We record non-cash, stock-based compensation expense over the period during which the employee or other grantee is required to perform services in exchange for the award, which generally represents the scheduled vesting period.  We have not granted restricted stock awards to employees nor do we have any awards with market or performance conditions. Non-cash expense attributable to compensatory grants of stock to non-employees is determined by the quoted market price of the stock on the date of grant and is either recognized as fully-earned at the time of the grant or amortized ratably over the term of the related service agreement, depending on the terms of the specific agreement.
 
The table below summarizes stock-based compensation expense included in the accompanying Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and six months ended September 30, 2019 and 2018.
 
 
 
 Three Months Ended September 30,
 
 
 Six Months Ended September 30,
 
 
 
 2019
 
 
 2018
 
 
 2019
 
 
 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Research and development expense
 $167,500 
 $450,600 
 $558,100 
 $680,700 
 General and administrative expense
  226,000 
  721,800 
  898,400 
  1,104,300 
 Total stock-based compensation expense
 $393,500 
 $1,172,400 
 $1,456,500 
 $1,785,000 
 
In May 2019, the Compensation Committee of our Board of Directors (the Board) approved the grant of options from our 2016 Amended and Restated Stock Incentive Plan (the 2016 Plan) to purchase an aggregate of 1,220,000 shares of our common stock at a then above-market exercise price of $1.00 per share to the independent members of our Board, our officers and employees and certain consultants. The options vested 25% upon grant with the remaining shares vesting ratably over three years for independent directors, officers and employees, and over two years for consultants. We valued the options granted in May 2019 using the Black-Scholes Option Pricing Model and the following weighted average assumptions:
 
Assumption:
 
May 2019
 
Market price per share at grant date
 $0.80 
Exercise price per share
 $1.00 
Risk-free interest rate
  2.12%
Expected term in years
  5.53 
Volatility
  85.90%
Dividend rate
  0.0%
Shares
  1,220,000 
 
    
Fair Value per share
 $0.54 
 
Additionally, in May 2019, the Compensation Committee approved, subject to subsequent stockholder approval at our 2019 Annual Meeting of Stockholders (Annual Meeting) held in September 2019, the 2019 Omnibus Equity Incentive Plan (the 2019 Plan) and designated 7.5 million shares of our authorized common stock to be reserved thereunder. Further, in May 2019, the Compensation Committee granted options pursuant to the 2019 Plan to one of our officers to purchase 170,000 shares of our common stock at a then above-market exercise price of $1.00 per share, which grant was contingent upon the approval of the 2019 Plan by our stockholders. Our stockholders approved the 2019 Plan at our Annual Meeting and ratified the contingent grant. The option vested 25% upon approval of the 2019 Plan and the remaining shares vest ratably over three years. We valued the option using the Black-Scholes Option Pricing Model and the following assumptions:
 
Assumption:
 
September 2019
 
Market price per share at grant date
 $0.84 
Exercise price per share
 $1.00 
Risk-free interest rate
  1.45%
Expected term in years
  5.58 
Volatility
  86.04%
Dividend rate
  0.0%
Shares
  170,000 
 
    
Fair Value per share
 $0.56 
 
Upon approval of the 2019 Plan by our stockholders, no further option or other equity awards were permitted from our 2016 Plan and all remaining authorized shares of our common stock available for issuance under the 2016 Plan, 1,388,412 shares, became available for issuance under the 2019 Plan.
 
At September 30, 2019, there were stock options outstanding under our 2016 Plan and 2019 Plan to purchase 8,014,838 shares of our common stock at a weighted average exercise price of $1.40 per share. At that date, there were also 8,718,412 shares of our common stock available for future issuance under the 2019 Plan. See Note 11, Subsequent Events, for disclosure of additional option grants made in October 2019.
 
 
 
 
-8-
 
 
Leases, Right-of-Use Assets and Lease Liabilities
 
On April 1, 2019, we adopted Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) No. 2016-02, Leases, which replaced the existing guidance in Accounting Standards Codification (ASC) 840, “Leases”, and its subsequent amendments including ASU No. 2018-11, Leases (Topic 842): Targeted Improvements (ASC 842) using the modified transition method.
 
We determine whether an arrangement is an operating or financing lease at contract inception. Operating lease assets represent our right to use an underlying asset for the lease term and operating lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease assets and liabilities are recognized at the commencement date of the lease based upon the present value of lease payments over the lease term. When determining the lease term, we include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. In determining the present value of the lease payments, we use the interest rate implicit in the lease when it is readily determinable and we use our estimated incremental borrowing rate based upon information available at the commencement date when the implicit rate is not readily determinable.
 
The lease payments used to determine our operating lease assets include lease incentives and stated rent increases and may include escalation or other clauses linked to rates of inflation or other factors when determinable and are recognized in our operating lease assets in our condensed consolidated balance sheets.
 
Our operating leases are reflected in right of use asset – operating leases, other current liabilities and non-current operating lease liability in our condensed consolidated balance sheets. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. Short-term leases, defined as leases that have a lease term of 12 months or less at the commencement date, are excluded from this treatment and are recognized on a straight-line basis over the term of the lease.
 
Our accounting for financing leases, previously referred to as “capital leases” under prior guidance, remained substantially unchanged with our adoption of ASC 842. Financing leases are included in property and equipment, net and as current and non-current financing lease liabilities in our condensed consolidated balance sheets. Refer to “Recent Accounting Pronouncements” below and Note 10, Commitments and Contingencies, for additional information regarding our adoption of ASC 842 and its impact on our condensed consolidated financial statements.
 
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.
 
Loss per Common Share
 
Basic net loss attributable to common stockholders per share of common stock excludes the effect of dilution and is computed by dividing net loss increased by the accrual of dividends on outstanding shares of our Series B 10% Convertible Preferred Stock (Series B Preferred), by the weighted-average number of shares of common stock outstanding for the period. Diluted net loss attributable to common stockholders 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. In calculating diluted net loss attributable to common stockholders per share, we have generally not increased the denominator to include the number of potentially dilutive common shares assumed to be outstanding during the period using the treasury stock method because the result is antidilutive.
 
As a result of our net loss for all periods presented, potentially dilutive securities were excluded from the computation of diluted net loss per share, as their effect would be antidilutive. Potentially dilutive securities excluded in determining diluted net loss attributable to common stockholders per common share are as follows:
 
 
 
As of September 30,
 
 
 
2019
 
 
2018
 
 
 
 
 
 
 
 
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 Company's Amended and Restated 2016 (formerly 2008) Stock Incentive Plan and 2019 Omnibus Equity Incentive Plan
  8,014,838 
  6,160,338 
Outstanding warrants to purchase common stock
  21,242,954 
  20,709,516 
 
    
    
Total
  33,486,044 
  31,098,106 
 
____________
 
 
 
 
(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; excludes common shares issuable in payment of dividends on Series B Preferred upon conversion.
(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.
 
 
 
 
-9-
 
 
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 that are measured on a recurring basis at fair value at September 30, 2019 or March 31, 2019.
 
Recent Accounting Pronouncements
 
Except as described below, there have been no recent accounting pronouncements or changes in accounting pronouncements during the six months ended September 30, 2019, as compared to the recent accounting pronouncements described in our Form 10-K for our fiscal year ended March 31, 2019, that are of significance or potential significance to us.
 
In February 2016, the FASB issued ASU No. 2016-02, Leases, which replaced the existing guidance in ASC 840, “Leases”, and in July 2018, the FASB issued ASU No. 2018-11, Leases (Topic 842): Targeted Improvements (together, ASC 842). The new leasing standards set out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e. lessees and lessors). The new standards require lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease, respectively. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to the prior guidance for operating leases. We adopted the standards on the required effective date of April 1, 2019 and did not restate lease expense or lease-related assets or liabilities reported in prior comparative periods. Presentation of our financing lease for office equipment in the consolidated balance sheet is generally consistent with capitalized lease presentation under the prior lease accounting guidance. Presentation of leases within the consolidated statements of operations and consolidated statements of cash flows is generally consistent with the prior lease accounting guidance. We elected the package of practical expedients permitted under the transition guidance and, accordingly, the adoption of ASC 842 did not change the prior classification of any of our leases. We elected not to record a right-of-use asset or a lease liability on the balance sheet for leases with a term of 12 months or less and will recognize the associated lease payments in the consolidated statements of operations over the lease term. On the April 1, 2019 adoption date, we recognized approximately $4.3 million as total lease liabilities and $3.9 million as total right-of-use assets in our Condensed Consolidated Balance Sheet and derecognized a deferred rent liability of approximately $0.4 million attributable to the operating lease of our primary office and laboratory facilities recorded in accordance with prior guidance.
 
Note 4.  Prepaid Expenses and Other Current Assets
 
Prepaid expenses and other current assets are composed of the following at September 30, 2019 and March 31, 2019:
 
 
 
 September 30,
 
 
 March 31,
 
 
 
 2019
 
 
 2019
 
 
 
 
 
 
 
 
 AV-101, PH94B and PH10 materials and contract services
 $357,900 
 $5,900 
 Fair value of securities issued for professional services
  - 
  105,900 
 Insurance
  206,000 
  96,300 
 Public offering filing fees and expenses
  30,500 
  22,300 
 All other
  10,100 
  20,500 
 
 $604,500 
 $250,900 
 
The fair value of securities issued for professional services reflects the unamortized portion of the fair value of securities we have issued to certain professional service providers as full or partial compensation for services. The fair value of the securities issued is amortized ratably over the term of the related service agreement.
 
 
 
 
-10-
 
 
Note 5. Property and Equipment
 
Property and equipment is composed of the following at September 30, 2019 and March 31, 2019:
 
 
 
 September 30,
 
 
 March 31,
 
 
 
 2019
 
 
 2019
 
 
 
 
 
 
 
 
 Laboratory equipment
 $892,500 
 $892,500 
 Tenant improvements
  214,400 
  214,400 
 Computers and network equipment
  54,600 
  54,600 
 Office furniture and equipment
  84,600 
  84,600 
 
  1,246,100 
  1,246,100 
 Accumulated depreciation and amortization
  (985,500)
  (933,400)
 Property and equipment, net
 $260,600 
 $312,700 
 
Included in amounts reported above for office furniture and equipment is the right-of-use asset related to a financing lease of certain office equipment. Amounts associated with assets subject to the financing lease at September 30, 2019 and March 31, 2019 are as follows:
 
 
 
 September 30,
 
 
 March 31,
 
 
 
 2019
 
 
 2019
 
 
 
 
 
 
 
 
 Office equipment subject to financing lease
 $14,700 
 $14,700 
 Accumulated depreciation
  (8,000)
  (6,500)
 Net book value of office equipment subject to financing lease
 $6,700 
 $8,200 
 
Note 6.  Accrued Expenses
 
Accrued expenses are composed of the following at September 30, 2019 and March 31, 2019:
 
 
 
 September 30,
 
 
 March 31,
 
 
 
 2019
 
 
 2019
 
 
 
 
 
 
 
 
 Accrued expenses for AV-101, PH94B, and PH10
 
 
 
 
 
 
      clinical trial, development and related expenses
 $2,080,700 
 $1,067,600 
 Accrued compensation
  - 
  439,200 
 Accrued professional services
  127,600 
  172,100 
 All other
  7,200 
  6,700 
 
 $2,215,500 
 $1,685,600 
 
Note 7.  Notes Payable
 
The following table summarizes our unsecured promissory notes at September 30, 2019 and March 31, 2019:
 
 
 
September 30, 2019
 
 
 March 31, 2019
 
 
 
Principal
 
 
Accrued
 
 
 
 
 
Principal
 
 
Accrued
 
 
 
 
 
 
Balance
 
 
Interest
 
 
Total
 
 
Balance
 
 
Interest
 
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   7.75% and 7.15% Notes payable
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
to insurance premium financing company (current)
 $159,300 
 $- 
 $159,300 
 $57,300 $ 
 $- 
 $57,300 
 
In May 2019, we executed a 7.15% promissory note in the principal amount of $230,200 in connection with certain insurance policy premiums. The note is payable in monthly installments of $23,800, including principal and interest, through March 2020, and had an outstanding principal balance of $139,800 at September 30, 2019. In February 2019, we executed a 7.75% promissory note in the principal amount of $63,500 in connection with other insurance policy premiums. That note is payable in monthly installments of $6,600 including principal and interest, through December 2019 and had an outstanding principal balance of $19,500 at September 30, 2019.
 
 
 
 
-11-
 
 
Note 8.  Capital Stock
 
During the six months ended September 30, 2019, we did not engage in any capital-raising transactions, nor did we grant any equity securities as full or partial compensation to consultants, other than stock options as described in Stock-Based Compensation in Note 3, Summary of Significant Accounting Policies.
 
Warrants Outstanding
 
During the quarter ended June 30, 2019, warrants issued in private placement transactions during calendar 2018 to purchase an aggregate of 805,800 shares of our common stock at exercise prices between $1.50 per share and $1.75 per share became fully-exercisable in accordance with their terms. Accordingly, all warrants outstanding at September 30, 2019 are now fully-exercisable at a weighted average exercise price of $2.43 per share as follows:
 
 
 Exercise
 
 
Weighted
 

 
Warrants Outstanding
 
 
   Price      
 
Average
Expiration
 
and Exercisable at
 
 
 per Share
 
per Share
Date
 
September 30, 2019
 
 
 
 
 
 
 
 
 
 
 
 $1.50
 
 $1.50 
11/30/2021 to 12/13/2022
  14,335,200 
 $1.59 - $1.80 
 $1.67 
2/28/2022 to 10/10/2022
  625,619 
 $1.82 
 $1.82 
3/7/2023
  1,388,931 
 $2.00 - $3.51 
 $2.14 
4/30/2021 to 10/19/2022
  696,693 
 $5.30 
 $5.30 
5/16/2021
  2,705,883 
 $6.00 - $10.00 
 $7.15 
10/11/2019 to 3/3/2023
  1,490,628 
    
 $2.43 
 
  21,242,954 
 
Of the warrants outstanding at September 30, 2019, 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 9,596,200 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. The common shares issuable upon exercise of our remaining outstanding warrants are unregistered. At September 30, 2019, none of our outstanding warrants are subject to down round anti-dilution protection features and all of the outstanding warrants are exercisable by the holders only by payment in cash of the stated exercise price per share.
 
Note 9.  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) that we have engaged for a wide range of material aspects related to the nonclinical and clinical development, manufacturing and regulatory affairs associated with our efforts to develop and commercialize AV-101 for MDD, including our ELEVATE Study and other potential CNS indications, as well as PH94B, PH10, and other potential product candidates. At September 30, 2019, CBV held approximately 2% of our outstanding common stock.
 
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, 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 prior May 2007 master services agreement, we incurred expenses of $1,610,900 and $752,200 during the quarters ended September 30, 2019 and 2018, respectively, and $3,016,000 and $1,603,000 for the six months ended September 30, 2019 and 2018, respectively. At September 30, 2019 and March 31, 2019, we had recorded accounts payable and accrued expenses related to CRL aggregating $1,646,800 and $657,800, respectively. We anticipate periodic expenses for CRO services from CRL related to nonclinical and clinical development of, and regulatory affairs related to, AV-101, PH94B, PH10 and other potential product candidates will increase in future periods.
 
During our fiscal year ended March 31, 2019, we issued an aggregate of 2,556,361 shares of our unregistered common stock having an issue-date fair market value of $4,250,000 to Pherin Pharmaceuticals, Inc. (Pherin) to acquire exclusive worldwide licenses to develop and commercialize PH94B and PH10. We recorded the acquisition of the licenses as research and development expense during our fiscal year ended March 31, 2019. During the quarters ended September 30, 2019 and 2018, we recorded $30,000 and $10,000, respectively, and during the six months ended September 30, 3019 and 2018, we recorded $60,000 and $10,000 respectively, representing monthly support payments to Pherin under the terms of the PH94B license agreement. We recorded no amounts payable to Pherin at September 30, 2019 or March 31, 2019. At September 30, 2019, Pherin held approximately 4% of our outstanding common stock.
 
During the six months ended September 30, 2019, we engaged the consulting firm headed by one of the independent members of our Board to provide various market research studies for certain of our product pipeline candidates and recorded research and development expense of $75,100 for the quarter ended September 30, 2019 and $102,800 for the six months ended September 30, 2019 related to such studies. We incurred no such expenses for the three and six months ended September 30, 2018. At September 30, 2019, we recorded $45,000 of accrued expenses related to these studies.
 
 
 
-12-
 
 
Note 10. Commitments and Contingencies
 
Operating Leases
 
We lease our headquarters office and laboratory space in South San Francisco, California under the terms of a lease that expires on July 31, 2022 and that provides an option to renew for an additional five years at then-current market rates. Consistent with the guidance in ASC 842, effective beginning April 1, 2019, we have recorded this lease in our Condensed Consolidated Balance Sheet as an operating lease. For the purpose of determining the right-of-use asset and associated lease liability, we determined that the renewal of this lease is reasonably probable. The lease of our South San Francisco facilities does not include any restrictions or covenants requiring special treatment under ASC 842.
 
The following table summarizes the presentation of the operating lease in our Condensed Consolidated Balance Sheet at September 30, 2019:
 
 
 
As of September
30, 2019
 
Assets
 
 
 
Right of use asset – operating lease
 $3,750,200 
 
    
Liabilities
    
Current operating lease obligation
 $289,600 
Non-current operating lease obligation
  3,879,400 
Total operating lease liability
 $4,169,000 
 
The following table summarizes the effect of operating lease costs in the Company’s condensed consolidated statements of operations:
 
 
 
For the Three Months 
Ended
 
 
For the Six Months 
Ended
 
 
 
September 30, 2019
 
 
September 30, 2019
 
Operating lease cost
 $203,100 
 $411,900 
 
The minimum (base rental) lease payments related to our South San Francisco operating lease are expected to be as follows:
 
Fiscal Years Ending March 31,
 
 
 
2020 (remaining six months)
 $315,500 
2021
  645,800 
2022
  668,400 
2023
  726,000 
2024
  766,000 
Thereafter
  2,720,400 
Total lease expense
  5,842,100 
Less imputed interest
  (1,673,100)
Present value of operating lease liabilities
 $4,169,000 
 
Under the prior lease guidance, future minimum lease payments, under the non-cancellable portion (excluding the five-year extension assumed under ASC 842) of the South San Francisco operating lease were as follows at March 31, 2019:
 
Fiscal Years Ending March 31,
 
 
 
2020
 $623,900 
2021
  645,800 
2022
  668,400 
2023
  225,300 
2024
  - 
Thereafter
  - 
 
 $2,163,400 
 
The remaining lease term, including the assumed five-year extension at the expiration of the current lease period, and the discount rate assumption for our South San Francisco operating lease is as follows:
 
 
 
As of September 30, 2019
 
Assumed remaining lease term in years
  7.84 
Assumed discount rate
  8.54%
 
 
 
-13-
 
 
The interest rate implicit in lease contracts is typically not readily determinable and, as such, we used our estimated incremental borrowing rate based on information available at the adoption of ASC 842, which represents an internally developed rate that would be incurred to borrow, on a collateralized basis, over a similar term, an amount equal to the lease payments in a similar economic environment.
 
Supplemental disclosure of cash flow information related to the Company’s operating leases included in cash flows used by operating activities in the condensed consolidated statements of cash flows is as follows:
 
 
For the Six Months 
Ended
 
September 30, 2019
Cash paid for amounts included in the measurement of lease liabilities
 $374,200 
 
During the six months ended September 30, 2019, other than the initial adoption of ASC 842 that required right of use assets and lease liabilities to be recorded, we recorded no new right of use assets arising from new lease liabilities.
 
We also lease a small office in the San Francisco Bay Area under a month-to-month arrangement at insignificant cost and have made an accounting policy election not to apply the ASC 842 operating lease recognition requirements to such short-term lease. We recognize the lease payments for this lease in general and administrative expense over the lease term. We recorded rent expense of $3,500 and $6,900 for the three and six months ended September 30, 2019, respectively, attributable to this lease.
 
Note 11.  Subsequent Events
 
We have evaluated subsequent events through November 6, 2019 and have identified the following matters requiring disclosure:
 
Grant of Options from the 2019 Plan
 
During October 2019, we granted options from our 2019 Plan to the independent members of our Board, our officers and employees and certain consultants to purchase an aggregate of 1,575,000 shares of our common stock at an exercise price of $1.41 per share, the quoted closing market price of our common stock on the Nasdaq Capital Market on the grant date. The options were vested 25% at grant with the remaining options vesting ratably over the following 24 months.
 
Common Stock and Warrants Issued in Fall 2019 Private Placement
 
Between October 30, 2019 and November 6, 2019, in a self-placed private placement and pursuant to subscription agreements from accredited investors, we sold to such investors units, at a purchase price of $1.00 per unit, consisting of an aggregate of 600,000 unregistered shares of our common stock and warrants, exercisable through November 1, 2023, to purchase 300,000 unregistered shares of our common stock at an exercise price of $2.00 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 prior to six months and one day following issuance. We received aggregate cash proceeds of $600,000 from the sale of the units.
 
 
 
 
 
-14-
 
 
 
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 of Directors (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
 
VistaGen Therapeutics. Inc., a Nevada corporation (which may be referred to as VistaGen, the Company, we, our, or us), is a clinical-stage biopharmaceutical company committed to developing differentiated new generation medications for central nervous system (CNS) diseases and disorders with high unmet need. Our product candidate portfolio includes three differentiated clinical-stage candidates, AV-101, PH10 and PH94B, which we are developing for multiple CNS indications. We aim to become a fully-integrated biopharmaceutical company that develops and commercializes innovative CNS therapies for large and growing mental health and neurology markets where current treatments are inadequate to meet the needs of millions of patients and caregivers worldwide.
 
AV-101 (4-Chlorokynurenine or 4-Cl-KYN) belongs to a new generation of investigational medicines in neuropsychiatry and neurology known as NMDA (N-methyl-D-aspartate) glutamate receptor modulators. The NMDA receptor is a pivotal receptor in the brain and abnormal NMDA function is associated with multiple CNS diseases and disorders, including major depressive disorder (MDD), chronic neuropathic pain, epilepsy, levodopa-induced dyskinesia and many others. AV-101 is an oral prodrug of 7-Cl-KYNA, an NMDA receptor antagonist which binds at the glycine site of the NMDA receptor. We are developing AV-101 initially for the treatment of MDD, a serious neurobiologically-based mood disorder which is a leading cause of disability globally, affecting approximately 17 million adults in the United States and nearly 300 million people worldwide according to the U.S. National Institutes of Health (NIH). AV-101 is currently in Phase 2 development in the U.S. as an adjunctive, or add-on, treatment (together with current FDA-approved oral antidepressants (SSRIs and SNRIs)) through the ELEVATE study, our U.S. multi-center, randomized, double-blind, placebo-controlled Phase 2 clinical study to evaluate the efficacy and safety of adjunctive use of AV-101 in adult MDD patients who have an inadequate response to standard FDA-approved oral antidepressant therapy (the ELEVATE Study). In addition to the ELEVATE Study, we are collaborating with Baylor College of Medicine (Baylor) and the U.S. Department of Veterans Affairs (VA) on a small Phase 1b clinical trial of AV-101 in healthy volunteer U.S. Military Veterans from Operation Enduring Freedom, Operation Iraqi Freedom or Operation New Dawn (the Baylor Study). The FDA has granted Fast Track designation for development of AV-101 as an adjunctive, treatment for MDD. We believe AV-101 has potential as a novel treatment for multiple additional CNS indications, including as a non-opioid treatment for chronic neuropathic pain, for which the FDA has granted a second AV-101 Fast Track designation, as well as a novel oral therapy for dyskinesia associated with levodopa therapy for Parkinson’s disease and suicidal ideation.
 
 
 
-15-
 
 

PH10 is a novel, rapid-acting CNS neuroactive nasal spray for MDD. Administered in microgram doses, PH10 activates nasal chemosensory receptors that, in turn, engage neural circuits that lead to rapid antidepressant effects without the psychological side effects, systemic exposure or safety concerns often associated with current oral antidepressants and ketamine-based therapies (intravenous ketamine or esketamine nasal spray) (KBT). In an exploratory 30-patient Phase 2a clinical study, PH10 was well-tolerated and, at microgram doses, demonstrated rapid-onset and sustained antidepressant effects, as measured by the Hamilton Depression Rating Scale (HAM-D), without psychological side effects or safety concerns often associated with KBT. Based on positive results from this exploratory Phase 2a study, we are preparing for Phase 2b clinical development of PH10 in late-2020, initially as a new stand-alone treatment for MDD. In a manner similar to the potential of AV-101, with its exceptional safety profile during clinical development to date, PH10 also has potential to change the current paradigm for treatment of treatment-resistant depression (TRD) with KBT, which must be administered in a clinical setting, by enabling those who respond to such therapy to transition to more convenient home-based administration of PH10 to maintain the therapeutic benefits of KBT. 
 
PH94B is also a first-in-class, rapid-acting CNS neuroactive nasal spray administered in microgram doses. We are initially developing PH94B initially for treatment of social anxiety disorder (SAD), which affects over 20 million Americans and, according to the NIH, is the third most common psychiatric condition after depression and substance abuse. A person with SAD feels symptoms of anxiety or fear in certain social situations, such as meeting new people, dating, being on a job interview, answering a question in class, or having to talk to a cashier in a store. Doing everyday things in front of people - such as eating or drinking in front of others or using a public restroom - also causes anxiety or fear. The person is afraid that he or she will be humiliated, judged, and rejected.  The fear that people with SAD have in social situations is so strong that they feel it is beyond their ability to control. As a result, it gets in the way of going to work, attending school, or doing everyday things. People with SAD may worry about these and other things for weeks before they happen. Sometimes, they end up staying away from places or events where they think they might have to do something that will embarrass them.  Some people with SAD do not have anxiety in social situations but have performance anxiety instead. They feel physical symptoms of anxiety in performance situations, such as giving a speech, playing a sports game, or dancing or playing a musical instrument on stage.  SAD usually starts during youth in people who are extremely shy. Without treatment, social anxiety disorder can last for many years or a lifetime and prevent a person from reaching his or her full potential.
 
PH94B is fundamentally differentiated from all current treatments for SAD. PH94B activates nasal chemosensory receptors that, in turn, engage neural circuits that lead to rapid suppression of fear and anxiety. In clinical studies to date, PH94B has not shown psychological side effects, systemic exposure, sedation or other safety concerns often associated with current antidepressants approved by the FDA for treatment of SAD, as well as benzodiazepines and beta blockers, which are not approved by the FDA to treat SAD but are often prescribed for treatment of SAD off-label. In a peer-reviewed, published double-blind, placebo-controlled Phase 2 clinical trial, PH94B neuroactive nasal spray was significantly more effective than placebo in reducing social interaction and public speaking anxiety on laboratory challenges of individuals with SAD within 10 to 15 minutes of self-administration.  Based on its novel mechanism of pharmacological action, rapid-onset of therapeutic effects and exceptional safety and tolerability profile in Phase 2 clinical trials to date, we are preparing to begin pivotal Phase 3 development of PH94B neuroactive nasal spray to become the first FDA-approved as-needed, on-demand treatment for SAD. Additional potential CNS indications for PH94B include, general anxiety disorder (GAD), peripartum anxiety, preoperative anxiety, panic disorder and post-traumatic stress disorder (PTSD).
 
In addition to our current CNS product candidates, we have pipeline-enabling programs through our wholly-owned subsidiary, VistaStem Therapeutics (VistaStem). VistaStem is focused on applying pluripotent stem cell (hPSC) technology to discover, rescue, develop and commercialize proprietary new chemical entities (NCEs) for CNS and other diseases and 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 discover and develop small molecule NCEs for our CNS pipeline or for out-licensing. To advance potential RM applications of our cardiac stem cell technology, we have sublicensed to BlueRock Therapeutics LP, a next generation cell therapy and RM company recently acquired by Bayer AG (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 the BlueRock Agreement, we may pursue additional collaborations or licensing transactions involving blood, cartilage, and/or liver cells derived from hPSCs for cell-based therapy, cell repair therapy, RM and/or tissue engineering.
 
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, 2019, as filed with the SEC on June 25, 2019, and in Note 3 to the accompanying unaudited Condensed Consolidated Financial Statements included in Part 1, Item 1 of this Report.
 
 
 
 
-16-
 
 
Summary
 
Net Loss
 
We have not yet achieved recurring revenue-generating status from any of our product candidates or technologies. Since inception, we have devoted substantially all of our time and efforts to developing our initial CNS product candidate, AV-101, from early nonclinical studies to our ongoing Phase 2 clinical development program in MDD, including the ELEVATE Study. In addition, we have devoted resources to stem cell technology research and development, bioassay development and small molecule drug development, as well as creating, protecting and patenting intellectual property (IP) related to our product candidates and technologies, with the corollary initiatives of recruiting and retaining personnel and raising working capital. As disclosed above, during our fiscal year ended March 31, 2019, we acquired the rights to develop and commercialize PH94B and PH10 and are actively pursuing initiatives to advance their nonclinical and clinical development. As of September 30, 2019, we had an accumulated deficit of approximately $192.7 million. Our net loss for the six months ended September 30, 2019 and 2018 was approximately $11.5 million and $11.6 million, respectively, including $2.25 million in non-cash expense in 2018 for the acquisition of the PH94B license and the option to acquire a similar license for PH10. We expect losses to continue for the foreseeable future, as we finalize our ELEVATE Study, pursue further clinical development of AV-101 for the adjunctive treatment of MDD, PH94B for SAD, PH10 for MDD, and for additional CNS indications with respect to each of these drug candidates.
 
Summary of the Six Months Ended September 30, 2019
 
During the six months ended September 30, 2019, we continued to (i) advance nonclinical development, including manufacturing, and clinical development of AV-101 as a potential new generation antidepressant and as a potential new therapeutic alternative for several CNS indications with significant unmet need, (ii) advance the nonclinical, including manufacturing, and regulatory initiatives necessary to facilitate Phase 3 clinical development of PH94B for SAD and Phase 2 clinical development of PH10 for MDD, (iii) 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 (iv) on a limited basis, advance drug rescue applications of our stem cell technology to further expand our CNS pipeline.
 
In particular, during the six months ended September 30, 2019, we continued to conduct the ELEVATE Study, for which the final patient was dosed at the end of September 2019, produced supplies of AV-101, and conducted and/or initiated certain Phase 3-enabling nonclinical studies involving AV-101.
 
Pursuant to our Material Transfer Cooperative Research and Development Agreement with the VA and our arrangements with Baylor, Baylor has recently completed dosing of healthy volunteer U.S. Military Veterans in the Baylor Study to define a dose-response relationship between AV-101 and relevant biomarkers related to NMDA receptor function and other biomarkers possibly related to suicidal ideation in U.S. Military Veterans.
 
We continue to pursue initiatives to secure a broad portfolio of patent protection for AV-101 that covers the treatment of multiple CNS indications, unit dose formulations of AV-101 effective to treat depression, and chemical synthesis methods. With respect to CNS treatments, we obtained patents in several countries for the treatment of depression and we are pursuing patent applications related to treatment of levodopa-induced dyskinesias, certain types of neuropathic pain, tinnitus and obsessive-compulsive disorder. Additional patent applications to other aspects of prognostic testing and treatment using AV-101 are under consideration.

Over the recent and current fiscal years, we have pursued patent applications in the U.S., Australia, China, Europe, Japan and other selected countries and regions with significant commercial potential. Several of these patent applications, including a patent for treatment of MDD with AV-101 granted in Australia, were recently allowed or have been granted in the U.S. and other major pharmaceutical markets. Based on patent issuances or allowances to-date in several countries, we believe that pending counterpart patent applications related to AV-101 currently under review in other countries also are likely to be granted, although there can be no assurance that all pending applications will ultimately be granted.
 
We have an exclusive license from Pherin to its portfolio of patent assets around PH94B, under clinical development for the treatment of SAD. Patents have issued in several countries, including the U.S., Australia, Canada, China, Europe, Japan, Korea and Mexico.
 
We also have an exclusive license from Pherin to its portfolio of patent assets around PH10, under clinical development for the treatment of depressive disorders. Patents in this portfolio have issued in the U.S., Australia, China, Europe, Japan and Hong Kong. Applications are pending in Canada, Korea and Mexico.
 
 
 
-17-
 
 
As with AV-101, we plan to seek regulatory exclusivity in countries where this is available for the therapeutic use of PH94B, with initial emphasis on treating SAD as our lead indication, and for the therapeutic use of PH10, with our lead indication being the treatment of MDD.
 
We have obtained and are pursuing patent rights to the production of several types of stem cells and cells differentiated from those stem cells, including cardiomyocytes, hematopoietic cells, chondrocytes, cartilage cells and hepatocytes, as well as the use of certain cell types that have been differentiated from pluripotent stem cells for therapeutic purposes, including cell-based therapy and regenerative medicine.
 
Subsequent to the completion of our public offering of common stock in February 2019, which generated $11.5 million in gross proceeds to us, we have not completed any additional financing transactions during the six months ended September 30, 2019. 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, PH94B, PH10 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 September 30, 2019 and 2018
 
The following table summarizes the results of our operations for the three months ended September 30, 2019 and 2018 (amounts in thousands).
 
 
 
 Three Months Ended September 30,
 
 
 
 2019
 
 
 2018
 
 
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
 
 Research and development
 $4,205 
 $5,261 
 General and administrative
  1,146 
  2,171 
  Total operating expenses
  5,351 
  7,432 
 
    
    
Loss from operations
  (5,351)
  (7,432)
 
    
    
Interest income (expense), net
  15 
  (3)
 
    
    
Loss before income taxes
  (5,336)
  (7,435)
Income taxes
  - 
  - 
 
    
    
Net loss
  (5,336)
  (7,435)
  Accrued dividend on Series B Preferred Stock
  (314)
  (284)
Net loss attributable to common stockholders
 $(5,650)
 $(7,719)
 
Revenue   
 
We reported no revenue for either the quarter ended September 30, 2019 or September 30, 2018 and we presently have no recurring revenue generating arrangements with respect to AV-101, PH94B, PH10 or other potential product candidates. While we may potentially receive payments or royalties in the future under our December 2016 BlueRock Agreement, which has been assumed by Bayer in connection with its acquisition of BlueRock, in the event certain performance-based milestones and commercial sales are achieved, there can be no assurance that the BlueRock Agreement will provide revenue to us in the near term or at all.
 
 
 
 
-18-
 
 
Research and Development Expense
 
Research and development expense decreased from $5.3 million to $4.2 million for the quarters ended September 30, 2019 and 2018, respectively. Expense for the quarter ended September 30, 2018 included $2.25 million noncash expense associated with the acquisition of our license to develop and commercialize PH94B and an option to acquire a similar license for PH10, which was subsequently exercised. While this expense did not recur in the quarter ended September 30, 2019, we incurred increased expenses for the ELEVATE Study and various AV-101 nonclinical activities, including manufacturing additional quantities of AV-101 and other developmental studies, as well as nonclinical activities, including manufacturing, supporting the continuing development of PH94B and PH10. Additional noncash expenses included in research and development expense (excluding the noncash PH94B license and PH10 option acquisition in 2018), primarily stock-based compensation and depreciation, accounted for approximately $190,000 and $474,000 in the quarters ended September 30, 2019 and 2018, respectively. The following table indicates the primary components of research and development expense for each of the periods (amounts in thousands):
 
 
 
Three Months Ended September 30,
 
 
 
2019
 
 
2018
 
 
 
 
 
 
 
 
Salaries and benefits
 $343 
 $656 
Stock-based compensation
  167 
  451 
Consulting and other professional services
  188 
  29 
Technology licenses and royalties
  142 
  129 
Project-related research and supplies:
    
    
ELEVATE Study and other AV-101 expenses
  2,521 
  1,607 
PH94B and PH10 license and other expenses
  670 
  2,250 
Stem cell and all other
  30 
  23 
 
  3,221 
  3,880 
Rent
  132 
  104 
Depreciation
  12 
  12 
Total Research and Development Expense
 $4,205 
 $5,261 
 
Salaries and benefits expense reported for the quarter ended September 30, 2018 includes a total of approximately $319,000 for bonus payments made to our Chief Medical Officer (CMO), Chief Scientific Officer (CSO) and members of our scientific staff during the quarter based on achievement of goals and objectives for the fiscal year ended March 31, 2018. Partially offsetting the absence of a comparable bonus amount in the quarter ended September 30, 2019 is the impact of salary increases granted to our CMO, CSO and members of our scientific staff effective in April 2019. Bonuses based on the achievement of goals and objectives for the fiscal year ended March 31, 2019 were accrued during that fiscal year and had no expense impact during the quarter ended September 30, 2019.
 
Stock-based compensation expense reflects the amortization of option grants made to our CSO, CMO, scientific staff and certain consultants since June 2016, all earlier outstanding grants having become fully vested and amortized. Grants awarded after September 30, 2018 account for approximately $39,000 of expense in the quarter ended September 30, 2019. Stock-based compensation expense for the quarter ended September 30, 2018 included (i) the impact of new options granted to our CMO, CSO, and members of our scientific staff in early August 2018 which options were 25% vested upon grant and vest ratably until becoming fully-vested within two years thereafter, and (ii) the modification in late August 2018 of outstanding options held by our CMO, CSO and members of our scientific staff having exercise prices over $1.56 per share to reduce the exercise price to $1.50 per share, resulting in approximately $265,000 of expense attributable to the new option grants and modifications, including immediate recognition of $104,000 attributable to the modification of exercise prices. Expense attributable to recent option grants is generally being amortized over two-year to three-year vesting periods, with one-quarter of the grants made in August 2018 and May 2019 being immediately vested and expensed upon grant, in accordance with the terms of the respective grants.
 
Consulting services reflects fees paid or accrued for scientific, nonclinical and clinical development and regulatory advisory services rendered to us by third parties, in 2018, primarily by members of our Scientific Advisory Board and CNS Clinical and Regulatory Advisory Board. The increase in 2019 expense also reflects consulting and analytical services in support of our PH94B and PH10 initiatives.
 
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 various patent applications in the U.S. and numerous foreign countries with respect to AV-101 and our stem cell technology platform. Support of the intellectual property portfolios of PH94B and PH10 contributed only nominally to this expense in 2019.
 
 
 
 
-19-
 
 
AV-101 project expense for each of the quarters presented primarily reflects the costs of conducting the ELEVATE Study, including various CRO, investigator and clinical site costs, as well as expense incurred to manufacture additional quantities of AV-101 for use in future Phase 3-enabling nonclinical trials and clinical development of AV-101 for MDD and other potential CNS indications. In addition to increased ELEVATE Study costs in 2019, we have incurred further costs associated with various Phase 3-enabling initiatives and nonclinical studies.
 
Project expenses for the quarter ended September 30, 2019 related to PH94B and PH10 primarily reflect manufacturing and regulatory initiatives necessary to facilitate pivotal Phase 3 clinical development of PH94B for SAD and to facilitate Phase 2 development of PH10 for MDD. As disclosed earlier, noncash expense of $2.25 million in 2018 related to the acquisition of the PH94B license and PH10 option and represents the fair value of an aggregate of 1,630,435 unregistered shares of our common stock issued to Pherin in September 2018 under the terms of the license and option agreements.
 
Stem cell and other project related expenses reflects costs associated with drug rescue applications of our stem cell technology in both years.
 
The increase in rent expense reflects our implementation of ASC 842 effective April 1, 2019 and the requirement to recognize, as an operating lease, a right-of-use asset and a lease liability, both of which must be amortized over the expected lease term, for our South San Francisco office and laboratory facility lease. The underlying lease reflects commercial property rents prevalent in the South San Francisco real estate market at the time of 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. In implementing ASC 842, we also projected that we would exercise a five-year option to extend our tenancy under the lease when it expires in 2022, which extension would be subject to market rent conditions at that time. We allocate total rent expense for our South San Francisco facility between research and development expense and general and administrative expense based generally on square footage dedicated to each function. Refer to Note 10, Commitments and Contingencies, in the accompanying Condensed Consolidated Financial Statements in Part I of this Report for additional information.
 
General and Administrative Expense
 
General and administrative expense decreased to approximately $1.1 million, from approximately $2.2 million for the quarters ended September 30, 2019 and 2018, respectively. Noncash expense, $272,000 in the quarter ended September 30, 2019, decreased from $792,000 in the quarter ended September 30, 2018 primarily due to decreases in stock-based compensation and noncash components of investor and public relations expenses, while cash-based salaries and benefits decreased by $426,000. The following table indicates the primary components of general and administrative expense for each of the periods (amounts in thousands):
 
 
 
Three Months Ended September 30,
 
 
 
2019
 
 
2018
 
 
 
 
 
 
 
 
Salaries and benefits
 $340 
 $766 
Stock-based compensation
  226 
  722 
Board fees
  46 
  39 
Legal, accounting and other professional fees
  90 
  105 
Investor and public relations
  197 
  313 
Insurance
  88 
  71 
Travel expenses
  6 
  39 
Rent and utilities
  87 
  72 
All other expenses
  66 
  44 
 
 $1,146 
 $2,171 
 
Salaries and benefits expense reported for the quarter ended September 30, 2018 includes a total of approximately $435,000 for bonus payments made to our Chief Executive Officer (CEO), Chief Financial Officer (CFO), Vice President-Corporate Development (VP Corporate Development) and a non-officer member of our administrative staff during the quarter based on achievement of goals and objectives for the fiscal year ended March 31, 2018. Partially offsetting the absence of a comparable bonus amount in the quarter ended September 30, 2019 is the impact of salary increases granted to our CEO, CFO, VP-Corporate Development and a member of our administrative staff effective in April 2019. Bonuses based on the achievement of goals and objectives for the fiscal year ended March 31, 2019 were accrued during that fiscal year and had no expense impact during the quarter ended September 30, 2019.
 
 
 
 
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Stock-based compensation expense reflects the amortization of option grants made to our CEO, CFO, VP Corporate Development, administrative staff, independent members of our Board and certain consultants since June 2016, all earlier grants having become fully vested and amortized. Grants awarded after September 30, 2018 account for approximately $89,000 of the expense in the quarter ended September 30, 2019. Stock-based compensation expense for the quarter ended September 30, 2018 included (i) the impact of new options granted to our CEO, CFO, VP-Corporate Development and a member of our administrative staff in early August 2018 which options were 25% vested upon grant and vest ratably until becoming fully-vested within two years thereafter, and (ii) the modification in late August 2018 of outstanding options held by our CEO, CFO, VP-Corporate Development and a member of our administrative staff having exercise prices over $1.56 per share to reduce the exercise price to $1.50 per share, resulting in approximately $459,000 of expense attributable to the new option grants and modifications, including immediate recognition of $154,000 attributable to the modification of exercise prices. Expense attributable to recent option grants is generally being amortized over two-year to three-year vesting periods, with one-quarter of the grants made in August 2018, January 2019, May 2019 and September 2019 being immediately vested and expensed upon grant, in accordance with the terms of the respective grants.
 
Board fees represents fees paid as consideration for the Board and Board Committee services to the independent members of our Board. The 2019 increase reflects the addition of a new independent member to our Board in January 2019.
 
Legal, accounting and other professional fees for the quarters ended September 30, 2019 and 2018 includes expense related to routine legal fees as well as the accounting expense related to the quarterly review of our financial statements. In 2019 and 2018, we also incurred $30,000 and $3,000, respectively, attributable to services provided by international business development consultants.
 
Investor and public relations expense includes the fees of our various external service providers for a broad spectrum of investor relations and public relations services, and well as market awareness and strategic advisory and support functions and initiatives that included numerous meetings in multiple U.S. markets and other communication activities focused on expanding market awareness of the Company and its research and development programs, including among registered investment professionals and investment advisors, and individual and institutional investors. In the quarter ended September 30, 2019, in addition to cash fees and expenses we incurred for such activities, we recognized approximately $26,000 of noncash expense attributable to the amortization of the fair value of stock and warrants granted in the prior fiscal year to various corporate development, investor relations, and market awareness service providers. At September 30, 2019, the fair value of the securities granted has been fully amortized. In the quarter ended September 30, 2018, in addition to cash fees and expenses we incurred, we granted an aggregate of 50,000 unregistered shares of our common stock and four-year warrants to purchase an aggregate of 288,000 unregistered shares of our common stock having an aggregate fair value of approximately $336,000 to various corporate development, investor relations, and market awareness service providers and recognized non-cash expense of approximately $65,000. The balance of the fair value of the securities granted was recorded as a prepaid expense at September 30, 2018 and was amortized over the remaining period of the respective contracts.
 
In both periods, travel expense reflects costs associated with management presentations and meetings held in multiple U.S. markets, and certain international markets in 2019, 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 and in monitoring the progress of our ELEVATE Study in both years.
 
The increase in rent expense reflects our implementation of ASC 842 effective April 1, 2019 and the requirement to recognize, as an operating lease, a right-of-use asset and a lease liability, both of which must be amortized over the expected lease term, for our South San Francisco office and laboratory facility lease. The underlying lease reflects commercial property rents prevalent in the South San Francisco real estate market at the time of 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. In implementing ASC 842, we also projected that we would exercise a five-year option to extend our tenancy under the lease when it expires in 2022, which extension would be subject to market rent conditions at that time. We allocate total rent expense for our South San Francisco facility between research and development expense and general and administrative expense based generally on square footage dedicated to each function. Refer to Note 10, Commitments and Contingencies, in the accompanying Condensed Consolidated Financial Statements in Part I of this Report for additional information.
 
Interest and Other Expenses   
 
Interest income, net of interest expense, totaled $15,400 for the quarter ended September 30, 2019 compared to interest expense of $2,900 for the quarter ended September 30, 2018. The following table indicates the primary components of interest income and expense for each of the periods (amounts in thousands):
 
 
 
Three Months Ended September 30,
 
 
 
2019
 
 
2018
 
 
 
 
 
 
 
 
Interest income
 $19 
 $- 
Interest expense on premium financing and capital lease (2018)
  (4)
  (3)
Interest income (expense), net
 $15 
 $(3)
 
 
 
 
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Following the completion of our public offering in February 2019, which generated $11.5 million in gross proceeds to us, during the current fiscal year, we deposited a portion of the proceeds in interest-bearing cash equivalent accounts and earned interest income. Interest expense in both periods relates to interest paid on insurance premium financing notes and on a lease of office equipment treated as a capitalized lease in 2018 and as a financing lease subject to ASC 842 in 2019.
 
We recognized $313,800 and $283,600 for the quarters ended September 30, 2019 and 2018, respectively, representing the 10% cumulative dividend payable on outstanding shares of 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 Series B Preferred stock into shares of our common stock since August 2016.
 
Comparison of Six Months Ended September 30, 2019 and 2018
 
The following table summarizes the results of our operations for the six months ended September 30, 2019 and 2018 (amounts in thousands).
 
 
 
 Six Months Ended September 30,
 
 
 
 2019
 
 
 2018