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 December 31, 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 February 13, 2020, 47,963,042 shares of the registrant’s common stock, $0.001 par value, were issued and outstanding.

VistaGen Therapeutics, Inc.

Quarterly Report on Form 10-Q

for the Quarter Ended December 31, 2019

TABLE OF CONTENTS

	Page
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets at December 31, 2019 and March 31, 2019	1
Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and nine months ended December 31, 2019 and 2018	2
Condensed Consolidated Statements of Cash Flows for the nine months ended December 31, 2019 and 2018	3
Condensed Consolidated Statement of Changes in Stockholders’ (Deficit) Equity for the nine months ended December 31, 2019 and 2018	4
Notes to the Condensed Consolidated Financial Statements	6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 4. Controls and Procedures	34
PART II. OTHER INFORMATION
Item 1. Legal Proceedings	35
Item 1A. Risk Factors	35
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	70
Item 3. Defaults Upon Senior Secured Securities	70
Item 6. Exhibits	71
SIGNATURES	72

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PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements (Unaudited)

VISTAGEN THERAPEUTICS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in Dollars, except share amounts)

	December 31,	March 31,
	2019	2019
	(Unaudited)	(Note 2)
ASSETS
Current assets:
Cash and cash equivalents	$1,063,300	$13,100,300
Receivable from supplier	-	300,000
Prepaid expenses and other current assets	319,000	250,900
Total current assets	1,382,300	13,651,200
Property and equipment, net	235,100	312,700
Right of use asset - operating lease	3,665,600	-
Security deposits and other assets	47,800	47,800
Total assets	$5,330,800	$14,011,700
LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY
Current liabilities:
Accounts payable	$1,610,400	$1,055,000
Accrued expenses	951,300	1,685,600
Current notes payable	70,500	57,300
Operating lease obligation	301,400	-
Financing lease obligation	3,200	3,000
Total current liabilities	2,936,800	2,800,900
Non-current liabilities:
Accrued dividends on Series B Preferred Stock	4,686,300	3,748,200
Deferred rent liability	-	381,100
Operating lease obligation	3,798,400	-
Financing lease obligation	3,900	6,300
Total non-current liabilities	8,488,600	4,135,600
Total liabilities	11,425,400	6,936,500
Commitments and contingencies
Stockholders’ (deficit) equity:
Preferred stock, $0.001 par value; 10,000,000 shares authorized at December 31, 2019 and March 31, 2019:
Series A Preferred, 500,000 shares authorized, issued and outstanding at December 31, 2019 and March 31, 2019	500	500
Series B Preferred; 4,000,000 shares authorized at December 31, 2019 and March 31, 2019; 1,160,240 shares
issued and outstanding at December 31, 2019 and March 31, 2019	1,200	1,200
Series C Preferred; 3,000,000 shares authorized at December 31, 2019 and March 31, 2019; 2,318,012 shares
issued and outstanding at December 31, 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 December 31, 2019 and
March 31, 2019, respectively; 44,228,630 and 42,758,630 shares issued and outstanding at December 31, 2019 and
March 31, 2019, respectively	44,200	42,800
Additional paid-in capital	196,466,000	192,129,900
Treasury stock, at cost, 135,665 shares of common stock held at December 31, 2019 and March 31, 2019	(3,968,100)	(3,968,100)
Accumulated deficit	(198,640,700)	(181,133,400)
Total stockholders’ (deficit) equity	(6,094,600)	7,075,200
Total liabilities and stockholders’ (deficit) equity	$5,330,800	$14,011,700

 

See accompanying notes to Condensed Consolidated Financial Statements.

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VISTAGEN THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited)

(Amounts in dollars, except share amounts)

	Three Months Ended December 31,		Nine Months Ended December 31,
	2019	2018	2019	2018
Operating expenses:
Research and development	$3,014,500	$5,335,500	$11,533,600	$13,340,300
General and administrative	2,948,300	1,856,800	6,004,500	5,494,100
Total operating expenses	5,962,800	7,192,300	17,538,100	18,834,400
Loss from operations	(5,962,800)	(7,192,300)	(17,538,100)	(18,834,400)
Other income (expenses), net:
Interest income (expense), net	1,500	(1,800)	33,400	(6,800)
Loss on extinguishment of accounts payable	-	(22,700)	-	(22,700)
Loss before income taxes	(5,961,300)	(7,216,800)	(17,504,700)	(18,863,900)
Income taxes	(200)	-	(2,600)	(2,400)
Net loss and comprehensive loss	$(5,961,500)	$(7,216,800)	$(17,507,300)	$(18,866,300)
Accrued dividend on Series B Preferred stock	(321,800)	(290,900)	(938,100)	(848,000)
Net loss attributable to common stockholders	$(6,283,300)	$(7,507,700)	$(18,445,400)	$(19,714,300)
Basic and diluted net loss attributable to common
stockholders per common share	$(0.15)	$(0.24)	$(0.43)	$(0.75)
Weighted average shares used in computing
basic and diluted net loss attributable to common
stockholders per common share	43,158,889	30,696,312	42,802,256	26,418,440

 

See accompanying notes to Condensed Consolidated Financial Statements.

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VISTAGEN THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Amounts in Dollars)

	Nine Months Ended December 31,
	2019	2018
Cash flows from operating activities:
Net loss	$(17,507,300)	$(18,866,300)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	77,600	64,800
Stock-based compensation	3,088,700	2,519,700
Expense related to modification of warrants	826,900	25,800
Amortization of fair value of common stock issued for services	92,100	277,600
Fair value of common stock issued for product licenses and option	-	4,250,000
Amortization of fair value of warrants issued for services	13,800	79,800
Loss on settlement of accounts payable	-	22,700
Changes in operating assets and liabilities:
Receivable from supplier	300,000	-
Prepaid expenses and other current assets	56,200	34,600
Right of use asset - operating lease	249,400	-
Operating lease liability	(196,300)	-
Accounts payable and accrued expenses	(178,900)	511,800
Deferred rent	-	109,200
Net cash used in operating activities	(13,177,800)	(10,970,300)
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	650,000	6,608,700
Proceeds from exercise of warrants	410,000	605,700
Proceeds from sale of warrants	300,000	-
Repayment of financing lease obligation	(2,200)	(2,000)
Repayment of notes payable	(217,000)	(165,300)
Net cash provided by financing activities	1,140,800	7,047,100
Net decrease in cash and cash equivalents	(12,037,000)	(4,093,000)
Cash and cash equivalents at beginning of period	13,100,300	10,378,300
Cash and cash equivalents at end of period	$1,063,300	$6,285,300
Supplemental disclosure of noncash activities:
Insurance premiums settled by issuing note payable	$230,200	$160,500
Accrued dividends on Series B Preferred	$938,100	$848,000
Accounts payable settled by issuing common stock	$-	$40,000

See accompanying notes to Condensed Consolidated Financial Statements.

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VISTAGEN THERAPEUTICS, INC.

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

FOR THE NINE MONTHS ENDED DECEMBER 31, 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
cash in private placement offering	-	-	-	-	-	-	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
Proceeds from sale of common stock and warrants for
cash and s ettlement of professional services payable
in private placement offerings	-	-	-	-	-	-	1,202,939	1,200	1,851,400	-	-	1,852,600
Proceeds from exercise of warrants	-	-	-	-	-	-	398,800	400	597,800	-	-	598,200
Accrued dividends on Series B Preferred stock	-	-	-	-	-	-	-	-	(290,900)	-	-	(290,900)
Stock-based compensation expense	-	-	-	-	-	-	-		734,700	-	-	734,700
Fair value of common stock issued for PH10 license	-	-	-	-	-	-	925,926	900	1,999,100	-	-	2,000,000
Increase in fair value attributed to warrant modifications	-	-	-	-	-	-	-	-	25,800	-	-	25,800
Net loss for the quarter ended December 31, 2018	-	-	-	-	-	-	-	-	-	-	(7,216,800)	(7,216,800)
Balances at December 31, 2018	500,000	$500	1,160,240	$1,200	2,318,012	$2,300	31,204,380	$31,200	181,035,800	$(3,968,100)	(175,410,100)	$1,692,800

Continued

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VISTAGEN THERAPEUTICS, INC.

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

FOR THE NINE MONTHS ENDED DECEMBER 31, 2019 AND 2018

(Unaudited)

(Amounts in Dollars, except share amounts)

									Additional			Total
	Series A Preferred Stock		Series B Preferred Stock		Series C Preferred Stock		Common Stock		Paid-in	Treasury	Accumulated	Stockholders’
	Shares	Amount	Shares	Amount	Shares	Amount	Shares	Amount	Capital	Stock	Deficit	Equity (Deficit)
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)
Proceeds from sale of units of common stock and warrants
for cash in private placement	-	-	-	-	-	-	650,000	600	649,400	-	-	650,000
Proceeds from sale of warrants in private placement	-	-	-	-	-	-	-	-	300,000	-	-	300,000
Proceeds from exercise of warrants	-	-	-	-	-	-	820,000	800	409,200	-	-	410,000
Accrued dividends on Series B Preferred stock	-	-	-	-	-	-	-	-	(321,800)	-	-	(321,800)
Stock-based compensation expense	-	-	-	-	-	-	-	-	1,632,200	-	-	1,632,200
Increase in fair value attributed to warrant modifications
and additional warrants issued	-	-	-	-	-	-	-	-	826,900	-	-	826,900
Net loss for the quarter ended December 31, 2019	-	-	-	-	-	-	-	-	-	-	(5,961,500)	(5,961,500)
Balances at December 31, 2019	500,000	$500	1,160,240	$1,200	2,318,012	$2,300	44,228,630	$44,200	$196,466,000	$(3,968,100)	$(198,640,700)	$(6,094,600)

 

See accompanying notes to Condensed Consolidated Financial Statements.

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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 new generation medications for central nervous system (CNS) diseases and disorders with high unmet need. Our pipeline includes three clinical-stage CNS drug candidates, each with a differentiated mechanism of action, an exceptional safety profile in all clinical studies to date, and therapeutic potential in multiple CNS markets. 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.

PH94B Neuroactive Nasal Spray for Anxiety-related Disorders

PH94B neuroactive nasal spray is an odorless, first-in-class, fast-acting synthetic neurosteroid with therapeutic potential in a wide range of neuropsychiatric indications involving anxiety or phobia. Conveniently self-administered in microgram doses without systemic exposure, we are initially developing PH94B as a potential fast-acting, non-sedating, non-addictive new generation treatment of social anxiety disorder (SAD). SAD affects over 20 million Americans and, according to the National Institutes of Health (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. A person with SAD 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 in situations with potential for interpersonal interaction. 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 instead have performance anxiety. They feel physical symptoms of anxiety in performance situations, such as giving a lecture, a speech or a presentation at school or work, as well as playing a sports game, or dancing or playing a musical instrument on stage.  Without treatment, SAD can last for many years or a lifetime and prevent a person from reaching his or her full potential.

Only three drugs, all oral antidepressants (ADs), are approved by the U.S Food and Drug Administration (FDA) specifically for treatment of SAD. These FDA-approved chronic ADs have slow onset of effect (often many weeks to months) and significant side effects that may make them inadequate or inappropriate treatment alternatives for many individuals affected by SAD episodically. VistaGen’s PH94B is fundamentally differentiated from all current anxiolytics, including all ADs approved by the FDA for treatment of SAD. Intranasal self-administration of only approximately 3.2 micrograms of PH94B binds to nasal chemosensory receptors that, in turn, activate key neural circuits in the brain that lead to rapid suppression of fear and anxiety. In Phase 2 and pilot Phase 3 clinical studies to date, PH94B has not shown psychological side effects (such as dissociation or hallucinations), systemic exposure, sedation or other side effects and safety concerns that may be caused by the current ADs approved by the FDA for treatment of SAD, as well as with the benzodiazepines and beta blockers, which are not approved by the FDA to treat SAD but may be prescribed by psychiatrists and physicians for treatment of SAD on an off-label basis.

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 both public-speaking (performance) anxiety (p=0.002) and social interaction anxiety (p=0.009) in laboratory challenges of individuals with SAD within 10 to 15 minutes of self-administration of a non-systemic 1.6 microgram dose of PH94B.  Based on its novel mechanism of pharmacological action, rapid-onset of therapeutic effects and exceptional safety and tolerability profile in Phase 2 and pilot Phase 3 clinical trials to date, we are preparing to begin Phase 3 development of PH94B. Our goal is to develop and commercialize PH94B as the first FDA-approved, fast-acting, on-demand, at-home treatment for SAD. Additional potential anxiety-related neuropsychiatric indications for PH94B include general anxiety disorder, peripartum anxiety (pre- and post-partum anxiety), pre/post-operative anxiety, panic disorder, post-traumatic stress disorder and specific social phobias.

PH10 Neuroactive Nasal Spray for Depression and Suicidal Ideation

PH10 neuroactive nasal spray is an odorless, first-in-class, fast-acting synthetic neurosteroid with therapeutic potential in a wide range of neuropsychiatric indications involving depression and suicidal ideation. Conveniently self-administered in microgram doses without systemic exposure, we are initially developing PH94B as a potential fast-acting, non-sedating, non-addictive new generation treatment of major depressive disorder (MDD).

-6-

Depression is a serious medical illness and a global public health concern that can occur at any time over a person's life. While most people will experience depressed mood at some point during their lifetime, MDD is different. MDD is the chronic, pervasive feeling of utter unhappiness and suffering, which impairs daily functioning. Symptoms of MDD include diminished pleasure or loss of interest in activities, changes in appetite that result in weight changes, insomnia or oversleeping, psychomotor agitation, loss of energy or increased fatigue, feelings of worthlessness or inappropriate guilt, difficulty thinking, concentrating or making decisions, and thoughts of death or suicide and attempts at suicide. Current FDA-approved medications available in the multi-billion-dollar global AD market often fall far short of satisfying the unmet medical needs of millions suffering from the debilitating effects of depression.

While current FDA-approved ADs are widely used, about two-thirds of patients with MDD do not respond to their initial AD treatment. Inadequate response to current ADs is among the key reasons MDD is one of the leading public health concerns in the United States, creating a significant unmet medical need for new agents with fundamentally different mechanisms of action and side effect and safety profiles.

PH10 is a new generation antidepressant with a mechanism of action that is fundamentally different from all current ADs. After self-administration, a non-systemic microgram-level dose of PH10 binds to nasal chemosensory receptors that, in turn, activate key neural circuits in the brain that can lead to rapid-onset antidepressant effects, but without the psychological side effects (such as dissociation and hallucinations), systemic exposure or safety concerns that maybe be caused by ketamine-based therapy (KBT), including intravenous ketamine or esketamine nasal spray. In an exploratory 30-patient Phase 2a clinical trial, PH10, self-administered at a dose of 6.4 micrograms, was well-tolerated and demonstrated significant (p=0.022) rapid-onset antidepressant effects, which were sustained over an 8-week period, as measured by the Hamilton Depression Rating Scale (HAM-D), without side effects or safety concerns that may be caused by KBT. Based on positive results from this exploratory Phase 2a study, we are preparing for Phase 2b clinical development of PH10 in MDD. With its exceptional safety profile during clinical development to date, we believe PH10, as a convenient at-home therapy, has potential for multiple applications in global depression markets, including as a stand-alone front-line therapy for MDD, as an add-on therapy to augment current FDA-approved ADs for patients with MDD who have an inadequate response to standard ADs, and to prevent relapse following successful treatment with KBT.

AV-101, an Oral NMDAR Antagonist

AV-101 (4-Cl-KYN) targets the NMDAR (N-methyl-D-aspartate receptor), an ionotropic glutamate receptor in the brain. Abnormal NMDAR function is associated with numerous CNS diseases and 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. Unlike ketamine and many other NMDAR antagonists, 7-Cl-KYNA is not an ion channel blocker. In all studies to date AV-101 has exhibited no dissociative or hallucinogenic psychological side effects or safety concerns similar to those that may be caused by amantadine, esketamine and ketamine. With its exceptionally few side effects and excellent safety profile, AV-101 has potential to be an oral, new generation treatment for multiple large-market CNS indications where current treatments are inadequate to meet high unmet patient needs. The FDA has granted Fast Track designation for development of AV-101 as both a potential adjunctive treatment for MDD and as a non-opioid treatment for neuropathic pain.

We recently completed a double-blind, placebo-controlled, multi-center Phase 2 clinical trial of AV-101 as a potential adjunctive treatment, together with a standard FDA-approved oral AD (either a selective serotonin reuptake inhibitor (SSRI) or a serotonin norepinephrine reuptake inhibitor (SNRI)), in MDD patients who had an inadequate response to a stable dose of a standard AD (the Elevate Study). Topline results of the Elevate Study (n=199) indicated that the AV-101 treatment arm (1440 mg) did not differentiate from placebo on the primary endpoint (change in the Montgomery-Åsberg Depression Rating Scale (MADRS-10) total score compared to baseline), potentially due to sub-therapeutic levels of 7-Cl-KYNA in the brain. As in prior clinical studies, AV-101 was well tolerated, with no psychotomimetic side effects or drug-related serious adverse events.

Recent discoveries from successful AV-101 preclinical studies suggest that there is a substantially increased brain concentration of AV-101 and its active metabolite, 7-Cl-KYNA, when AV-101 is given together with probenecid. These surprising effects were first revealed in our recent preclinical studies, although they are consistent with well-documented clinical studies of probenecid increasing the therapeutic benefits of several unrelated classes of approved drugs, including certain antibacterial, anticancer and antiviral drugs. Probenecid otherwise is a safe and well-known organic anion transport inhibitor. When probenecid was administered adjunctively with AV-101 in an animal model, substantially increased brain concentrations of AV-101 (7-fold) and of 7-Cl-KYNA (35-fold) were discovered.We also recently identified that some of the same kidney transporters that reduce drug concentrations in the blood, by excretion in the urine, are also found in the blood brain barrier and function to reduce 7-Cl-KYNA levels in the brain by pumping it out of the brain and back into the blood. In the recent preclinical studies with AV-101 and probenecid, we discovered that blocking those transporters in the blood brain barrier with probenecid resulted, as noted above, in a substantially increased brain concentration of 7-Cl-KYNA. This 7-Cl-KYNA efflux-blocking effect of probenecid, with the resulting increased brain levels and duration of 7-Cl-KYNA, suggests the potential impact of AV-101 with probenecid could result in far more profound therapeutic benefits for patients with MDD and other NMDAR-focused CNS diseases and disorders than demonstrated in the Elevate Study. Some of the new discoveries from our recent AV-101 preclinical studies with adjunctive probenecid were presented by a collaborator of VistaGen at the British Pharmacological Society’s Pharmacology 2019 annual conference in Edinburgh, UK in December 2019.

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In addition, a Phase 1b target engagement study completed after the Elevate Study by the Baylor College of Medicine (Baylor) with financial support from the U.S. Department of Veterans Affairs (VA), involved 10 healthy volunteer U.S. military Veterans who received single doses of AV-101 (720 mg or 1440 mg) or placebo, in a double-blind, randomized, cross-over controlled trial. The primary goal of the study was to identify and define a dose-response relationship between AV-101 and multiple electrophysiological (EEG) biomarkers related to NMDAR function, as well as blood biomarkers associated with suicidality (the Baylor Study). The findings from the Baylor Study suggest that, in healthy Veterans, the higher dose of AV-101 (1440 mg) was associated with dose-related increase in the 40 Hz Auditory Steady State Response (ASSR), a robust measure of the integrity of inhibitory interneuron synchronization that is associated with NMDAR inhibition. Findings from the successful Baylor Study were presented at the 58th Annual Meeting of the American College of Neuropsychopharmacology (ACNP) in Orlando, Florida in December 2019.

The successful Baylor Study and the recent discoveries in our preclinical studies involving AV-101 and adjunctive probenecid suggest that it may be possible to increase therapeutic concentrations and duration of 7-Cl-KYNA in the brain, and thus increase NMDAR antagonism in MDD patients with an inadequate response to standard ADs when AV-101 and probenecid are combined. During 2020, we plan to conduct additional AV-101 preclinical studies with adjunctive probenecid to evaluate its potential applicability to MDD and other NMDAR-focused CNS indications for which we have existing data with AV-101 as a monotherapy (epilepsy, levodopa-induced dyskinesia, neuropathic pain and suicidal ideation), to determine the most appropriate path forward for potential clinical development and commercialization of AV-101.

 

VistaStem Therapeutics – Stem Cell Technology for Drug Rescue and Regenerative Medicine

In addition to our current CNS drug candidates, we have stem cell technology-based, pipeline-enabling programs through our wholly-owned subsidiary, VistaStem Therapeutics (VistaStem). VistaStem is focused on applying pluripotent stem cell (hPSC) technology to discover and develop, by utilizing CardioSafe 3D, our customized cardiac bioassay system, small molecule New Chemical Entities (NCEs) for our CNS pipeline or for out-licensing. VistaStem’s stem cell technology involving hPSC-derived blood, cartilage, heart and liver cells has multiple potential applications. To advance potential regenerative medicine (RM) applications of VistaStem’s cardiac stem cell technology, we licensed to BlueRock Therapeutics LP, a next generation cell therapy and RM company which was acquired by Bayer AG in 2019, rights to certain proprietary technologies relating to the production of cardiac stem cells for the treatment of heart disease (the BlueRock/Bayer Agreement). In a manner similar to the BlueRock/Bayer Agreement, we may pursue additional collaborations or licensing transactions involving VistaStem’s 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 nine months ended December 31, 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.

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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 $198.6 million accumulated from inception (May 1998) through December 31, 2019. 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 December 31, 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 $80.4 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 licensing 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 December 31, 2019, we had cash and cash equivalents of approximately $1.1 million. As disclosed in Note 11, Subsequent Events, since December 31, 2019, we have received net cash proceeds of approximately $2.68 million from a registered direct public offering of our common stock and a concurrent private placement of warrants to purchase unregistered shares of our common stock (the January 2020 Offering). Nevertheless, in the absence of additional financing from the sale of our securities, government research grant awards, strategic collaboration payments, intellectual property licensing or other sources, we believe that our cash position at December 31, 2019, together with the proceeds from the January 2020 Offering, will not be sufficient to fund our planned operations for the twelve months following the issuance of these financial statements and raises substantial doubt that we can continue as a going concern. During the next twelve months, subject to securing appropriate and adequate financing, we plan to prepare for and launch a Phase 3 clinical trial of PH94B for SAD, prepare for a Phase 2b clinical study and certain nonclinical studies involving PH10, PH94B and AV-101 and prepare for and potentially launch a Phase 2b clinical trial of PH10 for MDD. When necessary and advantageous, we plan to raise additional capital, through the sale of our equity securities in one or more (i) private placements to accredited investors, (i) public offerings and/or (ii) in strategic licensing and development collaborations involving one or more of our drug candidates in markets outside the United States. 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 and institutions. 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 one or more of our CNS 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/Bayer 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, 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 PH94B, PH10, and AV-101 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 2020 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.

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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/Bayer 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 PH94B, PH10, AV-101, 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 requires 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.

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 nine months ended December 31, 2019 and 2018.

	Three Months Ended December 31,		Nine Months Ended December 31,
	2019	2018	2019	2018
Research and development expense	$502,500	$274,900	$1,060,600	$955,600
General and administrative expense	1,129,700	459,800	2,028,100	1,564,100
Total stock-based compensation expense	$1,632,200	$734,700	$3,088,700	$2,519,700

 

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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.

During the quarter ended December 31, 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 1,990,000 shares of our common stock at exercise prices ranging from $0.50 to $1.41 per share. Options granted to Board members, officers, employees and most consultants were vested 25% at grant with the remaining options vesting ratably over the following 24 months. In the case of options granted to certain consultants, the options were vested 25% at grant but the remaining vesting period was less than 24 months to coincide with contractual terms. We valued the options using the Black-Scholes Option Pricing Model and the following assumptions:

	Options Granted on
	October 21, 2019	November 7, 2019	December 4, 2019	December 15, 2019
	(weighted average)	(weighted average)	(weighted average)	(weighted average)
Exercise price	$1.41	$1.20	$0.50	$0.70
Market price on date of grant	$1.41	$1.01	$0.44	$0.70
Risk-free interest rate	1.62%	1.74%	1.60%	1.66%
Expected term (years)	5.39	5.06	5.06	5.06
Volatility	87.52%	88.02%	88.28%	88.44%
Expected dividend yield	0.00%	0.00%	0.00%	0.00%
Fair value per share at grant date	$0.99	$0.67	$0.30	$0.49
Number of shares	1,575,000	65,000	250,000	100,000

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At December 31, 2019, there were stock options outstanding under our 2016 Plan and 2019 Plan to purchase 9,928,088 shares of our common stock at a weighted average exercise price of $1.37 per share. At that date, there were also 6,805,162 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 January 2020.

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.

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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 December 31,
	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	9,928,088	6,410,338
Outstanding warrants to purchase common stock	23,050,204	21,499,955
Total	37,206,544	32,138,545

____________

(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.

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 December 31, 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 nine months ended December 31, 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.

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Note 4.  Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets are composed of the following at December 31, 2019 and March 31, 2019:

	December 31,	March 31,
	2019	2019
Clinical and nonclinical materials and contract services	$121,000	$5,900
Fair value of securities issued for professional services	-	105,900
Insurance	119,300	96,300
Public offering filing fees and expenses	30,500	22,300
Conferences, sponsorships and all other	48,200	20,500
	$319,000	$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.

Note 5. Property and Equipment

Property and equipment is composed of the following at December 31, 2019 and March 31, 2019:

 December 31,