Summary of Significant Accounting Policies

3 Months Ended

Jun. 30, 2016

Notes to Financial Statements

Summary of Significant Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.  Significant estimates include those relating to share-based compensation, and assumptions that have been used to value warrants, warrant modifications, warrant liabilities.  We do not currently have, nor have we had during the periods covered by this report, any arrangements requiring the recognition of revenue.

Research and Development Expenses

Research and development expenses are composed of both internal and external costs.  Internal costs include salaries and employment-related expenses of scientific personnel and direct project costs.  External research and development expenses consist primarily of costs associated with nonclinical and clinical development of AV-101, now in Phase 2 clinical development, initially for Major Depressive Disorder, stem cell technology-related research and development costs, and costs related to the filing, maintenance and prosecution of patents and patent applications. All such costs are charged to expense as incurred.

Stock-Based Compensation

We recognize compensation cost for all stock-based awards to employees or consultants based on the grant date fair value of the award.  Non-cash, stock-based compensation expense is recognized over the period during which the employee or consultant is required to perform services in exchange for the award, which generally represents the scheduled vesting period.  We have no awards with market or performance conditions.  For equity awards to non-employees, we re-measure the fair value of the awards as they vest and the resulting value is recognized as an expense during the period over which the services are performed.

The table below summarizes stock-based compensation expense included in the accompanying Condensed Consolidated Statements of Operations and Comprehensive Loss for the three months ended June 30, 2016 and 2015.

	Three Months Ended
	June 30,
	2016		2015
Research and development expense:
Stock option grants	$	44,000	$	15,500
Warrants granted to officer in March 2014		-		2,800
		44,000		18,300
General and administrative expense:
Stock option grants		63,900		7,000
Warrants granted to officers and directors
in March 2014		-		3,900
		63,900		10,900
Total stock-based compensation expense	$	107,900	$	29,200

On June 19, 2016, our Board of Directors (Board) approved the grant of options to purchase an aggregate of 655,000 shares of our common stock at an exercise price of $3.49 per share to the independent members of our Board and to our officers, including our newly-hired Chief Medical Officer.  We did not grant any stock options during the three months ended June 30, 2015.  At June 30, 2016, there were stock options outstanding to purchase 986,987 shares of our common stock at a weighted average exercise price of $5.53 per share. We valued the options granted in June 2016 using the Black-Scholes Option Pricing Model and the following weighted average assumptions:

Assumption:
Market price per share at grant date	$	3.49
Exercise price per share	$	3.49
Risk-free interest rate		1.34%
Contractual or estimated term in years		6.68
Volatility		81.69%
Dividend rate		0.0%
Shares		655,000
Fair Value per share	$	2.50

Comprehensive Loss

We have no components of other comprehensive loss other than net loss, and accordingly our comprehensive loss is equivalent to our net loss for the periods presented.

Income (Loss) per Common Share

Basic net income (loss) per share of common stock excludes the effect of dilution and is computed by dividing net income (loss) by the weighted-average number of shares of common stock outstanding for the period. Diluted net income (loss) per share of common stock reflects the potential dilution that could occur if securities or other contracts to issue shares of common stock were exercised or converted into shares of common stock. In calculating diluted net income (loss) per share, we have historically adjusted the numerator for the change in the fair value of the warrant liability attributable to outstanding warrants, only if dilutive, and increased the denominator to include the number of potentially dilutive common shares assumed to be outstanding during the period using the treasury stock method. The change in the fair value of the warrant liability, which was eliminated in May 2015, had no impact on the diluted net earnings per share calculation in any period included in these Condensed Consolidated Financial Statements.

As a result of our net loss for the periods presented, potentially dilutive securities were excluded from the computation of net loss per share, as their effect would be antidilutive. For the three month periods ended June 30, 2016 and 2015, the accrual for dividends on our Series B Preferred and the deemed dividend attributable to the issuance of our Series B Preferred Units represent deductions from our net loss to arrive at net loss attributable to common stockholders for those periods.

Potentially dilutive securities excluded in determining diluted net loss attributable to common stockholders per common share are as follows:

	As of June 30,
	2016		2015
Series A Preferred stock issued and outstanding (1)		750,000		750,000
Series B Preferred stock issued and outstanding (2)		1,247,740		2,995,579
Series C Preferred stock issued and outstanding (3)		2,318,012		-
Outstanding options under the 2008 and 1999 Stock Incentive Plans		986,987		206,788
Outstanding warrants to purchase common stock		4,606,480		3,735,023
Warrant shares issuable to PLTG upon exchange of Series A Preferred
under the terms of the October 11, 2012 Note Exchange and Purchase
Agreement, as subsequently amended		-		535,715
Total		9,909,219		8,223,105
____________
(1) Assumes exchange under the terms of the October 11, 2012 Note Exchange and Purchase Agreement with PLTG, as amended
(2) Assumes exchange under the terms of the Certificate of Designation of the Relative Rights and Preferences of the Series B 10% Convertible Preferred Stock, effective May 5, 2015
(3) Assumes exchange under the terms of the Certificate of Designation of the Relative Rights and Preferences of the Series C Convertible Preferred Stock, effective January 25, 2016

Recent Accounting Pronouncements

There have been no recent accounting pronouncements or changes in accounting pronouncements during the three months ended June 30, 2016, as compared to the recent accounting pronouncements described in the Company’s Form 10-K for the fiscal year ended March 31, 2016, that are of significance or potential significance to the Company.