Vistagen Therapeutics, Inc. - Quarter Report: 2021 June (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

Form 10-Q

(Mark One)

For the quarterly period ended June 30, 2021

or

For the transition period from                      to                    .

Commission File Number: 001-37761

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)

Securities registered pursuant to Section 12(b) of the Act:

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.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

As of August 11, 2021, 192,903,896 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 June 30, 2021

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements (Unaudited)

VISTAGEN THERAPEUTICS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in Dollars, except share amounts)

See accompanying notes to Condensed Consolidated Financial Statements.

VISTAGEN THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited)

(Amounts in dollars, except share amounts)

See accompanying notes to Condensed Consolidated Financial Statements.

VISTAGEN THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Amounts in Dollars)

See accompanying notes to Condensed Consolidated Financial Statements.

VISTAGEN THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

FOR THE THREE MONTHS ENDED JUNE 30, 2021 AND 2020

(Unaudited)

(Amounts in Dollars, except share amounts)

See accompanying notes to Condensed Consolidated Financial Statements.

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 biopharmaceutical company committed to developing and commercializing a new generation of medicines with potential to go beyond the current standard of care for widespread anxiety, depression and other central nervous system (CNS) disorders. Our CNS pipeline includes three clinical-stage CNS product candidates, PH94B Nasal Spray, PH10 Nasal Spray and AV-101, each with a differentiated profile, favorable safety results observed in all clinical studies to date and therapeutic potential in multiple CNS indications. PH94B Nasal Spray (PH94B) is being developed for multiple anxiety disorders. We recently initiated our PH94B Phase 3 development program, which we refer to as the PALISADE Phase 3 Program, with PALISADE-1, a U.S., multi-center, randomized, double-blind, placebo-controlled Phase 3 clinical study to evaluate the efficacy, safety and tolerability of PH94B for the acute treatment of anxiety in adults with social anxiety disorder (SAD). We are also preparing to initiate the additional studies we believe are required to support a potential U.S. New Drug Application (NDA) for PH94B in that indication should the PALISADE Phase 3 Program be successful. In addition to the PALISADE Phase 3 Program, we are preparing for exploratory Phase 2A clinical studies of PH94B in adults experiencing several other anxiety disorders. PH10 Nasal Spray (PH10) is being developed as a stand-alone treatment for multiple depression disorders. Exploratory Phase 2A clinical development of PH10 for major depressive disorder (MDD) has been completed. Based on the positive results demonstrated in that study, we are now preparing for planned Phase 2B clinical development of PH10 in MDD. We are preparing to initiate Phase 1B clinical development of AV-101 in combination with probenecid to further assess its potential in multiple neurological indications involving the NMDA (N-methyl-D-aspartate) receptor. Our goal is to become a biopharmaceutical company that develops and commercializes innovative CNS therapies for highly prevalent neuropsychiatric and neurological indications where current treatment options are inadequate to meet the needs of millions of patients worldwide.

Our Product Candidates

PH94B is a synthetic investigational neurosteroid developed from proprietary compounds called pherines. With its novel mechanism of action, PH94B is an odorless nasal spray administered at microgram-level doses to achieve rapid-onset anti-anxiety, or anxiolytic, effects. The pharmacological activity of PH94B is fundamentally differentiated from that of all FDA-approved anti-anxiety drugs, including all antidepressants approved by the U.S. Food and Drug Administration (FDA) for treatment of SAD, as well as all benzodiazepines and beta blockers prescribed for treatment of SAD on an off-label basis. PH94B engages peripheral chemosensory receptors in nasal passages that trigger a subset of neurons in the main olfactory bulbs (OB) at the base of the brain. The OB neurons then stimulate inhibitory GABAergic neurons in the limbic amygdala, decreasing the activity of the sympathetic nervous system, and facilitating fear extinction activity of the limbic-hypothalamic system, the main fear and anxiety center in the brain, as well as in other parts of the brain. Importantly, PH94B, even at microgram-level doses, does not require systemic uptake and distribution to produce its rapid-onset anti-anxiety effects. Our ongoing PALISADE Phase 3 Program for PH94B is designed to further demonstrate its potential as a fast-acting, non-sedating, non-addictive acute treatment of anxiety in adults with SAD. We believe PH94B also has potential to be developed as a novel treatment for adjustment disorder with anxiety, postpartum anxiety, post-traumatic stress disorder, procedural anxiety, panic and other anxiety disorders. PH94B has been granted Fast Track designation status by the FDA for development for the acute treatment of SAD.

PH10 is a synthetic investigational neurosteroid, which also was developed from proprietary compounds called pherines. Its novel, rapid-onset mechanism of action (MOA) is fundamentally differentiated from the MOA of all currently approved treatments for depression disorders. PH10 is administered at microgram-level doses as an odorless nasal spray. PH10 engages and activates chemosensory cells in the nasal passages, connected to neural circuits in the brain that produce antidepressant effects. Specifically, PH10 is designed to engage peripheral chemosensory receptors in the nasal passages that trigger a subset of neurons in the main OB that stimulate neurons in the limbic amygdala. This is turn is believed to increase activity of the limbic-hypothalamic sympathetic nervous system and increase the release of catecholamines. Importantly, unlike all currently approved oral antidepressants (ADs) and rapid-onset ketamine-based therapy (KBT), including both intravenous ketamine and intranasal ketamine (esketamine), PH10 does not require systemic uptake and distribution to produce rapid-onset of antidepressant effects. In all clinical studies to date, PH10 has been well-tolerated and has not caused psychological side effects (such as dissociation and hallucinations) or other safety concerns that may be associated with KBT. We believe PH10 has potential to be a new stand-alone treatment for MDD and several other depression disorders.

Abnormal function of the NMDAR (N-methyl-D-aspartate receptor), an ionotropic glutamate receptor in the brain, is associated with numerous CNS disorders. AV-101 is an oral prodrug of 7-chloro-kynurenic acid (7-Cl-KYNA), which is a potent and selective full antagonist of the glycine co-agonist site of the NMDAR that inhibits the function of the NMDAR. However, unlike ketamine and many other NMDAR antagonists, 7-Cl-KYNA is not an ion channel blocker. At doses administered in all studies to date, AV-101 has been observed to be well tolerated and has not exhibited dissociative or hallucinogenic psychological side effects or safety concerns. In light of these observations and findings from preclinical studies, we believe that AV-101, in combination with FDA-approved oral probenecid, has potential to become a new oral treatment alternative for certain CNS indications involving the NMDAR. We are currently preparing to evaluate AV-101 in combination with probenecid in a Phase 1B clinical study. The FDA has granted Fast Track designation for development of AV-101 as a potential adjunctive treatment for MDD and as a non-opioid treatment for neuropathic pain (NP).

Subsidiaries

VistaGen Therapeutics, Inc., a California corporation d/b/a VistaStem (VistaStem), is our wholly-owned subsidiary. Our Consolidated Financial Statements in this Quarterly Report on Form 10-Q (Quarterly Report or Report) also include the accounts of VistaStem’s two wholly-owned inactive subsidiaries, Artemis Neuroscience, Inc., a Maryland corporation, and VistaStem Canada, Inc., a corporation organized under the laws of Ontario, Canada.

Note 2.  Basis of Presentation

The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP) for interim financial information and with the instructions to Form 10-Q and Rule 8-03 of Regulation S-X. Accordingly, they do not contain all of the information and footnotes required for complete consolidated financial statements. In the opinion of management, the accompanying unaudited Condensed Consolidated Financial Statements reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly our interim financial information. The accompanying Condensed Consolidated Balance Sheet at March 31, 2021 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 months ended June 30, 2021 are not necessarily indicative of the operating results to be expected for our fiscal year ending March 31, 2022, 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, 2021 contained in our Annual Report on Form 10-K, as filed with the Securities and Exchange Commission (SEC) on June 29, 2021 (Form 10-K).

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 $227.6 million accumulated from inception (May 1998) through June 30, 2021. We expect losses and negative cash flows from operations to continue for the foreseeable future as we engage in further development of PH94B, PH10 and AV-101, execute our drug rescue programs and pursue potential drug development and regenerative medicine opportunities.

Since our inception in May 1998 through June 30, 2021, 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 $199.0 million, as well as from an aggregate of approximately $22.7 million of government research grant awards (excluding the fair market value of government sponsored and funded clinical trials), strategic collaboration payments and intellectual property licensing, and other revenues. Additionally, we have issued equity securities with an approximate value at issuance of $38.2 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. 

Recent Developments

In December 2020, we entered into an underwriting agreement pursuant to which we sold, in an underwritten public offering (the December 2020 Public Offering), 63.0 million shares of our common stock at a public offering price of $0.92 per share and 2.0 million shares of a newly issued series of convertible preferred stock (Series D Preferred and, together with the common stock, the Securities) at a public offering price of $21.16 per share, resulting in gross proceeds to us of $100 million. The 2.0 million shares of Series D Preferred Stock were convertible into 46.0 million shares of common stock, all of which had been converted by June 30, 2021. Net proceeds to us from the Securities sold in the December 2020 Public Offering, after deducting underwriting discounts and commissions and offering expenses payable by us, was approximately $93.6 million.

Between December 2020 and March 31, 2021, holders of outstanding warrants to purchase an aggregate of 6,396,302 shares of our common stock exercised such warrants and we received cash proceeds of approximately $4.9 million. During the quarter ended June 30, 2021, holders of outstanding warrants to purchase an aggregate of 1,516,768 shares of our common stock exercised such warrants and we received cash proceeds of approximately $1.0 million.  Refer to Note 12, Subsequent Events, for disclosure regarding additional warrant exercises since June 30, 2021.

In August 2020, we entered into an underwriting agreement pursuant to which we sold, in an underwritten public offering (the August 2020 Public Offering), an aggregate of 15,625,000 shares of our common stock at a public offering price of $0.80 per share, resulting in gross proceeds to us of $12.5 million. Under the terms of an overallotment option we granted, the underwriter exercised such option with respect to 2,243,250 shares of common stock, resulting in additional gross proceeds to us of approximately $1.8 million. Aggregate net proceeds to us from the August 2020 Public Offering, after deducting underwriting discounts and commissions and offering expenses payable by us, were approximately $12.9 million.

As more completely described in Note 11, Sublicensing and Collaboration Agreements, in June 2020, we entered into a strategic licensing and collaboration agreement for the clinical development and commercialization of PH94B for acute treatment of anxiety in adults with SAD and other potential anxiety-related disorders (the AffaMed Agreement) pursuant to which we received an upfront license payment of $5.0 million in August 2020. The upfront license payment resulted in net cash proceeds to us of approximately $4.655 million after the sublicense payment we agreed to make to Pherin Pharmaceuticals, Inc. (Pherin) pursuant to our PH94B license from Pherin, and payment for consulting services related to the consummation of the AffaMed Agreement.

Liquidity and Capital Resources

During our fiscal year ended March 31, 2021, we received approximately $119 million in net cash proceeds, primarily from the transactions described above. As disclosed above, we have received an additional $1.1 million in cash proceeds from the exercise of outstanding warrants during the quarter ended June 30, 2021. At June 30, 2021, we had cash and cash equivalents of approximately $97.8 million, which we believe is sufficient to fund our planned operations for well beyond the twelve months following the issuance of these financial statements, and indicating our ability to continue as a going concern. Nevertheless, we have not yet developed products that generate recurring revenue and, assuming successful completion of our planned clinical and nonclinical programs, we will need to invest substantial additional capital resources to commercialize any of them.

During the next twelve months, we plan to (i) continue our PH94B PALISADE Phase 3 Program with the furtherance of PALISADE-1 and the initiation of multiple additional clinical and nonclinical studies in our PALISADE Phase 3 Program for development and commercialization of PH94B as an acute treatment of anxiety in adult patients with SAD, (ii) prepare for and initiate multiple small exploratory Phase 2A studies of PH94B in additional anxiety disorders, (iii) prepare for and initiate a Phase 2B clinical study of PH10 as a potential stand-alone treatment for MDD, (iv) prepare for and initiate a Phase 1B clinical study of AV-101 in combination with probenecid to enable assessment of its potential in multiple neurological disorders, and (v) conduct nonclinical studies involving PH94B, PH10 and AV-101.

Although we believe our current cash position is sufficient to fund our planned operations for more than the next twelve months following the issuance of these financial statements, when necessary and advantageous, we may raise additional capital through the sale of our equity securities in one or more (i) public offerings (ii) private placements to accredited investors, and/or (iii) in strategic licensing and development collaborations involving one or more of our drug candidates in markets outside the United States, similar to the AffaMed Agreement. Subject to certain restrictions, our Registration Statement on Form S-3 (the S-3 Shelf Registration Statement) remains available for future sales of our equity securities in one or more public offerings from time to time.

As described more completely in Note 8, Capital Stock, in May 2021, we entered into an Open Market Sale Agreement ^SM (the Sales Agreement) with Jefferies LLC, as sales agent (Jefferies), with respect to an at-the-market offering program (the ATM) under which we may offer and sell, from time to time, shares of our common stock having an aggregate offering price of up to $75.0 million through Jefferies as our sales agent.

While we may make additional sales of our equity securities under the S-3 Shelf Registration Statement and/or under the ATM with Jefferies, we do not have an obligation to do so.

In addition to the potential sale of our equity securities, we may also seek to enter research, development and/or commercialization collaborations similar to the AffaMed Agreement to provide funding for development of one or more of our CNS product candidate programs. We may also seek additional government grant awards or agreements similar to our prior agreement with the U.S. National Institutes of Health (NIH), Baylor University and the U.S. Department of Veterans Affairs in connection with certain government-sponsored studies of AV-101. 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 AffaMed Agreement with other parties. Although we may seek additional collaborations that could generate revenue and/or provide non-dilutive funding for development of our 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, potential impacts related to the on-going COVID-19 pandemic, the scope and nature of opportunities related to our success and the success of certain other companies in nonclinical and clinical trials, including our development and commercialization of our current product candidates, 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 PH94B, PH10, and AV-101, as well as support our operating activities, we plan to continue to carefully manage our routine operating costs and our clinical and nonclinical programs.

Notwithstanding the foregoing, there can be no assurance that our current strategic collaboration under the AffaMed Agreement will generate revenue from future potential milestone payments, or 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 additional financing on a timely basis when needed, our business, financial condition, and results of operations may be harmed, the price of our stock may decline, we may be required to reduce, defer, or discontinue certain of our research and development activities and we may not be able to continue as a going concern. 

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 revenue recognition, share-based compensation, right-of-use assets and lease liabilities and assumptions that have been used historically to value warrants and warrant modifications.

Revenue Recognition

We generate revenue from collaborative research and development arrangements, licensing and technology transfer agreements, including strategic licenses or sublicenses, and government grants. Until such time as we commence commercial sales of any of our product candidates following successful development, clinical and regulatory approval, we expect that our primary source of revenue beginning from the quarter ended September 30, 2020 will be from the AffaMed Agreement involving clinical development and commercialization of PH94B for acute treatment of anxiety in adults with SAD, and potentially other anxiety-related disorders, in Greater China, South Korea, and Southeast Asia. The terms of the AffaMed Agreement include a $5.0 million non-refundable upfront license fee which we received in August 2020, potential payments based upon achievement of certain development and commercial milestones, and royalties on product sales. We also have the Bayer Agreement, pursuant to which we recorded sublicense revenue in the third quarter of our fiscal year ended March 31, 2017, as a potential revenue generating arrangement.

Under Accounting Standards Codification (ASC) Topic 606, Revenue from Contracts with Customers (Topic 606), we recognize revenue when our customers obtain control of promised goods or services, in an amount that reflects the consideration that we expect to receive in exchange for those goods or services. To determine revenue recognition for arrangements that we determine are within the scope of Topic 606, we perform the following five steps: (i) identify the contract with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price, including variable consideration, if any; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) we satisfy a performance obligation. We only apply the five-step model to contracts when it is probable that we will collect the consideration to which we are entitled in exchange for the goods or services we transfer to a customer.

Performance Obligations

We assess whether each promised good or service is distinct for the purpose of identifying the performance obligations in the contract. This assessment involves subjective determinations and requires judgments about the individual promised goods or services and whether such components are separable from the other aspects of the contractual relationship. In assessing whether a promised good or service is distinct in the evaluation of a collaboration arrangement subject to Topic 606, we consider factors such as the research, manufacturing and commercialization capabilities of the collaboration partner and the availability of the associated expertise in the general marketplace.

Collaboration arrangements can have several promised goods or services including a license for our intellectual property, product supply and development and regulatory services. When the customer could not obtain the intended benefit of the contract from a promised good or service without one or more other promises in the contract, the promise is determined to be not distinct in the context of the contract and is combined with other promises until the combined promises are distinct to identify performance obligations. We have determined that the AffaMed Agreement includes a single combined performance obligation that includes both the license to intellectual property and development and regulatory services.

Arrangements can include promises for optional additional items, which are considered marketing offers and are accounted for as separate contracts when the customer elects such options. Arrangements that include a promise for future supply of product for either clinical development or commercial supply and optional research and development services at the customer’s or the Company’s discretion are generally considered as options. We assess whether these options provide a material right to the customer and if so, such material rights are accounted for as separate performance obligations. When the customer exercises an option, any additional payments related to the option are recorded in revenue when the customer obtains control of the goods or services.

Transaction Price

Arrangements may have both fixed and variable consideration. For collaboration agreements, the non-refundable upfront fees and product supply selling prices are considered fixed, while milestone payments are considered variable consideration when determining the transaction price. At the inception of each arrangement, we evaluate whether the development milestones are considered probable of being achieved and estimate an amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the value of the associated milestone is included in the transaction price. Milestone payments that are not within our control or the licensee’s control, such as approvals from regulators, are generally not considered probable of being achieved until such approvals are received.

For sales-based royalties, including commercial milestone payments based on the level of sales, for which the license is deemed to be the predominant item to which the royalties relate, we recognize revenue at the later of when (a) the related sales occur, or (b) the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied).

In determining the transaction price, we adjust consideration for the effects of the time value of money if the timing of payments provides us with a significant benefit of financing. We do not assess whether a contract has a significant financing component if the expectation at contract inception is such that the period between payment by the licensee and the transfer of the promised goods or services to the licensee will be one year or less.

Allocation of Consideration

As part of the accounting for collaboration arrangements, we must develop assumptions that require judgment to determine the stand-alone selling price of each performance obligation identified in the contract. The transaction price is allocated to the identified performance obligations in proportion to their standalone selling prices (SSP) on a relative SSP basis. SSP is determined at contract inception and is not updated to reflect changes between contract inception and satisfaction of the performance obligations. In developing the SSP for a performance obligation, we consider applicable market conditions and relevant Company-specific factors, including factors that were contemplated in negotiating the agreement with the customer and estimated costs. We validate the SSP for performance obligations by evaluating whether changes in the key assumptions used to determine the SSP will have a significant effect on the allocation of arrangement consideration between multiple performance obligations. Since the AffaMed Agreement includes a single combined performance obligation that is not distinct, there is no allocation of consideration.  

Timing of Recognition

Significant management judgment is required to determine the level of effort required under collaboration arrangements and the period over which we expect to complete our performance obligations under the arrangement. The performance period or measure of progress is estimated at the inception of the arrangement and re-evaluated in each reporting period. This re-evaluation may shorten or lengthen the period over which revenue is recognized. Changes to these estimates are recorded on a cumulative catch up basis. Revenue is recognized for products at a point in time and for licenses of functional intellectual property at the point in time the customer can use and benefit from the license. For performance obligations that are services, revenue is recognized over time using an output or input method. For performance obligations that are a combination of licenses to intellectual property and interdependent services, the nature of the combined performance obligation is considered when determining the method and measure of progress that best represents the satisfaction of the performance obligation. For the single combined performance obligation of the AffaMed Agreement, the measure of progress is stand-ready straight-line over the period in which we expect to perform the services related to the license of PH94B.

The difference between revenue recognized to-date and the consideration invoiced or received to-date is recognized as either a contract asset/unbilled revenue (revenue earned exceeds cash received) or a contract liability/deferred revenue (cash received exceeds revenue earned). At June 30, 2021, we have recorded deferred revenue of $3,556,400. The following table presents changes in our contract liabilities for the three months ended June 30, 2021:

For the single combined performance obligation under the AffaMed Agreement, the measure of progress is stand-ready straight-line over the period in which we expect to perform the services related to the license of PH94B. Accordingly, deferred revenue is being recognized on a straight-line basis over the period in which we expect to perform the services.

During the three months ended June 30, 2021, we recognized $354,100 as revenue related to the AffaMed Agreement, compared to none for the three months ended June 30, 2020.

Contract Acquisition Costs

During the quarter ended September 30, 2020, we made cash payments aggregating $345,000 for sublicense fees, which we were obligated to make pursuant to our PH94B license from Pherin, and fees for consulting services exclusively related to the AffaMed Agreement. Additionally, on June 24, 2020, we issued 233,645 unregistered shares of our common stock, valued at $125,000, as partial compensation for consulting services related exclusively to the consummation of the AffaMed Agreement. These sublicense fees and consulting payments and the fair value of the common stock issued, aggregating $470,000, were incurred solely to obtain the AffaMed Agreement, and, accordingly, have been capitalized as deferred contract acquisition costs in our Condensed Consolidated Balance Sheet. Capitalized contract acquisition costs are amortized over the period in which we expect to satisfy the performance obligations under the AffaMed Agreement and the amortization expense has been included in general and administrative expenses in our Condensed Consolidated Statement of Operations and Comprehensive Loss. In the three months ended June 30, 2021, we amortized $33,300 to general and administrative expense in recognition of the services performed under the arrangement. We amortized no expense for the quarter ended June 30, 2020. There has been no impairment loss in relation to the costs capitalized.

The following table summarizes our contract acquisition costs for the three months ended June 30, 2021.

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 nonclinical development of PH94B, PH10, AV-101, and other 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 contract research and development organizations, clinical sites, investigators and other professional service providers. We analyze the progress of clinical trials, 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, as was the case with our acquisition of the exclusive worldwide licenses for PH94B and PH10 from Pherin during our fiscal year ended March 31, 2019.

Stock-Based Compensation

We recognize compensation cost for all stock-based awards to employees, independent directors 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 or others nor do we have any awards with market or performance conditions. Non-cash expense attributable to compensatory grants of shares of our common 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:

Expense amounts reported above include $2,300 and $2,500 in research and development expense for the three months ended June 30, 2021 and 2020, respectively, and $2,700 and $1,500 in general and administrative expense for the three months ended June 30, 2021 and 2020, respectively, attributable to our 2019 Employee Stock Purchase Plan (the 2019 ESPP).

During the three months ended June 30, 2021, we granted from our 2019 Omnibus Equity Incentive Plan (the 2019 Plan) options to purchase an aggregate of 575,000 shares of our common stock at exercise prices at or above the closing market price of our common stock on the date of grant primarily to newly-hired employees and to a new independent member of our Board. The options to newly hired employees vested 25% on the first anniversary of the grant date with the remaining shares vesting ratably monthly over the next three years. We valued the options granted during the three months ended June 30, 2021 using the Black-Scholes Option Pricing Model and the following assumptions:

At June 30, 2021, there were stock options outstanding under our 2016 Equity Incentive Plan (the 2016 Plan) and our 2019 Plan to purchase 15,071,639 shares of our common stock at a weighted average exercise price of $1.39 per share. At that date, there were also 1,311,279 shares of our common stock available for future issuance under the 2019 Plan. There are no additional shares available for issuance under our 2016 Plan.  

Leases, Right-of-Use Assets and Lease Liabilities

We account for our leases in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Update No. 2016-02 – Leases (Topic 842) (ASC 842). 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 earlier 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 Note 10, Commitments and Contingencies, for additional information regarding 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:

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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 June 30, 2021 or March 31, 2021.

Recent Accounting Pronouncements

We believe the following recent accounting pronouncement is of significance or potential significance to the Company.

In August 2020, the FASB issued ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470- 20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (ASU 2020-06), to reduce complexity in applying GAAP to certain financial instruments with characteristics of liabilities and equity.

The guidance in ASU 2020-06 simplifies the accounting for convertible debt instruments and convertible preferred stock by removing the existing guidance in ASC 470-20, Debt: Debt with Conversion and Other Options, that requires entities to account for beneficial conversion features and cash conversion features in equity, separately from the host convertible debt or preferred stock. The guidance in ASC 470-20 applies to convertible instruments for which the embedded conversion features are not required to be bifurcated from the host contract and accounted for as derivatives.

In addition, the amendments revise the scope exception from derivative accounting in ASC 815-40 for freestanding financial instruments and embedded features that are both indexed to the issuer’s own stock and classified in stockholders’ equity, by removing certain criteria required for equity classification. These amendments are expected to result in more freestanding financial instruments qualifying for equity classification (and, therefore, not accounted for as derivatives), as well as fewer embedded features requiring separate accounting from the host contract.

The amendments in ASU 2020-06 further revise the guidance in ASC 260, Earnings Per Share, to require entities to calculate diluted earnings per share (EPS) for convertible instruments by using the if-converted method. In addition, entities must presume share settlement for purposes of calculating diluted EPS when an instrument may be settled in cash or shares.

The amendments in ASU 2020-06 are effective for our fiscal year beginning April 1, 2024. We are evaluating the impact of this new guidance, but do not believe that our adoption of ASU 2020-06 will have a material impact on our consolidated financial statements.

Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on our consolidated financial statements upon adoption.

Note 4.  Receivable from Collaboration Partner

These amounts reflect payment we make from time to time to a contract manufacturing organization for certain drug substance manufacturing services on behalf of our collaboration partner. Our collaboration partner reimbursed us for the outstanding payment at June 30, 2021 in July 2021 and for the outstanding payment at March 31, 2021 in May 2021.

Note 5.  Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets are composed of the following:

Note 6.  Property and Equipment

Property and equipment is composed of the following:

We recorded depreciation and amortization expense of $34,500 and $25,400 for the three-month periods ended June 30, 2021 and 2020, respectively. The amount reported above as construction in progress at June 30, 2021 reflects the cost of certain laboratory analytical equipment acquired in connection with the development and manufacture of PH94B drug product. The equipment has not yet been fully validated or placed in service at June 30, 2021. 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 are as follows:

Note 7.  Accrued Expenses

Accrued expenses are composed of the following: 

Note 8.  Capital Stock

Common Stock Purchase Agreement with Lincoln Park Capital Fund

In March 2020, we entered into a purchase agreement and a registration rights agreement with Lincoln Park Capital Fund (Lincoln Park) pursuant to which Lincoln Park committed to purchase up to $10,250,000 of our common stock at market-based prices over a period of 24 months (the LPC Agreement). On March 24, 2020, we sold 500,000 unregistered shares of our common stock (the Initial Purchase Shares) to Lincoln Park under the purchase agreement at a price of $0.50 per share for gross cash proceeds of $250,000 (the Initial Purchase) and we also issued 750,000 unregistered shares of our common stock to Lincoln Park under the terms of the LPC Agreement for its purchase commitments under the LPC Agreement (the Commitment Shares). To satisfy our obligations under the registration rights agreement associated with the LPC Agreement, we filed a Registration Statement on Form S-1 (the LPC Registration Statement) with the SEC on March 31, 2020, which the SEC declared effective on April 14, 2020 (the Commencement Date). The LPC Registration Statement included registration of the Initial Purchase Shares and the Commitment Shares. The fair value of the Commitment Shares, $284,400, determined based on the quoted closing market price of our common stock on March 24, 2020, was a component of deferred offering costs attributable to this offering, which costs were amortized ratably to additional paid-in capital as we sold shares of our common stock to Lincoln Park under the LPC Agreement. Subsequent to the Commencement Date and through July 2020, we sold an additional 6,301,995 registered shares of our common stock to Lincoln Park and received aggregate gross cash proceeds of $2,891,200. We sold no shares of our common stock under the LPC Agreement after July 2020 and through June 2021, when we terminated the LPC Agreement. Upon termination of the LPC Agreement, we expensed the remaining $232,100 of deferred offering costs associated with the LPC Agreement. The expense is reflected as a noncash component of our general and administrative expenses for the quarter ended June 30, 2021 in the accompanying Condensed Consolidated Statements of Operations and Comprehensive Loss.  

Conversion of Series D Preferred Stock

As described in Note 2, Basis of Presentation, in connection with the December 2020 Public Offering, we issued an aggregate of 2.0 million shares of Series D Preferred which shares were convertible into an aggregate of 46.0 million shares of common stock. At March 31, 2021, there were 402,149 shares of Series D Preferred outstanding. During April 2021, the remaining investors in the December 2020 Public Offering converted their outstanding shares of Series D Preferred into an aggregate of 9,249,427 shares of common stock. As a result, there are no shares of Series D Preferred outstanding. 

ATM Agreement

In May 2021, we entered into an Open Market Sale Agreement ^SM (the Sales Agreement) with Jefferies LLC, as sales agent (Jefferies), with respect to an at-the-market offering program (the ATM) under which we may offer and sell, from time to time, shares of our common stock having an aggregate offering price of up to $75.0 million (the Shares) through Jefferies as our sales agent. Under the Sales Agreement, if and when we direct, Jefferies may sell the Shares by any method permitted by law and deemed to be an “at the market offering” as defined in Rule 415(a)(4) promulgated under the Securities Act of 1933, as amended, including block transactions, sales made directly on the Nasdaq Capital Market or any other trading market for our common stock. In addition, under the Sales Agreement, Jefferies may sell the Shares in negotiated transactions with our consent. Under certain circumstances, we may instruct Jefferies not to sell the Shares if the sales cannot be effected at or above the price we designate from time to time.

We will pay Jefferies a commission equal to three percent (3.0%) of the aggregate gross proceeds from each sale of the Shares that we direct and that are sold through Jefferies under the Sales Agreement, if any. The Sales Agreement will terminate upon the earlier of (i) the sale of all Shares subject to the Sales Agreement or (ii) the termination of the Sales Agreement by Jefferies or by us, as permitted.

Any Shares to be offered and sold under the Sales Agreement will be issued and sold pursuant to the S-3 Shelf Registration Statement filed with the SEC on March 15, 2021 and declared effective on March 26, 2021.

Exercise and Expiration of Warrants

During the quarter ended June 30, 2021, holders of outstanding warrants exercised such warrants to purchase an aggregate of 1,516,768 shares of our common stock and we received cash proceeds of approximately $1,109,700. On May 16, 2021, outstanding warrants to purchase 2,705,883 shares of our common stock at an exercise price of $5.30 per share expired unexercised. There were no warrant exercises during the quarter ended June 30, 2020.

Stock Option Exercises and ESPP Purchases

During the quarter ended June 30, 2021, holders of outstanding stock options exercised options to purchase an aggregate of 141,449 shares of our common stock and we received cash proceeds of $12,900. Certain of the options were exercised on a net exercise basis and we issued an aggregate of 98,328 shares of our common stock pursuant to the exercises. There were no option exercises during the quarter ended June 30, 2020. On June 30, 2021, our 2019 ESPP completed a purchase period pursuant to which we issued 16,251 shares of common stock and received proceeds of $31,600. On June 30, 2020, our 2019 ESPP completed a purchase period pursuant to which we issued 28,125 shares of common stock and received proceeds of $12,600.

Warrants Outstanding

The following table summarizes warrants outstanding and exercisable as of June 30, 2021. All outstanding warrants are currently exercisable and the weighted average exercise price of such warrants at June 30, 2021 is $1.25 per share.