UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
Form 10-K
 
x☒Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
For the fiscal year ended: March 31, 20142017
 
or
 
o☐Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
Commission file number: 000-54014001-37761
 
VISTAGEN THERAPEUTICS, INC.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, California 94080
(650) 577-3600
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive office)
 
Securities registered pursuant to Section 12(b) of the Act:Act
 
None
Title of each className of each exchange on which registered
Common Stock, par value $0.001 per shareThe NASDAQ Capital Market
 
Securities registered pursuant to Section 12(g) of the Act:Act
 
Common Stock, par value $0.001 per shareNone
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  o ☐     No  S☒
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.    Yes  o☐     No  x☒
 
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  x☒     No  o☐
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  S☒     No  o☐
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  o☐
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”filer,” “smaller reporting company,” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer   o
   ☐
Accelerated filer   o
    ☐
Non-accelerated filer   o
   ☐
Smaller reporting company   x
   ☒		Emerging Growth Company  ☐
    (Do not check if a smaller
reporting company)
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes  o☐     No  x☒
 
The aggregate market value of the common stock of the registrant held by non-affiliates of the registrant on September 30, 2013,2016, the last business day of the registrant’s second fiscal quarter, was: $9,655,600.$34,033,497.
 
As ofJune 19, 201427, 2017, there were 25,451,877were 9,301,472 shares of the registrant’s common stock, $0.001 par value per share, outstanding.

 
 
 
TABLE OF CONTENTSCONTENTS
 
        Item No. 
Page No.
Item No.  Page No.    
 
PART I
             
  
 
 
 
  
  
1.
 
Business
  2
 
1.
 
Business
 2  
1A.
 
Risk Factors
  21
 
1A.
 
Risk Factors
 23  
1B.
 
Unresolved Staff Comments
  52
 
1B.
 
Unresolved Staff Comments
 52  
2.
 
Properties
  52
 
2.
 
Properties
 52  
3.
 
Legal Proceedings
  52
 
3.
 
Legal Proceedings
 52  
4.
 
Mine Safety Disclosures
  52
 
4.
 
Mine Safety Disclosures
 52  
 
 
 
  
PART II
             
 
5.
 
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
53       
 
6.
 
Selected Financial Data
 54  
5.
 
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
  53
 
7.
 
Management’s Discussion and Analysis of Financial Condition and Results of Operations
 55  
6.
 
Selected Financial Data
  54
 
7A.
 
Quantitative and Qualitative Disclosures About Market Risk
 75  
7.
 
Management’s Discussion and Analysis of Financial Condition and Results of Operations
  54
 
8.
 
Financial Statements and Supplementary Data
 76  
7A.
 
Quantitative and Qualitative Disclosures About Market Risk
  65
 
9.
  
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
 77  
8.
 
Financial Statements and Supplementary Data
  66
 
9A.
  
Controls and Procedures
 77  
9.
 
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
  99
 
9B.
  
Other Information
 77  
9A.
 
Controls and Procedures
  99
  
9B.
 
Other Information
  99
  
 
 
 
  
PART III
             

       
  
10.
 
Directors, Executive Officers and Corporate Governance
  100
 
10.
  
Directors, Executive Officers and Corporate Governance
 72  
11.
 
Executive Compensation
  104
 
11.
  
Executive Compensation
 78  
12.
 
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
  111
 
12.
  
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
 86  
13.
 
Certain Relationships and Related Transactions, and Director Independence
  115
 
13.
  
Certain Relationships and Related Transactions, and Director Independence
 93  
14.
 
Principal Accounting Fees and Services
  116
 
14.
  
Principal Accountant Fees and Services
 94  
 
 
 
  
PART IV
             
 
15.
  
Exhibits and Financial Statement Schedules
 96       
  
15.
 
Exhibits and Financial Statement Schedules
  118
      
EXHIBIT INDEX
EXHIBIT INDEX
  118
SIGNATURES
SIGNATURES
  
SIGNATURES
  123
EXHIBIT INDEX
  
 
 
-i-
-i-
 
Special Note Regarding Forward-Looking Statements

This Annual Report on Form 10-K includes(Annual Report) contains forward-looking statements.statements that involve substantial risks and uncertainties. All statements contained in this Annual Report on Form 10-K other than statements of historical fact,facts, including statements regarding our strategy, future operations, future financial position, future revenue, projected costs, prospects, plans, objectives of management and expected market growth, are forward-looking statements. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, of operations and financial position, our business strategy and plans, and our objectives for future operations, are forward- lookingperformance or achievements expressed or implied by the forward-looking statements.
The words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “estimate,“plan,” “predict,” “project,” “target,” “potential,” “will,” “would,” “could,” “should,” “continue,” “anticipate,” “intend,” “expect” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. These forward-looking statements include, among other things, statements about:

●
the availability of capital to satisfy our working capital requirements, including our clinical and non-clinical development objectives;
●
the accuracy of our estimates regarding expenses, future revenues and capital requirements;
●
our plans to develop and commercialize our lead product candidate, AV-101, initially as a treatment for Major Depressive Disorder (MDD), and subsequently as a treatment for additional diseases and disorders involving the Central Nervous System (CNS);
●
our ability to initiate and complete our clinical trials, including our proposed Phase 2 clinical study of AV-101 for MDD, and to advance AV-101 and other product candidates into additional clinical trials, including pivotal clinical trials, and successfully complete such clinical trials;
●
regulatory developments in the U.S. and foreign countries;
●
the performance of the U.S. National Institute of Mental Health, our third-party contract manufacturer(s), contract research organization(s) and other third-party non-clinical and clinical drug development collaborators and regulatory service providers;
●
our ability to obtain and maintain intellectual property protection for our core assets, including our product candidates;
●
the size of the potential markets for our product candidates and our ability to serve those markets;
●
the rate and degree of market acceptance of our product candidates for any indication once approved;
●
the success of competing products and product candidates in development by others that are or become available for the indications that we are pursuing;
●
the loss of key scientific, clinical or non-clinical development, regulatory, and/or management personnel, internally or from one of our third-party collaborators; and
●
other risks and uncertainties, including those listed under Part I, Item 1A of this Annual Report titled “Risk Factors.”
These forward-looking statements are only predictions and we may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, so you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. We have based these forward- lookingforward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our business, financial condition results of operations, business strategy, short-term and long-term business operations and objectives, and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those describedoperating results. We have included important factors in the “Risk Factors” section. Moreover, we operatecautionary statements included in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, maythis Annual Report, particularly in Part I, Item 1A, titled “Risk Factors,” that could cause actual future results or events to differ materially from those contained inthe forward-looking statements that we make. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments we may make.
You should read this Annual Report and the documents that we have filed as exhibits to the Annual Report with the understanding that our actual future results may be materially different from what we expect. We do not assume any obligation to update any forward-looking statements, we may make. In lightwhether as a result of these risks, uncertainties and assumptions, thenew information, future events and trends discussed in this Annual Report on Form 10-K may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.otherwise, except as required by applicable law. 

You should not rely upon forward-looking statements as predictions of future events. The events and circumstances reflected in the forward-looking statements may not be achieved or occur. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. We are under no duty to update any of these forward-looking statements after the date of this Annual Report on Form 10-K or to conform these statements to actual results or revised expectations. If we do update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward looking statements.

 
-1-
-1-
 
PPAARTRT I
 
 Item 1.
Business
We were first incorporatedAll brand names or trademarks appearing in California on May 26, 1998.  We merged with Excaliber Enterprises, Ltd., a Nevada corporation (Excaliber), a publicly held company, on May 11, 2011, and shortly thereafter changed our name to “VistaGen Therapeutics, Inc.”this report are the property of their respective holders. Unless the context requires otherwise, requires,references in this report to “VistaGen,” the words “VistaGen Therapeutics, Inc.” “VistaGen,“Company,” “we,” “the Company,“us,” “us” and “our” refer to VistaGen Therapeutics, Inc., a Nevada corporation.  “VistaGen California” refers
Item 1.
Business
Company Overview
We are a clinical-stage biopharmaceutical company focused on developing new generation medicines for depression and other central nervous system (CNS) disorders.
AV-101 is our oral CNS product candidate in Phase 2 clinical development in the United States, initially as a new generation adjunctive treatment for Major Depressive Disorder (MDD) in patients with an inadequate response to standard antidepressants approved by the U.S. Food and Drug Administration (FDA).  AV-101’s mechanism of action (MOA) involves both NMDA (N-methyl-D-aspartate) and AMPA (alpha-amino-3-hydroxy-5-methyl-4-isoxazolepropionic acid) receptors in the brain responsible for fast excitatory synaptic activity throughout the CNS.  AV-101’s MOA is fundamentally differentiated from all FDA-approved antidepressants, as well as all atypical antipsychotics often used adjunctively to augment them. We believe AV-101 also has potential as a new treatment alternative for several additional indications involving the CNS, including epilepsy, Huntington’s disease, L-DOPA-induced dyskinesia associated with Parkinson’s disease, and neuropathic pain. 
Clinical studies conducted at the U.S. National Institute of Mental Health (NIMH), part of the U.S. National Institutes of Health (NIH), by Dr. Carlos Zarate, Jr., Chief of the NIMH’s Experimental Therapeutics & Pathophysiology Branch and its Section on Neurobiology and Treatment of Mood and Anxiety Disorders, have focused on the antidepressant effects of low dose ketamine hydrochloride injection (ketamine), an NMDA receptor antagonist, in MDD patients with inadequate responses to multiple standard antidepressants. These NIMH studies, as well as clinical research at Yale University and other academic institutions, have demonstrated robust antidepressant effects in these MDD patients within twenty-four hours of a single sub-anesthetic dose of ketamine administered by intravenous (IV) injection.
We believe orally-administered AV-101 may have potential to deliver ketamine-like antidepressant effects without ketamine’s psychological and other negative side effects. As published in the October 2015 issue of the peer-reviewed, Journal of Pharmacology and Experimental Therapeutics, in an article titled, The prodrug 4-chlorokynurenine causes ketamine-like antidepressant effects, but not side effects, by NMDA/glycineB-site inhibition, using well-established preclinical models of depression, AV-101 was shown to induce fast-acting, dose-dependent, persistent and statistically significant antidepressant-like responses following a single treatment. These responses were equivalent to those seen with a single sub-anesthetic control dose of ketamine. In addition, these studies confirmed that the fast-acting antidepressant effects of AV-101 were mediated through both inhibiting the GlyB site of the NMDA receptor and activating the AMPA receptor pathway in the brain.
Pursuant to our Cooperative Research and Development Agreement (CRADA) with the NIMH, the NIMH is funding, and Dr. Zarate, as Principal Investigator, and his team are conducting, a small Phase 2 clinical study of AV-101 monotherapy in subjects with treatment-resistant MDD (theNIMH AV-101 MDD Phase 2 Monotherapy Study). We are preparing to launch our 180-patient Phase 2 multi-center, multi-dose, double blind, placebo-controlled efficacy and safety study of AV-101 as a new generation adjunctive treatment of MDD in adult patients with an inadequate response to standard, FDA-approved antidepressants (theAV-101 MDD Phase 2 Adjunctive Treatment Study).  Dr. Maurizio Fava, Professor of Psychiatry at Harvard Medical School and Director, Division of Clinical Research, Massachusetts General Hospital (MGH) Research Institute, will be the Principal Investigator of our AV-101 MDD Phase 2 Adjunctive Treatment Study.  Dr. Fava was the co-Principal Investigator with Dr. A. John Rush of the STAR*D study, the largest clinical trial conducted in depression to date, whose findings were published in journals such as the New England Journal of Medicine (NEJM) and the Journal of the American Medical Association (JAMA). We currently anticipate completing our AV-101 MDD Phase 2 Adjunctive Treatment Study by the end of 2018 with top line results available in the first quarter of 2019.
VistaStem Therapeutics (VistaStem) is our wholly owned subsidiary focused on applying human pluripotent stem cell (hPSC) technology, internally and with collaborators, to discover, rescue, develop and commercialize (i) proprietary new chemical entities (NCEs) for CNS and other diseases and (ii) regenerative medicine (RM) involving hPSC-derived blood, cartilage, heart and liver cells.  Our internal drug rescue programs are designed to utilizeCardioSafe 3D, our customized cardiac bioassay system, to develop small molecule NCEs for our pipeline.  In December 2016, we exclusively sublicensed to BlueRock Therapeutics LP, a next generation RM company established by Bayer AG and Versant Ventures, rights to certain proprietary technologies relating to the production of cardiac stem cells for the treatment of heart disease (theBlueRock Agreement). In a manner similar to our exclusive sublicense agreement with BlueRock Therapeutics, VistaStem may pursue additional RM collaborations or licensing transactions involving blood, cartilage, and/or liver cells derived from hPSCs for (A) cell-based therapy, (B) cell repair therapy, and/or (C) tissue engineering. 

-2-
AV-101 and Major Depressive Disorder
Background
The World Health Organization (WHO) estimates that 300 million people worldwide are affected by depression. According to the NIH, major depression is one of the most common mental disorders in the U.S. The NIMH reports that, in 2014, approximately 16 million adults in the U.S. had at least one major depressive episode in the past year. According to the U.S. Centers for Disease Control and Prevention (CDC) one in 10 Americans over the age of 12 takes a standard, FDA-approved antidepressant.
Most standard antidepressants target neurotransmitter reuptake inhibition – either serotonin (antidepressants known asSSRIs) or serotonin/norepinephrine (antidepressants known asSNRIs). Even when effective, these standard depression medications take many weeks to achieve adequate antidepressant effects. Nearly two out of every three drug-treated depression patients do not obtain adequate therapeutic benefit from initial treatment with a standard antidepressant. Even after treatment with many different standard antidepressants, nearly one out of every three drug-treated depression patients still do not achieve adequate therapeutic benefits from their antidepressant medication.  Such patients with an inadequate response to standard antidepressants often seek to augment their treatment regimen by adding an atypical antipsychotic (drugs such as aripiprazole), despite only modest potential therapeutic benefit and the risk of additional side effects.
All standard antidepressants have risks of side effects, including, among others, anxiety, metabolic syndrome, sleep disturbance and sexual dysfunction. Adjunctive use of atypical antipsychotics to augment inadequately performing standard antidepressants may increase the risk of side effects, including, tardive dyskinesia, weight gain, diabetes and heart disease, while offering only a modest potential increase in therapeutic benefit.
AV-101
AV-101 is our oral CNS drug candidate in Phase 2 development in the United States, initially focused as a new generation antidepressant for the adjunctive treatment of MDD patients with an inadequate response to standard, FDA-approved antidepressants. As published in the October 2015 issue of the peer-reviewed, Journal of Pharmacology and Experimental Therapeutics, in an article titled, The prodrug 4-chlorokynurenine causes ketamine-like antidepressant effects, but not side effects, by NMDA/glycineB-site inhibition, using well-established preclinical models of depression, AV-101 was shown to induce fast-acting, dose-dependent, persistent and statistically significant ketamine-like antidepressant effects following a single treatment, responses equivalent to those seen with a single sub-anesthetic control dose of ketamine, without the negative side effects seen with ketamine. In addition, these studies confirmed that the antidepressant effects of AV-101 were mediated through both inhibition of the GlyB site of NMDA receptors and activation of the AMPA receptor pathway in the brain, a key final common pathway feature of certain new generation antidepressants such as ketamine and AV-101, each with a MOA that is fundamentally different from all standard antidepressants and atypical antipsychotics used adjunctively to augment them.
We have completed two NIH-funded, randomized, double blind, placebo-controlled AV-101 Phase 1 safety studies. Currently, pursuant to our CRADA with Dr. Carlos Zarate, Jr., the NIMH is funding, and Dr. Zarate, as Principal Investigator, and his team are conducting, the 20 patient NIMH AV-101 MDD Phase 2 Monotherapy Study. We currently anticipate that the NIMH will complete the NIMH AV-101 MDD Phase 2 Monotherapy Study in 2017, with top line results during the first half of 2018.
We are currently preparing to launch our 180-patient AV-101 MDD Phase 2 Adjunctive Treatment Study as an adjunctive treatment of MDD in patients with an inadequate response to standard, FDA-approved antidepressants. We currently anticipate the launch of the AV-101 MDD Phase 2 Adjunctive Treatment Study, with Dr. Maurizio Fava of Harvard Medical School serving as Principal Investigator, in the first quarter of 2018. Subject to securing adequate financing, we currently anticipate completing our AV-101 MDD Phase 2 Adjunctive Treatment Study by the end of 2018 with top line results available in the first quarter of 2019. 
We believe preclinical studies and Phase 1 safety studies support our hypothesis that AV-101 may also have potential to treat multiple CNS disorders and diseases beyond MDD, including epilepsy, neuropathic pain, Huntington’s disease, L-DOPA-induced dyskinesia associated with Parkinson’s disease, and several other CNS indications where modulation of the NMDA receptor, activation of AMPA pathways and/or key active metabolites of AV-101 may achieve therapeutic benefit. We are beginning to plan additional Phase 2 clinical studies of AV-101 to further evaluate its therapeutic potential beyond MDD.
CardioSafe 3D™; NCE Drug Rescue and Regenerative Medicine
VistaStem Therapeutics is our wholly owned subsidiary focused on applying hPSC technology to discover, rescue, develop and commercialize proprietary small molecule NCEs for CNS and other diseases, as well as potential cellular therapies involving stem cell-derived blood, cartilage, heart and liver cells.CardioSafe 3D™ is our customized in vitro cardiac bioassay system capable of predicting potential human heart toxicity of small molecule NCEs in vitro, long before they are ever tested in animal and human studies. Potential commercial applications of our stem cell technology platform involve (i) usingCardioSafe 3D internally for NCE drug discovery and drug rescue to expand our proprietary drug candidate pipeline. Drug rescue involves leveraging substantial prior research and development investments by pharmaceutical companies and others related to public domain NCE programs terminated before FDA approval due to heart toxicity risks and (ii) RM and cellular therapies. In December 2016, we exclusively sublicensed to BlueRock Therapeutics LP, a next generation regenerative medicine company established by Bayer AG and Versant Ventures, rights to certain proprietary technologies relating to the production of cardiac stem cells for the treatment of heart disease. We may also pursue additional potential RM applications using blood, cartilage, and/or liver cells derived from hPSCs for (A) cell-based therapy (injection of stem cell-derived mature organ-specific cells obtained through directed differentiation), (B) cell repair therapy (induction of regeneration by biologically active molecules administered alone or produced by infused genetically engineered cells), or (C) tissue engineering (transplantation of in vitro grown complex tissues) using hPSC-derived blood, bone, cartilage, and/or liver cells.  In a manner similar to the BlueRock Agreement, we may pursue these additional RM and cellular therapy applications in collaboration with third-parties.
-3-
Subsidiaries
VistaGen Therapeutics, Inc., a California corporation dba VistaStem Therapeutics (VistaStem), is our wholly-owned subsidiary. Our Consolidated Financial Statements in this Report also include the accounts of VistaStem’s two wholly-owned inactive subsidiaries, Artemis Neuroscience, Inc., a Maryland corporation, and our wholly owned subsidiary.VistaStem Canada, Inc., a corporation organized under the laws of Ontario, Canada.
 
Our Strategy
Our core strategy is to develop and commercialize innovative small molecule drugs that address significant unmet medical needs related to CNS diseases and disorders. We have assembled a management team and a team of scientific, clinical, and regulatory advisors, including recognized experts in the fields of depression and other CNS disorders, with significant industry and regulatory experience to lead and execute the development and commercialization of our CNS product candidate opportunities. Key elements of our strategy are to:
●
Develop and commercialize our lead CNS product candidate, AV-101, initially as a new generation adjunctive treatment for MDD patients with an inadequate response to standard, FDA-approved antidepressants.We are currently pursuing adjunctive treatment of MDD as our lead indication for AV-101. We are preparing to launch our approximately 180-patient AV-101 MDD Phase 2 Adjunctive Treatment Study of AV-101 for the adjunctive treatment of MDD in patients with an inadequate response to standard antidepressants. We intend to develop AV-101 internally, through a stem cell company headquartered in South San Francisco, Californiapivotal Phase 3 clinical program focused on adjunctive treatment of MDD, accompanied by submission of our New Drug Application (NDA) for AV-101 to the FDA. If our NDA is approved by the FDA, we plan to commercialize AV-101 for this indication in the U.S. either by (A) collaborating with a large pharmaceutical company with a strong commercial presence in global depression and other CNS markets and/or (B) contracting for specialty sales force support focused primarily on psychiatrists and long-term care physicians who prescribe standard antidepressants and atypical antipsychotics for treatment of their MDD patients.
●
Leverage the commercial potential of AV-101 by expanding Phase 2 development to include additional CNS-related disorders and diseases. We intend to pursue broad clinical development and commercialization of AV-101 across a range of CNS-related indications that are underserved by currently available medicines and represent significant unmet medical needs. Based on AV-101 preclinical studies, our successful NIH-funded AV-101 Phase 1a and 1b clinical safety studies, and regulatory submissions related to the AV-101 MDD Phase 2 Adjunctive Treatment Study, we expect to have opportunities to expand Phase 2 development of AV-101 beyond MDD to include other CNS indications, such as neuropathic pain, epilepsy, Huntington’s disease and L-DOPA-induced dyskinesia associated with Parkinson’s disease, where modulation of the NMDA receptors, the AMPA receptor pathway and/or key active metabolites of AV-101 may achieve therapeutic benefit.
●
Capitalize on our drug rescue and regenerative medicine. We believe better cells lead to better medicine™ and that the key to making better cells is precisely controlling the differentiation of human pluripotent stem cells, which are the building blocks of all cells of the human body. For over 15 years, our stem cell research, development teams and collaborators have focused on controlling the differentiation of pluripotent stem cells to produce multiple types of mature, functional, adult human cells, with emphasis on human heart and liver cells.
Our stem cell technology platform - Human Clinical Trials in a Test Tube™
Our stem cell technology platform, which we refer to as Human Clinical Trials in a Test Tube, is based on a combination of proprietary and exclusively licensed technologies for controlling the differentiation of human pluripotent stem cells into multiple types of mature, functional, adult human cells that we use, or plan to develop, to reproduce complex human biology and disease.  We are currently producing human heart cells and liver cells for our drug rescue applications. However, we also intend to advance, internally and through collaborative research projects, production of pluripotent stem cell-derived blood, bone, cartilage, and pancreatic beta-islet cells and explore ways to leverageRM opportunities using our stem cell technology platform for regenerative medicine purposes. Our interest in the regenerative medicine arena isplatform. We are focused on developing novel human disease models for discovery of small molecule drugs and biologics that activate the endogenous growth and healing processes enabling the body to repair tissue damage caused by certain degenerative diseases.
CardioSafe 3D™
Using mature cardiomyocytes (heart cells) differentiated from human pluripotent stem cells, we have developed CardioSafe 3D, as a novel, in vitro bioassay system used to assess new drug candidates for potential cardiac toxicity before they are tested in humans. We believe CardioSafe 3D is capable of predicting the in vivo cardiac effects, both toxic and non-toxic, of small molecule drug candidates with greater speed and precision than the long-established, surrogate safety models most often used in drug development, including models using animal cells or live animals, and cellular assays using cadaver, immortalized or transformed cells. Our pluripotent stem cell derived cardiomyocytes (heart cells) and CardioSafe 3D are key components of our Human Clinical Trials in a Test Tube platform and drug rescue programs.
LiverSafe 3D™
Using mature, functional adult hepatocytes (liver cells) derived from human pluripotent stem cells, we are correlating LiverSafe 3D, our second novel stem cell technology-based bioassay system, with reported clinical results. We believe LiverSafe 3D will enable us to assess, early in development, new drug candidates for potential drug-induced liver toxicity and particularly metabolism issues that can result in serious adverse drug-drug interactions, before animal or human testing. We plan to use LiverSafe 3D, and the clinically predictive liver biology insight we believe it will provide us, to expand the scope of our commercial opportunities related to drug rescue.
Drug Rescue
We believe drug rescue, using our novel in vitro bioassay systems, CardioSafe 3D and LiverSafe 3D, the foundation of our Human Clinical Trials in a Test Tube platform, is the highest-value near term commercial application of the human cells we produce.  Detailed information is available to us in the public domain regarding the efficacy, pharmacology, formulation and toxicity of promising small molecule drug candidates developed by pharmaceutical and biotechnology companies which have failed due to unexpected heart or liver toxicity. These failed but still promising drug candidates, which we refer to as Drug Rescue Candidates™, have already been optimized and tested by a pharmaceutical or biotechnology company and assessed for efficacy and commercial potential.
Failure of promising Drug Rescue Candidates due to unexpected human clinical toxicity highlights the need for new paradigms to evaluate potential heart and liver toxicity early in drug development. While efforts of pharmaceutical and biotechnology companies to improve their prediction of such human clinical toxicity for new drug candidates is ongoing, the existence of Drug Rescue Candidates™ offers us an opportunity to use our novelcardiac stem cell technology to take advantage of prior third-party investment in Drug Rescue Candidates with early signs of efficacy, by significantly reducing the toxicity that caused them to be terminated,screen and bring new, safer versions back into development protected by new intellectual property. We refer to the new, safer versions of Drug Rescue Candidates we intenddevelop proprietary NCEs through drug rescue programs intended to produce withproprietary NCEs for our medicinal chemistry collaborator and validate internally in our bioassay systems as Drug Rescue Variants™.
Through stem cell technology-based drug rescue, our objective is to become a leading source of proprietary, small molecule drug candidates to the global pharmaceutical industry. We have designed our drug rescue model to leverage publicly available information and substantial prior investment by pharmaceutical companies and others in Drug Rescue Candidates. The key commercial objective of our drug rescue model is to generate revenue from license, development and commercialization arrangements involving Drug Rescue Variants. We anticipate that each validated lead Drug Rescue Variant will be suitable as a promising newinternal drug development program, either internally or in collaboration with a strategic partner.
Our Drug Rescue Strategy
We believe the pre-existing public domain knowledge base supporting the therapeutic and commercial potential of our Drug Rescue Candidates will provide us with a valuable head start as we launch our drug rescue programs. Leveraging the substantial prior investments by global pharmaceutical companies and others in discovery, optimization and efficacy validation of Drug Rescue Candidates is an essential component of our drug rescue strategy.
Our current drug rescue emphasis is on Drug Rescue Candidates discontinued prior to FDA market approval due to unexpected cardiac safety concerns. By using our CardioSafe 3D assay platform to enhance our understandingpipeline, without incurring many of the cardiac liability profile of Drug Rescue Candidates, biological insight not previously available when the Drug Rescue Candidate was originally discovered and developed, we believe we can demonstrate in vitro proof-of-concept as to the efficacy and safety of Drug Rescue Variants earlier in development and with substantially less investment in discovery, efficacy optimization and development than was required of the pharmaceutical companies prior to their decision to terminate  the Drug Rescue Candidates.
The key elements of our CardioSafe 3D drug rescue strategy are as follows:
·
identify potential Drug Rescue Candidates with heart safety issues utilizing drug discovery and development information available in the public domain through open source, licensed databases, and published patents, as well as through our strategic relationships with our drug rescue and scientific advisors and consultants, including Synterys, Inc. and Cato Research Ltd., our preferred provider of contract medicinal chemistry and contract clinical development and regulatory services, respectively;
·
leverage substantial prior research and development investments made by global pharmaceutical companies and others to analyze internally the therapeutic and commercial potential of Drug Rescue Candidates, as important criteria for selection of Drug Rescue Candidates and potential lead Drug Rescue Variants;
·
use CardioSafe 3D to enhance our understanding of the cardiac liability profile of Drug Rescue Candidates, important and more comprehensive biological insights not available when the Drug Rescue Candidates were originally discovered and developed by pharmaceutical companies;
·
leverage our internal knowledgebase about each Drug Rescue Candidate’s specific chemistry to design and produce a portfolio of novel potential lead Drug Rescue Variants for each Drug Rescue Candidate;
·
use CardioSafe 3D and pre-existing in vitro efficacy models to assess the efficacy and cardiac safety of potential Drug Rescue Variants and identify and validate a lead Drug Rescue Variant; and
·
internally develop validated lead Drug Rescue Variants or out-license them to a global pharmaceutical company in revenue-generating agreements providing for the full development, market approval and commercial sale.
We believe our exclusive focus on Drug Rescue Candidates with established therapeutic and commercial potential, and our ability to build on that valuable head start using our expertise in human biology, will help us to generate Drug Rescue Variants without incurring certain high costs and risks typically inherent in new drug discovery and non-clinical drug development. Although we planIn order to continue to identify Drug Rescue Candidates in the public domain,capitalize on our existing stem cell technology, we may also seekestablish additional strategic collaborations similar to acquire rights to Drug Rescue Candidates not available to us in the public domain through in-licensing arrangements with third-parties.
Strategic LicensingBlueRock Agreement, as well as investigating potential spin-off opportunities. As most of Drug Rescue Variants
We believe many pharmaceutical companiesour resources are experiencing,currently focused on the non-clinical and will continue to experience, critical research andclinical development productivity issues, as measured by their lack of, or very low number of, FDA-approved products each year during the past decade. For example, in 2013, the U.S. pharmaceutical industry invested over $51 billion in research and development and the Center for Drug Evaluation and Research (CDER) of the FDA approved a total of only 39 novel drugs, known as New Molecular Entities (NMEs).  In 2013, CDER approved only 27 NMEs, thirteen of which NME approvals (48%) were received by only five pharmaceutical companies, including Bayer (two), GlaxoSmithKline (four), Johnson & Johnson (three), Roche (two) and Takeda (two). Despite remarkable levels of research and development investment by the global pharmaceutical industry as a whole, since 2003, the FDA has only approved an average of approximately 26 NMEs per year. In addition,activities we believe many pharmaceutical companies with established products that are no longer patent protected are also experiencing substantial market pressure from generic competition.
Asnecessary to advance AV-101 through Phase 2 and into pivotal Phase 3 development, a result of research and development productivity issues, diminishing product pipelines and generic competition, we believe there is and will continue to be a critical need among pharmaceutical companies to licensestrategic collaboration or acquire the new, safer Drug Rescue Variants we are focused on developing, including companies that originally discovered, developed and ultimately discontinued the Drug Rescue Candidates we select for our drug rescue programs.
Once we achieve proof-of-concept (POC) in vitro as to the efficacy and safety of a lead Drug Rescue Variant, we intend to announce the results of our internal POC studies and, at that time, consider whether we will seek to license that Drug Rescue Variant to a pharmaceutical company, including the company that developed the Drug Rescue Candidate, or further develop it internally on our own.  If we decide to license a lead Drug Rescue Variant to a pharmaceutical company, through a form of license arrangement we believe is generally accepted in the pharmaceutical industry, we anticipate that the pharmaceutical company will be responsible for all subsequent development, manufacturing, regulatory approval, marketing and sale of the Drug Rescue Variant and that we will receive licensing revenue through payments to us from the license upon signing the license agreement, achievement of development and regulatory milestones, and, if approved and marketed, upon commercial sales.
Regenerative Medicine and Drug Discovery
Although we believe the best and most valuable near term commercial application ofspin-off involving our stem cell technology platform, Human Clinical Trials in a Test Tube, is for small molecule drug rescue, we also believe stem cell technology-based regenerative medicine has the potentialcould allow us to transform healthcare in the U.S. over the next decade by altering the fundamental mechanisms of disease.  We are interested in exploring ways to leveragecapitalize on our existing stem cell technology platform for regenerative medicine purposes, with emphasis onand shift our focus exclusively to developing novel human disease models for discovery of small molecule drugs with regenerative and therapeutic potential. Our regenerative medicine focus will be based on our expertise in human biology, differentiation of human pluripotent stem cells to develop functional adult human cells and tissues involved in human disease, including blood, bone, cartilage, heart, liver and insulin-producing pancreatic beta-islet cells, and our expertise in formulating customized biological assays with the cells we produce. Among our key objectives will be to explore regenerative medicine opportunities through pilot nonclinical proof-of-concept studies, after which we intend to assess any potential opportunities for further development and commercialization of therapeutically and commercially promising regenerative medicine programs and novel, customized, disease-specific biological assays, either on our own or with strategic partners.CNS pipeline.
 
●
Pursue in-licensing and acquisition of additional CNS product candidates. While our resources are currently focused primarily on development of AV-101 for MDD and additional CNS indications, we anticipate pursuing acquisition of additional CNS-related product candidates in the future. We believe that a diversified CNS product candidate portfolio will mitigate risks inherent in drug development and increase the likelihood of our success.
-4-
●
TableGrow our internal development pipeline through drug rescue using our cardiac stem cell technology platform. We have developed our cardiac bioassay system, CardioSafe 3D, for drug rescue applications intended to produce proprietary small molecule NCEs for our internal drug development pipeline, without incurring many of Contentsthe substantial costs and risks typically inherent in new drug discovery and non-clinical drug development.
 
AV-101 for Neuropathic Pain, Epilepsy(L-4-cholorkyurenine or 4-Cl-KYN)
Overview and DepressionMechanism of Action
AV-101 is an orally available, clinical-stage prodrug candidate that readily gains access to the CNS after systemic administration and is rapidly converted in vivo into its active metabolite, 7-chlorokynurenic acid (7-Cl-KYNA), a well-characterized, potent and highly selective antagonist of the NMDA receptor at its GlyB co-agonist site.  
Current evidence suggests that AV-101’s antagonism of NMDA receptor signaling may provide faster-acting antidepressant effects in the treatment of MDD than standard antidepressants. In addition, as confirmed in our AV-101 Phase 1 clinical studies, targeting the GlyB site of the NMDA receptor does not have the negative side effects typically associated with standard antidepressants and channel-blocking NMDA receptor antagonists, such as ketamine.
 
With
-4-
Major Depressive Disorder
Depression is a serious medical illness and a global public health concern. The WHO estimates that depression is the leading cause of disability worldwide, and is a major contributor to the global burden of disease, affecting 300 million people globally. According to the CDC, approximately one in every 10 Americans aged 12 and over takes antidepressant medication.
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 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. Suicide is estimated to be the cause of death in up to 15% individuals with MDD.
Standard Antidepressants
For many people, depression cannot be controlled for any length of time without treatment.  Standard antidepressant medications available in the multi-billion dollar global depression market, including commonly-prescribed SSRIs and SNRIs, have limited effectiveness, and, because of their mechanism of action, must be taken for several weeks or months before patients experience any significant therapeutic benefit.  About two out of every three depression sufferers, including over an estimated 6.0 million drug-treated MDD patients in the U.S., do not receive adequate therapeutic benefits from their initial treatment with a standard antidepressant, and the likelihood of achieving remission of depressive symptoms declines with each successive treatment attempt. Even after multiple treatment attempts, approximately one out of every three depression sufferers still fails to find an adequately effective standard antidepressant. In addition, this trial and error process and the systemic effects of the various antidepressants involved may increase the risk of patient tolerability issues and serious side effects, including suicidal thoughts and behaviors in certain groups.
Ketamine and NIH Clinical Studies in Major Depressive Disorder
Ketamine hydrochloride (ketamine) is an FDA-approved, rapid-acting general anesthetic currently administered only by intravenous (IV) or intramuscular (IM) injection. The use of ketamine (an NMDA receptor antagonist which acts as an NMDA channel blocker) to treat MDD has been studied in several clinical trials conducted by depression experts at Yale University and other academic institutions and at the NIMH, including Dr. Carlos Zarate, Jr., the NIMH’s Chief of Experimental Therapeutics & Pathophysiology Branch and of the Section on Neurobiology and Treatment of Mood and Anxiety Disorders.  In randomized, placebo-controlled, double blind clinical trials reported by Dr. Zarate and others at the NIMH, a single low dose of ketamine (0.5 mg/kg over 40 minutes) produced robust and rapid antidepressant effects in MDD patients who had not responded to standard antidepressants.  These results were in contrast to the very slow onset of SSRIs and SNRIs that usually require many weeks or months of chronic usage to achieve similar antidepressant effects.  The potential for widespread therapeutic use of current FDA-approved ketamine, a Schedule III drug, for MDD is limited by its potential for abuse, dissociative and psychosis-like side effects and by practical challenges associated with the necessity of I.V. administration in a medical center. Notwithstanding these limitations, however, the discovery of ketamine’s fast-acting antidepressant effects revolutionized thinking about the current MDD treatment paradigm and catalyzed development of a new generation of antidepressants with faster-acting mechanisms of action similar to ketamine’s.  Our orally available AV-101 is among the next generation of antidepressants with potential to deliver faster-onset antidepressant effects than standard antidepressants, without the side effects typically associated with standard antidepressants or ketamine.
AV-101 and Major Depressive Disorder
AV-101 is an orally available prodrug candidate that produces, in the brain, 7-Cl-KYNA, one of the most potent and selective antagonists of the GlyB site of the NMDA receptor, resulting in the down-regulation of NMDA receptor signaling. Growing evidence suggests that glutamatergic activation involving AMPA receptors is central to the neurobiology and treatment of MDD and other mood disorders.
AV-101’s mechanism of action is fundamentally differentiated from all standard, FDA-approved antidepressants and all atypical antipsychotics often used adjunctively to augment inadequate response to standard antidepressants, placing AV-101 among a new generation of antidepressants with potential to treat millions of MDD sufferers worldwide who are poorly served by SSRIs, SNRIs and other current depression therapies. AV-101 is functionally similar to ketamine in that both induce final common pathway antidepressant activity via glutamatergic activation involving AMPA receptors. However, AV-101 inhibits NMDA receptor channel activity, whereas ketamine blocks the ion channel of the NMDA receptor. AV-101, as a prodrug, produces in the brain an antagonist that inhibits the NMDA receptor by selectively binding to its functionally required GlyB site. Experimental evidence confirms that inhibiting the NMDA receptor by targeting the GlyB site can produce potent antidepressive effects and bypass adverse effects that result when ketamine blocks the NMDA receptor ion channel. Experimental evidence also supports the conclusion that this NMDA receptor inhibition by AV-101 may then result in a glutamatergic activation that depends on the AMPA receptor pathway, resulting in an increase in neuronal connections that has been associated with the faster-acting antidepressant effects than those achieved by standard antidepressants, similar to those seen with ketamine.
In peer-reviewed published preclinical studies, AV-101 caused ketamine-like antidepressant effects, including rapid onset and long duration of effect following a single treatment, without causing ketamine’s negative side effects. In two NIH-funded randomized, double blind, placebo-controlled Phase 1 safety studies, AV-101 was safe, well-tolerated and not associated with any severe adverse events. There were no signs of sedation, hallucinations or psychological side effects often associated with ketamine and other channel-blocking NMDA receptor antagonists.
-5-
Building on over $8.8 million of prior grant award funding awarded from the U.S. National Institutes of Health, we have successfully completedNIH for preclinical and Phase 1 clinical development of AV-101. AV-101, also known as “L-4-chlorokynurenine”under our CRADA, we are collaborating with Dr. Carlos Zarate, Jr. and “4-Cl-KYN”, is an orally-available, non-sedating, small molecule prodrug candidate aimedhis team at the multi-billion dollar neurological diseaseNIMH on the small NIMH AV-101 MDD Phase 2 Monotherapy Study. Pursuant to the CRADA, this ongoing study is being conducted at the NIMH by Dr. Zarate as Principal Investigator, and disorders market, includingis being fully-funded by the NIMH.  The primary objective of the NIMH AV-101 MDD Phase 2 Monotherapy Study will be to evaluate the ability of AV-101 to improve overall depressive symptomatology in subjects with MDD, specifically whether subjects with MDD have a greater and more rapid decrease in depressive symptoms when treated with AV-101 than with placebo. We currently anticipate that the NIMH will complete the NIMH AV-101 MDD Phase 2 Monotherapy Study in 2017, with top line results available during the first half of 2018.
We are currently preparing to launch our AV-101 MDD Phase 2 Adjunctive Treatment Study in patients with an inadequate response to standard, FDA-approved antidepressants. We currently anticipate completing this proposed 180-patient multi-center, multi-dose, double blind, placebo-controlled Phase 2 efficacy and safety study by the end of 2018 with top line results available in the first quarter of 2019. The Principal Investigator of the AV-101 MDD Phase 2 Adjunctive Treatment Study will be Dr. Maurizio Fava of Harvard Medical School. Dr. Fava was the co-Principal Investigator with Dr. A. John Rush of the largest clinical trial ever conducted in depression, STAR*D, whose findings were published in journals such the New England Journal of Medicine and the Journal of the American Medical Association.
AV-101 and Neuropathic Pain
Neuropathic pain is a complex, chronic pain state that results from problems with signals from nerves. There are various causes of neuropathic pain, a serious and chronic condition causing pain after anincluding tissue injury, nerve damage or disease, diabetes, infection, toxins, certain types of drugs, such as antivirals and chemotherapeutic agents, certain cancers, and even chronic alcohol intake. With neuropathic pain, damaged, dysfunctional or injured nerve fibers send incorrect signals to other pain centers and impact nerve function both at the site of injury and areas around the injury. Many neuropathic pain treatments on the market today, including gabapentin, have side effects such as anxiety, depression, mild cognitive impairment and/or sedation.
The effects of AV-101 were assessed in published peer-reviewed studies involving four well-established non-clinical models of pain, both hyperalgesia and allodynia, to examine its analgesic and behavioral profile. The publication, titled: “Characterization of the peripheral or central nervous system, epilepsy, depressioneffects of L-4-chlorokynurenine on nociception in rodents,” by lead author, Tony L. Yaksh, Ph.D., Professor in Anesthesiology at the University of California, San Diego, was published in The Journal of Pain in April 2017 (DOI: 10.1016/j.jpain.2017.03.014). In these studies, systemic delivery of AV-101 yielded brain concentrations of AV-101's active metabolite, 7-Cl-KYNA. The high CNS levels of 7-Cl-KYNA were calculated to exceed its IC50 at the NMDA receptor GlyB site and Parkinson’s disease. Our AV-101 IND application, on fileresulted in robust, dose-dependent anti-nociceptive effects, similar to gabapentin, but with the FDA, covers clinical developmentno discernable negative side effects. Gabapentin, a commonly used drug for neuropathic pain, causes sedation and mild cognitive impairment. Therefore, a drug that is equally effective on pain, but is better tolerated than gabapentin, could be quite important for the millions of patients battling chronic neuropathic pain. However,Taken together with our successful AV-101 Phase 1a and 1b clinical safety studies, we believe the Phase 1 AV-101 safetypublished results of these non-clinical studies completed to date will support further clinical development of AV-101 in a Phase 2 clinical study to assess its potential as a new generation treatment alternative to gabapentin to reduce debilitating neuropathic pain effectively, without causing gabapentin-like side effects.
AV-101 and Epilepsy
AV-101 has been shown to protect against seizures and neuronal damage in animal models of epilepsy, providing preclinical support for multiple indications, includingits potential as a novel treatment alternative for epilepsy. Epilepsy is one of the most prevalent neurological disorders, affecting almost 1% of the worldwide population. According to the Epilepsy Foundation, as many as three million Americans have epilepsy, depressionand one-third of those suffering from epilepsy are not effectively treated with currently available medications. In addition, standard anticonvulsants can cause significant side effects, which frequently interfere with compliance.
Glutamate is a neurotransmitter that is critically involved in the pathophysiology of epilepsy. Through its stimulation of the NMDA receptor subtype, glutamate has been implicated in the neuropathology and clinical symptoms of the disease. In support of this, NMDA receptor antagonists are potent anticonvulsants. However, classic NMDA receptor antagonists are limited by adverse effects, such as neurotoxicity, declining mental status, and the onset of psychotic symptoms following administration of the drug. The endogenous amino acid glycine modulates glutamatergic neurotransmission by stimulating the GlyB co-agonist site of the NMDA receptor. GlyB site antagonists inhibit NMDA receptor function and are therefore anticonvulsant and neuroprotective. Importantly, GlyB site antagonists have fewer and less severe side effects than classic channel-blocking NMDA receptor antagonists and other antiepileptic agents, making them a safer potential alternative to, and one expected to be associated with greater patient compliance than, available anticonvulsant medications.
-6-
AV-101 has two additional therapeutically important properties as a drug candidate for treatment of epilepsy:
1.   AV-101 is preferentially converted to 7-Cl-KYNA in brain areas related to neuronal injury. This is because astrocytes, which are responsible for the enzymatic transamination of 4-Cl-KYN prodrug to active 7-Cl-KYNA, are focally activated at sites of neuronal injury. Due to AV-101’s highly focused site of conversion, local concentrations of newly formed 7-Cl-KYNA are greatest at the site of therapeutic need. In addition to delivering the drug where it is needed, this reduces the chance of systemic and dangerous side effects with long-term use of the drug; and
2.   An active metabolite of AV-101, 4-Cl-3-hydroxyanthranilic acid, inhibits the synthesis of quinolinic acid, an endogenous NMDAR agonist that causes convulsions and excitotoxic neuronal damage.
AV-101’s ability to activate astrocytes for focal delivery of an anti-epileptic principle, and its dual action as a NMDAR GlyB antagonist and quinolinic acid synthesis inhibitor, make AV-101 a potential Phase 2 development candidate for treatment of epilepsy.
AV-101 and Parkinson’s Disease and L-DOPA-Induced Dyskinesia
Parkinson's disease (PD) is a chronic and progressive movement disorder, meaning that symptoms continue and worsen over time. According to the Parkinson's Disease Foundation, as many as one million Americans live with PD and more than 10 million people worldwide are living with PD. The cause of PD is unknown, and there is presently no cure.
PD involves the malfunction and death of certain nerve cells in the brain that produce dopamine, a key chemical that sends messages to the part of the brain that controls movement and coordination. As PD progresses, the amount of dopamine produced in the brain decreases, leaving a person unable to control movement normally.
Levadopa(L-DOPA) therapy increases brain levels of dopamine and is the gold standard for treating symptoms of PD in nearly all phases of the disease. Currently, it is considered the most effective drug for controlling the symptoms of PD. However, L-DOPA-induced dyskinesia(LID) is a common, and generally disabling, complication of long-term L-DOPA treatment in PD patients. Studies published in the New England Journal of Medicine and Movement Disorders have shown that LID develops in approximately 45% of L-DOPA-treated PD patients after five years and 80% after 10 years of L-DOPA treatment. This dyskinesia, or uncontrollable muscle movement, induced by L-DOPA therapy, is not part of PD, but instead a complication of L-DOPA therapy.  LID interferes not only with L-DOPA treatment of PD, but also negatively impacts the quality of life of PD patients and is a major contributor to disability later in the ordinary course of the disease.  While amantadine, a low-affinity NMDA receptor antagonist, has been shown to offer some relief for certain PD patients suffering from LID, more effective and better tolerated pharmacologic management of LID remains a significant unmet medical need.
In a monkey model of PD, AV-101 (250 mg/kg and 450 mg/kg) reduced by 30% the mean dyskinesia score associated with L-DOPA treatment of PD. Maximum dyskinesia scores were also reduced by 17%. Importantly, AV-101 did not reduce the anti-parkinsonian therapeutic benefit of L-DOPA. Moreover, the duration of L-DOPA response and delay to L-DOPA effect were not affected by treatment with AV-101.  We intend to seek potential opportunities for furtherbelieve these monkey data warrant the Phase 2 clinical development and commercializationtesting of AV-101 in L-DOPA-treated PD patients suffering from LID.
AV-101 and Huntington’s Disease
Working together with metabotropic glutamate receptors, the NMDA receptor ensures the establishment of long-term potentiation (LTP), a process believed to be responsible for neuropathicthe acquisition of information. These functions are mediated by calcium entry through the NMDA receptor-associated channel, which in turn influences a wide variety of cellular components, like cytoskeletal proteins or second-messenger synthases. However, over activation at the NMDA receptor triggers an excessive entry of calcium ions, initiating a series of cytoplasmic and nuclear processes that promote neuronal cell death through necrosis as well as apoptosis, and these mechanisms have been implicated in several neurodegenerative diseases.
Huntington's disease (HD) is an inherited disorder that causes degeneration of brain cells, called neurons, in motor control regions of the brain, as well as other areas. Symptoms of the disease, which gets progressively worse, include uncontrolled movements (called chorea), abnormal body postures, and changes in behavior, emotion, judgment, and cognition. HD is caused by an expansion in the number of glutamine repeats beyond 35 at the amino terminal end of a protein termed “huntingtin.” Such a mutation in huntingtin leads to a sequence of progressive cellular changes in the brain that result in neuronal loss and other characteristic neuropathological features of HD. These are most prominent in the neostriatum and in the cerebral cortex, but also observed in other brain areas.
The tissue levels of two neurotoxic metabolites of the kynurenine pathway of tryptophan degradation, quinolinic acid (QUIN) and 3-hydroxykynurenine (3-HK) are increased in the striatum and neocortex, but not in the cerebellum, in early stage HD. QUIN and 3-HK and especially the joint action of these two metabolites, have long been associated with the neurodegenerative and other features of the pathophysiology of HD. The neuronal death caused by QUIN and 3-HK is due to both free radical formation and NMDA receptor overstimulation (excitotoxicity).
Based on the hypothesis that 3-HK and QUIN are involved in the progression of HD, early intervention aimed at affecting the kynurenine pathway in the brain may present a promising treatment strategy. We believe the ability of AV-101 to reduce the brain levels of neurotoxic QUIN and to potentially produce significant local concentrations of 7-Cl-KYNA on chronic administration, presents an exciting opportunity for Phase 2 clinical investigation of AV-101 as a potential chronic treatment alternative for certain symptoms of HD.
-7-
AV-101 Phase 1 Clinical Safety Studies
The safety data from two NIH-funded AV-101 Phase 1 clinical safety studies indicate that AV-101 was safe and well tolerated in healthy subjects at all doses tested. There were no Adverse Effects (AEs) reported by subjects that received AV-101 that were graded as probably related to study drug. The type and distribution of AEs reported by subjects in the studies were considered to be typical for studies in healthy volunteers. All AEs were completely resolved. Further, no Serious Adverse Events (SAEs) were reported.
The Pharmacokinetics (PK) of AV-101 were fully characterized across the range of doses in these Phase 1a and 1b studies. Plasma concentration-time profiles obtained for 4-Cl-KYN (AV-101) and 7-Cl-KYNA after administration of a single escalating dose (Phase 1a) and multiple, once daily oral doses of 360, 1,080, or 1,440 mg for 14 days (Phase 1b) were consistent with rapid absorption of the oral dose and first-order elimination of both analytes, with evidence of multi-compartment kinetics, particularly for the AV-101’s active metabolite, 7-Cl-KYNA.
Although the Phase 1 safety and PK studies were not designed to measure or evaluate the potential antidepressant effects of AV-101, approximately 9% (5/54) of the subjects receiving AV-101 and 0% of the 30 subjects receiving placebo reported “feelings of well-being” (coded as euphoric mood), similar to the fast-acting antidepressant effects reported in the literature with ketamine.
Phase 1a Study
A phase 1a, randomized, double blind, placebo-controlled study to evaluate the safety and PK of single doses of AV-101 in healthy volunteers was conducted. Seven cohorts (30, 120, 360, 720, 1,080, 1,440, and 1,800 mg) with six subjects per cohort (1:1, AV-101: placebo) were to be enrolled in the study. Nine subjects experienced 10 AEs, with four of the AEs occurring in subjects in the placebo group and two of the AEs occurring for one subject receiving 30 mg AV-101. For the AEs occurring in the AV-101–treated subjects, there were no meaningful differences in the number of AEs observed at the 30-mg dose (two AEs) when compared with that at the 120-mg dose (one AE), 360-mg dose (one AE), 720-mg dose (zero AEs), 1,080-mg dose (zero AEs), or 1,440-mg dose (two AEs). Eight of 10 AEs (80%) were considered mild, and two (20%, headache and gastroenteritis) were considered moderate. Four subjects on AV-101, one each in Cohorts 1 through 4 and two subjects on placebo in Cohort 5 reported AEs of headaches. Five headaches were mild with no concomitant treatment, and one was moderate with concomitant drug therapy administered. Most completely resolved the same day as onset and were considered not serious. One headache started the day after dosing and resolved approximately one week later on the same day as the concomitant drug therapy was administered. One case of contact dermatitis bilateral lower extremities was reported in Cohort 2 on placebo that was ongoing. One of the subjects with the headache also reported an AE of gastroenteritis that was unrelated to AV-101. This AE was considered moderate but did not require any drug therapy and was completely resolved within two days of onset. This AE was also considered not serious.
The PK of AV-101 was fully characterized across the range of doses in this Phase 1a study following a single oral administration. Plasma concentration-time profiles obtained for 4-Cl-KYN (AV-101) and 7-Cl-KYNA were consistent with rapid absorption of the oral dose and first-order elimination of both analytes, with evidence of multi-compartment kinetics, particularly for the metabolite 7-Cl-KYNA.
Even though this Phase 1a safety study was not designed to quantitatively assess effects on mood, during the interviews, two out of three subjects who received the highest dose (1440 mg) of AV-101 voluntarily acknowledged positive effects on their mood. Similar comments were not made by any of the 18 placebo group subjects.  
Phase 1b Study
A Phase 1b clinical study was conducted as a single-site, dose-escalating study to evaluate the safety, tolerability, and PK of multiple doses of AV-101 administered daily in healthy volunteers. The antihyperalgesic effect of AV-101 on capsaicin-induced hyperalgesia was also assessed. Subjects were sequentially enrolled into one of three cohorts (360 mg, 1,080 mg, and 1,440 mg) and were randomized to AV-101 or placebo at a 12:4 (AV-101 to placebo) ratio. Subjects were dosed for 14 consecutive days. Each subject was given a paper diary and instructed to record daily dose administration, concomitant medications, and AEs during the 14-day treatment period.
For this study, the minimum toxic dose was to be (i) the dose at which a drug-related SAE occurred in an AV-101–treated subject, or (ii) the dose at which a severe AE that warranted stopping the study, as determined by the investigator and medical monitor, occurred in an AV-101–treated subject within a cohort. The minimum toxic dose was not reached in this study.
A total of 40 AEs were reported by 24 of 37 (64.9%) subjects receiving AV-101, and 17 AEs were reported by 10 of 13 (76.9%) subject receiving placebo.  The frequency of AEs was similar among the treatment groups.  Thirty-four subjects experienced a total of 57 AEs, with 16 (28.1% of the total AEs) in the 360-mg group, 14 (24.6% of the total AEs) in the 1,040-mg group, 10 (17.5% of the total AEs) in the 1,440-mg group, and 17 (29.8% of the total AEs) in the placebo group.  All of the AEs were completely resolved, and no SAEs were reported.
-8-
The majority of the reported AEs were nervous system disorders (23 subjects, 46% of subjects) and gastrointestinal disorders (seven subjects, 14.0%). The remaining AEs were classified as eye disorders (three subjects, 6.0%); psychiatric disorders (three subjects, 6.0%); respiratory, thoracic, and mediastinal disorders (three subjects, 6.0%); skin and subcutaneous tissue disorders (three subjects, 6.0%); general disorders and administration site conditions (two subjects, 4.0%); cardiac disorders one subject, 2.0%); infections and infestations (one subject, 2.0%); musculoskeletal and connective tissue disorders (one subject, 2.0%); and renal disorders (one subject, 2.0%).
The distribution of AEs by System Organ Class was similar among the cohorts with the exception of headaches and gastrointestinal disorders. Eight of the 18 (44.4%) reported headaches were in the placebo group, 6 (33.3%) were in the 1,080-mg group, three (16.7%) were in the 1,440-mg group, and one (5.6%) was in the 360-mg group. Three (42.9%) of the seven reported gastrointestinal disorders were in the 360-mg group, two (28.6%) were in the placebo group, one (14.3%) was in the 1,080-mg group, and one (14.3%) was in the 1,440-mg group.
The determination of the relationship of the AE to the study drug was made when the data were unblinded. Ten of the 15 AEs (66.7%) that occurred in the 360-mg AV-101 group, 10 of the 14 AEs (71.4%) that occurred in the 1,040-mg AV-101 group, seven of the 10 AEs (70.0%) that occurred in the 1,440-mg AV-101 group, and 13 of the 17 AEs (76.5%) that occurred in the placebo group were determined to be possibly related to study drug. One (5.9%) AE in the placebo group was probably related to study drug (rash around neck). Of the 57 reported AEs, 49 (85.9%) were of mild intensity and eight (14.0%) were of moderate intensity. There were two moderate intensity AEs in the 360-mg AV-101 group; one was unrelated pain epilepsy, depressionin the right foot, and Parkinson’s disease,one was a possibly related headache. All other moderate AEs occurred in the placebo group and included nausea or vomiting (two AEs), headache (two AEs), and rash around the neck (one AE). No SAEs were reported.
Even though this Phase 1b safety study was not designed to quantitatively assess effects on mood, during the interviews certain subjects who received 360, 1080, and 1440 mg of AV-101, voluntarily acknowledged positive effects on mood. Similar comments were not made by any of the placebo-group subjects.
The PK of AV-101 was fully characterized across the range of doses in this Phase 1b study. Plasma concentration-time profiles obtained for 4-Cl-KYN (AV-101) and 7-Cl-KYNA following 14 daily oral administrations of 360, 1,080, or 1,440 mg were consistent with rapid absorption of the oral dose and first-order elimination of both analytes, with evidence of multi-compartment kinetics, particularly for the metabolite 7-Cl-KYNA.
VistaStem Therapeutics
VistaStem Therapeutics (VistaStem) is our own or with strategic partners. In the event that we successfully complete one or more strategic partnering arrangements for AV-101, we plan to use the net proceeds from such an arrangement(s) to expand ourwholly owned subsidiary focused on applying human pluripotent stem cell technology-based(hPSC) technology, internally and with collaborators, to discover, rescue, develop and commercialize (i) proprietary new chemical entities (NCEs) for CNS and other diseases and (ii) regenerative medicine (RM) involving hPSC-derived blood, cartilage, heart and liver cells. We used our hPSC-derived cardiomyocytes (human heart cells) to develop CardioSafe 3D™, our customized in vitro bioassay system for predicting heart toxicity of drug rescue NCEs.  We believe CardioSafe 3D is more comprehensive and regenerative medicine programs.
clinically predictive than the hERG assay, which currently is the only in vitro cardiac safety assay required by FDA guidelines, and provides us with new generation human cell-based technology to identify and evaluate drug rescue candidates and develop drug rescue NCEs.
 
Scientific Background
Stem Cell Basics
 
Stem cells are the building blocks of all cells of the human body.  They have the potential to develop into many different mature cell types.  Stem cells are defined by a minimum of two key characteristics: (i) their capacity to self-renew, or divide in a way that results in more stem cells; and (ii) their capacity to differentiate, or turn into mature, specialized cells that make up tissues and organs.  There are many different types of stem cells that come from different places in the body or are formed at different times throughout our lives, including pluripotent stem cells and adult or tissue-specific stem cells, which are limited to differentiating into the specific cell types of the tissues in which they reside. We focus exclusively on human pluripotent stem cells.
 
Human pluripotent stem cells (hPSCs) can be differentiated into all of the more than 200 types of cells in the human body, can be expanded readily, and have diverse medical research, drug discovery, drug rescue, drug development and therapeutic applications. We believe hPSCs can be used to develop numerous cell types, tissues and customized biological assays that can mimic complex human biology, including heart and liver biology for drug rescue.
 
Human pluripotent stem cells are either embryonic stem cells (hESCs) or induced pluripotent stem cells (iPSCs).  Both hESCs and iPSCs have the capacity to be maintained and expanded in an undifferentiated state indefinitely. We believe these features make them highly useful research and development tools and as a source of normal, functionally mature cell populations. We use multiple types of these mature cells as the basis for formulating ourfoundation to design and develop novel, customized bioassay systems to test the safety and efficacy of new drug candidatesNCEs in vitro. These cells also have potential for diverse regenerative medicine applications.
-9-
 
Human Embryonic Stem Cells
 
Human embryonic stem cellsAccording to the NIH, hESCs are derived from excess embryos that develop from eggs that have been fertilized in an in vitro fertilization (IVF) clinic and then donated for research purposes with the informed consent of the parental donors after a successful IVF procedure. Human embryonic stem cells are not derived from eggs fertilized in a woman’s body. Human ESCs are isolated when the embryo is approximately 100 cells, well before organs, tissues or nerves have developed.
 
Human embryonic stem cellsESCs have the greatest and most documented potential to both self-renew and differentiate. They undergo increasingly tissue-restrictive developmental decisions during their differentiation. These “fate decisions” commit the hESCs to becoming only a certain type of mature, functional cells and ultimately tissues. At one of the first fate decision points, hESCs differentiate into epiblasts. Although epiblasts cannot self-renew, they can differentiate into the major tissues of the body. This epiblast stage can be used, for example, as the starting population of cells that develop into millions of blood, heart, muscle, liver and insulin-producing pancreatic beta-islet cells, as well as neurons. In the next step, the presence or absence of certain growth factors, together with the differentiation signals resulting from the physical attributes of the cell culture techniques, induce the epiblasts to differentiate into neuroectoderm or mesendoderm cells. Neuroectoderm cells are committed to developing into cells of the skin and nervous systems. Mesendoderm cells are precursor cells that differentiate into mesoderm and endoderm. Mesoderm cells develop into muscle, bone and blood, among other cell types. Endoderm cells develop into the internal organs such as the heart, liver, pancreas and intestines, among other cell types.
 
-5-
Induced Pluripotent Stem CelliCells
 
It is also possible to obtain hPSC lines from individuals without the use of embryos. Induced pluripotent stem cellsPSCs are adult cells, typically human skin or fat cells that have been genetically reprogrammed to behave like hESCs by being forced to express genes necessary for maintaining the pluripotential properties of hESCs. Although researchers are exploring non-viral methods, most early iPSCs were produced by using various viruses to express three or four genes required for the immature pluripotential property similar to hESCs. It is not yet precisely known, however, how each gene actually functions to induce cellular pluripotency, nor whether each of the three or four genes is essential for this reprogramming. Although hESCs and iPSCs are believed to be similar in many respects, including their pluripotential ability to form all cells in the body and to self-renew, scientists do not yet know whether they differ in clinically significant ways or have the same ability to self-renew.
 
Although there are remaining questions in the field about the lifespan, clinical utility and safety of iPSCs, weWe believe the biology and differentiation capabilities of hESCs and iPSCs are likely to be comparable for drug rescuemost if not all purposes. There are, however, specific situations in which we may prefer to use one or the other type of hPSC.  For example, we may prefer to use iPSCs for potential drug discovery applications based on the relative ease of generating iPSCs from:
 
·
●
individuals with specific inheritable diseases and conditions that predispose the individual to respond differently to drugs; or
●
individuals with specific variations in genes that directly affect drug levels in the body or alter the manner or efficiency of their metabolism, breakdown and/or elimination of drugs.
individuals with specific inheritable diseases and conditions that predispose the individual to respond differently to drugs; or
·
individuals with specific variations in genes that directly affect drug levels in the body or alter the manner or efficiency of their metabolism, breakdown and/or elimination of drugs.
 
Because they can significantly affect the therapeutic and/or toxic effects of drugs, these genetic variations have an impact on drug discovery and development. We believe iPSC technologies may allow the rapid and efficient generation of hPSCs from individuals with specific genetic variations. These hPSCs might then be used to produce cells and formulate novel, customized biological assays to model specific diseases and genetic conditions for drug discovery and drug rescue purposes.
 
Proprietary Stem Cell Differentiation Protocols
Over fifteen years of research, together with Dr. Gordon Keller, our co-founder and Chairman of our Scientific Advisory Board, we have developed proprietary differentiation protocols covering key conditions involved in the differentiation of hPSCs into multiple types of mature human cells. The human cells generated by following these proprietary differentiation protocols are integral to our Human Clinical Trials in a Test Tube platform.  We believe they support more clinically-predictive in vitroCardioSafe bioassay systems than animal testing or cellular assays currently used in drug discovery and development.  Our strategic technology licenses from National Jewish Health in Denver, the Icahn School of Medicine at Mount Sinai in New York and the University Health Network in Toronto (UHN) relate to proprietary stem cell differentiation protocols developed by Dr. Keller and involve precisely-coordinated temporal and quantitative conditions and interaction of biological molecules, including:
·
specific growth and differentiation factors used in the tissue culture medium, applied in specific combinations, at critical concentrations, and at critical times unique to each desired human cell type;
·
the experimentally controlled regulation of developmental genes, which is critical for determining what differentiation path a human cell will take; and
·
biological markers characteristic of precursor cells, which are committed to becoming specific human cells and tissues, and which can be used to identify, enrich and purify the desired mature human cell type.
We believe our Human Clinical Trials in a Test Tube platform will allow us to assess the toxicity profile of Drug Rescue Variants and other new drug candidates for a wide range of diseases and conditions with greater speed and precision than nonclinical surrogate safety models most often currently used in drug development.
-6-
Growth Factors that Direct and Stimulate the Differentiation Process
The proprietary and licensed technologies underlying our Human Clinical Trials in a Test Tube platform allow us to direct and stimulate the differentiation process of hPSCs. As an example, for hESCs, the epiblast is the first stage in differentiation. One biological factor that controls the first fate decision of the epiblast is the relative concentrations of serum growth factors and activin, a protein involved in early differentiation and many cell fate decisions. Substituting explicit amounts of defined growth factors in place of ill-defined animal serum, and adding the optimal amount of activin is an important step in inducing the reproducible development of functional cells and, in our view, is essential for the development of a robust, efficient, and reproducible model of human cellular differentiation suitable for drug rescue. The use of activin in these applications is core to many of the claims in the patent applications underlying our licensed hPSC technology. Replacing activin with continuous exposure to ill-defined and variable animal serum results in an inefficient and variable differentiation of the human heart, liver, blood and cells of other organs. See “Intellectual Property – Icahn School of Medicine at Mount Sinai Exclusive Licenses.”
In addition to activin, Dr. Keller’s studies have identified a number of other growth and developmental factors that play important roles in the differentiation of hESCs. Some of the patents and patent applications underlying our licensed hPSC technology are directed to the use of a variety of specific growth factors that increase the efficiency (yield) and reproducibility of the hPSC differentiation process. We have exclusive rights to certain patents and patent applications with claims relating to growth factor concentrations for hESC differentiation that we believe are core and essential for drug rescue and development. See “Intellectual Property – Icahn School of Medicine at Mount Sinai Exclusive Licenses” and “National Jewish Health Exclusive Licenses.”
Developmental Genes That Direct and Stimulate the Stem Cell Differentiation Process
For the purpose of creating our Human Clinical Trials in a Test Tube platform, we further control the differentiation process by controlling regulation of key developmental genes. By studying natural organ and tissue development, researchers have identified many genes that are critical to the normal differentiation, growth and functioning of tissues of the body. We engineer hESCs in a way that enables us to regulate genes that have been identified as critical to control and direct the normal development of specific types of cells. We can then mimic human biology in a way that allows us to turn on and off the expression of a selected gene by the addition of a specific compound to a culture medium. By adding specific compounds, we have the ability to influence the expression of key genes that are critically important to the normal biology of the cell.
Cell Purification Approaches
The proprietary protocols we have licensed and developed for our Human Clinical Trials in a Test Tube platform also establish specific marker genes and proteins which can be used to identify, enrich, purify, and study important populations of intermediate precursor cells that have made specific fate decisions and are on a specific developmental pathway towards a certain type of functionally mature cell. These proprietary protocols enable a significant increase in the efficiency, reproducibility, and purity of final cell populations. For example, we are able to isolate millions of purified specific precursor cells which, together with a specific combination of growth factors, develop full culture wells of functional, beating human cardiomyocytes. Due to their functionality and purity, we believe these cell cultures are ideal for drug rescue.
3D “Micro-Organ” Culture Systems
In addition to standard two-dimensional (2D) cultures which work well for some cell types and cellular assays, the proprietary hPSC technologies underlying our Human Clinical Trials in a Test Tube platform enable us to grow large numbers of normal, non-transformed, human cells to produce novel in vitro 3D “micro-organ” culture systems. For example, for CardioSafe 3D, we grow large numbers of normal, non-transformed, mature human heart cells in vitro in 3D micro-organ culture systems. The 3D micro-organ cultures induce the cells to grow, mature, and develop 3D cell networks and tissue structures. We believe these 3D cell networks and structures more accurately reflect the structures and biology inside the human body than traditional flat, 2D, single cell layers grown on plastic, that are widely used by pharmaceutical companies today. We believe that the more representative human biology afforded by the 3D system will yield responses to drug candidates that are more predictive of human drug responses.
-7-
Medicinal Chemistry
Medicinal chemistry involves designing, synthesizing, or modifying a small molecule compound or drug suitable for clinical development. It is a highly interdisciplinary science combining organic chemistry, biochemistry, physical chemistry, computational chemistry, pharmacology, and statistics. The combination of medicinal chemistry with the proprietary and licensed hPSC technologies underlying our Human Clinical Trials in a Test Tube platform are core components of our drug rescue business model. Working with our strategic contract medicinal chemistry partner, Synterys, Inc., we are focused on using our stem cell biology to generate a pipeline of effective and safe Drug Rescue Variants of once-promising company drug candidates in a more efficient and cost-effective manner than the processes currently used for drug development.
 
CardioSafe 3D
The limitations of current preclinical drug testing systems used by pharmaceutical companies and others contribute to the high failure rate of drug candidates. Unexpected cardiotoxicity is one of the top two major safety-related reasons for failure of both drugs and drug candidates.NCEs.  Incorporating human pluripotent stem cell-derived cardiomyocyte (hPSC-CM)novel in vitro assays using hPSC-derived cardiomyocytes (hPSC-CMs) early in preclinical development offers the potential to improve clinical predictability, decrease rescue and development costs, and avoid adverse patient effects, late-stage clinical termination, and product recall from the market.
 
With our proprietary human pluripotent stem cell technology, we can generate fully-functionalWe produce fully functional, non-transformed hPSC-CMs at a high level of purity (>95%), withoutand with normal ratios of all important cardiac cell types.  Importantly, our hPSC-CM differentiation protocols do not involve either genetic modification or antibiotic selection. This is important because genetic modification and antibiotic selection can distort the ratiosratio of cardiac cell types and have a direct impact on the ultimate results and clinical predictivity of the assay.assays that incorporate hPSC-CMs produced in such a manner. In addition to expressingnormal expression all of the key ion channels of the human heart (calcium, potassium and sodium) and various cardiomyocytic markers of the human heart, our hPSC-CMs function reliably in allCardioSafe 3D cardiac toxicity assays relevant to cardiac drug effects developed and tested to date.
Utilizing fully functional hPSC-CMs that underlie our Human Clinical Trials in a Test Tube platform, we have validated our CardioSafe 3D assay system to screenscreening for both cardiomyopathy (or direct cardiomyocyte cytotoxicity)cytotoxicity and arrhythmogenesis (or development of irregular beating patterns). We believe CardioSafe 3D is sensitive, stable, reproducible and capable of generating data enabling a more accurate prediction of the in vivo cardiac effects of Drug Rescue Variants and other new drug candidatesNCEs than is possible with existing preclinical testing systems.systems, particularly the hERG assay.

-10-
Limited Clinical Predictivity of the FDA-Required hERG Assay vs. Broad Clinical Predictivity of CardioSafe 3D
The hERG assay, which uses either transformed hamster ovary cells or human kidney cells, is currently the only in vitro cardiac safety assay required by FDA Guidelines (ICH57B). We believe the clinical predictivity of the hERG assay is limited because it assesses only a single cardiac ion channel - the hERG potassium ion channel. It does not assess any other clinically relevant cardiac ion channels, including calcium, non-hERG potassium and sodium ion channels. Also, importantly, the hERG assay does not assess the normal interaction between these ion channels and their regulators. In addition, the hERG assay does not assess clinically relevant cardiac biological effects associated with cardiomyocyte viability, including apoptosis and other forms of cytotoxicity, as well as energy, mitochondria and oxidative stress. As a result of its limitations, results of the hERG assay can lead to false negative and false positive predictions regarding the cardiac safety of new drug candidates.
We have developed and validated two clinically relevant functional components of our CardioSafe 3D screening system to assess multiple different categories of cardiac toxicities.toxicities, including both direct cardiomyocyte cytotoxicity and arrhythmogenesis (or development of irregular beating patterns). The first functional component of CardioSafe 3D consists of a suite of five fluorescence or luminescence based high-throughput hPSC-CM assays. These five CardioSafe 3D assays measure the following important drug-induced cardiomyopathy, including the following:cardiac biological effects:

1.  cell viability;
2.  apoptosis;
3.  mitochondrial membrane depolarization;
4.  oxidative stress; and
5.  energy metabolism disruption.

These five CardioSafe 3D biological assays were correlated to reported clinical results ofusing reference compounds known to be cardiotoxic in humans versus compounds known to be safe in humans. These reference compounds were representative of eight different drug classes, including:

1.  Ionion channel blockers: amiodarone, nifedipine;
2.  hERG trafficking blockers: pentamidine, amoxapine;
3. 
α-1α-1 adrenoreceptors: doxazosin;
4.  Proteinprotein and DNA synthesis inhibitors: emetine;
5.  DNA intercalating agents: doxorubicin;
6.  Antibiotics:antibiotics: ampicillin, cefazolin;
7.  NSAID: aspirin; and
8.  Kinasekinase inhibitors: staurosporinestaurosporine.
-8-
 
This suite of five CardioSafe 3D cytotoxicity assays provided measurement of cardiac drug effects with high sensitivity that are consistent with the expected cardiac responses to each of these compounds. Based on our results, we believe our CardioSafe 3D assays provide provides valuable and more comprehensive bio-analyticalbioanalytical tools for both assessing the effects of pharmaceutical compounds on cardiac cytotoxicity than the hERG assay and can elucidate for elucidating theus and our strategic partners specific mechanisms of cardiac toxicity, thereby laying what we believe is a solidnovel and advantageous foundation for our CardioSafe 3D drug rescue NCE programs.

The other component of our CardioSafe 3D assay system is a sensitive and reliable medium throughput multi-electrode array (MEA) assay developed to predict drug-induced alterations of electrophysiological function of the human heart.  We haveheart, representing an integrated assessment of not only hERG potassium ion channel activity analogous to the FDA-mandated hERG assay but, in addition, non-hERG potassium channels, and calcium channels and sodium channels, which are well beyond the scope of the hERG assay.  Functional electrophysiological assessment is a key component of CardioSafe 3D, and has been validated(correlated with reported clinical results) this key component of our CardioSafe3D assay system with twelveresults involving drugs each with known toxic or non-toxic cardiac effects in humans. These twelve validation compounds are as follows:

1.One FDA-approved drug (aspirin) without cardiac liability to serve as a negative control;
2.Five FDA-approved drugs (astemizole, sotalol, cisapride, terfenadine and sertindole) that were withdrawn from the market due to heart toxicity concerns;
3.Five FDA-approved drugs (fexofenadine, nifedipine, verapamil, lidocaine and propranolol) that have certain measurable clinical non-toxic cardiac effects. Note: fexofenadine is a non-cardiotoxic drug variant of terfenadine; and
4.One research compound (E-4031) failed in Phase I human clinical study before being discontinued due to heart toxicity concerns.

We have validated that ourCardioSafe 3D is capable of assessing important electrophysiological activity of drug rescue NCEs, including spike amplitude, beat period and field potential duration.  Our CardioSafe 3D MEA assay, which we refer to as ECG in a test tube™, was reproducible and consistent with the known human cardiac effects of all the twelve compounds studied, based on the mechanisms of action and dosage of the compounds. For instance, by using CardioSafe 3D, we were able to distinguish between the arrhythmogenic cardiac effects of terfenadine (SeldaneTM(Seldane™), withdrawn by the FDA due to cardiotoxicity, and the cardiac effects of the close structurally relatedclosely structurally-related compound, fexofenadine (AllegraTM(Allegra™), the non-cardiotoxic chemicala safe variant of terfenadine, which remains on the market. Our validation data suggest that our CardioSafe 3D assay system provides valuable and more comprehensive bio-analytical tools for preclinical cardiac safety screening of drug candidates, which we believe will contribute to the efficient identification of novel, safer Drug Rescue Variants in our drug rescue programs.

To further evaluate the potential of our CardioSafe 3D assay system to predict cardiac toxicity of drug candidates, including Drug Rescue Variants, we have assessed cardiac effects induced by small molecule kinase inhibitors (KIs), which belong to a new category of drugs that have revolutionized cancer therapy due to decreased systemic toxicity and an increased tumor cell specific effect compared to classic cancer drugs.  Since 1998, the FDA has approved approximately thirty small molecule KIs for cancer therapy. However, many KIs have been implicated in causing serious adverse cardiac events in patients which were not identified during preclinical drug development.

In our CardioSafe 3D validation studies, CardioSafe 3D detected cardiac toxicities of well-known anti-cancer KIs, all of which were cardiac toxicities not previously identified during the pre-FDA approval development process for each compound studied. This important validation set of compounds is as follows:

1.  Inhibitors to growth factor receptors: sunitinib, axitinib, imatinib, dasatinib, sorafenib, erlotinib, Lapatinib, tyrphostin and AG1478;
2.  Inhibitors to the mTOR pathway: everolimus, temsirolimus;
3.  Inhibitors to cell cycle regulators: tozasertib, barasertib, alvocidib;
4.  Inhibitors to the PI3K pathway : perifosine, LY294002, XL765;
5.  Inhibitors to the MEK pathway: PD325901, AZD6264; and
6.  Inhibitors to the JAK and other pathways: lestaurtinib.

Our validation data indicate that CardioSafe 3D successfully detected cardiotoxicity induced by all of the representative compounds, concordant with now-reported adverse cardiac events from each of the different KI categories. Our CardioSafe 3D assay system is able to distinguish between cardiotoxic and safe compounds, and even between those which inhibit the same kinase pathways. For instance, both sunitinib and axitinib are the inhibitors to VEGFR, PDGFR and c-Kit pathways, and our CardioSafe 3D assays indicate that sunitinib is cardiotoxic and axitinib is safe, outcomes which are consistent with the reported clinical outcomes.
-9-

Furthermore, the cardiotoxicity profile of each KI studied provided clues as to the potential mechanism(s) causing the cardiac cytotoxicity of each compound. For example, cardiac cytotoxicity induced by perifosine showed apoptotic responses at lower concentrations, while imatinib was most active in the oxidative stress assays. In addition, no cardiac toxicity or alteration in electrophysiology was detected with drugs that do not have a cardiac liability, emphasizing the specificity of our CardioSafe 3D assay system. Having information on the pathways associated with the toxic effects of compounds provides important clues for novel medicinal chemistry approaches and compound modifications for our CardioSafe 3D drug rescue programs.

Our CardioSafe 3D assay system enables the sensitive measurement of drug effects with results that are consistent with reported clinical responses to the compounds. For example, our data indicated that sunitinib and dasatinib caused QT prolongation, arrhythmia, and/or altered contraction rates in hPSC-CMs, which are consistent with clinical observations.

We believe our CardioSafe 3D validationcorrelation data demonstrate that CardioSafe 3D will improve clinical predictivity as anprovides valuable and more comprehensive bioanalytical tools for in vitro preclinical cardiac safety assay, helping not only to identify potential cardiac toxicities, but also to discover important potential mechanisms of cardiotoxicity.screening than the hERG assay.  We believe the results of our CardioSafe 3D validation studies indicate that CardioSafe 3D may be effectively usedwill contribute to identifyour efficient and rapid identification of novel, Drug Rescue Variants, with reduced heart toxicity. By providing more accurate, comprehensive and timely indications of alterationspotentially safer proprietary NCEs in electrophysiological activity as well as direct heart toxicity of drug candidates than animal models or cellular assay systems currently used by pharmaceutical companies, we believe the results of our CardioSafe 3D validation studies support the central premise of our drug rescue business model: by usingprograms.   
Using CardioSafe 3D to Develop Drug Rescue NCEs
Our drug rescue activities are focused on producing for our hPSC-derived human heartinternal pipeline proprietary, safer variants of still-promising NCEs previously discovered, optimized and liver cell bioassay systems at the front end of the drug development process, we have the opportunity to leverage substantial prior investmenttested for efficacy by pharmaceutical companies and others in drug discovery and efficacy optimization of once-promising drug candidates that have beenbut terminated prior tobefore FDA approval due to unexpected heart toxicity or liver toxicity. Our current drug rescue strategy involves using CardioSafe 3D to assess the toxicity concerns.that caused certain NCEs available in the public to be terminated, and use that biological insight to produce and develop a new, potentially safer, and proprietary NCEs for our pipeline. We believe the pre-existing public domain knowledge base supporting the therapeutic and commercial potential of NCEs we target for our drug rescue programs will provide us with a valuable head start as we launch each of our drug rescue programs. Leveraging the substantial prior investments by global pharmaceutical companies and others in discovery, optimization and efficacy validation of the NCEs we identify in the public domain is an essential component of our drug rescue strategy.
 
By using LiverSafe CardioSafe 3D to enhance our understanding of the cardiac liability profile of  NCEs, biological insight not previously available when the NCEs were originally discovered, optimized for efficacy and developed, we believe we can demonstrate preclinical proof-of-concept (POC) as to the efficacy and safety of new, safer drug rescue NCEs in standard in vitro and in vivo models, as well as in CardioSafe3D, earlier in development and with substantially less investment in discovery and preclinical development than was required of pharmaceutical companies and others prior to their decision to terminate the original NCE. 
 
LiverSafe 3D isOur goal in each drug rescue program will be to produce a powerful newproprietary drug rescue NCE and establish its preclinical POC, using standard preclinical in vitro hepatotoxicity assay systemand in vivo efficacy and safety models, as well as CardioSafe 3D. In this context, POC means that goesthe lead drug rescue NCE, as compared to the original, previously-terminated NCE, demonstrates both (i) equal or superior efficacy in the same, or a step beyond the current commercially available gold standard primary (human cadaver) hepatocyte assays.  By combining the flexibility of ansimilar, in vitro, non-transformed and in vivo preclinical efficacy models used by the initial developer of the previously-terminated NCE before it was terminated for safety reasons, and (ii) significant reduction of concentration dependent cardiotoxicity in CardioSafe 3D.
Regenerative Medicine (RM)
Although we believe the best and most valuable near term commercial application of our stem cell technology platform is for small molecule drug rescue, we also believe stem cell technology-based RM has the potential to transform healthcare in the U.S. over the next decade by providing new approaches for treating the fundamental mechanisms of disease. We currently intend to establish strategic collaborations to leverage our stem cell technology platform, our expertise in human cell-based assay system with the renewable, reproducible sourcingbiology, differentiation of human pluripotent stem cells (hPSCs),to develop functional adult human cells and tissues involved in human disease, including blood, bone, cartilage, heart and liver cells, and our expertise in designing and developing novel, customized biological assay systems with the functional hPSC-derived hepatocytescells we produce, for RM purposes. LiverSafe 3D can be maintained inIn December 2016, we exclusively sublicensed to BlueRock Therapeutics LP, a healthy state for much longer than the current gold standard hepatocyte assays, greatly enhancing the reliability of hepatotoxicity testing for our drug rescue programs.

Until now, reliable human cell-based hepatotoxicity screening platforms have been difficultnext generation RM company established by Bayer AG and Versant Ventures, rights to establish for high throughput drug development with currently available primary hepatocyte systems.  Primary hepatocytes have a short lifespan in culture, during which time they rapidly lose their drug metabolizing capabilities and develop signs of cellular stress.  Furthermore, these commercially available primary hepatocytes have significant batch-to-batch genetic variation that alters the function of drug metabolism genes and their critical enzyme activity levels duecertain proprietary technologies relating to the useproduction of hepatocytes from different sources. Additionally, primary hepatocytes are derived from individuals with significant differences in health status, with unknown effects on hepatocyte function.  Consequently, it is difficult to maintain quantitative reproducibility using currently available primary hepatocyte assays, and this leads to limitations in the quality and clinical predictiviy of the results and conclusions drawn from these assays.

The foregoing limitations have led many in the field to believe that hPSC-derived hepatocyte assays offer a better alternative to the current gold standard primary hepatocyte assays. This belief is mainly due to the fact that hepatocytes derived from the same hPSC line are genetically identical, normal, non-transformed (that is, not tumor-derived) human cells derived from hPSCs.  Importantly, hPSC-derived hepatocytes can be indefinitely propagated and frozen down into large, uniform, quality-controlled cell banks.  The challenge to using hPSC-derived hepatocytes has been differentiating thecardiac stem cells into mature hepatocytes that express a full complement of functional drug metabolizing enzymes, nuclear receptors, and transporters at least as well as primary hepatocytes.  While many groups have taken on this challenge in recent years, published reports indicate that current hPSC differentiation protocols yield immature hepatocytes, especially with respect to extremely low expression of certain key drug metabolizing enzymes, such as CYP3A4. CYP3A4 is a critical liver enzyme responsible for metabolizing approximately 50% of the FDA-approved drugs currently available on the market. It is an important and well-accepted functional gene found almost exclusively in mature, adult hepatocytes.  CYP3A4 is the key functional marker that we have used to optimize our hepatocyte differentiation cultures for LiverSafe 3D. We believe our optimized LiverSafe 3D assay system enables us to generate more mature hPSC-derived hepatocytes than are currently available from others in the field and that our LiverSafe 3D system provides the unique ability to specifically select for mature CYP3A4-expressing human hepatocytes.
We developed LiverSafe 3D using hPSC differentiation protocols adapted from the laboratory of our co-founder, Dr. Gordon Keller, and our proprietary hPSC cell line, 3A4BLA.  This 3A4BLA cell line is a human embryonic stem cell (hESC) line that contains a humanized BLA functional “reporter” that targets the CYP3A4 gene in a manner resulting in the expression of BLA only in cells that also express CYP3A4. This allows us to visualize by fluorescence cells that express CYP3A4 based on expression of the BLA reporter.  By producing a cell line capable of tracking CYP3A4 expression, we have been able to optimize our hPSC differentiation protocols to increase expression of mature hepatocyte markers and drug metabolizing enzymes and to enrich for CYP3A4-expressing cells by cell sorting.  However, even in the absence of cell sorting, our LiverSafe 3D hepatocyte populations contain greater than 80% ALBUMIN-positive cells and greater than 40% CYP3A4-positive cells, with CYP3A4 mRNA expression reaching levels nearly 60-fold higher than side-by-side 38-week human fetal liver controls.  Our LiverSafe 3D hepatocytes secrete urea and ALBUMIN at levels that exceed commercially-available primary hepatocytes, and they also store both glycogen and lipids, characteristics that are required of functional, mature adult hepatocytes.  Importantly, expression of fetal liver markers decreases over the time course of differentiation of our LiverSafe 3D hepatocytes.  This decreased expression is expected and essential during maturation of hepatocytes, but it has rarely been reported by others in publications describing their hPSC-derived hepatocytes.  With the addition of cell sorting, our LiverSafe 3D hepatocyte populations can be highly enriched for CYP3A4-BLA-positive cells, with CYP3A4 message in the positive cell population reaching greater than 30% that of an adult human liver pool control.  To our knowledge, this level of CYP3A4 expression exceeds levels reported by others in the literature.

The most important capabilities of LiverSafe 3D relate to “Phase I” and “Phase II” drug metabolism, which are functional characteristics of mature adult hepatocytes.  We have validated these capabilities of LiverSafe 3D by demonstrating its ability to metabolize known substrates, such as testosterone, and its ability to respond properly to known inducers of Phase I-mediated CYP3A4 metabolism, such as rifampicin.  Moreover, our LiverSafe 3D hepatocytes demonstrate Phase II-mediated testosterone metabolism levels that exceed commercially available primary hepatocytes.  These functional characteristics of mature adult hepatocytes are critical to the development of a reliable and clinically predictive hepatotoxicity screening platform for our drug rescue programs.  We are currently focused on expanding our panel of validation assays and compounds to include more P450 substrates, inducers, and inhibitors, as well as adapting the cellular toxicity assays that have been developed for our CardioSafe 3D assay system to our LiverSafe 3D assay system and to apply specific hepatotoxic screening assays, such as ALBUMIN and urea secretion assays.

We believe LiverSafe 3D is a powerful, genetically identical, renewable, and reproducible hepatotoxicity assay system for drug rescue and development that provides great advantages over currently available primary hepatocyte assays.  We have demonstrated that our LiverSafe 3D hepatocyte populations, even in the absence of cell sorting, secrete adult hepatocyte levels of ALBUMIN and urea and contain greater than 40% CYP3A4-positive cells, historically difficult to achieve in hPSC differentiation cultures.  The proprietary 3A4BLA cell line component of LiverSafe 3D allows us the unique opportunity to enrich CYP3A4-positive cells, resulting in CYP3A4 expression reaching greater than 30% of an adult human liver pool, and to the best of our knowledge, a level higher than described in current literature.  Most importantly for drug rescue and development purposes, our hPSC-derived hepatocytes for LiverSafe 3D metabolize known substrates and respond to known inducers in a manner expected only of mature adult hepatocytes, paving the way for our final validation of LiverSafe 3D system as a novel hepatotoxicity assay system that can improve clinical predictivity, decrease the cost of drug rescue and development, reduce use of live animal studies, and improve drug safety.
AV-101
We have successfully completed Phase I development of AV-101, also known as “L-4-chlorokynurenine” or “4-Cl-KYN”. AV-101 is a prodrug candidate for the treatment of neuropathic pain, epilepsy and depression. Our AV-101 IND application, on fileheart disease.  In a manner similar to our exclusive sublicense agreement with the FDA, covers our Phase I clinical developmentBlueRock Therapeutics, VistaStem may pursue additional RM collaborations or licensing transactions involving blood, cartilage, and/or liver cells derived from hPSCs for neuropathic pain.  However, we believe the safety studies done in Phase I development of AV-101 will support development of AV-101 for other indications, including epilepsy, depression and potentially other neurological diseases, such as Parkinson’s disease.
The NIH awarded us $8.8 million of grant funding for our preclinical and Phase 1 clinical development of AV-101. During 2014, we plan to seek strategic partnering arrangements for further development and commercialization of AV-101 for neuropathic pain, epilepsy, depression and potentially neurodegenerative diseases related to aging.
AV-101 is an orally-available, non-sedating, pro-drug that is converted in the brain into an active metabolite, 7-chlorokynurenic acid (7-Cl-KYNA), which regulates the N-methyl-D-aspartate (NMDA) receptors. 7-Cl-KYNA is a synthetic analogue of kynurenic acid, a naturally occurring neural regulatory compound, and is one of the most potent and selective blockers of the regulatory GlyB-site of the NMDA receptor. In preclinical studies, AV-101 has very good oral bioavailability, is rapidly and efficiently transported across the blood-brain barrier, and is converted into 7-Cl-KYNA in the brain and spinal cord, preferentially, at the site of seizures and potential neural damage.
The effect of AV-101 on chronic neuropathic pain due to inflammation and nerve damage was assessed in rats by using the Chung nerve ligation model. AV-101 effects were compared to either saline and MK-801, (A) cell-based therapy, (B) cell repair therapy, and/or gabapentin (NeurontinTM(C) tissue engineering. ) as positive controls. Similar to the therapeutic effects seen in the acute formalin and thermal pain models, AV-101 had a positive effect on chronic neuropathic pain in the Chung model that were greater than two standard deviations of the control, with no adverse behavioral observations. As expected, MK-801 and gabapentin also demonstrated reduced pain readouts in the Chung model. The effects observed by AV-101 in both the acute and chronic neuropathic pain model systems was dose dependent, and was not associated with any side effects at the range of doses administered. Preclinical AV-101 data demonstrated the potential clinical utility of AV-101 as an analgesic.
  
Strategic Transactions and Relationships
 
Strategic collaborations are aan important cornerstone of our corporate development strategy. We believe that our strategichighly selective outsourcing of certain research and sponsorship of application-focused researchdevelopment activities gives us flexible access to medicinal chemistry hPSCbroad range of research and development capabilities, manufacturing, clinical development and regulatory expertise at a lower overall cost than developing and maintaining such expertise internally.internally on a full-time basis. In particular, we collaboratecontract with the types of third parties identified below for thecertain manufacturing, non-clinical development, clinical development and regulatory affairs support. The following functions:are among our current third-party collaborators: 
 
·
academic research institutions, such as Duke University and UHN, for hPSC technology research and development;
·
contract medicinal chemistry companies, such as Synterys, Inc., to analyze Drug Rescue Candidates and design, produce and analyze Drug Rescue Variants; and
·
contract clinical development and regulatory organizations (CROs), such as Cato Research Ltd., for regulatory expertise and clinical development support.
 
McEwen Centre for Regenerative Medicine, University Health Network
The University Health Network (UHN) in Ontario, CanadaCato Research Ltd. is a major landmarkCRO with international resources dedicated to helping biotechnology and pharmaceutical companies navigate the regulatory approval process in Canada’s healthcare system.  UHNorder to bring new biologics, drugs and medical devices to markets throughout the world. Cato Research is one of the world’s largest research hospitals, with major research in transplantation, cardiology, neurosciences, oncology, surgical innovation, infectious diseasesour CROs for development of AV-101, currently focused on all chemistry, manufacturing and genomic medicine.  Providing care to the community for more than two centuries, UHN brings together the talent and resources needed to achieve global impact and provide exemplary patient care, research and education.
The McEwen Centre for Regenerative Medicinecontrols (McEwen CentreCMC) is a world-renowned center for stem cell biologyaspects of our Phase 2 development program in MDD.  Cato Research’s senior management team, including co-founders Allen Cato, M.D., Ph.D. and regenerative medicineLynda Sutton, have over 30 years of experience interacting with the FDA and international regulatory agencies and a world-class stem cell research facility affiliated with UHN.  Dr. Gordon Keller, our co-founder and Chairmansuccessful track record of our Scientific Advisory Board, is Director of the McEwen Centre.  Dr. Keller’s lab is one of the world leaders in successfully applying principles from the study of developmental biology of many animal systems to the differentiation of pluripotent stem cell systems, resulting in reproducible, high-yield production of human heart, liver, blood and vascular cells. The results and procedures developed in Dr. Keller’s lab are often quoted and used by academic scientists worldwide.product approvals.
In September 2007, we entered into a long-term sponsored stem cell research and development collaboration with UHN. In December 2010, we extended the collaboration to September 2017. The primary goal of this ten-year collaboration is to leverage the stem cell research, technology and expertise of Dr. Gordon Keller to develop and commercialize industry-leading human pluripotent stem cell differentiation technology and bioassay systems for drug rescue and development and regenerative cell therapy applications. This sponsored research collaboration builds on our existing strategic licenses from National Jewish Health and the Icahn School of Medicine at Mount Sinai to certain pluripotent stem cell technologies developed by Dr. Keller, and is directed to diverse human pluripotent stem cell-based research projects, including, as expanded and amended, strategic projects related to drug rescue and regenerative medicine. See “Sponsored Research Collaborations and Intellectual Property Rights – University Health Network, McEwen Centre for Regenerative Medicine, Toronto, Ontario”, “Intellectual Property – National Jewish Health Exclusive Licenses” and “Intellectual Property – Icahn School of Medicine at Mount Sinai Exclusive Licenses.”
  
Cardiac Safety Research Consortium
 
We have joined the Cardiac Safety Research Consortium (CERCCSRC) as an Associate Member.  The CSRC, which is sponsored in part by the FDA, was launched in 2006 through an FDA Critical Path Initiative Memorandum of Understanding with Duke University to support research into the evaluation of cardiac safety of medical products. CSRC supports research by engaging stakeholders from industry, academia, and government to share data and expertise regarding several areas of cardiac safety evaluation, including novel stem cell-based approaches, from preclinical through post-market periods.
 
Cardiac Safety Technical Committee of the Health and Environmental Sciences Institute – FDA’s CIPA Initiative
 
We have also joined the Cardiac Safety Technical Committee, Cardiac Stem Cell Working Group, and Proarrhythmia Working Group of the Health and Environmental Sciences Institute (HESI) to help advance, among other goals, the FDA’s Comprehensive In Vitro Proarrhythmia Assay (CIPA) initiative, which is focused on developing innovative preclinical systems for cardiac safety assessment during drug development.  HESI is a global branch of the International Life Sciences Institute (ILSI), whose members include most of the world’s largest pharmaceutical and biotechnology companies.
 
The goal of the FDA’s CIPA initiative is to develop a new paradigm for cardiac safety evaluation of new drugs that provides a more comprehensive assessment of proarrhythmic potential by (i) evaluating effects of multiple cardiac ionic currents beyond hERG and ICH S7B Guidelines (inward and outward currents), (ii) providing more complete, accurate assessment of proarrhythmic effects on human cardiac electrophysiology, and (iii) focusing on Torsades de Pointes proarrhythmia rather than surrogate QT prolongation alone.
 
Centre for Commercialization of Regenerative Medicine
 
The Toronto-based Centre for Commercialization of Regenerative Medicine (CCRM) is a not-for-profit, public-private consortium funded by the Government of Canada, six Ontario-based institutional partners and more than 20 companies representing the key sectors of the regenerative medicine industry.  CCRM supports the development of foundational technologies that accelerate the commercialization of stem cell- and biomaterials-based products and therapies.
 
In December 2012, we formalized our membership inWe are a member of the CCRM’s Industry Consortium. Other members of CCRM’s Industry Consortium include such leading global companies as Pfizer and GE Healthcare and Lonza.Healthcare. The industry leaders that comprise the CCRM consortium benefit from proprietary access to certain licensing opportunities, academic rates on fee-for-service contracts at CCRM and opportunities to participate in large collaborative projects, among other advantages. Our CCRM membership reflects our strong association with CCRM and its core programs and objectives, both directly and through our strategic relationships with Dr. Gordon Keller and UHN. We believe our long-term sponsored research agreement with Dr. Keller, UHN and UHN’s McEwen Centre for Regenerative Medicine offers a solid foundation and unique opportunities for expanding the commercial applications of our Human Clinical Trials in a Test Tubestem cell technology platform by building multi-party collaborations with CCRM and members of its Industry Consortium.  We believe these collaborations have the potential to transform medicine and accelerate significant advances in human health and wellness that stem cell technologies and regenerative medicine promise.
 
Duke UniversityMassachusetts General Hospital Clinical Trials Network and Institute
 
In November 2011, we entered into a strategic collaboration with Duke University, oneMassachusetts General Hospital Clinical Trials Network and Institute (CTNI) is an academic CRO, part of the premier academic research institutions in the U.S., aimed at combining our complementary expertise in cardiac stem cell technology, electrophysiology and tissue engineering. The initial goalDepartment of Psychiatry of the collaboration is to exploreMassachusetts General Hospital (MGH), a leader in academic scientific and clinical research in psychiatry. By exploring the potentialbrain science, genetics, and neurobiology of psychiatric disorders, the MGH CTNI has been instrumental in the development of novel engineered, stem cell-derived cardiac tissues to expandtreatments and surrogate markers of illness and therapeutic response. Its scientific and clinical research has been instrumental in defining the scopestandards for the state-of-the-art practice of psychiatry. We are working with MGH CTNI, including its principals, Dr. Maurizio Fava and Dr. Thomas Laughren, in connection with the planning and execution of our drug rescue capabilities focused on heart toxicity. We expect that this collaboration, employing our human stem cell-derived heart cells combined with Duke’s technology relating to cardiac electrophysiologyAV-101 MDD Adjunctive Treatment Study. Dr. Fava is acknowledged as a world-renowned expert in depressive disorders and cardiac tissue engineering,psychopharmacology. He is Director of the Division of Clinical Research of the MGH Research Institute, Executive Vice Chair, Department of Psychiatry, at MGH, and Executive Director of MGH CTNI. He will permit us to use micro-patterned cardiac tissue to expandserve as Principal Investigator of the approaches available to us in our drug rescue programs to quantify drug effects on functional human cardiac tissue.

In May 2013, we announced that our scientists together with researchers at Duke University combined our human stem cell-derived heart cells with Duke’s innovative tissue engineering and cardiac electrophysiology technologies to grow what is being called a “heart patch,” which mimics the natural functions of native human heart tissue.  We believe thisAV-101 MDD Phase 2 Adjunctive Treatment Study.  Dr. Laughren is the closest man-made approximationformer FDA Division Director, Division of natural human heart muscle to date.  This heart patch technology is being developed to aid in a better understanding of the biology critical to cardiac tissue engineering,Psychiatry Products, Center for applications in regenerative cell therapy for heart disease,Drug Evaluation and as predictive Research (in vitroCDER assays for drug rescue and development. We believe the developed contractile forces and other functional properties of these cardiac tissues are remarkable and are significantly higher than any previous reports. The achievement of successfully growing a human heart muscle from cardiomyocytes derived from human pluripotent stem cells expands the scope of our drug rescue capabilities and reflects the advanced nature and potential of our collaboration with Duke University.).
 
Achieving this capability represents a potentially significant breakthrough in heart cell-based therapies and in testing new medicines for potential heart toxicity and potential therapeutic benefits impacting heart disease.
The following are among several key development points from the study:
·The optimized 3D environment of a cardiac tissue patch yields advanced levels of structural and functional maturation of human cardiomyocytes that produce expected responses to drugs;
·Human cardiomyocyte maturation in an optimized 3D patch environment is enhanced relative to that found in industry standard 2D cultures;
·No genetic modifications were used to produce, purify, or mature cardiomyocytes, suggesting potential for future therapeutic applications;
·Cardiac tissue patches generated using VistaGen’s cardiomyocytes exhibited 2.2-180 fold higher contractile force generation compared to previous studies;
·Based on a force per cardiomyocyte metric, cardiac tissue engineering methodology that used VistaGen’s cardiomyocytes exhibited 4-700-fold higher efficiency than previously reported; and
·
Cardiac tissue patches generated using VistaGen’s cardiomyocytes exhibited velocities of electrical signal propagation 5-fold higher compared to previous reports in human engineered cardiac tissues.
Cato Research and Cato BioVentures
Cato Research
Cato Research is a contract research and development organization (CRO), with international resources dedicated to helping biotechnology and pharmaceutical companies navigate the regulatory approval process in order to bring new biologics, drugs and medical devices to markets throughout the world. Cato Research has in-house capabilities to assist its sponsors with aspects of the drug development process including regulatory strategy, nonclinical and toxicology development, clinical development, data processing, data management, statistical analysis, regulatory applications, including INDs and NDAs, chemistry, manufacturing, and control programs, cGCP, cGLP and cGMP audit and compliance activities, and due diligence review of emerging technologies. Cato Research’s senior management team, including co-founders Allen Cato, M.D., Ph.D. and Lynda Sutton, has over 25 years of experience interacting with the FDA and international regulatory agencies and a successful track record of product approvals.  Should we elect to advance development of Drug Rescue Variants internally rather than license or sell them at an early-stage to pharmaceutical companies or others, we believe our long term strategic relationship with Cato Research provides us with real time access to the global connections, insight and knowledge necessary to effectively plan, execute and manage successful nonclinical and clinical development programs throughout the world without incurring the substantial expenses typically associated with establishing and maintaining a wide range of drug development capabilities in-house.
Cato BioVentures
Cato Holding Company, doing business as Cato BioVentures (Cato BioVentures), is the venture capital affiliate of Cato Research. Through strategic CRO service agreements with Cato Research, Cato BioVentures invests in therapeutics and medical devices, as well as platform technologies such as our stem cell technology-based Human Clinical Trials in a Test Tube platform, which its principals believe, based on their experience as management of Cato Research, are capable of transforming the traditional drug development process and the research and development productivity of the biotechnology and pharmaceutical industries.
Our Relationship with Cato Research and Cato BioVentures
Cato Research is our primary CRO for development of AV-101. Cato BioVentures is among our largest, long-term institutional investors.
As a result of the access Cato Research has to potential Drug Rescue Candidates from its biotechnology and pharmaceutical industry network, as well as Cato BioVentures’ strategic long term equity interest in VistaGen, we believe that our relationships with Cato BioVentures and Cato Research may provide us with unique opportunities relating to our drug rescue efforts that will permit us to leverage both their industry connections and the CRO resources of Cato Research, either on a contract research basis or in exchange for economic participation rights, should we develop Drug Rescue Variants internally on our own rather than out-license them to strategic partners.
United States National Institutes of Health
 
Since our inception in 1998, the U.S. National Institutes of Health (NIH) has awarded us $11.3 million in non-dilutive research and development grants, including $2.3 million to support research and development of our Human Clinical Trials in a Test Tube platformstem cell technology and $8.8 million for nonclinicalnon-clinical and Phase 11a and 1b clinical development of AV-101, our small molecule drug candidate which has successfully completed Phase 1 clinical developmentAV-101.
United States National Institute of Mental Health
The NIMH, part of the NIH, is the largest scientific organization in the U.S.world dedicated to mental health research. NIMH is one of 27 Institutes and Centers of the NIH, the world’s leading biomedical research organization. The mission of NIMH is to transform the understanding and treatment of mental illnesses through basic and clinical research, paving the way for neuropathic painprevention, recovery and other potential diseases and conditions, including epilepsy and depression.
California Institute for Regenerative Medicine
The California Institute for Regenerative Medicine (CIRM) funds stem cell research at academic research institutions and companies throughout California. CIRM was established in 2004cure. Our CRADA with the passageNIH provides for NIMH sponsorship of Stem Cell Initiative (Proposition 71)the ongoing NIMH AV-101 MDD Phase 2 Monotherapy Study, a study being fully funded by California voters. As a stem cell company based in California since 1998, we are eligible to apply forthe NIH and receive grant funding underis being conducted at the Stem Cell Initiative. To date we have been awarded approximately $1.0 millionNIMH by Dr. Carlos Zarate, the NIMH’s Chief of non-dilutive grant funding from CIRM for stem cell researchExperimental Therapeutics & Pathophysiology Branch and development related to stem cell-derived human liver cells. This funded researchSection on Neurobiology and development focused on the improvementTreatment of techniquesMood and the production of engineered human ES Cell lines used to develop mature functional human liver cells as a biological system for testing drugs.Anxiety Disorders.
 
Celsis In Vitro Technologies
In March 2013, we entered into a strategic collaboration with Celsis In Vitro Technologies (Celsis IVT), a premier global provider of specialized in vitro products for drug metabolism, drug-drug interaction and toxicity screening, focused on characterizing and functionally benchmarking our human liver cell platform, LiverSafe 3D™ with Celsis IVT products for studying and predicting drug metabolism.  We intend to utilize Celsis IVT’s experience and expertise in in vitro drug metabolism to help validate LiverSafe 3DTM. We anticipate that Celsis IVT will not only validate our human liver cells in traditional pharmaceutical metabolism assays, but also will determine genetic variations in our human pluripotent stem cell lines that are important to drug development. In addition, we plan to utilize Celsis IVT’s large inventory of cryopreserved primary human liver cells, currently used throughout the pharmaceutical industry for traditional and high-throughput liver toxicology and other bioassays, as reference controls with which to monitor and benchmark the functional properties of LiverSafe 3D.
Collaborating with Celsis IVT scientists, we are focused on the following four key objectives:
·Optimize techniques to handle and maintain primary human cryopreserved primary liver cells as reference controls for various drug development assays;
·Develop a stable supply of characterized and validated human cryopreserved primary liver cells to serve as internal controls and provide benchmark comparisons for the characterization of our pluripotent stem cell-derived liver cells;
·Characterize our human pluripotent stem cell-derived liver cells using many of the same industry-standardized assays used to characterize primary human liver cells; and
·Produce a joint publication of the characterization of our pluripotent stem cell-derived human liver cells.
As an industry leader in the development of in vitro primary hepatocyte technology, we believe Celsis IVT has extensive resources to aid us in the benchmarking LiverSafe 3D to industry standards. We anticipate this collaboration will lead to the further validation of LiverSafe 3D for predicting liver toxicity and drug metabolism issues before costly human clinical trials.
Synterys, Inc.
In December 2011, we entered into a strategic medicinal chemistry collaboration agreement with Synterys, Inc. (Synterys), a leading medicinal chemistry and collaborative drug discovery company. We believe this important collaboration will further our drug rescue initiatives with the support of Synterys’ medicinal chemistry expertise.  In addition to providing flexible, real-time contract medicinal chemistry services in support of our drug rescue programs, we anticipate potential collaborative opportunities with Synterys wherein we may jointly identify and develop Drug Rescue Variants.
Intellectual Property
 
Intellectual Property Rights Underlying our Human Clinical Trials inWe rely upon patents as a Test TubePlatform
We have establishedmajor component of our intellectual property portfolio, as is typical for development-stage, biopharmaceutical companies. In addition, from time to time, we enter into patent license agreements to acquire rights to the technology underlying our Human Clinical Trials in a Test Tube platform through a combination of exclusive and non-exclusive licenses, patent, and trade secret laws. To our knowledge, we are the first stem cell company focused primarily on stem cell technology-based drug rescue.intellectual property. We have assembled an intellectual property portfolio around the use of pluripotent stem cell technologies in drug discovery and development and with specific application to drug rescue. The differentiation protocols we have licensed direct the differentiation of pluripotent stem cells through:
·
a combination of growth factors (molecules that stimulate the growth of cells);
·
the experimentally controlled regulation of developmental genes, which is critical for determining what differentiation path a human cell will take; and
·
precise selection of immature cell populations for further growth and development.
By influencing key branch points in the cellular differentiation process, our pluripotent stem cell technologies can produce fully-differentiated, non-transformed, highly functional human cells in vitro in an efficient, highly pure and reproducible process.
As of the date of this report, we either own or have licensed 43 issued U.S. patents and 12 U.S. patent applications and certain foreign counterparts relating to the stem cell technologies that underlie our Human Clinical Trials in a Test Tube platform. Our material rights and obligations with respect to these patents and patent applications are summarized below:
Licenses
National Jewish Health (NJH) Exclusive License
We have exclusive licenses to seven issued U.S. patents held by NJH, certain of which expire in November 2014.  No foreign counterparts to these U.S. patents and patent application have been obtained. These U.S. patents contain claims covering composition of matter relating to specific populations of cells and precursors, methods to produce such cells, and applications of such cells for ES Cell-derived immature pluripotent precursors of all the cells of the mesoderm and endoderm lineages. Among other cell types, this covers cells of the heart, liver, pancreas, blood, connective tissues, vascular system, gut and lung cells.
Under this license agreement, we may become required to pay to NJH 1% of our total revenues up to $30 million in each calendar year and 0.5% of all revenues for amounts greater than $30 million, with minimum annual payments of $25,000. Additionally, we may become obligated under the agreement to make certain royalty payments on sales of products based on NJH’s patents or the sublicensing of such technology. The royalty payments are subject to anti-stacking provisions which would reduce our payments by a percentage of any royalty payments and fees paid to third parties who have licensed necessary intellectual property to us. This agreement remains in force for the life of the patents so long as neither party elects to terminate the agreement upon the other party’s uncured breach or default of an obligation under the agreement. We also have the right to terminate the agreement at any time without cause.
Icahn School of Medicine at Mount Sinai School (MSSM) Exclusive License
We have an exclusive, field restricted, license to two U.S. patents and two U.S. patent applications, and their foreign counterparts filed by MSSM. Foreign counterparts have been filed in Australia (two), Canada (two), Europe (two), Japan, Hong Kong and Singapore. Two of the U.S. applications have been issued and the foreign counterparts in Australia and Singapore have been issued, while a counterpart in Europe is pending. These patent applications have claims covering composition of matter relating to specific populations of cells and precursors, methods to produce such cells, and applications of such cells, including:
·
the use of certain growth factors to generate mesoderm (that is, the precursors capable of developing into cells of the heart, blood system, connective tissues, and vascular system) from hESCs;
·
the use of certain growth factors to generate endoderm (that is, the precursors capable of developing into cells of the liver, pancreas, lungs, gut, intestines, thymus, thyroid gland, bladder, and parts of the auditory system) from hESCs; and
·
applications of cells derived from mesoderm and endoderm precursors, especially those relating to drug discovery and testing for applications in the field of in vitro drug discovery and development applications.
This license agreement requires us to pay annual license and patent prosecution and maintenance fees and royalty payments based on product sales and services that are covered by the MSSM patent applications, as well as for any revenues received from sublicensing. Any drug candidates that we develop, including any Drug Rescue Variants, will only require royalty payments to the extent they require the practice of the licensed technology. To the extent we incur royalty payment obligations from other business activities, the royalty payments are subject to anti-stacking provisions which reduce our payments by a percentage of any royalty payments or fees paid to third parties who have licensed necessary intellectual property to us. The license agreement will remain in force for the life of the patents so long as neither party terminates the agreement for cause (i) due to a material breach or default in performance of any provision of the agreement that is not cured within 60 days or (ii) in the case of failure to pay amounts due within 30 days.
Wisconsin Alumni Research Foundation (WARF) Non-Exclusive License
We have non-exclusive licenses to over 30 issued stem cell-related U.S. patents, 14 stem cell-related U.S. patent applications, and certain foreign counterparts held by WARF, for applications in the field of in vitro drug discovery and development. Foreign counterparts have been filed in Australia, Canada, Europe, China, India, Hong Kong, Israel, Brazil, South Korea, India, Mexico, and New Zealand. The subject matter of these patents includes specific hESC lines and composition of matter and use claims relating to hESCs important to drug discovery, and drug rescue screening. We have rights to:
·
use the technology for internal research and drug development;
·
provide discovery and screening services to third parties; and
·
market and sell research products (that is, cellular assays incorporating the licensed technology).
This license agreement requires us to make royalty payments based on product sales and services that incorporate the licensed technology. We do not believe that any drug rescue candidates to be developed by us will incorporate the licensed technology and, therefore, no royalty payments will be payable. Nevertheless, there is a minimum royalty of $20,000 per calendar year. There are also milestone fees related to the discovery of therapeutic molecules, though no royalties are owed on such molecules. The royalty payments are subject to anti-stacking provisions which reduce our payments by a percentage of any royalty payments paid to third parties who have licensed necessary intellectual property to us. The agreement remains in force for the life of the patents so long as we pay all monies due and do not breach any covenants, and such breach or default is uncured for 90 days. We may also terminate the agreement at any time upon 60 days’ notice. There are no reach through royalties on customer-owned small molecule or biologic drug products developed using the licensed technologies.
Our Patents
We have filed two U.S. patent applications on liver stem cells and their applications in drug development relating to toxicity testing, both of which have issued. Of the related international filings, European, Canadian and Korean patents were issued. The European patent has been validated in 11 European countries. We have filed a U.S. patent application, with foreign counterpart filing in Canada and Europe, directed to methods for producing human pluripotent stem cell-derived endocrine cells of the pancreas, with a specific focus on beta-islet cells, the cells that produce insulin, and their uses in diabetes drug discovery and screening.
The material patents currently related to the generation of human heart and liver cells for use in connection with our drug rescue activities are set forth below:
TerritoryPatent No.General Subject MatterExpiration
US7,763,466Method to produce endoderm cellsMay 2025
US7,955,849Method of enriching population of mesoderm cellsMay 2023
US8,143,009Toxicity typing using liver stem cellsJune 2023
US8,512,957Toxicity typing using liver stem cellsJune 2021
With respect to AV-101, we have filed three new U.S. patent applications.
Trade Secrets
We rely, in part, on trade secrets for protection of some of our intellectual property.discoveries. We attempt to protect our trade secrets by entering into confidentiality agreements with employees, consultants, collaborators and third parties, employeesparties. We also own several registered and consultants. Ourcommon-law trademarks.
To help protect our intellectual property rights, our employees and consultants also sign agreements requiring thatin which they assign to us, for example, their interests in patents, trade secrets and copyrights arising from their work for us.
 
Sponsored Research CollaborationsFrom time to time, we sponsor research with key scientists in academic institutions to advance or supplement our internal research and Intellectual Property Rights
University Health Network, McEwen Centre for Regenerative Medicine, Toronto, Ontario
We havedevelopment activities and objectives. These sponsored research agreements generally provide us with an opportunity to negotiate a long-term strategic stem cell research collaboration with our co-founder, Dr. Gordon Keller, Directornew license, or acquire a substantially prescribed license, to acquire intellectual property rights in the results of the UHN’s McEwen Centre, focused on, among other things, developing improved methods for differentiation of cardiomyocytes (heart cells) from pluripotent stem cells, and their uses in biological assay systems for drug discovery and development. Pursuant to our sponsored research collaboration agreement with UHN, we have the right to acquire exclusive worldwide rights to any inventions arising from studies we sponsor, under pre-negotiated license terms. Such pre-negotiated terms provide for royalty payments based on product sales that incorporate the licensed technology and milestone payments based on the achievement of certain events. Any Drug Rescue Variants that we develop will not incorporate the licensed technology and, therefore, will not require any royalty payments. To the extent we incur royalty payment obligations from other business activities, the royalty payments will be subject to anti-stacking provisions, which reduce our payments by a percentage of any royalty payments paid to third parties who have licensed necessary intellectual property to us. These licenses will remain in force for so long as we have an obligation to make royalty or milestone payments to UHN, but may be terminated earlier upon mutual consent, by us at any time, or by UHN for our breach of any material provision of the license agreement that is not cured within 90 days. We also have the exclusive option to sponsor research for similar cartilage, liver, pancreas and blood cell projects with similar licensing rights.
research.
 
The sponsored research collaboration agreement with UHN, as amended, has a term of ten years, ending on September 18, 2017. Our 2012/2013 sponsored research project budget under the agreement ended on September 30, 2013. We are currently in discussions with Dr. Keller and UHN regarding the scope of our future sponsored research project budget under the agreement, and we anticipate finalizing such budget within the near term. The ten-year term of the agreement is subject to renewal upon mutual agreement of the parties. The agreement may be terminated earlier upon a material breach by either party that is not cured within 30 days. UHN may elect to terminate the agreement if we become insolvent or if any license granted pursuant to the agreement is prematurely terminated. We have the option to terminate the agreement if Dr. Keller stops conducting his research or ceases to work for UHN.
 
 
UHN License for Stem Cell Culture TechnologyAV-101
 
In April 2012, we licensed breakthrough stem cell culture technology from UHN’s McEwen Centre.  We intendAs discussed elsewhere in this Annual Report, AV-101 (4-Cl-KYN) is our oral CNS product candidate presently being investigated in the NIMH AV-101 MDD Phase 2 Monotherapy Study. Further, we are preparing to utilizelaunch our AV-101 MDD Phase 2 Adjunctive Treatment Study to assess the licensed technology to develop hematopoietic precursor stem cells from human pluripotent stem cells, with the goalsafety and efficacy of developing drug screening and cell therapy applications for human blood system disorders. The breakthrough technology is included inAV-101 as a new United Statesgeneration adjunctive treatment of MDD in adult patients with an inadequate response to standard, FDA-approved antidepressants. We have developed a portfolio of intellectual property assets around AV-101, which involves both patent application.  We believe this stem cell technology dramatically advances our ability to produceapplications and purify this important blood stem cell precursor for both in vitro drug screening and in vivo cell therapy applications.trade secrets. In addition, we will seek regulatory exclusivity to defining new cell culture methods forsupplement our use, the technology describes the surface characteristics of stem cell-derived adult hematopoietic stem cells. Most groups study embryonic blood development from stem cells, but, for the first time, we are now able to not only purify the stem cell-derived precursor of all adult hematopoietic cells, but also pinpoint the precise timing when adult blood cell differentiation takes place in these cultures.  We believe these early cells have the potential to be the precursors of the ultimate adult, bone marrow-repopulating hematopoietic stem cells to repopulate the blood and immune system when transplanted into patients prepared for bone marrow transplantation. These cells have important potential therapeutic applications for the restoration of healthy blood and immune systems in individuals undergoing transplantation therapies for cancer, organ grafts, HIV infections or for acquired or genetic blood and immune deficiencies.intellectual property rights.
 
AV-101-Related Intellectual Property
AV-101 itself is no longer patented. We have exclusive licenses to issued U.S. patents related to the use and function of AV-101, and various central nervous system (CNS)-active molecules related to AV-101. These patents are held byobtained a patent license from the University of Maryland Baltimore,to certain pharmaceutical formulations and associated methods of using AV-101 when we acquired the Cornell Research Foundation,original licensee, Artemis Neuroscience, Inc. and Aventis, Inc.  The principle U.S. method of useHowever, patent relatedrights included in that license that were relevant to AV-101 have expired. Although the license agreement contains royalty obligations that nominally remain in force until 10 years after the first commercial sale of the first product even after relevant patent rights have expired, the U.S. Supreme Court’s decision in February 2011. Foreign counterparts toKimble v. Marvel Entertainment, LLC (2015) determined that U.S. patent expiredlicense royalties that extend beyond a patent’s expiration are not enforceable.
Even though the compound 4-Cl-KYN per se, and certain of its formulations are in February 2012.  However, in 2013the public domain and through the date of this report,thus are no longer protectable, we have filed three newseveral of our own patent applications on certain other formulations and novel therapeutic methods of use of AV-101 as part of our strategy to seek and secure broad commercial exclusivity for AV-101.
Presently, we are prosecuting one family of patent applications in the USPTO, European Patent Office (EPO) and selected major markets related to specific dosage formulations of AV-101, as well as to methods of treating depression, hyperalgesia pain and several other neurological conditions. For reference, these are based on PCT patent application WO2014/116739. Our claims to the treatment of depression have been granted by the EPO. We are prosecuting formulation claims in one application, and we filed a continuation application in this family in the U.S., focused on the treatment of depression. There is no guarantee, however, that the USPTO will allow or grant any of the pending claims.
We are also prosecuting another patent family related to novel methods of synthesizing AV-101, based on extensive research involving a range of synthetic routes that was conducted on our behalf by a contract research organization. For reference, this is based on PCT patent application WO2014/152835, which is presently being pursued at the national phase in the U.S. and selected other countries. This patent application also includes pharmaceutical composition claims to certain precursors and variants of AV-101, which may be useful and patentable as synthesis intermediates. 
Another patent application related to additional and expanded clinical uses of AV-101 to treat depression and other medical conditions is pending as PCT patent application WO 2016/191351.We plan to seek patent protection at the national phase in appropriate global markets in due course.
Additionally, we are presently developing potentially improved synthesis routes through another contract research organization. If we determine that these routes may be patentable, then we intend to file patent applications relating to AV-101.  In addition, amongthis developmental activity in the key componentssecond half of 2017.
As noted, we are currently involved with the NIMH AV-101 MDD Phase 2 Monotherapy Study being conducted by the NIMH. As part of our commercialanalysis of the study results, we will be evaluating the possibility of seeking additional patent protection strategy with respectbased on the clinical data and on clinical observations.
As another major component of our plans to obtain market exclusivity for approved therapeutic indications for AV-101, is thewe intend to utilize New Drug Product Exclusivity provided by the FDA under section 505(c)(3)(E) and 505(j)(5)(F) of the Federal Food, Drug, and Cosmetic Act (FDCA). The FDA’s New Drug Product Exclusivity is available for new chemical entities (NCEs) such as AV-101, which by definition, are innovative and have not been previously approved previously by the FDA, either alone or in combination.combination with other drugs. The FDA’s New Drug Product Exclusivity protection provides the holder of an FDA-approved new drug application (NDA) with up to five (5) years of protection from new competition in the U.S. marketplace for the innovation represented by its approved new drug product. This protection precludes FDA approval of certain generic drug applications under section 505(b)(2) of the FDCA, as well as certain abbreviated new drug applications (ANDAANDAss)), during the up to five-year exclusivity period, except that such applications may be submitted after four years if they contain a certification of patent invalidity or non-infringement. As and if applicable, we will pursue similar types of regulatory exclusivity in other regions, such as Europe, and in certain other countries.
 
UnderThere is no guarantee that we will be successful in obtaining patents related to AV-101 in the terms of our license agreement,U.S. or other countries, or that if we mayare successful in obtaining such patents that we would also be obligatedsuccessful in protecting those patents against challengers or in enforcing them to make royalty payments on 2% of net sales of products using the unexpiredstop infringement. We are pursuing patent rights if any, including products containing compounds covered byin a limited number of countries that we believe are the few major markets where having patent rights will substantially facilitate commercialization of AV-101. There are many other countries in which we are not pursuing such patent rights. Additionally,There is no guarantee that we may be required to pay a 1% royalty on net sales of combination products that use unexpiredwill successfully obtain patents in the countries in which we are pursuing patent rights, if any, or contain compounds covered by the patent rights. Consequently, future sales of AV-101 may be subject to a 2% royalty obligation. There are no license, milestone or maintenance fees under the agreement. The agreement remains in force until the later of: (i) the expiration or invalidation of the last patent right; and (ii) 10 years after the first commercial sale of the first product that uses the patent rights or contains a compound covered by the patent rights. This agreement may also be terminated earlier at the election of the licensor upon our failure to pay any monies due, our failure to provide updates and reports to the licensor, our failure to provide the necessary financial and other resources required to develop the products, or our failure to cure within 90 days any breach of any provision of the agreement. We may also terminate the agreement at any time upon 90 days’ written notice so long as we make all payments due through the effective date of termination.

Research and Development

Our research and development expense was approximately $2.5 million and $3.4 million for the years ended March 31, 2014 and 2013, respectively, or approximately 49% of our operating expenses for each of the years ended March 31, 2014 and 2013. Our research and development expense consists of both internal and external expenses incurred in sponsored stem cell research and drug development activities, costs associated with the development of AV-101 and costs related to the licensing, application and prosecution of our intellectual property.
Stem Cell Technology
We have obtained and are pursuing intellectual property rights to several stem cell technologies through a combination of our own patent properties, exclusive and non-exclusive patent and technology licenses, and participation in sponsored research relationships. Generally, our stem cell intellectual property portfolio relates to drug rescue, toxicity testing and drug discovery. It also relates to novel production systems and the use of various cell types that have been differentiated from pluripotent stem cells for those and other purposes. Additionally, our intellectual property includes enriched populations of certain cell types, such as cardiomyocytes and hepatocytes, and some related aspects of cell-based therapy. We also maintain certain trade secrets regarding stem cell technology, several of which are discussed below.
Overall, our stem cell patent portfolio includes nine patent families, which collectively include several issued U.S. patents as well as several foreign counterpart patents in countries of commercial interest to VistaGen. The portfolio also includes several patent applications pending in the U.S. and in various foreign countries.
The patent properties in these families are based on discoveries from our internal research and development activities, research that it has sponsored at various academic institutions, as well as from patent license agreements signed with the University Health Network (Toronto) and the Mount Sinai School of Medicine.
These license agreements generally require us to pay annual license fees, patent prosecution and maintenance fees, and royalty payments that vary based on product sales and services that are covered by the licensed patent rights, as well fees for sublicensing. As noted above in the context of AV-101 intellectual property, there is no guarantee that we will successfully obtain patents in the countries in which we are pursuing patent rights or that we would be successful in enforcing granted patent rights against infringers.
In December 2016, we exclusively sublicensed to BlueRock Therapeutics, a stem cell research company recently established by Bayer AG and Versant Ventures, rights to certain proprietary technologies relating to the production of cardiac stem cells for the treatment of heart disease.
Trademarks
We have a federal trademark registration for the trademark “VISTAGEN”. Corresponding trademarks have been registered in the European Union and in Switzerland. We also use certain other trademarks in connection with our customized in vitro bioassay systems, such as CardioSafe 3D™ and LiverSafe 3D™ .
U.S. Government Rights
We have received federal funding from both the NIH and the NIMH to support research and development of inventions disclosed in our patent applications relating to AV-101 and certain of our stem cell technology.  Under the Bayh-Dole Act of 1980, if we do not take adequate steps to commercialize certain intellectual property rights, or certain other exigent circumstances relating to public health and safety prescribed under federal law become applicable, the U.S. government may acquire certain rights with respect to inventions made during programs funded by NIH or other federal grants.
 
Competition
 
The biopharmaceutical industry is highly competitive. There are many public and private biopharmaceutical companies, universities, governmental agencies, including the NIH and NIMH, and other research organizations actively engaged in the research and development of products that may be similar to our product candidates or address similar markets. It is probable that the number of companies seeking to develop products and therapies similar to our products will increase.
Currently, there are no FDA-approved therapies for MDD with the mechanism of action of AV-101. However, products approved for other indications, for example, the anesthetic ketamine, are being or may be used off-label for treatment of MDD, as well as other CNS indications for which AV-101 may have therapeutic potential. Additionally, other treatment options, such psychotherapy and electroconvulsive therapy, are sometimes used instead of and before standard antidepressant medications to treat patients with MDD.
In the field of new generation, orally available, adjunctive treatments of adult MDD patients with an inadequate response to standard antidepressants, we believe our principal competitor is Alkermes’ orally available drug candidate in Phase 3 development, ALKS-5461, an opioid modulator.
Many of our potential competitors, alone or with their strategic partners, have substantially greater financial, technical and human resources than we do and significantly greater experience in the discovery and development of product candidates, obtaining FDA and other regulatory approvals of treatments and the commercialization of those treatments.  We believe that a range of pharmaceutical and biotechnology companies have programs to develop small molecule drug candidates for the treatment of depression, including MDD, epilepsy, neuropathic pain, Parkinson’s disease and other neurological conditions and diseases, including, but not limited to, Abbott Laboratories, Acadia, Alkermes, Allergan, AstraZeneca, Eli Lilly, GlaxoSmithKline, Johnson & Johnson, Lundbeck, Merck, Novartis, Minerva, Otsuka, Pfizer, Roche, Sage, Sanofi, Shire, Sumitomo Dainippon, and Takeda.  Mergers and acquisitions in the biotechnology and pharmaceutical industries may result in even more resources being concentrated among a smaller number of our competitors. Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products that are safer, more effective, have fewer or less severe side effects, are more convenient or are less expensive than any products that we may develop. Our competitors also may obtain FDA or other regulatory approval for their products more rapidly than we may obtain approval for ours, which could result in our competitors establishing a strong market position before we are able to enter the market. We expect that AV-101 will have to compete with a variety of therapeutic products and procedures.  
We believe that ourVistaStem’s human pluripotent stem cell (hPSC) technology platform,Human Clinical Trials in a Test Tube, the hPSC-derived human cells we produce, and the customized human cell-based assay systems we have formulated and developed are capable of being competitive in the diverse and rapidly growing global stem cell and regenerative medicine markets, including markets involving the sale of hPSC-derived cells to third-parties for their in vitro drug discovery and safety testing, contract predictive toxicology drug screening services for third parties, internal drug discovery, drug development and drug rescue of new molecular entities (NMEs),NCEs, and regenerative medicine, including in vivo cell therapy research and development. A representative list of such biopharmaceutical companies pursuing one or more of these potential applications of adult and/or pluripotent stem cellhPSC technology includes the following: Acea Biosciences, Advanced Cell Technology,Astellas, Athersys, BioCardia, BioTime, Caladrius Biosciences, Cellectis Bioresearch, Cellular Dynamics, Cellerant Therapeutics, Cytori Therapeutics, Fujifilm Holdings, HemoGenix, International Stem Cell, NeoStem, Neuralstem, Organovo Holdings, PluriStem Therapeutics, Stem Cells, and Stemina BioMarker Discovery. Pharmaceutical companies and other established corporations such as Bristol-Myers Squibb, Charles River, GE Healthcare Life Sciences, GlaxoSmithKline, Life Technologies, Novartis, Pfizer, Roche Holdings, Thermo Fisher Scientific and others have been and are expected to continue pursuing internally various stem cell-related research and development programs. Many of the foregoing companies have greater resources and capital availability and as a result, may be more successful in their research and development programs than us.  We anticipate that acceptance and use of hPSC technology for drug development and regenerative medicine will continue to occur and increase at pharmaceutical and biotechnology companies in the future.
 
We believe the best and most valuable near term commercial application of our Human Clinical Trials in a Test Tube platform is internal production of NMEs, which we refer to as Drug Rescue Variants, through small molecule drug rescue. We believe that the stem cell technologies underlying our Human Clinical Trials in a Test Tube platform and our primary focus on opportunities to produce small molecule NMEs through drug rescue provide us substantial competitive advantages associated with application of human biology at the front end of the drug development process, before animal and human testing. Although we believe that our model for the application of human pluripotent stem cell technology for drug rescue is novel, significant competition may arise or otherwise increase considerably as the acceptance and use of hPSC technology, the sale of hPSC-derived human heart and liver cells, and the availability of hPSC-related contract predictive toxicology screening services, for drug discovery, development and rescue, as well as cell therapy and regenerative medicine, continue to become more widespread throughout the academic research community and the pharmaceutical and biotechnology industries. In addition, significant competition may arise from those academic research institutions, contract research organizations, and biopharmaceutical companies currently producing or capable of producing, currently using or capable of using, hPSC-derived heart cells and liver cells for third-party sales, contract screening or cell therapy research and development, that elect or their customers elect to transform their current business operations to include internal drug rescue and development of small molecule NMEs in a manner similar to our drug rescue model.
With respect to AV-101, we believe that a range of pharmaceutical and biotechnology companies have programs to develop small molecule drug candidates for the treatment of neuropathic pain, epilepsy, depression, Parkinson’s disease and other neurological conditions and diseases, including Abbott Laboratories, GlaxoSmithKline, Johnson & Johnson, Novartis, and Pfizer. We expect that AV-101 will have to compete with a variety of therapeutic products and procedures.  With respect to each Drug Rescue Variant we are able to produce, we anticipate that a range of pharmaceutical and biotechnology companies will have programs to develop small molecule drug candidates or biologics for the treatment of the diseases or conditions targeted by each such Drug Rescue Variant.
Government Regulation
 
Our business activities, including the manufacturing, research, development and marketing of our product candidates, are subject to extensive regulation by numerous governmental authorities in the United States and other countries. Before marketing in the United States, any new drug developed by us or our collaborators must undergo rigorous preclinical testing, clinical trials and an extensive regulatory clearance process implemented by the United States Food and Drug Administration (FDA) under the Federal Food, Drug, and Cosmetic Act, as amended. The FDA regulates, among other things, the development, testing, manufacture, safety, efficacy, record keeping, labeling, storage, approval, advertising, promotion, import, export, sale and distribution of biopharmaceutical products. The regulatory review and approval process, which includes preclinical testing and clinical trials of each product candidate, is lengthy, expensive and uncertain. Moreover, government coverage and reimbursement policies will both directly and indirectly impact our ability to successfully commercialize any future approved products, and such coverage and reimbursement policies will be impacted by enacted and any applicable future healthcare reform and drug pricing measures. In addition, we are subject to state and federal laws, including, among others, anti-kickback laws, false claims laws, data privacy and security laws, and transparency laws that restrict certain business practices in the pharmaceutical industry.
In the United States, drug product candidates intended for human use undergo laboratory and animal testing until adequate proof of safety is established. Clinical trials for new product candidates are then typically conducted in humans in three sequential phases that may overlap. Phase 1 trials involve the initial introduction of the product candidate into healthy human volunteers. The emphasis of Phase 1 trials is on testing for safety or adverse effects, dosage, tolerance, metabolism, distribution, excretion and clinical pharmacology. Phase 2 involves studies in a limited patient population to determine the initial efficacy of the compound for specific targeted indications, to determine dosage tolerance and optimal dosage, and to identify possible adverse side effects and safety risks. Once a compound shows evidence of effectiveness and is found to have an acceptable safety profile in Phase 2 evaluations, Phase 3 trials are undertaken to more fully evaluate clinical outcomes. Before commencing clinical investigations in humans, we or our collaborators must submit an Investigational New Drug Application (IND) to the FDA.
Regulatory authorities, Institutional Review Boards and Data Monitoring Committees may require additional data before allowing clinical studies to commence, continue or proceed from one phase to another, and could demand that studies be discontinued or suspended at any time if there are significant safety issues. We have in the past and may in the future rely on assistance from our third-party collaborators and contract service providers to file our INDs and generally support our development and regulatory activities approval process for our potential products. Clinical testing must also meet requirements for clinical trial registration, institutional review board oversight, informed consent, health information privacy, and good clinical practices, or GCPs. Additionally, the manufacture of our drug product, must be done in accordance with current good manufacturing practices (GMPs).
To establish a new product candidate’s safety and efficacy, the FDA requires companies seeking approval to market a drug product to submit extensive preclinical and clinical data, along with other information, for each indication for which the product will be labeled. The data and information are submitted to the FDA in the form of a New Drug Application (NDA), which must be accompanied by payment of a significant user fee unless a waiver or exemption applies. Generating the required data and information for an NDA takes many years and requires the expenditure of substantial resources. Information generated in this process is susceptible to varying interpretations that could delay, limit or prevent regulatory approval at any stage of the process. The failure to demonstrate adequately the quality, safety and efficacy of a product candidate under development would delay or prevent regulatory approval of the product candidate. Under applicable laws and FDA regulations, each NDA submitted for FDA approval is given an internal administrative review within 60 days following submission of the NDA. If deemed sufficiently complete to permit a substantive review, the FDA will “file” the NDA. The FDA can refuse to file any NDA that it deems incomplete or not properly reviewable. The FDA has established internal goals of eight months from submission for priority review of NDAs that cover product candidates that offer major advances in treatment or provide a treatment where no adequate therapy exists, and 12 months from submission for the standard review of NDAs. However, the FDA is not legally required to complete its review within these periods, these performance goals may change over time and the review is often extended by FDA requests for additional information or clarification. Moreover, the outcome of the review, even if generally favorable, may not be an actual approval but a “complete response letter” that describes additional work that must be done before the NDA can be approved. Before approving an NDA, the FDA can choose to inspect the facilities at which the product is manufactured and will not approve the product unless the manufacturing facility complies with GMPs. The FDA may also audit sites at which clinical trials have been conducted to determine compliance with GCPs and data integrity. The FDA’s review of an NDA may also involve review and recommendations by an independent FDA advisory committee, particularly for novel indications. The FDA is not bound by the recommendation of an advisory committee.
In addition, delays or rejections may be encountered based upon changes in regulatory policy, regulations or statutes governing product approval during the period of product development and regulatory agency review.
Before receiving FDA approval to market a potential product, we or our collaborators must demonstrate through adequate and well-controlled clinical studies that the potential product is safe and effective in the patient population that will be treated. In addition, under the Pediatric Research Equity Act, or PREA, an NDA or supplement to an NDA must contain data to assess the safety and effectiveness of the drug for the claimed indications in all relevant pediatric subpopulations and to support dosing and administration for each pediatric subpopulation for which the product is safe and effective, unless a waiver applies. If regulatory approval of a potential product is granted, this approval will be limited to those disease states and conditions for which the product is approved. Marketing or promoting a drug for an unapproved indication is generally prohibited. Furthermore, FDA approval may entail ongoing requirements for risk management, including post-marketing, or Phase 4, studies. Even if approval is obtained, a marketed product, its manufacturer and its manufacturing facilities are subject to payment of significant annual fees and continuing review and periodic inspections by the FDA. Discovery of previously unknown problems with a product, manufacturer or facility may result in restrictions on the product or manufacturer, including labeling changes, warning letters, costly recalls or withdrawal of the product from the market.
Any drug is likely to produce some toxicities or undesirable side effects in animals and in humans when administered at sufficiently high doses and/or for sufficiently long periods of time. Unacceptable toxicities or side effects may occur at any dose level at any time in the course of studies in animals designed to identify unacceptable effects of a product candidate, known as toxicological studies, or during clinical trials of our potential products. The appearance of any unacceptable toxicity or side effect could cause us or regulatory authorities to interrupt, limit, delay or abort the development of any of our product candidates. Further, such unacceptable toxicity or side effects could ultimately prevent a potential product’s approval by the FDA or foreign regulatory authorities for any or all targeted indications or limit any labeling claims and market acceptance, even if the product is approved.
In addition, as a condition of approval, the FDA may require an applicant to develop a Risk Evaluation and Mitigation Strategy, or REMS. A REMS uses risk minimization strategies beyond the professional labeling to ensure that the benefits of the product outweigh the potential risks. To determine whether a REMS is needed, the FDA will consider the size of the population likely to use the product, seriousness of the disease, expected benefit of the product, expected duration of treatment, seriousness of known or potential adverse events, and whether the product is a new molecular entity. REMS can include medication guides, physician communication plans for healthcare professionals, and elements to assure safe use (ETASU). ETASU may include, but are not limited to, special training or certification for prescribing or dispensing, dispensing only under certain circumstances, special monitoring, and the use of patient registries. The FDA may require a REMS before approval or post-approval if it becomes aware of a serious risk associated with use of the product. The requirement for a REMS can materially affect the potential market and profitability of a product.
Any trade name that we intend to use for a potential product must be approved by the FDA irrespective of whether we have secured a formal trademark registration from the U.S. Patent and Trademark Office. The FDA conducts a rigorous review of proposed product names, and may reject a product name if it believes that the name inappropriately implies medical claims or if it poses the potential for confusion with other product names. The FDA will not approve a trade name until the NDA for a product is approved. If the FDA determines that the trade names of other products that are approved prior to the approval of our potential products may present a risk of confusion with our proposed trade name, the FDA may elect to not approve our proposed trade name. If our trade name is rejected, we will lose the benefit of any brand equity that may already have been developed for this trade name, as well as the benefit of our existing trademark applications for this trade name.
We and our collaborators and contract manufacturers also are required to comply with the applicable FDA GMP regulations. GMP regulations include requirements relating to quality control and quality assurance as well as the corresponding maintenance of records and documentation. Manufacturing facilities are subject to inspection by the FDA. These facilities must be approved before we can use them in commercial manufacturing of our potential products and must maintain ongoing compliance for commercial product manufacture. The FDA may conclude that we or our collaborators or contract manufacturers are not in compliance with applicable GMP requirements and other FDA regulatory requirements, which may result in delay or failure to approve applications, warning letters, product recalls and/or imposition of fines or penalties.
If a product is approved, we must also comply with post-marketing requirements, including, but not limited to, compliance with advertising and promotion laws enforced by various government agencies, including the FDA’s Office of Prescription Drug Promotion, through such laws as the Prescription Drug Marketing Act, federal and state anti-fraud and abuse laws, including anti-kickback and false claims laws, healthcare information privacy and security laws, post-marketing safety surveillance, and disclosure of payments or other transfers of value to healthcare professionals and entities. In addition, we are subject to other federal and state regulation including, for example, the implementation of corporate compliance programs.
If we elect to distribute our products commercially, we must comply with state laws that require the registration of manufacturers and wholesale distributors of pharmaceutical products in a state, including, in certain states, manufacturers and distributors who ship products into the state even if such manufacturers or distributors have no place of business within the state. Some states also impose requirements on manufacturers and distributors to establish the pedigree of product in the chain of distribution, including some states that require manufacturers and others to adopt new technology capable of tracking and tracing product as it moves through the distribution chain.
Outside of the United States, our ability to market a product is contingent upon receiving a marketing authorization from the appropriate regulatory authorities. The requirements governing the conduct of clinical trials, marketing authorization, pricing and reimbursement vary widely from country to country. At present, foreign marketing authorizations are applied for at a national level, although within the European Community (EC), centralized registration procedures are available to companies wishing to market a product in more than one EC member state. If the regulatory authority is satisfied that adequate evidence of safety, quality and efficacy has been presented, marketing authorization will be granted. This foreign regulatory development and approval process involves all of the risks associated with achieving FDA marketing approval in the U.S. as discussed above. In addition, foreign regulations may include applicable post-marketing requirements, including safety surveillance, anti-fraud and abuse laws, and implementation of corporate compliance programs and reporting of payments or other transfers of value to healthcare professionals and entities.
Reimbursement
Potential sales of AV-101 or any other future product candidate, if approved, will depend, at least in part, on the extent to which such products will be covered by third-party payors, such as government health care programs, commercial insurance and managed healthcare organizations. These third-party payors are increasingly limiting coverage and/or reducing reimbursements for medical products and services. A third-party payor’s decision to provide coverage for a drug product does not imply that an adequate reimbursement rate will be approved. Further, one payor’s determination to provide coverage for a drug product does not assure that other payors will also provide coverage for the drug product. In addition, the U.S. government, state legislatures and foreign governments have continued implementing cost-containment programs, including price controls, restrictions on reimbursement and requirements for substitution of generic products. Adoption of price controls and cost-containment measures, and adoption of more restrictive policies in jurisdictions with existing controls and measures, could further limit our future revenues and results of operations. Decreases in third-party reimbursement or a decision by a third-party payor to not cover AV-101, if approved, or any future approved products could reduce physician usage of our products, and have a material adverse effect on our sales, results of operations and financial condition.
In the United States, the Medicare Part D program provides a voluntary outpatient drug benefit to Medicare beneficiaries for certain products. We do not know whether AV-101, if approved, or any other future product candidate will be eligible for coverage under Medicare Part D, but individual Medicare Part D plans offer coverage subject to various factors such as those described above. In addition, while Medicare Part D plans have historically included “all or substantially all” drugs in the following designated classes of “clinical concern” on their formularies: anticonvulsants, antidepressants, antineoplastics, antipsychotics, antiretrovirals, and immunosuppressants, the Centers for Medicare and Medicaid Services (CMS) has in the past proposed, but not adopted, changes to this policy. If this policy is changed in the future and if CMS no longer considers the antidepressant class to be of “clinical concern”, Medicare Part D plans would have significantly more discretion to reduce the number of products covered in that class. Furthermore, private payors often follow Medicare coverage policies and payment limitations in setting their own coverage policies.
Healthcare Laws and Regulations
Sales of AV-101, if approved, or any other future product candidate will be subject to healthcare regulation and enforcement by the federal government and the states and foreign governments in which we might conduct our business. The healthcare laws and regulations that may affect our ability to operate include the following:
●
The federal Anti-Kickback Statute makes it illegal for any person or entity to knowingly and willfully, directly or indirectly, solicit, receive, offer, or pay any remuneration that is in exchange for or to induce the referral of business, including the purchase, order, lease of any good, facility, item or service for which payment may be made under a federal healthcare program, such as Medicare or Medicaid. The term “remuneration” has been broadly interpreted to include anything of value.
●
Federal false claims and false statement laws, including the federal civil False Claims Act, prohibits, among other things, any person or entity from knowingly presenting, or causing to be presented, for payment to, or approval by, federal programs, including Medicare and Medicaid, claims for items or services, including drugs, that are false or fraudulent.
●
The U.S. federal Health Insurance Portability and Accountability Act of 1996 (HIPAA) created additional federal criminal statutes that prohibit among other actions, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, including private third-party payors or making any false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services.
●
HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009 (HITECH) and their implementing regulations, impose obligations on certain types of individuals and entities regarding the electronic exchange of information in common healthcare transactions, as well as standards relating to the privacy and security of individually identifiable health information.
●
The federal Physician Payments Sunshine Act requires certain manufacturers of drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program, with specific exceptions, to report annually to CMS information related to payments or other transfers of value made to physicians and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members.


Also, many states have similar laws and regulations, such as anti-kickback and false claims laws that may be broader in scope and may apply regardless of payor, in addition to items and services reimbursed under Medicaid and other state programs. Additionally, we may be subject to state laws that require pharmaceutical companies to comply with the federal government’s and/or pharmaceutical industry’s voluntary compliance guidelines, state laws that require drug manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures, as well as state and foreign laws governing the privacy and security of health information, many of which differ from each other in significant ways and often are not preempted by HIPAA.
Additionally, to the extent that our product is sold in a foreign country, we may be subject to similar foreign laws.
Healthcare Reform
The United States and some foreign jurisdictions are considering or have enacted a number of legislative and regulatory proposals to change the healthcare system in ways that could affect our ability to sell our products profitably. By way of example, in March 2010, the Patient Protection and Affordable Care Act (ACA) was signed into law, which intended to broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against fraud and abuse, add transparency requirements for the healthcare and health insurance industries, impose taxes and fees on the health industry and impose additional health policy reforms. There have been judicial and Congressional challenges to certain aspects of the ACA, and we expect there will be additional challenges and amendments to the ACA in the future. In early 2017, the U.S. House of Representatives and Senate passed legislation which, if signed into law by President Trump, would repeal certain aspects of the ACA. Congress also could consider subsequent legislation to replace elements of the ACA that are repealed. At this time, the full effect that the ACA will have on our business in the future remains unclear.
Among the provisions of the ACA that may be of importance to AV-101, if approved, and any of our future product candidates are:
●
an annual, nondeductible fee on any entity that manufactures or imports specified branded prescription drugs and biologic agents, apportioned among these entities based on their market share in certain government healthcare programs;
●
an increase in the statutory minimum rebates a manufacturer must pay under the Medicaid Drug Rebate Program to 23.1% and 13.0% of the average manufacturer price for branded and generic drugs, respectively;
●
extension of a manufacturer’s Medicaid rebate liability to covered drugs dispensed to individuals who are enrolled in Medicaid managed care organizations;
●
expansion of eligibility criteria for Medicaid programs by, among other things, allowing states to offer Medicaid coverage to certain individuals with income at or below 133% of the federal poverty level, thereby potentially increasing a manufacturer’s Medicaid rebate liability;
●
a Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 50% point-of-sale discounts to negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for a manufacturer’s outpatient drugs to be covered under Medicare Part D;
●
expansion of the entities eligible for discounts under the Public Health Service pharmaceutical pricing program;
●
a requirement to annually report drug samples that manufacturers and distributors provide to physicians; and
●
a Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research.
Other legislative changes have been proposed and adopted in the United States since the ACA. Through the process created by the Budget Control Act of 2011, there are automatic reductions of Medicare payments to providers up to 2% per fiscal year, which went into effect in April 2013 and, following passage of the Bipartisan Budget Act of 2015, will remain in effect through 2025 unless additional Congressional action is taken. In January 2013, President Obama signed into law the American Taxpayer Relief Act of 2012, which, among other things, further reduced Medicare payments to certain providers. Moreover, recently there has been heightened governmental scrutiny over the manner in which manufacturers set prices for their commercial products. We expect that healthcare reform measures that may be adopted in the future may result in more rigorous coverage criteria and potentially lower reimbursement levels. We cannot predict what healthcare reform initiatives may be adopted in the future.
Stem Cell Technology - United States
 
With respect to our stem cell research and development in the U.S., the U.S. government has established requirements and procedures relating to the isolation and derivation of certain stem cell lines and the availability of federal funds for research and development programs involving those lines. All of the stem cell lines that we are using were either isolated under procedures that meet U.S. government requirements and are approved for funding from the U.S. government, or were isolated under procedures that meet U.S. government requirements.
 
-20-
With respect to drug development, government authorities at the federal, state and local levels in the U.S. and other countries extensively regulate, among other things, the research, development, testing, manufacture, labeling, promotion, advertising, distribution, marketing, pricing and export and import of pharmaceutical products such as those we are developing. In the U.S., pharmaceuticals, biologics and medical devices are subject to rigorous FDA regulation. Federal and state statutes and regulations in the United States govern, among other things, the testing, manufacture, safety, efficacy, labeling, storage, export, record keeping, approval, marketing, advertising and promotion of our potential drug rescue variants. The information that must be submitted to the FDA in order to obtain approval to market a new drug varies depending on whether the drug is a new product whose safety and effectiveness has not previously been demonstrated in humans, or a drug whose active ingredient(s) and certain other properties are the same as those of a previously approved drug. Product development and approval within this regulatory framework takes a number of years and involves significant uncertainty combined with the expenditure of substantial resources.
Companies seeking FDA approval to sell a new prescription drug in the United States must test it in various ways. Currently, first are laboratory and animal tests. Next are tests in humans to see if the drug candidate is safe and effective when used to treat or diagnose a disease. After testing the drug candidate, the company developing it then sends the FDA an application called a New Drug Application (NDA). Some drug candidates are made out of biologic materials, including human cells, such as the human cells derived from human pluripotent stem cells. Instead of an NDA, new biologic drug candidates are approved using a Biologics License Application (BLA). Whether an NDA or a BLA, the application includes:
·
the drug candidate’s test results;
·
manufacturing information to demonstrate the company developing the drug candidate can properly manufacture it; and
·
the proposed label for the drug candidate, which provides necessary information about the drug candidate, including uses for which it has been shown to be effective, possible risks, and how to use it.
If a review by FDA physicians and scientists shows the drug candidate's benefits outweigh its known risks and the drug candidate can be manufactured in a way that ensures a quality product, the drug candidate is approved and can be marketed in the United States.

New drug and biological product development and approval takes many years, involves the expenditure of substantial resources and is uncertain to succeed. Many new drug and biological candidates appear promising in early stages of development but ultimately do not reach the market because they cannot meet FDA or other regulatory requirements. In addition, the current regulatory framework may change through regulatory, legislative or judicial actions or that additional regulations will not arise during development that may affect approval, delay the submission or review of an application.
The activities required before a new drug or biological candidate may be approved for marketing in the U.S. begin with nonclinical testing, which includes laboratory evaluation and animal studies to assess the potential safety and efficacy of the product as formulated. Results of nonclinical studies are summarized in an Investigational New Drug (IND) application to the FDA. Human clinical trials may begin 30 days following submission of an IND application, unless the FDA requires additional time to review the application or raise questions.
Clinical testing involves the administration of the new drug or biological candidate to healthy human volunteers or to patients under the supervision of a qualified principal investigator, usually a physician, pursuant to an FDA-reviewed protocol. Each clinical study is conducted under the auspices of an institutional review board (IRB) at each of the institutions at which the study will be conducted. A clinical plan, or “protocol,” accompanied by the approval of an IRB, must be submitted to the FDA as part of the IND application prior to commencement of each clinical trial. Human clinical trials are conducted typically in three sequential phases. Phase I trials primarily consist of testing the product’s safety in a small number of patients or healthy volunteers. In Phase II trials, the safety and efficacy of the biological candidate is evaluated in a specific patient population. Phase III trials typically involve additional testing for safety and clinical efficacy in an expanded patient population at geographically dispersed sites. The FDA may order the temporary or permanent discontinuance of a nonclinical or clinical trial at any time for a variety of reasons, particularly if safety concerns exist.
All procedures we use to obtain clinical samples, and the procedures we use to isolate hESCs, are consistent with the informed consent and ethical guidelines promulgated by either the U.S. National Academy of Science, the International Society of Stem Cell Research (ISSCR), or the NIH. These procedures and documentation have been reviewed by an external Stem Cell Research Oversight Committee, and all cell lines we use have been approved under one or more of these guidelines.
 
The U.S. government and its agencies on July 7, 2009 published guidelines for the ethical derivation of hESCs required for receiving federal funding for hESC research. Should we seek further NIH funding for our stem cell research and development, our request would involve the use of hESC lines that meet the NIH guidelines for NIH funding. In the U.S., the President’s Council on Bioethics monitors stem cell research, and may make recommendations from time to time that could place restrictions on the scope of research using human embryonic or fetal tissue. Although numerous states in the U.S. are considering, or have in place, legislation relating to stem cell research, including California whose voters approved Proposition 71 to provide up to $3 billion of state funding for stem cell research in California, it is not yet clear what affect, if any, state actions may have on our ability to commercialize stem cell technologies.
 
Stem Cell Technology - Canada
 
In Canada, stem cell research and development is governed by two policy documents and by one legislative statute: the Guidelines for Human Pluripotent Stem Cell Research (the Guidelines) issued by the Canadian Institutes of Health Research; the Tri-Council Statement: Ethical Conduct for Research Involving Humans (the (TCPS); and the Assisted Human Reproduction Act (the (Act). The Guidelines and the TCPS govern stem cell research conducted by, or under the auspices of, institutions funded by the federal government. Should we seek funding from Canadian government agencies or should we conduct research under the auspices of an institution so funded, we may have to ensure the compliance of such research with the ethical rules prescribed by the Guidelines and the TCPS.
 
The Act subjects all research conducted in Canada involving the human embryo, including hESC derivation (but not the stem cells once derived), to a licensing process overseen by a federal licensing agency.  However, as of the date of this report,Annual Report, the provisions of the Act regarding the licensing of hESC derivation were not in force.
 
We are not currently conducting stem cell research in Canada.  We are,have, however, sponsoringsponsored pluripotent stem cell research in Canada by Dr. Gordon Keller at UHN’s McEwen Centre.  We anticipate conducting pluripotent stem cell research (with both hESCs and hiPSCs), in collaboration with Dr. Keller and his research team, at UHN during 2014 and beyond pursuant to our long term sponsored research collaboration with Dr. Keller and UHN. Should the provisions of the Act come into force, we may have to apply for a license for all hESC research we may sponsor or conduct in Canada and ensure compliance of such research with the provisions of the Act.
 
Foreign
In addition to regulations in the U.S., we may be subject to a variety of foreign regulations governing clinical trials and commercial sales and distribution of our products outside of the U.S. Whether or not we obtain FDA approval for a product, we must obtain approval of a product by the comparable regulatory authorities of foreign countries before we can commence clinical trials or marketing of the product in those countries. The approval process varies from country to country, and the time may be longer or shorter than that required for FDA approval. The requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary greatly from country to country.

Subsidiaries and Inter-Corporate Relationships
 
VistaGen Therapeutics. Inc., a California corporation, dba VistaStem (VistaStem) , is our wholly-owned subsidiary and has the following two wholly-owned subsidiaries: VistaStem Canada Inc., a corporation incorporated pursuant to the laws of the Province of Ontario, intended to facilitate our stem cell-based research and development and drug rescue activities in Ontario, Canada including our collaboration with Dr. Keller and UHN should we elect to expand our U.S. operations into Canada; and Artemis Neuroscience, Inc., a corporation incorporated pursuant to the laws of the State of Maryland and focused on development of AV-101.Maryland. The operations of VistaGen Therapeutics, Inc., a California corporation,VistaStem, and each of its two wholly-ownedwholly owned subsidiaries are managed by our senior management team based in South San Francisco, California.
 
Employees
 
We have tenAs of June 27, 2017, we employed nine full-time employees, four of whom have doctorate degrees. SevenFive full-time employees work in research and development and laboratory support services and threefour full-time employees work in general and administrative roles. Staffing for all other functional areas is achieved through strategic relationships with service providers and consultants, each of whom provides services on ana real-time, as-needed basis, including human resources and payroll, accounting and public company reporting, information technology, facilities, legal, stock plan administration, investor relations and web sitewebsite maintenance, regulatory affairs, and FDA program management.  In addition, we currently conduct some of our research and development efforts through sponsored research relationships with stem cell scientists at academic research institutions in the U.S. and Canada, including Dr. Keller’s laboratories at UHN. See “Business – Strategic Transactions and Relationships.”
 
NoneWe have never had a work stoppage, and none of our employees is represented by a labor unionorganization or is subject to aunder any collective bargaining agreement. We believe thatconsider our current relationship with all of our employees isemployee relations to be good.
 
Facilities
We lease our office and laboratory space, which consists of approximately 10,900 square feet located in South San Francisco, California, under a lease expiring on July 31, 2022.  
Legal Proceedings
None.
Environmental Regulation
 
Our business does not require us to comply with any particularextraordinary environmental regulations.
 
Item 1A.1A.  Risk FactorsFactors

Investing in our common stocksecurities involves a high degree of risk. You should consider carefully the risks and uncertainties described below, together with all of the other information in this Annual Report on Form 10-K, includingbefore investing in our securities.  The risks described below are not the only risks facing our Company.  Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially adversely affect our business, financial statements and related notes, before deciding whether to purchase shares of our common stock.condition and/or operating results. If any of the following risks are realized, our business, financial condition andand/or operating results of operations could be materially and adversely affected.
 
Risks Related to Product Development, Regulatory Approval and Commercialization
We depend heavily on the success of AV-101. We cannot be certain that we will be able to obtain regulatory approval for, or successfully commercialize AV-101, or any product candidate.
We currently have no drug products for sale and may never be able to develop and commercialize marketable drug products. Our Businessbusiness depends heavily on the successful development, regulatory approval and Strategycommercialization of AV-101 for depression, including for MDD, and, potentially, various other diseases and disorders involving the CNS, as well as, but to a more limited extent, our ability to produce, develop and commercialize NCEs from our drug rescue programs. AV-101 will require substantial additional non-clinical and clinical development, testing and regulatory approval before it may be commercialized. It is unlikely to achieve regulatory approval, if at all, until at least 2021. Each drug rescue NCE will require substantial non-clinical development, all phases of clinical development, and regulatory approval before it may be commercialized. The non-clinical and clinical development of our product candidates are, and the manufacturing and marketing of our product candidates will be, subject to extensive and rigorous review and regulation by numerous government authorities in the United States and in other countries where we intend to test and, if approved, market any product candidate. Before obtaining regulatory approvals for the commercial sale of any product candidate, we must demonstrate through non-clinical studies and clinical trials that the product candidate is safe and effective for use in each target indication. Drug development is a long, expensive and uncertain process, and delay or failure can occur at any stage of any of our non-clinical or clinical studies. This process can take many years and may also include post-marketing studies and surveillance, which will require the expenditure of substantial resources beyond the proceeds we have raised to date. Of the large number of drugs in development in the United States, only a small percentage will successfully complete the FDA regulatory approval process and will be commercialized. Accordingly, even if we are able to obtain the requisite financing to continue to fund our non-clinical and clinical studies, we cannot assure you that AV-101, any drug rescue NCE, or any other future product candidate will be successfully developed or commercialized.
We are not permitted to market our product candidates in the United States until we receive approval of a New Drug Application (NDA) from the FDA, or in any foreign countries until we receive the requisite approval from such countries. We expect the FDA to require us to complete the planned AV-101 MDD Phase 2 Adjunctive Treatment Study and at least two pivotal Phase 3 clinical trials in order to submit an NDA for AV-101 as an adjunctive treatment for MDD patients with an inadequate response to standard, FDA-approved antidepressants. Also, we anticipate that the FDA will require that we conduct additional toxicity studies, additional non-clinical and certain small clinical studies before submitting an NDA for AV-101. The results of all of these studies are not known until after the studies are concluded.
Obtaining FDA approval of an NDA is a complex, lengthy, expensive and uncertain process, and the FDA may delay, limit or deny approval of AV-101 or any of our product candidates for many reasons, including, among others:
 
●
if we submit an NDA and it is reviewed by an advisory committee, the FDA may have difficulties scheduling an advisory committee meeting in a timely manner or the advisory committee may recommend against approval of our application or may recommend that the FDA require, as a condition of approval, additional non-clinical or clinical studies, limitations on approved labeling or distribution and use restrictions;
●
the FDA may require development of a Risk Evaluation and Mitigation Strategy (REMS) as a condition of approval or post-approval;
●
the FDA or the applicable foreign regulatory agency may determine that the manufacturing processes or facilities of third-party contract manufacturers with which we contract do not conform to applicable requirements, including current Good Manufacturing Practices (cGMPs); or
●
the FDA or applicable foreign regulatory agency may change its approval policies or adopt new regulations.
Any of these factors, many of which are beyond our control, could jeopardize our ability to obtain regulatory approval for and successfully commercialize AV-101 or any other product candidate we may develop, including drug rescue NCEs. Any such setback in our pursuit of regulatory approval for any product candidate would have a material adverse effect on our business and prospects.
We intend to seek a Fast Track designation from the FDA for AV-101, initially for adjunctive treatment of MDD patients with an inadequate response to standard antidepressants. Even if the FDA approves Fast Track designation for AV-101 for this indication, it may not actually lead to a faster development or regulatory review or approval process.
The Fast Track designation is a program offered by the FDA pursuant to certain mandates under the FDA Modernization Act of 1997, designed to facilitate drug development and to expedite the review of new drugs that are intended to treat serious or life threatening conditions. Compounds selected must demonstrate the potential to address unmet medical needs. The Fast Track designation allows for close and frequent interaction with the FDA. A designated Fast Track drug may also be considered for priority review with a shortened review time, rolling submission, and accelerated approval if applicable. The designation does not, however, guarantee approval or expedited approval of any application for the product.
We intend to seek FDA Fast Track designation for AV-101, initially for adjunctive treatment of MDD patients with an inadequate response to standard antidepressants, and we may do so for other CNS indications, as well as for other product candidates. The FDA has broad discretion whether or not to grant a Fast Track designation, and even if we believe AV-101 and other product candidates are eligible for this designation, we cannot be sure that the review or approval will compare to conventional FDA procedures. Even if granted, the FDA may withdraw Fast Track designation if it believes that the designation is no longer supported by data from our clinical development programs.
The number of patients suffering from MDD has not been established with precision. If the actual number of patients with MDD is smaller than we anticipate, we or our collaborators may encounter difficulties in enrolling patients in AV-101 clinical trials, including the NIMH AV-101 MDD Phase 2 Monotherapy Study and our planned AV-101 MDD Phase 2 Adjunctive Treatment Study, thereby delaying completion such studies or preventing additional clinical development.  Further, if AV-101 is approved for adjunctive treatment of MDD patients with an inadequate response to standard antidepressants, and the market for this indication is smaller than we anticipate, our ability to achieve profitability could be limited.
Results of earlier clinical trials may not be predictive of the results of later-stage clinical trials.
The results of preclinical studies and early clinical trials of AV-101 and other product candidates may not be predictive of the results of later-stage clinical trials. AV-101 or other product candidates in later stages of clinical trials may fail to show the desired safety and efficacy results despite having progressed through preclinical studies and initial clinical trials. Many companies in the biopharmaceutical industry have suffered significant setbacks in advanced clinical trials due to adverse safety profiles or lack of efficacy, notwithstanding promising results in earlier studies. Similarly, our future clinical trial results may not be successful for these or other reasons.
This drug candidate development risk is heightened by any changes in planned timing or nature of clinical trials compared to completed clinical trials. As product candidates are developed through preclinical to early and late stage clinical trials towards approval and commercialization, it is customary that various aspects of the development program, such as manufacturing and methods of administration, are altered along the way in an effort to optimize processes and results. While these types of changes are common and are intended to optimize the product candidates for later stage clinical trials, approval and commercialization, such changes do carry the risk that they will not achieve these intended objectives.
For example, the results of planned clinical trials may be adversely affected if we or our collaborator seek to optimize and scale-up production of a product candidate. In such case, we will need to demonstrate comparability between the newly manufactured drug substance and/or drug product relative to the previously manufactured drug substance and/or drug product. Demonstrating comparability may cause us to incur additional costs or delay initiation or completion of our clinical trials, including the need to initiate a dose escalation study and, if unsuccessful, could require us to complete additional non-clinical or clinical studies of our product candidates.
If serious adverse events or other undesirable side effects are identified during the use of AV-101 in clinical trials, it may adversely affect our development of AV-101 for MDD and other CNS indications.
AV-101 as a monotherapy is currently being tested by the NIMH in an NIMH-investigator sponsored Phase 2 clinical trial for the treatment of MDD and may be subjected to testing in the future for other CNS indications in additional investigator sponsored clinical trials. If serious adverse events or other undesirable side effects, or unexpected characteristics of AV-101 are observed in investigator sponsored clinical trials of AV-101 or our clinical trials, it may adversely affect or delay our clinical development of AV-101, and the occurrence of these events would have a material adverse effect on our business.
Positive results from early preclinical studies and clinical trials of AV-101 or other product candidates are not necessarily predictive of the results of later preclinical studies and clinical trials of such product candidates. If we cannot replicate the positive results from our earlier preclinical studies and clinical trials of AV-101 or other product candidates in our later preclinical studies and clinical trials, we may be unable to successfully develop, obtain regulatory approval for and commercialize our product candidates.
Positive results from preclinical studies of our product candidates, and any positive results we may obtain from early clinical trials of our product candidates, may not necessarily be predictive of the results from required later preclinical studies and clinical trials. Similarly, even if we are able to complete our planned preclinical studies or clinical trials of our product candidates according to our current development timeline, the positive results from our preclinical studies and clinical trials of our product candidates may not be replicated in subsequent preclinical studies or clinical trial results. Many companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in late-stage clinical trials after achieving positive results in early-stage development, and we cannot be certain that we will not face similar setbacks. These setbacks have been caused by, among other things, preclinical findings made while clinical trials were underway or safety or efficacy observations made in preclinical studies and clinical trials, including previously unreported adverse events. Moreover, preclinical and clinical data are often susceptible to varying interpretations and analyses, and many companies that believed their product candidates performed satisfactorily in preclinical studies and clinical trials nonetheless failed to obtain FDA approval. We have not yet completed a Phase 2 clinical trial for AV-101, and if the NIMH fails to produce positive results in the NIMH AV-101 MDD Phase 2 Monotherapy Study, the development timeline and regulatory approval and commercialization prospects for AV-101 and, correspondingly, our business and financial prospects, could be materially adversely affected.
Failures or delays in the commencement or completion of our planned clinical trials and non-clinical studies of our product candidates could result in increased costs to us and could delay, prevent or limit our ability to generate revenue and continue our business.
Under our CRADA, the NIMH is conducting and funding the NIMH AV-101 MDD Phase 2 Monotherapy Study. We will need to complete the planned AV-101 MDD Phase 2 Adjunctive Treatment Study, at least two additional large Phase 2b/3 clinical trials, additional toxicity and non-clinical studies and certain smaller clinical studies prior to the submission of an NDA for AV-101 as a new generation adjunctive treatment for MDD. Successful completion of our clinical trials is a prerequisite to submitting an NDA to the FDA and, consequently, the ultimate approval and commercial marketing of AV-101 for MDD and any other product candidates we may develop. We do not know whether the NIMH AV-101 MDD Phase 2 Monotherapy Study, the AV-101 MDD Phase 2 Adjunctive Treatment Study or any of our future-planned non-clinical and clinical trials will be completed on schedule, if at all, as the commencement and completion of non-clinical and clinical trials can be delayed or prevented for a number of reasons, including, among others:
●
the FDA may deny permission to proceed with our planned clinical trials or any other clinical trials we may initiate, or may place a planned or ongoing clinical trial on hold;
●
delays in filing or receiving approvals of additional INDs that may be required;
●
negative results from our ongoing non-clinical studies;
●
delays in reaching or failing to reach agreement on acceptable terms with prospective CROs and clinical trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites;
●
inadequate quantity or quality of a product candidate or other materials necessary to conduct non-clinical or clinical trials, for example delays in the manufacturing of sufficient supply of finished drug product;
●
difficulties obtaining Institutional Review Board (IRB) approval to conduct a clinical trial at a prospective site or sites;
●
challenges in recruiting and enrolling patients to participate in clinical trials, including the proximity of patients to clinical trial sites;
●
eligibility criteria for the clinical trial, the nature of the clinical trial protocol, the availability of approved effective treatments for the relevant disease and competition from other clinical trial programs for similar indications;
●
severe or unexpected drug-related side effects experienced by patients in a clinical trial;
●
delays in validating any endpoints utilized in a clinical trial;
●
the FDA may disagree with our clinical trial design and our interpretation of data from prior non-clinical studies or clinical trials, or may change the requirements for approval even after it has reviewed and commented on the design for our clinical trials;
●
reports from non-clinical or clinical testing of other CNS indications or therapies that raise safety or efficacy concerns; and
●
difficulties retaining patients who have enrolled in a clinical trial but may be prone to withdraw due to rigors of the clinical trials, lack of efficacy, side effects, personal issues or loss of interest.
Clinical trials may also be delayed or terminated prior to completion as a result of ambiguous or negative interim results. In addition, a clinical trial may be suspended or terminated by us, the FDA, the IRBs at the sites where the IRBs are overseeing a clinical trial, a data and safety monitoring board (DSMB), overseeing the clinical trial at issue or other regulatory authorities due to a number of factors, including, among others:
●
failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols;
●
inspection of the clinical trial operations or trial sites by the FDA or other regulatory authorities that reveals deficiencies or violations that require us to undertake corrective action, including the imposition of a clinical hold;
●
unforeseen safety issues, including any that could be identified in our ongoing non-clinical carcinogenicity studies, adverse side effects or lack of effectiveness;
●
changes in government regulations or administrative actions;
●
problems with clinical supply materials; and
●
lack of adequate funding to continue clinical trials.
Changes in regulatory requirements, FDA guidance or unanticipated events during our non-clinical studies and clinical trials of our product candidates may occur, which may result in changes to non-clinical studies and clinical trial protocols or additional non-clinical studies and clinical trial requirements, which could result in increased costs to us and could delay our development timeline.
Changes in regulatory requirements, FDA guidance or unanticipated events during our non-clinical studies and clinical trials may force us to amend non-clinical studies and clinical trial protocols or the FDA may impose additional non-clinical studies and clinical trial requirements. Amendments or changes to our clinical trial protocols would require resubmission to the FDA and IRBs for review and approval, which may adversely impact the cost, timing or successful completion of clinical trials. Similarly, amendments to our non-clinical studies may adversely impact the cost, timing, or successful completion of those non-clinical studies. If we experience delays completing, or if we terminate, any of our non-clinical studies or clinical trials, or if we are required to conduct additional non-clinical studies or clinical trials, the commercial prospects for our product candidates may be harmed and our ability to generate product revenue will be delayed.
We rely, and expect that we will continue to rely, on third parties to conduct non-clinical and clinical trials of AV-101 and any other product candidates. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, completion of non-clinical and clinical trials and development of AV-101 and other product candidates may be delayed and we may not be able to obtain regulatory approval for or commercialize AV-101 or other product candidates and our business could be substantially harmed.
We do not have the internal staff resources to independently conduct non-clinical and clinical trials completely on our own. We rely on our strategic relationships with various medical institutions, non-clinical and clinical investigators, contract laboratories and other third parties, such as contract research and development organizations (CROs), to conduct non-clinical and clinical trials of our product candidates. We enter into agreements with third-party CROs to provide monitors for and to manage data for our clinical trials, as well as provide other services necessary to prepare for, conduct and complete clinical trials. We rely heavily on these and other third-parties for execution of non-clinical and clinical trials for our product candidates and control only certain aspects of their activities. As a result, we have less direct control over the conduct, timing and completion of these non-clinical and clinical trials and the management of data developed through non-clinical and clinical trials than would be the case if we were relying entirely upon our own staff. Communicating with outside parties can also be challenging, potentially leading to mistakes as well as difficulties in coordinating activities. Outside parties may:
●
have staffing difficulties and/or undertake obligations beyond their anticipated capabilities and resources;
●
fail to comply with contractual obligations;
●
experience regulatory compliance issues;
●
undergo changes in priorities or become financially distressed; or
●
form relationships with other entities, some of which may be our competitors.
These factors may materially adversely affect the willingness or ability of third parties to conduct our non-clinical and clinical trials and may subject us to unexpected cost increases that are beyond our control. Nevertheless, we are responsible for ensuring that each of our non-clinical studies and clinical trials is conducted in accordance with the applicable protocol, legal, regulatory and scientific requirements and standards, and our reliance on CROs or the NIH does not relieve us of our regulatory responsibilities. We and our CROs and the NIMH are required to comply with regulations and guidelines, including current cGCPs for conducting, monitoring, recording and reporting the results of clinical trials to ensure that the data and results are scientifically credible and accurate, and that the trial patients are adequately informed of the potential risks of participating in clinical trials. These regulations are enforced by the FDA, the Competent Authorities of the Member States of the European Economic Area and comparable foreign regulatory authorities for any products in clinical development. The FDA enforces cGCP regulations through periodic inspections of clinical trial sponsors, principal investigators and trial sites. If we or any of our CROs fail to comply with applicable cGCPs, the clinical data generated in our clinical trials may be deemed unreliable and the FDA or comparable foreign regulatory authorities may require us to perform additional clinical trials before approving our marketing applications. We cannot assure you that, upon inspection, the FDA will determine that any of our clinical trials comply with cGCPs. In addition, our clinical trials must be conducted with product candidates produced under cGMPs regulations and will require a large number of test patients. Our failure or the failure of our CROs to comply with these regulations may require us to repeat clinical trials, which would delay the regulatory approval process and could also subject us to enforcement action up to and including civil and criminal penalties.
Although we design our clinical trials for our product candidates, we plan to have CROs, and in the case of the NIMH AV-101 MDD Phase 2 Monotherapy Study, the NIMH, conduct the AV-101 Phase 2 and Phase 3 clinical trials. As a result, many important aspects of our drug development programs are outside of our direct control. In addition, the CROs or the NIMH, as the case may be, may not perform all of their obligations under arrangements with us or in compliance with regulatory requirements, but we remain responsible and are subject to enforcement action that may include civil penalties up to and including criminal prosecution for any violations of FDA laws and regulations during the conduct of our clinical trials. If the NIMH or CROs do not perform clinical trials in a satisfactory manner, breach their obligations to us or fail to comply with regulatory requirements, the development and commercialization of AV-101 and other product candidates may be delayed or our development program materially and irreversibly harmed. We cannot control the amount and timing of resources these CROs or the NIMH devote to our program or our clinical products. If we are unable to rely on non-clinical and clinical data collected by our CROs or the NIMH, we could be required to repeat, extend the duration of, or increase the size of our clinical trials and this could significantly delay commercialization and require significantly greater expenditures.
If any of our relationships with these third-party CROs or the NIMH terminate, we may not be able to enter into arrangements with alternative CROs or collaborators.  If CROs or the NIMH do not successfully carry out their contractual duties or obligations or meet expected deadlines, if they need to be replaced or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols, regulatory requirements or for other reasons, any clinical trials that such CROs or the NIMH are associated with may be extended, delayed or terminated, and we may not be able to obtain regulatory approval for or successfully develop and commercialize our product candidates. As a result, we believe that our financial results and the commercial prospects for our product candidates in the subject indication would be harmed, our costs would increase and our ability to generate revenue would be delayed.
We rely completely on third-parties to manufacture and prepare our clinical supplies of AV-101 and other product candidates, and we intend to rely on third parties to produce non-clinical, clinical and commercial supplies of AV-101 and any future product candidate.
We do not currently have, nor do we plan to acquire, the infrastructure or capability to internally manufacture our drug supply of AV-101 or any other product candidates for use in the conduct of our non-clinical studies and clinical trials, and we lack the internal resources and the capability to manufacture any product candidates on a research, development or commercial scale.  The facilities used by our contract manufacturers to manufacture the active pharmaceutical ingredient and final drug product must complete a pre-approval inspection by the FDA and other comparable foreign regulatory agencies to assess compliance with applicable requirements, including cGMPs, after we submit our NDA or relevant foreign regulatory submission to the applicable regulatory agency.
We do not directly control the manufacturing process of, and are completely dependent on, our contract manufacturers to comply with cGMPs for manufacture of both active drug substances and finished drug products. If our contract manufacturers cannot successfully manufacture material that conforms to our specifications and the strict regulatory requirements of the FDA or applicable foreign regulatory agencies, they will not be able to secure and/or maintain regulatory approval for their manufacturing facilities. In addition, we have no direct control over our contract manufacturers’ ability to maintain adequate quality control, quality assurance and qualified personnel. Furthermore, all of our contract manufacturers are engaged with other companies to supply and/or manufacture materials or products for such other companies, which exposes our third-party contract manufacturers to regulatory risks for the production of such materials and products. As a result, failure to satisfy the regulatory requirements for the production of those materials and products may affect the regulatory clearance of our contract manufacturers’ facilities generally. If the FDA or an applicable foreign regulatory agency determines now or in the future that these facilities for the manufacture of our product candidates are noncompliant, we may need to find alternative manufacturing facilities, which would adversely impact our ability to develop, obtain regulatory approval for or market our product candidates. Our reliance on contract manufacturers also exposes us to the possibility that they, or third parties with access to their facilities, will have access to and may appropriate our trade secrets or other proprietary information.
We do not yet have long-term supply agreements in place with our contract manufacturers and each batch of our product candidates are individually contracted under a quality and supply agreement. If we engage new contract manufacturers, such contractors must complete an inspection by the FDA and other applicable foreign regulatory agencies. We plan to continue to rely upon contract manufacturers and, potentially, collaboration partners, to manufacture research, development and commercial quantities of AV-101 and other product candidates, if approved. Our current scale of manufacturing for AV-101 is adequate to support our currently planned needs for additional non-clinical studies and clinical trials.
Recently enacted and future legislation may increase the difficulty and cost for us to obtain marketing approval for and commercialize AV-101 and affect the prices we may obtain.
In the United States and some foreign jurisdictions, there have been, and we expect there will continue to be, a number of legislative and regulatory changes and proposed changes regarding the healthcare system, including the ACA, that could, among other things, prevent or delay marketing approval of AV-101, restrict or regulate post-approval activities, and affect our ability to profitably sell any products for which we obtain marketing approval.
In March 2010, the ACA was enacted to broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against fraud and abuse, add new transparency requirements for health care and health insurance industries, impose new taxes and fees on the health industry, and impose additional health policy reforms. The law has continued the downward pressure on pharmaceutical pricing, especially under the Medicare program, and increased the industry’s regulatory burdens and operating costs. We cannot predict the full impact of the ACA on pharmaceutical companies, as many of the reforms require the promulgation of detailed regulations implementing the statutory provisions, some of which have not yet fully occurred.
Further, there have been judicial and Congressional challenges to certain aspects of the ACA, and we expect there will be additional challenges and amendments to the ACA in the future. In January 2017, the President of the United States signed an Executive Order directing federal agencies with authorities and responsibilities under the ACA to waive, defer, grant exemptions from, or delay the implementation of any provision of the ACA that would impose a fiscal or regulatory burden on states, individuals, healthcare providers, health insurers, or manufacturers of pharmaceuticals or medical devices. In May 2017, the United States House of Representatives passed legislation known as the American Health Care Act, which, if enacted, would amend or repeal significant portions of the ACA. The United States Senate could adopt the American Health Care Act as passed by the United States House of Representatives or other legislation to amend or replace elements of the ACA. Thus, it is uncertain when or if the American Health Care Act will become law. We continue to evaluate the effect that the ACA and its possible repeal and replacement has on our business.
Other legislative changes have been proposed and adopted since the ACA was enacted. For example, in August 2011, the President of the United States signed into law the Budget Control Act of 2011, which, among other things, created the Joint Select Committee on Deficit Reduction to recommend to Congress proposals in spending reductions. The Joint Select Committee did not achieve a targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, triggering the legislation’s automatic reduction to several government programs. This included further reductions to Medicare payments to providers of 2% per fiscal year, which went into effect in April 2013 and, due to subsequent legislative amendments to the statute, will stay in effect through 2025 unless additional Congressional action is taken. Additionally, in January 2013, the American Taxpayer Relief Act of 2012 was signed into law, which, among other things, reduced Medicare payments to several types of providers and increased the statute of limitations period in which the government may recover overpayments to providers from three to five years. Further, there have been several recent United States Congressional inquiries and proposed federal and state legislation designed to, among other things, bring more transparency to drug pricing, review the relationship between pricing and manufacturer patient programs, reduce the out-of-pocket cost of prescription drugs, and reform government program reimbursement methodologies for drugs.
Moreover, the Drug Supply Chain Security Act, which was enacted in 2012 as part of the Food and Drug Administration Safety and Innovation Act, imposes new obligations on manufacturers of pharmaceutical products related to product tracking and tracing. Legislative and regulatory proposals have been made to expand post-approval requirements and restrict sales and promotional activities for pharmaceutical products. We are not sure whether additional legislative changes will be enacted, or whether the current regulations, guidance or interpretations will be changed, or what the impact of such changes on our business, if any, may be. In addition, increased scrutiny by the United States Congress of the FDA’s approval process may significantly delay or prevent marketing approval, as well as subject us to more stringent product labeling and post-marketing testing and other requirements.
We expect that additional state and federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products and services, which could result in reduced demand for our product candidates or additional pricing pressures.
Even if we receive marketing approval for our product candidates in the United States, we may never receive regulatory approval to market our product candidates outside of the United States.
We have not yet selected any markets outside of the United States where we intend to seek regulatory approval to market our product candidates. In order to market any product outside of the United States, however, we must establish and comply with the numerous and varying safety, efficacy and other regulatory requirements of other countries. Approval procedures vary among countries and can involve additional product candidate testing and additional administrative review periods. The time required to obtain approvals in other countries might differ from that required to obtain FDA approval. The marketing approval processes in other countries may implicate all of the risks detailed above regarding FDA approval in the United States as well as other risks. In particular, in many countries outside of the United States, products must receive pricing and reimbursement approval before the product can be commercialized. Obtaining this approval can result in substantial delays in bringing products to market in such countries. Marketing approval in one country does not ensure marketing approval in another, but a failure or delay in obtaining marketing approval in one country may have a negative effect on the regulatory process in others. Failure to obtain marketing approval in other countries or any delay or other setback in obtaining such approval would impair our ability to market our product candidates in such foreign markets. Any such impairment would reduce the size of our potential market, which could have a material adverse impact on our business, results of operations and prospects.
If we are unable to establish sales and marketing capabilities or enter into agreements with third parties to market and sell our product candidates, we may not be able to generate any revenue.
We do not currently have an infrastructure for the sale, marketing and distribution of pharmaceutical products, nor do we intend to create such capabilities. Therefore, in order to market our product candidates, if approved by the FDA or any other regulatory body, we must make contractual arrangements with third parties to perform services related to sales, marketing, managerial and other non-technical capabilities relating to the commercialization of our product candidates. If we are unable to establish adequate contractual arrangements for such sales, marketing and distribution capabilities, or if we are unable to do so on commercially reasonable terms, our business, results of operations, financial condition and prospects will be materially adversely affected.
Even if we receive marketing approval for our product candidates, our product candidates may not achieve broad market acceptance, which would limit the revenue that we generate from their sales.
The commercial success of our product candidates, if approved by the FDA or other applicable regulatory authorities, will depend upon the awareness and acceptance of our product candidates among the medical community, including physicians, patients and healthcare payors. Market acceptance of our product candidates, if approved, will depend on a number of factors, including, among others:
●
the efficacy and safety of our product candidates as demonstrated in clinical trials, and, if required by any applicable regulatory authority in connection with the approval for the applicable indications, to provide patients with incremental health benefits, as compared with other available therapies;
●
limitations or warnings contained in the labeling approved for our product candidates by the FDA or other applicable regulatory authorities;
●
the clinical indications for which our product candidates are approved;

●
availability of alternative treatments already approved or expected to be commercially launched in the near future;
●
the potential and perceived advantages of our product candidates over current treatment options or alternative treatments, including future alternative treatments;
●
the willingness of the target patient population to try new therapies and of physicians to prescribe these therapies;
●
the strength of marketing and distribution support and timing of market introduction of competitive products;
●
publicity concerning our products or competing products and treatments;
●
pricing and cost effectiveness;
●
the effectiveness of our sales and marketing strategies;
●
our ability to increase awareness of our product candidates through marketing efforts;
●
our ability to obtain sufficient third-party coverage or reimbursement; or
●
the willingness of patients to pay out-of-pocket in the absence of third-party coverage.
If our product candidates are approved but do not achieve an adequate level of acceptance by patients, physicians and payors, we may not generate sufficient revenue from our product candidates to become or remain profitable. Before granting reimbursement approval, healthcare payors may require us to demonstrate that our product candidates, in addition to treating these target indications, also provide incremental health benefits to patients. Our efforts to educate the medical community and third-party payors about the benefits of our product candidates may require significant resources and may never be successful.
Our product candidates may cause undesirable safety concerns and side effects that could delay or prevent their regulatory approval, limit the commercial profile of an approved label, or result in significant negative consequences following marketing approval, if any.
Undesirable safety concerns and side effects caused by our product candidates could cause us or regulatory authorities to interrupt, delay or halt non-clinical studies and clinical trials and could result in a more restrictive label or the delay or denial of regulatory approval by the FDA or other regulatory authorities.
Further, clinical trials by their nature utilize a sample of potential patient populations. With a limited number of patients and limited duration of exposure, rare and severe side effects of our product candidates may only be uncovered with a significantly larger number of patients exposed to the product candidate. If our product candidates receive marketing approval and we or others identify undesirable safety concerns or side effects caused by such product candidates (or any other similar products) after such approval, a number of potentially significant negative consequences could result, including:
●
regulatory authorities may withdraw or limit their approval of such product candidates;
●
regulatory authorities may require the addition of labeling statements, such as a “black box” warning or a contraindication;
●
we may be required to change the way such product candidates are distributed or administered, conduct additional clinical trials or change the labeling of the product candidates;
●
we may be subject to regulatory investigations and government enforcement actions;
●
we may decide to remove such product candidates from the marketplace;
●
we could be sued and held liable for injury caused to individuals exposed to or taking our product candidates; and
●
our reputation may suffer.
We believe that any of these events could prevent us from achieving or maintaining market acceptance of the affected product candidates and would substantially increase the costs of commercializing our product candidates and significantly impact our ability to successfully commercialize our product candidates and generate revenues.
Even if we receive marketing approval for our product candidates, we may still face future development and regulatory difficulties.
Even if we receive marketing approval for our product candidates, regulatory authorities may still impose significant restrictions on our product candidates, indicated uses or marketing or impose ongoing requirements for potentially costly post-approval studies. Our product candidates will also be subject to ongoing regulatory requirements governing the labeling, packaging, storage and promotion of the product and record keeping and submission of safety and other post-market information. The FDA has significant post-marketing authority, including, for example, the authority to require labeling changes based on new safety information and to require post-marketing studies or clinical trials to evaluate serious safety risks related to the use of a drug. The FDA also has the authority to require, as part of an NDA or post-approval, the submission of a REMS. Any REMS required by the FDA may lead to increased costs to assure compliance with new post-approval regulatory requirements and potential requirements or restrictions on the sale of approved products, all of which could lead to lower sales volume and revenue.
Manufacturers of drug products and their facilities are subject to continual review and periodic inspections by the FDA and other regulatory authorities for compliance with cGMPs and other regulations. If we or a regulatory agency discover problems with our product candidates, such as adverse events of unanticipated severity or frequency, or problems with the facility where our product candidates are manufactured, a regulatory agency may impose restrictions on our product candidates, the manufacturer or us, including requiring withdrawal of our product candidates from the market or suspension of manufacturing. If we, our product candidates or the manufacturing facilities for our product candidates fail to comply with applicable regulatory requirements, a regulatory agency may, among other things:
●
issue warning letters or untitled letters;
●
seek an injunction or impose civil or criminal penalties or monetary fines;
●
suspend or withdraw marketing approval;
●
suspend any ongoing clinical trials;
●
refuse to approve pending applications or supplements to applications submitted by us;
●
suspend or impose restrictions on operations, including costly new manufacturing requirements; or
●
seize or detain products, refuse to permit the import or export of products, or require that we initiate a product recall.
Competing therapies could emerge adversely affecting our opportunity to generate revenue from the sale of our product candidates.
The pharmaceuticals industry is highly competitive. There are many public and private pharmaceutical companies, universities, governmental agencies and other research organizations actively engaged in the research and development of product candidates that may be similar to our product candidates or address similar markets. It is probable that the number of companies seeking to develop product candidates similar to our product candidates will increase.
Currently, management is unaware of any FDA-approved oral adjunctive therapy for MDD patients with an inadequate response to standard antidepressants having the same mechanism of action and safety profile as AV-101. However, new antidepressant products with other mechanisms of action or products approved for other indications, including the anesthetic ketamine hydrochloride, are being or may be used off-label for treatment of MDD, as well as other CNS indications for which AV-101 may have therapeutic potential. Additionally, other non-pharmaceutical treatment options, such psychotherapy and electroconvulsive therapy (ECT) are sometimes used before or instead of standard antidepressant medications to treat patients with MDD.
In the field of new generation, orally available, adjunctive treatments of adult MDD patients with an inadequate response to standard antidepressants, we believe our principal competitor is Alkermes’ orally available drug candidate in Phase 3 development, ALKS-5461.
Many of our potential competitors, alone or with their strategic partners, have substantially greater financial, technical and human resources than we do and significantly greater experience in the discovery and development of product candidates, obtaining FDA and other regulatory approvals of treatments and the commercialization of those treatments.  We believe that a range of pharmaceutical and biotechnology companies have programs to develop small molecule drug candidates for the treatment of depression, including MDD, epilepsy, neuropathic pain, dyskinesia associated with L-DOPA therapy for Parkinson’s disease and other neurological conditions and diseases, including, but not limited to, Abbott Laboratories, Acadia, Allergan, Alkermes, Astra Zeneca, Eli Lilly, GlaxoSmithKline, IntraCellular, Johnson & Johnson/Janssen, Lundbeck, Merck, Novartis, Ono, Otsuka, Pfizer, Roche, Sage, Sumitomo Dainippon, and Takeda, as well as any affiliates of the foregoing companies.  Mergers and acquisitions in the biotechnology and pharmaceutical industries may result in even more resources being concentrated among a smaller number of our competitors. Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products that are safer, more effective, have fewer or less severe side effects, are more convenient or are less expensive than any products that we may develop. Our competitors also may obtain FDA or other regulatory approval for their products more rapidly than we may obtain approval for ours, which could result in our competitors establishing a strong market position before we are able to enter the market.
We may seek to establish collaborations, and, if we are not able to establish them on commercially reasonable terms, we may have to alter our development and commercialization plans.
Our drug development programs and the potential commercialization of our product candidates will require substantial additional cash to fund expenses. For some of our product candidates, we may decide to collaborate with pharmaceutical and biotechnology companies for the development and potential commercialization of those product candidates.
We face significant competition in seeking appropriate collaborators. Whether we reach a definitive agreement for collaboration will depend, among other things, upon our assessment of the collaborator’s resources and expertise, the terms and conditions of the proposed collaboration and the proposed collaborator’s evaluation of a number of factors. Those factors may include the design or results of clinical trials, the likelihood of approval by the FDA or similar regulatory authorities outside the United States, the potential markets for the subject product candidate, the costs and complexities of manufacturing and delivering such product candidate to patients, the potential of competing products, the existence of uncertainty with respect to our ownership of technology, which can exist if there is a challenge to such ownership without regard to the merits of the challenge and industry and market conditions generally. The collaborator may also consider alternative product candidates or technologies for similar indications that may be available to collaborate on and whether such collaboration could be more attractive than the one with us for our product candidate. The terms of any collaboration or other arrangements that we may establish may not be favorable to us.
We may also be restricted under existing collaboration agreements from entering into future agreements on certain terms with potential collaborators. Collaborations are complex and time-consuming to negotiate and document. In addition, there have been a significant number of recent business combinations among large pharmaceutical companies that have resulted in a reduced number of potential future collaborators.
We may not be able to negotiate collaborations on a timely basis, on acceptable terms, or at all. If we are unable to do so, we may have to curtail the development of the product candidate for which we are seeking to collaborate, reduce or delay its development program or one or more of our other development programs, delay its potential commercialization or reduce the scope of any sales or marketing activities, or increase our expenditures and undertake development or commercialization activities at our own expense. If we elect to increase our expenditures to fund development or commercialization activities on our own, we may need to obtain additional capital, which may not be available to us on acceptable terms or at all. If we do not have sufficient funds, we may not be able to further develop our product candidates or bring them to market and generate product revenue.
In addition, any future collaboration that we enter into may not be successful. The success of our collaboration arrangements will depend heavily on the efforts and activities of our collaborators. Collaborators generally have significant discretion in determining the efforts and resources that they will apply to these collaborations. Disagreements between parties to a collaboration arrangement regarding clinical development and commercialization matters can lead to delays in the development process or commercializing the applicable product candidate and, in some cases, termination of the collaboration arrangement. These disagreements can be difficult to resolve if neither of the parties has final decision-making authority. Collaborations with pharmaceutical or biotechnology companies and other third parties often are terminated or allowed to expire by the other party. Any such termination or expiration would adversely affect us financially and could harm our business reputation.
We may not be successful in our efforts to identify or discover additional product candidates or we may expend our limited resources to pursue a particular product candidate or indication and fail to capitalize on product candidates or indications that may be more profitable or for which there is a greater likelihood of success.
The success of our business depends primarily upon our ability to identify, develop and commercialize product candidates with commercial and therapeutic potential. Although AV-101 is in Phase 2 clinical development for treatment of depression, we may fail to pursue additional CNS-related Phase 2 development opportunities for AV-101, or identify additional product candidates for clinical development for a number of reasons. Our research methodology may be unsuccessful in identifying new product candidates or our product candidates may be shown to have harmful side effects or may have other characteristics that may make the products unmarketable or unlikely to receive marketing approval.
Because we currently have limited financial and management resources, we necessarily focus on a limited number of research and development programs and product candidates and are currently focused primarily on development of AV-101, with additional limited focus on NCE drug rescue and RM. As a result, we may forego or delay pursuit of opportunities with other product candidates or for other potential CNS-related indications for AV-101 that later prove to have greater commercial potential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial drugs or profitable market opportunities. Our spending on current and future research and development programs and product candidates for specific indications may not yield any commercially viable drugs. If we do not accurately evaluate the commercial potential or target market for a particular product candidate, we may relinquish valuable rights to that product candidate through future collaboration, licensing or other royalty arrangements in cases in which it would have been more advantageous for us to retain sole development and commercialization rights to such product candidate.
If any of these events occur, we may be forced to abandon our development efforts for a program or programs, which would have a material adverse effect on our business and could potentially cause us to cease operations. Research and development programs to identify and advance new product candidates require substantial technical, financial and human resources. We may focus our efforts and resources on potential programs or product candidates that ultimately prove to be unsuccessful.
We are subject to healthcare laws and regulations, which could expose us to criminal sanctions, civil penalties, contractual damages, reputational harm and diminished profits and future earnings.
Although we do not currently have any products on the market, once we begin commercializing our products, we may be subject to additional healthcare statutory and regulatory requirements and enforcement by the federal government and the states and foreign governments in which we conduct our business. Healthcare providers, physicians and others will play a primary role in the recommendation and prescription of our product candidates, if approved. Our future arrangements with third-party payors will expose us to broadly applicable fraud and abuse and other healthcare laws and regulations that may constrain the business or financial arrangements and relationships through which we market, sell and distribute our product candidates, if we obtain marketing approval. Restrictions under applicable federal and state healthcare laws and regulations include the following:
●
The federal anti-kickback statute prohibits, among other things, persons from knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward either the referral of an individual for, or the purchase, order or recommendation of, any good or service, for which payment may be made under federal healthcare programs such as Medicare and Medicaid.
●
The federal False Claims Act imposes criminal and civil penalties, including those from civil whistleblower or qui tam actions, against individuals or entities for knowingly presenting, or causing to be presented, to the federal government, claims for payment that are false or fraudulent or making a false statement to avoid, decrease, or conceal an obligation to pay money to the federal government.
●
The federal Health Insurance Portability and Accountability Act of 1996, as amended by the Health Information Technology for Economic and Clinical Health Act, imposes criminal and civil liability for executing a scheme to defraud any healthcare benefit program and also imposes obligations, including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of individually identifiable health information.
●
The federal false statements statute prohibits knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false statement in connection with the delivery of or payment for healthcare benefits, items or services.
●
The federal transparency requirements, sometimes referred to as the “Sunshine Act,” under the Patient Protection and Affordable Care Act, require manufacturers of drugs, devices, biologics and medical supplies that are reimbursable under Medicare, Medicaid, or the Children’s Health Insurance Program to report to the Department of Health and Human Services information related to physician payments and other transfers of value and physician ownership and investment interests.
●
Analogous state laws and regulations, such as state anti-kickback and false claims laws and transparency laws, may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party payors, including private insurers, and some state laws require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance.
●
Guidance promulgated by the federal government in addition to requiring drug manufacturers to report information related to payments to physicians and other healthcare providers or marketing expenditures and drug pricing.
Ensuring that our future business arrangements with third parties comply with applicable healthcare laws and regulations could be costly. It is possible that governmental authorities will conclude that our business practices do not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations, including anticipated activities to be conducted by our sales team, were found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, damages, fines and exclusion from government funded healthcare programs, such as Medicare and Medicaid, any of which could substantially disrupt our operations. If any of the physicians or other providers or entities with whom we expect to do business is found not to be in compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs.
The FDA and other regulatory agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses. If we are found to have improperly promoted off-label uses, we may become subject to significant liability.
The FDA and other regulatory agencies strictly regulate the promotional claims that may be made about prescription products, such as AV-101, if approved. In particular, a product may not be promoted for uses that are not approved by the FDA or such other regulatory agencies as reflected in the product’s approved labeling. For example, if we receive marketing approval for AV-101 as an adjunctive treatment of MDD, physicians may nevertheless prescribe AV-101 to their patients in a manner that is inconsistent with the approved label. If we are found to have promoted such off-label uses, we may become subject to significant liability. The federal government has levied large civil and criminal fines against companies for alleged improper promotion and has enjoined several companies from engaging in off-label promotion. The FDA has also requested that companies enter into consent decrees or permanent injunctions under which specified promotional conduct is changed or curtailed. If we cannot successfully manage the promotion of our product candidates, if approved, we could become subject to significant liability, which would materially adversely affect our business and financial condition.
Even if approved, reimbursement policies could limit our ability to sell our product candidates.
Market acceptance and sales of our product candidates will depend heavily on reimbursement policies and may be affected by healthcare reform measures. Government authorities and third-party payors, such as private health insurers and health maintenance organizations, decide which medications they will pay for and establish reimbursement levels for those medications. Cost containment is a primary concern in the U.S. healthcare industry and elsewhere. Government authorities and these third-party payors have attempted to control costs by limiting coverage and the amount of reimbursement for particular medications. We cannot be sure that reimbursement will be available for our product candidates and, if reimbursement is available, the level of such reimbursement. Reimbursement may impact the demand for, or the price of, our product candidates. If reimbursement is not available or is available only at limited levels, we may not be able to successfully commercialize our product candidates.
In some foreign countries, particularly in Canada and European countries, the pricing of prescription pharmaceuticals is subject to strict governmental control. In these countries, pricing negotiations with governmental authorities can take six months or longer after the receipt of regulatory approval and product launch. To obtain favorable reimbursement for the indications sought or pricing approval in some countries, we may be required to conduct a clinical trial that compares the cost-effectiveness of our product candidates with other available therapies. If reimbursement for our product candidates is unavailable in any country in which we seek reimbursement, if it is limited in scope or amount, if it is conditioned upon our completion of additional clinical trials, or if pricing is set at unsatisfactory levels, our operating results could be materially adversely affected.
We may seek FDA Orphan Drug designation for one or more of our product candidates, including AV-101. Even if we have obtained FDA Orphan Drug designation for AV-101 of other product candidates, there may be limits to the regulatory exclusivity afforded by such designation.
We may, in the future, choose to seek FDA Orphan Drug designation for one or more of our product candidates, including AV-101. Even if we obtain Orphan Drug designation from the FDA for AV-101 or any other product candidates, there are limitations to the exclusivity afforded by such designation. In the United States, the company that first obtains FDA approval for a designated orphan drug for the specified rare disease or condition receives orphan drug marketing exclusivity for that drug for a period of seven years. This orphan drug exclusivity prevents the FDA from approving another application, including a full NDA to market the same drug for the same orphan indication, except in very limited circumstances, including when the FDA concludes that the later drug is safer, more effective or makes a major contribution to patient care. For purposes of small molecule drugs, the FDA defines “same drug” as a drug that contains the same active moiety and is intended for the same use as the drug in question. To obtain Orphan Drug status for a drug that shares the same active moiety as an already approved drug, it must be demonstrated to the FDA that the drug is safer or more effective than the approved orphan designated drug, or that it makes a major contribution to patient care. In addition, a designated orphan drug may not receive orphan drug exclusivity if it is approved for a use that is broader than the indication for which it received orphan designation. In addition, orphan drug exclusive marketing rights in the United States may be lost if the FDA later determines that the request for designation was materially defective or if the manufacturer is unable to assure sufficient quantity of the drug to meet the needs of patients with the rare disease or condition or if another drug with the same active moiety is determined to be safer, more effective, or represents a major contribution to patient care.
Our future growth may depend, in part, on our ability to penetrate foreign markets, where we would be subject to additional regulatory burdens and other risks and uncertainties.
Our future profitability may depend, in part, on our ability to commercialize our product candidates in foreign markets for which we may rely on collaboration with third parties. If we commercialize our product candidates in foreign markets, we would be subject to additional risks and uncertainties, including:
●
our customers’ ability to obtain reimbursement for our product candidates in foreign markets;
●
our inability to directly control commercial activities because we are relying on third parties;
●
the burden of complying with complex and changing foreign regulatory, tax, accounting and legal requirements;
●
different medical practices and customs in foreign countries affecting acceptance in the marketplace;
●
import or export licensing requirements;
●
longer accounts receivable collection times;
●
longer lead times for shipping;
●
language barriers for technical training;
●
reduced protection of intellectual property rights in some foreign countries;
●
the existence of additional potentially relevant third party intellectual property rights;
●
foreign currency exchange rate fluctuations; and
●
the interpretation of contractual provisions governed by foreign laws in the event of a contract dispute.
Foreign sales of our product candidates could also be adversely affected by the imposition of governmental controls, political and economic instability, trade restrictions and changes in tariffs.
We are a development stage biotechnologybiopharmaceutical company with no current revenues or approved products, and limited experience developing new drug, biological and/or regenerative medicine candidates, including conducting clinical trials and other areas required for the successful development and commercialization of therapeutic products, which makes it difficult to assess our future viability.

We are a development stage biotechnologybiopharmaceutical company. Since inception, we have generated approximately $16.4 million of revenues from strategic collaborations and grant awards.  However,Although our lead drug candidate is in Phase 2 development, we currently have no approved products and currently generate no revenues, and we have not yet fully demonstrated an ability to overcome many of the fundamental risks and uncertainties frequently encountered by development stage companies in new and rapidly evolving fields of technology, particularly biotechnology. To execute our business plan successfully, we will need to accomplish the following fundamental objectives, either on our own or with strategic collaborators:
 
·
produce product candidates;
●
·
develop and obtain required regulatory approvals for commercialization of products we produce;produce product candidates;
·
maintain, leverage and expand our intellectual property portfolio;
·
establish and maintain sales, distribution and marketing capabilities;
·
gain market acceptance for our products; and
·obtain adequate capital resources and manage our spending as costs and expenses increase due to research, production, development, regulatory approval and commercialization of product candidates.
 
●
Moreover,develop and obtain required regulatory approvals for commercialization of product candidates we produce;
●
maintain, leverage and any futureexpand our intellectual property portfolio;
●
establish and maintain sales, distribution and marketing capabilities, and/or enter into strategic partner will needpartnering arrangements to receiveaccess such capabilities;
●
gain market acceptance for our products; and
●
obtain adequate capital resources and manage our spending as costs and expenses increase due to research, production, development, regulatory approval for any new drug candidate, including each Drug Rescue Variant, biological candidate or regenerative medicine product before it may be marketed and distributed. Such regulatory approval will require, among numerous other things, completing carefully controlled and well-designed clinical trials demonstrating the safety and efficacy of each new product candidate. This process is lengthy, expensive and uncertain. As a company, we have limited experience developing new drug candidates, including Drug Rescue Variants, biological candidates or regenerative medicine products, including conducting clinical trials and in other areas required for the successful development and commercialization of therapeutic products. Such trials will require additional financial and management resources, third-party collaborators with the requisite clinical experience or reliance on third party clinical investigators, contract research organizations and independent consultants. Relying on third parties may force us to encounter delays that are outside of our control, which could materially harm our business.product candidates.

If we are unsuccessful in accomplishing these fundamental objectives, or if we encounter delays in the regulatory approval process beyond our control, we may not be able to develop product candidates, raise capital, expand our business or continue our operations.
 
 
Our future success is highly dependent upon our ability to successfully develop and commercialize AV-101 and discover, as well as produce, product candidates, including Drug Rescue Variants,develop and commercialize proprietary drug rescue NCEs using our stem cell technology, human cells derived from stem cells, our proprietary human cell-based bioassay systemsand medicinal chemistry, and we cannot provide any assurance that we will successfully produce Drug Rescue Variantsdevelop and commercialize AV-101 or other product candidates,drug rescue NCEs, or that, if produced, AV-101 or any of our Drug Rescue Variants or other product candidatesdrug rescue NCE will be developed andsuccessfully commercialized.
 
Research programs designed to identify and produce product candidates, including Drug Rescue Variants,drug rescue NCEs require substantial technical, financial and human resources, whether or not any product candidatesNCEs are ultimately identified and produced. In particular, our drug rescue programs may initially show promise in identifying potential Drug Rescue Variants,NCEs, yet fail to yield a lead Drug Rescue VariantsNCE suitable for preclinical, clinical development or commercialization for many reasons, including the following:
·
our research methodology may not be successful in identifying potential Drug Rescue Candidates;
·
competitors may develop alternatives that render our Drug Rescue Variants obsolete;
·
a Drug Rescue Variant may, on further study, be shown to have harmful side effects or other characteristics that indicate it is unlikely to be effective or otherwise does not meet applicable regulatory criteria;
·
a Drug Rescue Variant may not be capable of being produced in commercial quantities at an acceptable cost, or at all; or
·
a Drug Rescue Variant may not be accepted as safe and effective by regulatory authorities, patients, the medical community or third-party payors.
 
●
our drug rescue research and development methodology may not be successful in identifying and developing potential drug rescue NCEs;
●
Our future success depends heavilycompetitors may develop alternatives that render our drug rescue NCEs obsolete;
●
a drug rescue NCE may, on further study, be shown to have harmful side effects or other characteristics that indicate it is unlikely to be effective or otherwise does not meet applicable regulatory criteria;
●
a drug rescue NCE may not be capable of being produced in commercial quantities at an acceptable cost, or at all; or
●
a drug rescue NCE may not be accepted as safe and effective by regulatory authorities, patients, the medical community or third-party payors.
In addition, we do not have a sales or marketing infrastructure, and we, including our abilityexecutive officers, do not have any significant pharmaceutical sales, marketing or distribution experience. We may seek to use stem cell technology, human cells derived from stem cells, proprietary human cell-based bioassay systems, especially CardioSafe 3D, and medicinal chemistrycollaborate with others to produce Drug Rescue Variants and, develop obtain regulatory approval for, and commercialize lead Drug Rescue Variants, onAV-101, drug rescue NCEs and/or other product candidates if and when they are developed.  If we enter into arrangements with third parties to perform sales, marketing and distribution services for our ownproducts, the resulting revenues or in strategic collaborations, which may never occur. We currently generate nothe profitability from these revenues to us are likely to be lower than if we had sold, marketed and distributed our products ourselves. In addition, we may nevernot be ablesuccessful in entering into arrangements with third parties to developsell, market and distribute AV-101, any drug rescue NCEs or commercialize a marketable drug.other product candidates or may be unable to do so on terms that are favorable to us.  We likely will have little control over such third parties, and any of these third parties may fail to devote the necessary resources and attention to sell, market and distribute our products effectively.  If we do not establish sales, marketing and distribution capabilities successfully, in collaboration with third parties, we will not be successful in commercializing our product candidates.

We have limited operating history with respect to drug development, including our anticipated focus on the identification and assessment of potential Drug Rescue Candidatesdrug rescue NCEs and no operating history with respect to the production of Drug Rescue Variants,drug rescue NCEs, and we may never be able to produce a Drug Rescue Variant. drug rescue NCE.
If we are unable to identify suitable Drug Rescue Candidates for our drug rescue programs, includingdevelop and commercialize AV-101 or produce suitable lead Drug Rescue Variants for license to and preclinical and clinical development by pharmaceutical companies and others,drug rescue NCEs, we may not be able to obtaingenerate sufficient revenues in future periods,to execute our business plan, which likely would result in significant harm to our financial position and results of operations, which could adversely impact our stock price.  
There are a number of factors, in addition to the utility of CardioSafe3D, that may impact our ability to identify and assess Drug Rescue Candidates and produce, develop or out-license and commercialize Drug Rescue Variants,drug rescue NCEs, independently or with strategic partners, including:
 
·
●
our ability to identify potential drug rescue candidates in the public domain, obtain sufficient quantities of them, and assess them using our bioassay systems;
our ability to identify potential Drug Rescue Candidates in the public domain, obtain sufficient quantities of them, and assess them using our assay systems;
·
if we seek to rescue Drug Rescue Candidates that are not available to us in the public domain, the extent to which third parties may be willing to license or sell Drug Rescue Candidates to us on commercially reasonable terms;
·
our medicinal chemistry collaborator’s ability to design and produce proprietary Drug Rescue Variants based on the novel biology and structure-function insight we provide using CardioSafe 3D or LiverSafe 3D; and
·
financial resources available to us to develop and commercialize lead Drug Rescue Variants internally, or, if we license them to strategic partners, the resources such partners choose to dedicate to development and commercialization of any Drug Rescue Variants licensed from us.
 
●
if we seek to rescue drug rescue candidates that are not available to us in the public domain, the extent to which third parties may be willing to out-license or sell certain drug rescue candidates to us on commercially reasonable terms;
●
our medicinal chemistry collaborator’s ability to design and produce proprietary drug rescue NCEs based on the novel biology and structure-function insight we provide usingCardioSafe3D; and
●
financial resources available to us to develop and commercialize lead drug rescue NCEs internally, or, if we out-license them to strategic partners, the resources such partners choose to dedicate to development and commercialization of any drug rescue NCEs they license from us.
Even if we do produce a Drug Rescue Variant,proprietary drug rescue NCEs, we can give no assurance that we will be able to develop and commercialize itthem as a marketable drug,, on our own or in a strategic collaboration.collaboration with others. Before we generate any revenues from product sales, we must produceAV-101 and/or additional product candidates through drug rescue andNCEs we or our potential strategic collaboratorcollaborators must complete preclinical and clinical development of one or more of our product candidates, conduct human subject research,developments, submit clinical and manufacturing data to the FDA, qualify a third party contract manufacturer, receive regulatory approval in one or more jurisdictions, satisfy the FDA that our contract manufacturer is capable of manufacturing the product in compliance with cGMP, build a commercial organization, make substantial investments and undertake significant marketing efforts ourselves or in partnership with others. We are not permitted to market or promote any of our product candidates before we receive regulatory approval from the FDA or comparable foreign regulatory authorities, and we may never receive such regulatory approval for any of our product candidates.
 
 
We have not previously submitted a biologics license application, or BLA, or a new drug application or NDA, to the FDA, or similar drug approval filings to comparable foreign authorities, for any product candidate. We cannot be certain that any of our product candidates will be successful in clinical trials or receive regulatory approval. Further, our product candidates may not receive regulatory approval even if they are successful in clinical trials. If we do not receive regulatory approvals for our product candidates, we may not be able to continue our operations. Even if we successfully obtain regulatory approvals to market one or more of our product candidates, our revenues will be dependent, in part, upon the size of the markets in the territories for which we gain regulatory approval and have commercial rights. If the markets for patient subsets that we are targeting are not as significant as we estimate, we may not generate significant revenues from sales of such products, if approved.

We or our potential collaborator may also seek regulatory approval to commercialize our product candidates in the United States, the European Union and potentially in additional foreign countries. While the scope of regulatory approval is similar in other countries, to obtain separate regulatory approval in many other countries we must comply with numerous and varying regulatory requirements of such countries regarding safety and efficacy, clinical trials and commercial sales, pricing and distribution of our product candidates, and we cannot predict success in these jurisdictions.
Our CardioSafe 3D internal validation studies have not been subjectedto extensive external peer review or validation.
Our proprietary internal studies conducted to validate the utility of CardioSafe 3D for drug rescue, including our ability to use it to predict the cardiac effects, both toxic and nontoxic, of Drug Rescue Candidates, have not been subjected to extensive external peer review or validation. It is possible, therefore, that the results we have obtained from our successful internal validation studies may not be replicable by external peer reviewers. We are currently focused on identifying and assessing Drug Rescue Candidates available in the public domain.  However, should we seek to license or acquire Drug Rescue Candidates from third-parties, and such third-parties cannot replicate our results or do not have confidence in the capabilities of CardioSafe 3D, it may be difficult for us to acquire from them certain Drug Rescue Candidates which might be of interest to us. Even if such results can be replicated by external peer reviewers or other third-parties, they may nevertheless conclude that their current screening models are better than our CardioSafe 3D and that a license to the Drug Rescue Candidate we seek from them is not warranted. Our drug rescue business model is predicated on our ability to identify and, if information is not otherwise available in the public domain, obtain licenses from third-parties to Drug Rescue Candidates of interest to us.  If third-party licenses are required, and if we cannot obtain such licenses to on reasonable terms, or at all, our business may be adversely affected.

If CardioSafe 3D fails to predict accurately and efficiently the cardiac effects, both toxic and nontoxic, of Drug Rescue Candidatesdrug rescue candidates and Drug Rescue Variants,drug rescue NCEs, then our drug rescue businessprograms will be adversely affected.

Our success is highlypartly dependent on our ability to use CardioSafe 3D to identify and predict, accurately and efficiently, the potential toxic and nontoxic cardiac effects of Drug Rescue Candidatesdrug rescue candidates and Drug Rescue Variantsdrug rescue NCEs. If. If CardioSafe 3D is not capable of providing physiologically relevant and clinically predictive information regarding human cardiac biology, our drug rescue business will be adversely affected.

We have not yet fully validated LiverSafeCardioSafe 3D for potential drug rescue applications, and we may never do so.
We have successfully developed proprietary protocols for controlling the differentiation of human pluripotent stem cells to produce functional, mature, adult liver cells. However, we have not yet fully validated our ability to use the human liver cells we produce for LiverSafe 3D to predict important biological effects, both toxic and nontoxic, of reference drugs, Drug Rescue Candidates or Drug Rescue Variants on the human liver, including drug-induced liver injury and adverse drug-drug interactions. Furthermore, we may never be able to do so, which could adversely affect our business and the potential applications of LiverSafe 3D for drug rescue and regenerative medicine.
CardioSafe 3D, and, when validated, LiverSafe 3Dmay not be meaningfully more predictive of the behavior of human cells than existing methods.

The success of our drug rescue businessprograms is highly dependent in the first instance, upon CardioSafe 3D, and, in the second instance, when validated, LiverSafe3D being more accurate, efficient and clinically predictive than long-established surrogate safety models, including animal cells and live animals, and immortalized, primary and transformed cells, currently used by pharmaceutical companies and others. We cannot give assurance that CardioSafe 3D, and, when validated, LiverSafe3D will be more efficient or accurate at predicting the heart or liver safety of new drug candidates than the testing models currently used. If CardioSafe 3D and LiverSafe 3D failfails to provide a meaningful difference compared to existing or new models in predicting the behavior of human heart, and liver cells, respectively, their utility for drug rescue will be limited and our drug rescue business will be adversely affected.

We may invest in producing Drug Rescue Variantsdrug rescue NCEs for which there proves to be no demand.

To generate revenue from our drug rescue activities, we must produce Drug Rescue Variantsproprietary drug rescue NCEs for which there proves to be demand within the healthcare marketplace, and, if we intend to out-license a particular Drug Rescue Variantdrug rescue NCE for development and commercialization prior to market approval, then also among pharmaceutical companies and other potential strategic collaborators. However, we may produce Drug Rescue Variantsdrug rescue NCEs for which there proves to be no or limited demand in the healthcare market and/or among pharmaceutical companies and others. If we misinterpret market conditions, underestimate development costs and/or seek to rescue the wrong Drug Rescue Candidates,drug rescue candidates, we may fail to generate sufficient revenue or other value, on our own or in collaboration with others, to justify our investments, and our drug rescue business may be adversely affected.

We may experience difficulty in producing human cells and our future stem cell technology research and development efforts may not be successful within the timeline anticipated, if at all.

Our human pluripotent stem cell technology is new and technically complex, and the time and resources necessary to develop newvarious human cell types and customized bioassay systems are difficult to predict in advance. We intendmight decide to devote significant personnel and financial resources to research and development activities designed to expand, in the case of drug rescue, and explore, in the case of drug discovery and regenerative medicine, potential applications of our Human Clinical Trials in a Test Tubestem cell technology platform. In particular, we are planning tomay conduct development programs related to producing and using functional, mature adult liver cells to validate LiverSafe 3D as a novel bioassay system for drug rescue, as well as exploratory nonclinical regenerative medicinenon-clinical RM programs involving blood, bone, cartilage, heart,and/or liver and insulin-producing pancreatic beta-islet cells. Although we and our collaborators have developed proprietary protocols for the production of multiple differentiated cell types, we maycould encounter difficulties in differentiating and producing sufficient quantities of particular cell types, even when following these proprietary protocols. These difficulties maycould result in delays in production of certain cells, assessment of certain Drug Rescue Candidatesdrug rescue candidates and Drug Rescue Variants,drug rescue NCEs, design and development of certain human cellular assays and performance of certain exploratory nonclinicalnon-clinical regenerative medicine studies. In the past, our stem cell research and development projects have been significantly delayed when we encountered unanticipated difficulties in differentiating human pluripotent stem cells into heart liver and pancreaticliver cells. Although we have overcome such difficulties in the past, we may have similar delays in the future, and we may not be able to overcome them or obtain any benefits from our future stem cell technology research and development activities. Any delay or failure by us, for example, to produce functional, mature blood, bone, cartilage, liver and insulin-producing pancreatic beta-isletliver cells could have a substantial and material adverse effect on our potential drug discovery, drug rescue and regenerative medicine business opportunities and results of operations.

If we are unable to keep up with rapid technological changes in our field, we will be unable to operate profitably.

We are engaged in activities in the life sciences field, which is characterized by rapid technological changes, frequent new product introductions, changing needs and preferences, emerging competition, and evolving industry standards. If we fail to anticipate or respond adequately to technological developments, our business, revenue, financial condition and operating results could suffer materially. Although we believe we are the first stem cell technology company focused primarily on drug rescue, we anticipate that we will face increased competition in the future as competitors develop or access new or improved bioassay systems and explore and enter the drug rescue market with new technologies. Competitors may have significantly greater financial, manufacturing, sales and marketing resources and may be able to respond more quickly and effectively than we can to new opportunities. In light of these advantages, even if our technology is effective in producing Drug Rescue Variants, potential development partners might prefer new drug candidates available from others or develop their own new drug candidates in lieu of licensing or purchasing our Drug Rescue Variants. We may not be able to compete effectively against these organizations. Our failure to compete effectively could materially and adversely affect our business, financial condition and results of operations.
-26-
We face substantial competition, which may result in others discovering, developing or commercializing product candidates before, or more successfully, than we do.

Our future success depends on our ability to demonstrate and maintain a competitive advantage with respect to the design, development and commercialization of Drug Rescue Variants. Our competitors may succeed in developing product candidates for the same indications we are pursuing before we do, obtaining regulatory approval for competing products or gaining acceptance of their products within the same markets that we are targeting for our Drug Rescue Variants. If, either on our own or in collaboration with a strategic partner, we are not "first to market" with one of our Drug Rescue Variants, our competitive position could be compromised because it may be more difficult for us or our partner to obtain marketing approval for our Drug Rescue Variant and successfully market it as a second competitor.  We expect any Drug Rescue Variants that we commercialize, either independently or in collaboration, will compete with products from other companies in the biotechnology and pharmaceutical industries.  
Many of our competitors have substantially greater research and development and commercial infrastructures and financial, technical and personnel resources than we have. We will not be able to compete successfully unless we:

·
design, develop, produce and commercialize, either on our own or with collaborators, Drug Rescue Variants that are superior to other products in development or in the market;
·
attract qualified scientific, medical, sales and marketing and commercial personnel or collaborators;
·
obtain patent and/or other proprietary protection for our Drug Rescue Variants; and
·
obtain, either on our own or in collaboration with strategic partners, required regulatory approvals for our Drug Rescue Variants.
Established competitors may invest heavily to quickly discover and develop novel compounds that could make our Drug Rescue Variants obsolete. In addition, any new product that competes with an approved product must demonstrate compelling advantages in efficacy, convenience, tolerability and safety in order to overcome price competition and to be commercially successful. If we are not able to compete effectively against our current and future competitors, our business will not grow and our financial condition and operations will suffer.

Other companies, academic institutions, government agencies and other public and private research organizations are conducting research, seeking patent protection and establishing collaborative arrangements for research, development and marketing of assays similar to ours and Drug Rescue Variants we may produce. These companies and institutions also compete with us in recruiting and retaining qualified scientific and management personnel, obtaining collaborators and licensees, as well as in acquiring technologies complementary to our programs.

As a result of the foregoing, our competitors may develop more effective or more affordable products, or achieve earlier patent protection or product commercialization than we will. Most significantly, competitive products may render any technologies and Drug Rescue Variants that we develop obsolete, which would negatively impact our business and ability to sustain operations.

With respect to drug rescue, the licensing and acquisition of proprietary small molecule compounds, even compounds that have failed in development due to heart or liver safety concerns, is a highly competitive area, and a number of more established companies may also pursue strategies to license, acquire, rescue and develop small molecule compounds that we may consider to be Drug Rescue Candidates. These established companies have a competitive advantage over us due to their size, cash resources and greater clinical development and commercialization capabilities. In addition, companies that perceive us to be a competitor may be unwilling to sell or license Drug Rescue Candidate rights to us. We have limited experience in negotiating licenses to drug candidates and there can be no assurances that we will be able to acquire or obtain licenses to Drug Rescue Candidates in the future, on commercially reasonable terms, if at all, should we elect to pursue such third-party licenses. If we are unable to acquire or obtain licenses to Drug Rescue Candidates we seek, our business may be adversely affected.
-27-
 
Restrictions on research and development involving human embryonic stem cells and religious and political commentarypressure regarding such stem cell research and development could impair our ability to conduct or sponsor certain potential collaborative research and development programs and adversely affect our prospects, the market price of our common stock.stock and our business model.
 
Some of our most important ongoing and planned research and development programs may involve the use of human cells derived from our controlled differentiation of human embryonic stem cells (hESCshESC)s). Some believe the use of hESCs gives rise to ethical and social issues regarding the appropriate use of these cells. Our research related to differentiation of hESCs may become the subject of adverse commentary or publicity, which could significantly harm the market price of our common stock. Although now substantially less than in years past, certain political and religious groups in the United States and elsewhere voice opposition to hESC technology and practices. We may use hESCs derived from excess fertilized eggs that have been created for clinical use in in vitro fertilization (IVF) procedures and have been donated for research purposes with the informed consent of the donors after a successful IVF procedure because they are no longer desired or suitable for IVF. Certain academic research institutions have adopted policies regarding the ethical use of human embryonic tissue. These policies may have the effect of limiting the scope of future collaborative research opportunities with such institutions, thereby potentially impairing our ability to conduct certain research and development in this field that we believe is necessary to expand the drug rescue capabilities of our technology.technology, which would have a material adverse effect on our business.
 
-35-
The use of embryonic or fetal tissue in research (including the derivation of hESCs) in other countries is regulated by the government, and varies widely from country to country. Government-imposed restrictions with respect to use of hESCs in research and development could have a material adverse effect on us by harming our ability to establish critical collaborations, delaying or preventing progress in our research and development, and causing a decrease in the market interest in our stock. These
The foregoing potential ethical concerns do not apply to our use of induced pluripotent stem cells(iPSCiPSCs), or our plans to pursue pilot nonclinical regenerative medicine studies involving human cells derived from iPSCs,s) because their derivation does not involve the use of embryonic tissues.
 
We have assumed that the biological capabilities of induced pluripotent stem cells (iPSCs)iPSCs and hESCs are likely to be comparable. If it is discovered that this assumption is incorrect, our exploratory research and development activities focused on potential regenerative medicine applications of our Human Clinical Trials in a Test Tubestem cell technology platform could be harmed.
 
We may use both hESCs and iPSCs to produce human cells for our customizedin vitroassays for drug discovery and drug rescue purposes. However, we anticipate that our future exploratory research and development, if any, focused on potential regenerative medicine applications of our Human Clinical Trials in a Test Tubestem cell technology platform primarily will involve iPSCs. With respect to iPSCs, we believe scientists are still somewhat uncertain about the clinical utility, life span, and safety of such cells, and whether such cells differ in any clinically significant ways from hESCs. If we discover that iPSCs will not be useful for whatever reason for potential regenerative medicine applications of our Human Clinical Trials in a Test Tube platform,programs, this would negatively affect our ability to explore expansion of our platform in that manner, including, in particular, where it would be preferable to use iPSCs to reproduce rather than approximate the effects of certain specific genetic variations.

If we fail to attract and retain senior management and key scientific personnel, we may be unable to successfully produce, develop trials and commercialize our Drug Rescue Variants.

Our success depends in part on our continued ability to attract, retain and motivate highly qualified management and scientific and technical personnel. We are highly dependent upon our senior management, as well as other employees, consultants and scientific collaborators. As of June 1, 2014, we had 10 full-time employees, which may make us more reliant on our individual employees than companies with a greater number of employees. Although none of our key scientific personnel or members of our senior management has informed us that he or she intends to resign or retire in the near future, the loss of services of any of these individuals could delay or prevent the successful development of potential expansions and applications of our Human Clinical Trials in a Test Tube platform and our production of Drug Rescue Variants or disrupt our administrative functions.

Although we have not historically experienced unique difficulties attracting and retaining qualified employees, we could experience such problems in the future. For example, competition for qualified personnel in the biotechnology and pharmaceuticals field is intense. We will need to hire additional personnel as we expand our research and development activities. We may not be able to attract and retain quality personnel on acceptable terms.
-28-
In addition, we rely on consultants and advisors, including scientific and clinical advisors, to assist us in formulating our research and development strategy, including our drug rescue strategy. Our consultants and advisors may be employed by employers other than us and may have commitments under consulting or advisory contracts with other entities that may limit their availability to us.

We may encounter difficulties in managing our growth and expanding our operations successfully.

As we seek to advance our proposed CardioSafe 3D drug rescue programs, produce and develop Drug Rescue Variants, and develop and validate LiverSafe 3D, we will need to expand our research and development capabilities or contract with third parties to provide these capabilities for us. As our operations expand, we expect that we will need to manage additional relationships with various strategic partners and other third parties. Future growth will impose significant added responsibilities on members of management. Our future financial performance and our ability to develop and commercialize our product candidates and to compete effectively will depend, in part, on our ability to manage any future growth effectively. To that end, we must be able to manage our research and development efforts effectively and hire, train and integrate additional management, administrative and technical personnel. The hiring, training and integration of new employees may be more difficult, costly and/or time-consuming for us because we have fewer resources than a larger organization. We may not be able to accomplish these tasks, and our failure to accomplish any of them could prevent us from successfully growing the Company.

If product liability lawsuits are brought against us, we may incur substantial liabilities and may be required to limit commercialization of our product candidates.

If we produce and develop Drug Rescue Variants or regenerative medicine products, either on our own or in collaboration with others, we will face an inherent risk of product liability as a result of the required clinical testing of such product candidates, and will face an even greater risk if we or our collaborators commercialize any such products. For example, we may be sued if any Drug Rescue Variant or regenerative medicine product we develop allegedly causes injury or is found to be otherwise unsuitable during product testing, manufacturing, marketing or sale. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability, and a breach of warranties. Claims could also be asserted under state consumer protection acts. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit commercialization of our product candidates. Even successful defense would require significant financial and management resources. Regardless of the merits or eventual outcome, liability claims may result in:

·
decreased demand for our Drug Rescue Variants or other products that we may develop;
 
·
injury to our reputation;
·
withdrawal of clinical trial participants;
·
costs to defend the related litigation;
·
a diversion of management's time and our resources;
·
substantial monetary awards to trial participants or patients;
·
product recalls, withdrawals or labeling, marketing or promotional restrictions;
·
loss of revenue;
·
the inability to commercialize our product candidates; and
·a decline in our stock price.
-29-
Our inability to obtain and retain sufficient product liability insurance at an acceptable cost to protect against potential product liability claims could prevent or inhibit the commercialization of products we develop. Although we maintain liability insurance, any claim that may be brought against us could result in a court judgment or settlement in an amount that is not covered, in whole or in part, by our insurance or that is in excess of the limits of our insurance coverage. Our insurance policies also have various exclusions, and we may be subject to a product liability claim for which we have no coverage. We will have to pay any amounts awarded by a court or negotiated in a settlement that exceed our coverage limitations or that are not covered by our insurance, and we may not have, or be able to obtain, sufficient capital to pay such amounts.

To the extent we enter into licensing or collaboration agreements to develop and commercialize our product candidates, including Drug Rescue Variants, our dependence on such relationships may adversely affect our business.

We may enter into strategic partnerships in the future, including collaborations with other biotechnology or pharmaceutical companies, to enhance and accelerate the development and commercialization of our product candidates. Our strategy to produce, develop and commercialize our product candidates, including any Drug Rescue Variants, may depend on our ability to enter into such agreements with third-party collaborators. We face significant competition in seeking appropriate strategic partners. Supporting diligence activities conducted by potential collaborators and negotiating the financial and other terms of a collaboration agreement are long and complex processes with uncertain results. Moreover, we may not be successful in our efforts to establish a strategic partnership or other alternative arrangements for any future product candidates and programs because our research and development pipeline may be insufficient, our product candidates and programs may be deemed to be at too early of a stage of development for collaborative effort and/or third parties may not view our product candidates and programs as having the requisite potential to demonstrate safety and efficacy. Even if we are successful in entering into one or more strategic collaboration agreements with third-parties, such collaborations may involve greater uncertainty for us, as we may have less control over certain aspects of our collaborative programs than we do over our proprietary internal development and commercialization programs. We may determine that continuing a collaborative arrangement under the terms provided is not in our best interest, and we may terminate the collaboration. Our collaborators could also delay or terminate their agreements, and our products subject to collaborative arrangements may never be successfully commercialized.

Further, our future collaborators may develop alternative products or pursue alternative technologies either on their own or in collaboration with others, including our competitors, and the priorities or focus of our collaborators may shift such that our programs receive less attention or resources than we would like, or they may be terminated altogether. Any such actions by our collaborators may adversely affect our business prospects and ability to earn revenues. In addition, we could have disputes with our future collaborators, such as the interpretation of terms in our agreements. Any such disagreements could lead to delays in the development or commercialization of potential products or could result in time-consuming and expensive litigation or arbitration, which may not be resolved in our favor.

Even with respect to certain other products that we intend to commercialize ourselves, we may enter into agreements with collaborators to share in the burden of conducting preclinical studies, clinical trials, manufacturing and marketing our product candidates or products. In addition, our ability to apply our proprietary technologies to develop proprietary compounds will depend on our ability to establish and maintain licensing arrangements or other collaborative arrangements with the holders of proprietary rights to such compounds. We may not be able to establish such arrangements on favorable terms or at all, and our future collaborative arrangements may not be successful.

We cannot provide any assurance that our future collaborations will not terminate development before achievement of revenue-generating milestones or market approval, that our future collaborative arrangements will result in successful development and commercialization of Drug Rescue Variants, or that we will derive any revenues from such future arrangements. The failure of any collaborator to conduct, successfully and diligently, their collaborative activities relating to the product candidate we license or sell to them would have a material adverse effect on us. Additionally, to the extent that we are unable to license or sell our Drug Rescue Variants to pharmaceutical companies or others, we would require substantial additional capital to undertake development and commercialization activities for any such product candidate on our own, and that substantial additional capital may not be available to us on a timely basis, on reasonable terms, or at all.
-30-
Our and our collaborators’ relationships with customers and third-party payors in the United States and elsewhere will be subject to applicable anti-kickback, fraud and abuse and other healthcare laws and regulations, which could expose us to criminal sanctions, civil penalties, contractual damages, reputational harm and diminished profits and future earnings.

Healthcare providers, physicians and third-party payors in the United States and elsewhere will play a primary role in the recommendation and prescription of any product candidates for which we may obtain marketing approval. Our or our future collaborator’s arrangements with third-party payors and customers may expose us to broadly applicable fraud and abuse and other healthcare laws and regulations that may constrain the business or financial arrangements and relationships through which we market, sell and distribute our products for which we or they obtain marketing approval. Restrictions under applicable federal, state and foreign healthcare laws and regulations include the following:

·the federal healthcare anti-kickback statute prohibits, among other things, persons from knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward either the referral of an individual for, or the purchase, order or recommendation of, any good or service for which payment may be made under federal and state healthcare programs such as Medicare and Medicaid;
·the federal False Claims Act imposes criminal and civil penalties, against individuals or entities for knowingly presenting, or causing to be presented, to the federal government, claims for payment that are false or fraudulent or making a false statement to avoid, decrease or conceal an obligation to pay money to the federal government and also includes provisions allowing for private, civil whistleblower or "qui tam" actions;
·
the federal Health Insurance Portability and Accountability Act of 1996 (HIPAA), as amended by the Health Information Technology for Economic and Clinical Health Act (HITECH), imposes criminal and civil liability for executing a scheme to defraud any healthcare benefit program. HIPAA and HITECH also regulate the use and disclosure of identifiable health information by health care providers, health plans and health care clearinghouses, and impose obligations, including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of identifiable health information as well as requiring notification of regulatory breaches. HIPAA and HITECH violations may prompt civil and criminal enforcement actions as well as enforcement by state attorneys general;
·the federal false statements statute prohibits knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false statement in connection with the delivery of or payment for healthcare benefits, items or services;
·the federal transparency requirements under the Health Care Reform Law requires manufacturers of drugs, devices, biologics and medical supplies to report to the Department of Health and Human Services information related to physician payments and other transfers of value and physician ownership and investment interests;
·analogous state laws and regulations, such as state anti-kickback and false claims laws, may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party payors, including private insurers, and some state laws require pharmaceutical companies to comply with the pharmaceutical industry's voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government in addition to requiring drug manufacturers to report information related to payments to physicians and other health care providers or marketing expenditures; and
·analogous anti-kickback, fraud and abuse and healthcare laws and regulations in foreign countries.
-31-
Efforts to ensure that our and our future collaborators’ business arrangements with third parties will comply with applicable healthcare laws and regulations will involve substantial costs. It is possible that governmental authorities will conclude that our or their business practices may not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our or their operations are found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, damages, fines, exclusion from government funded healthcare programs, such as Medicare and Medicaid, and the curtailment or restructuring of our operations. If any of the physicians or other providers or entities with whom we or our collaborators expect to do business are found to be not in compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs.

If we fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties or incur costs that could have a material adverse effect on the success of our business.

We are subject to numerous environmental, health and safety laws and regulations, including those governing laboratory procedures and the handling, use, storage, treatment and disposal of hazardous materials and wastes. Our operations involve the use of hazardous and flammable materials, including chemicals and biological materials. Our operations also produce hazardous waste products. We generally contract with third parties for the disposal of these materials and wastes. We cannot eliminate the risk of contamination or injury from these materials. In the event of contamination or injury resulting from our use of hazardous materials, we could be held liable for any resulting damages, and any liability could exceed our resources. We also could incur significant costs associated with civil or criminal fines and penalties.

Although we maintain workers' compensation insurance to cover us for costs and expenses we may incur due to injuries to our employees resulting from the use of hazardous materials, this insurance may not provide adequate coverage against potential liabilities. We do not maintain insurance for environmental liability or toxic tort claims that may be asserted against us in connection with our storage or disposal of biological, hazardous or radioactive materials.

In addition, we may incur substantial costs in order to comply with current or future environmental, health and safety laws and regulations. These current or future laws and regulations may impair our research, development or production efforts. Failure to comply with these laws and regulations also may result in substantial fines, penalties or other sanctions.sanctions, which could have a material adverse effect on our operations.

To the extent our research and development activities involve using induced pluripotent stem cells,iPSCs, we will be subject to complex and evolving laws and regulations regarding privacy and informed consent. Many of these laws and regulations are subject to change and uncertain interpretation, and could result in claims, changes to our research and development programs and objectives, increased cost of operations or otherwise harm the Company.

To the extent that we pursue research and development activities involving iPSCs, we will be subject to a variety of laws and regulations in the United States and abroad that involve matters central to such research and development activities, including obligations to seek informed consent from donors for the use of their blood and other tissue to produce, or have produced for us, iPSCs, as well as state and federal laws that protect the privacy of such donors. United States federal and state and foreign laws and regulations are constantly evolving and can be subject to significant change. If we engage in iPSC-related research and development activities in countries other than the United States, we may become subject to foreign laws and regulations relating to human subjects research and other laws and regulations that are often more restrictive than those in the United States. In addition, both the application and interpretation of these laws and regulations are often uncertain, particularly in the rapidly evolving stem cell technology sector in which we operate. These laws and regulations can be costly to comply with and can delay or impede our research and development activities, result in negative publicity, increase our operating costs, require significant management time and attention and subject us to claims or other remedies, including fines or demands that we modify or cease existing business practices.
 
-32-
Legal, social and ethical concerns surrounding the use of iPSCs, biological materials and genetic information could impair our operations.

To the extent that our future stem cell research and development activities involve the use of iPSCs and the manipulation of human tissue and genetic information, the information we derive from such iPSC-related research and development activities could be used in a variety of applications, which may have underlying legal, social and ethical concerns, including the genetic engineering or modification of human cells, testing for genetic predisposition for certain medical conditions and stem cell banking. Governmental authorities could, for safety, social or other purposes, call for limits on or impose regulations on the use of iPSCs and genetic testing or the manufacture or use of certain biological materials involved in our iPSC-related research and development programs. Such concerns or governmental restrictions could limit our future research and development activities, which could have a material adverse effect on our business, financial condition and results of operations.

-36-
Our human cell-basedcellular bioassay systems and human cells we derive from human pluripotent stem cells, although not currently subject to regulation by the FDA or other regulatory agencies as biological products or drugs, could become subject to regulation in the future.

OurThe human cells we produce from hPSCs and human cell-basedour customized bioassay systems using such cells, including CardioSafe 3D and LiverSafe3D, are not currently sold, for research purposes or any other purpose, to biotechnology or pharmaceutical companies, government research institutions, academic and nonprofit research institutions, medical research organizations or stem cell banks, and they are not therapeutic procedures. As a result, they are not subject to regulation as biological products or drugs by the FDA or comparable agencies in other countries. However, if, in the future, we seek to include human cells we derive from human pluripotent stem cellshPSCs in therapeutic applications or product candidates, such applications and/or product candidates would be subject to the FDA’s pre- and post-market regulations. For example, if we seek to develop and market human cells we produce for use in performing cell therapy or for other regenerative medicine applications, such as tissue engineering or organ replacement, we would first need to obtain FDA pre-market clearance or approval. Obtaining such clearance or approval from the FDA is expensive, time-consuming and uncertain, generally requiring many years to obtain, and requiring detailed and comprehensive scientific and clinical data. Notwithstanding the time and expense, these efforts may not result in FDA approval or clearance. Even if we were to obtain regulatory approval or clearance, it may not be for the uses that we believe are important or commercially attractive.

Risks Related to Our Financial Position
We intend to rely on third-party contract manufacturers to produce our product candidate supplieshave incurred significant net losses since inception and we intend to rely on such third-party manufacturers to produce commercial supplies of any approved product candidates we develop on our own. Any failure by a third-party manufacturer to produce for us supplies of product candidates we elect to develop on our own may delay or impair our ability to initiate or complete clinical trials, commercialize our product candidates, orwill continue to sell any productsincur substantial operating losses for the foreseeable future. We may never achieve or sustain profitability, which would depress the market price of our common stock, and could cause you to lose all or a part of your investment.
We have incurred significant net losses in each fiscal year since our inception in 1998, including net losses of $10.3 million and $47.2 million, which includes $26.7 million of non-cash expense related to the extinguishment of essentially all of our outstanding promissory notes and certain other indebtedness, during the fiscal years ended March 31, 2017 and 2016, respectively. As of March 31, 2017, we commercialize.

had an accumulated deficit of approximately $142.0 million. We do not currently ownknow whether or operate any manufacturing facilities, andwhen we lack sufficient internal staff to produce product candidate supplies ourselves. As a result, we plan to work with third-party contract manufacturers to produce sufficient quantitieswill become profitable. Substantially all of our product candidates for future preclinical and clinical testing and commercialization. If we are unable to arrange for such a third-party manufacturing source, or fail to do so on commercially reasonable terms or on a timely basis, we or our potential strategic partner may not be able to successfully produce, develop, and market our product candidates or may be delayedoperating losses have resulted from costs incurred in doing so.

Reliance on third-party manufacturers entails risks to which we or our potential collaborators would not be subject if we or they manufactured product candidates ourselves or themselves, including reliance on the third party for regulatory compliance and quality assurance, the possibility of breach of the manufacturing agreement by the third party because of factors beyond our control (including a failure to synthesize and manufacture our product candidates in accordanceconnection with our product specifications), the possibility of termination or nonrenewal of the agreement by the third party, based on its own business priorities, at a time that is costly or damaging to us, or misappropriation of proprietary formulas or protocols. We will be,research and our potential strategic partners may be, dependent, on the ability of these third-party manufacturers to produce adequate supplies of drug product to support development programs and from general and administrative costs associated with our operations. We expect to incur increasing levels of operating losses over the next several years and for the foreseeable future. Our prior losses, combined with expected future commercializationlosses, have had and will continue to have an adverse effect on our stockholders’ equity (deficit) and working capital. We expect our research and development expenses to significantly increase in connection with non-clinical studies and clinical trials of our product candidates. In addition, if we obtain marketing approval for our product candidates, we may incur significant sales, marketing and outsourced-manufacturing expenses should we elect not to collaborate with one or more third parties for such services and capabilities. As a public company, we incur additional costs associated with operating as a public company. As a result, we expect to continue to incur significant and increasing operating losses for the foreseeable future. Because of the numerous risks and uncertainties associated with developing pharmaceutical products, we are unable to predict the extent of any future losses or when we will become profitable, if at all. Even if we do become profitable, we may not be able to sustain or increase our profitability on a quarterly or annual basis.
Our ability to become profitable depends upon our ability to generate revenues. To date, we have generated approximately $17.7 million in revenues, including receipt of non-dilutive cash payments from collaborators, sublicense revenue, and research and development grant awards from the NIH, not including the fair market value of the ongoing NIMH AV-101 MDD Phase 2 Monotherapy Study under our NIMH CRADA. We have not yet commercialized any product or generated any revenues from product sales, and we do not know when, or if, we will generate any revenue from product sales. We do not expect to generate significant revenue unless and until we obtain marketing approval of, and begin to experience sales of, AV-101, or we enter into one or more development and commercialization agreements with respect to AV-101 or one or more other product candidates. Our ability to generate revenue depends on a number of factors, including, but not limited to, our ability to:
●
initiate and successfully complete non-clinical and clinical trials that meet their prescribed endpoints;
●
initiate and successfully complete all safety studies required to obtain U.S. and foreign marketing approval for our product candidates;
●
commercialize our product candidates, if approved, by developing a sales force or entering into collaborations with third parties; and
●
achieve market acceptance of our product candidates in the medical community and with third-party payors.
Unless we enter into a development and commercialization collaboration or partnership agreement, we expect to incur significant sales and marketing costs as we prepare to commercialize AV-101 or other product candidates. Even if we initiate and successfully complete pivotal clinical trials of AV-101 or other product candidates, and AV-101 or other product candidates are approved for commercial sale, and despite expending these costs, AV-101 or other product candidates may not be commercially successful. We may not achieve profitability soon after generating product sales, if ever. If we are unable to generate product revenue, we will not become profitable and may be unable to continue operations without continued funding.
-37-
We require additional financing to execute our business plan and continue to operate as a going concern.
Our audited consolidated financial statements for the year ended March 31, 2017 have been prepared assuming we will continue to operate as a going concern, although our auditors have indicated that our continuing losses and negative cash flows from operations raise substantial doubt about our ability to continue as such. Because we continue to experience net operating losses, our ability to continue as a going concern is subject to our ability to obtain necessary funding from outside sources, including obtaining additional funding from the sale of our securities or obtaining loans and grant awards from financial institutions and/or government agencies where possible. Our continued net operating losses increase the difficulty in completing such sales or securing alternative sources of funding, and there can be no assurances that we will be able to obtain such funding on favorable terms or at all. If we are unable to obtain sufficient financing from the sale of our securities or from alternative sources, we may be required to reduce, defer, or discontinue certain or all of our research and development activities or we may not be able to continue as a going concern.
Since our inception, most of our resources have been dedicated to research and development of AV-101 and the drug rescue capabilities of our stem cell technology platform. In particular, we have expended substantial resources advancing AV-101 through preclinical development and Phase 1 clinical safety studies, and developingCardioSafe3D and our cardiac stem cell technology for drug rescue and potential regenerative medicine applications, and we will continue to expend substantial resources for the foreseeable future developing and commercializing AV-101 for multiple CNS indications, and, potentially, developing drug rescue NCEs and RM therapies, on our own or in collaborations similar to the BlueRock Agreement. These expenditures will include costs associated with general and administrative costs, facilities costs, research and development, acquiring new technologies, manufacturing product candidates, conducting preclinical experiments and clinical trials and obtaining regulatory approvals, as well as commercializing any products approved for sale.
At March 31, 2017, our existing cash and cash equivalents were not sufficient to fund our current operations for the next 12 months or to complete our proposed AV-101 MDD Phase 2 Adjunctive Treatment Study of AV-101. However, as described in Note 16,Subsequent Events,to the accompanying Consolidated Financial Statements for the fiscal year ended March 31, 2017, included in Item 8 of this Annual Report, between April 1, and June 27, 2017, in self-placed private placement transactions, we sold to accredited investors units consisting of (i) an aggregate of 437,751 shares of our unregistered common stock and (ii) warrants to purchase an aggregate of 218,875 shares of our common stock, pursuant to which we received cash proceeds of $837,300, bringing proceeds for the Spring 2017 Private Placement to approximately $1.0 million. During the quarter ended December 31, 2016, we received aggregate cash proceeds of $247,900 from the sale of our common stock and warrants to two accredited investors private placement transactions. Further, as described in greater detail in Note 5, Sublicense Fee Receivable and Sublicense Revenue,to the accompanying Consolidated Financial Statements for the fiscal year ended March 31, 2017, we received a cash payment of $1.25 million under the BlueRock Agreement in January 2017. Additionally, in February 2015, we entered into the CRADA with the NIH, under which the NIMH is fully funding and conducting the NIMH AV-101 MDD Phase 2 Monotherapy Study. However, we have no current source of revenue to sustain our present activities, and we do not expect to generate revenue until, and unless, we (i) out-license or sell AV-101, a drug rescue NCE, and/or another drug candidate unrelated to AV-101 to third-parties, (ii) enter into license arrangements involving our stem cell technology, or (iii) obtain approval from the FDA andor other regulatory authorities require that alland successfully commercialize, on our own or through a future collaboration, one or more of our compounds.
-38-
As the outcome of our AV-101 and NCE drug rescue activities and future anticipated clinical trials is highly uncertain, we cannot reasonably estimate the actual amounts necessary to successfully complete the development and commercialization of our product candidates, be manufactured accordingon our own or in collaboration with others. In addition, other unanticipated costs may arise. As a result of these and other factors, we will need to cGMPseek additional capital in the near term to meet our future operating requirements, including capital necessary to develop, obtain regulatory approval for, and similar foreign standards. Any failure byto commercialize our or our collaborators’ third-party manufacturers to comply with cGMP or failure to scale up manufacturing processes, including any failure to deliver sufficient quantities of product candidates, and may seek additional capital in the event there exists favorable market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. We are considering a range of potential sources of funding, including public or private equity or debt financings, government or other third-party funding, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements or a combination of these approaches, and we may complete additional financing arrangements in 2017 and beyond. Raising funds in the current economic environment may present additional challenges. Even if we believe we have sufficient funds for our current or future operating plans, we may seek additional capital if market conditions are favorable or if we have specific strategic considerations.
Our future capital requirements depend on many factors, including:
●
the number and characteristics of the product candidates we pursue, including AV-101 and drug rescue NCEs;
●
the scope, progress, results and costs of researching and developing our product candidates, and conducting preclinical and clinical studies;
●
the timing of, and the costs involved in, obtaining regulatory approvals for our product candidates;
●
the cost of commercialization activities if any of our product candidates are approved for sale, including marketing, sales and distribution costs;
●
the cost of manufacturing our product candidates and any products we successfully commercialize;
●
our ability to establish and maintain strategic partnerships, licensing or other arrangements and the financial terms of such agreements;
●
market acceptance of our products;
●
the effect of competing technological and market developments;
●
our ability to obtain government funding for our programs;
●
the costs involved in obtaining and enforcing patents to preserve our intellectual property;
●
the costs involved in defending against such claims that we infringe third-party patents or violate other intellectual property rights and the outcome of such litigation;
●
the timing, receipt and amount of potential future licensee fees, milestone payments, and sales of, or royalties on, our future products, if any; and
●
the extent to which we acquire or invest in businesses, products and technologies, although we currently have no commitments or agreements relating to any of these types of transactions.
Any additional fundraising efforts will divert certain members of our management team from their day-to-day activities, which may adversely affect our ability to develop and commercialize our product candidates. In addition, we cannot guarantee that future financing will be available in sufficient amounts, in a timely manner, or on terms acceptable to us, if at all, and the terms of any financing may adversely affect the holdings or the rights of our stockholders and the issuance of additional securities, whether equity or debt, by us, or the possibility of such issuance, may cause the market price of our shares to decline. The sale of additional equity securities and the conversion or exchange of certain of our outstanding securities will dilute all of our stockholders. The incurrence of debt could leadresult in increased fixed payment obligations and we could be required to agree to certain restrictive covenants, such as limitations on our ability to incur additional debt, limitations on our ability to acquire, sell or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business. We could also be required to seek funds through arrangements with collaborative partners or otherwise at an earlier stage than otherwise would be desirable and we may be required to relinquish rights to some of our technologies or product candidate or otherwise agree to terms unfavorable to us, any of which may have a delay in, or failurematerial adverse effect on our business, operating results and prospects.
If we are unable to obtain regulatory approval for trial initiationadditional funding on a timely basis and on acceptable terms, we may be required to significantly curtail, delay or marketingdiscontinue one or more of our research or product development programs or the commercialization of any product candidates we may produce, including Drug Rescue Variants. In addition, such failurecandidate or be unable to continue or expand our operations or otherwise capitalize on our business opportunities, as desired, which could be the basis for action by the FDA to withdraw approvals for product candidates previously grantedmaterially affect our business, financial condition and for other regulatory action, including recall or seizure, fines, impositionresults of operating restrictions, total or partial suspension of production or injunctions.operations.
 
 
-39-
-33-
We have identified material weaknesses in our internal control over financial reporting, and our business and stock price may be adversely affected if we do not adequately address those weaknesses or if we have other material weaknesses or significant deficiencies in our internal control over financial reporting.
We have identified material weaknesses in our internal control over financial reporting. In particular, we concluded that (i) the size and capabilities of our staff does not permit appropriate segregation of duties to prevent one individual from overriding the internal control system by initiating, authorizing and completing all transactions, and (ii) we utilize accounting software that does not prevent erroneous or unauthorized changes to previous reporting periods and/or can be adjusted so as to not provide an adequate auditing trail of entries made in the accounting software (See Item 9A. Controls and Procedures contained in this Annual Report).
The existence of one or more material weaknesses or significant deficiencies could result in errors in our financial statements, and substantial costs and resources may be required to rectify any internal control deficiencies. If we cannot produce reliable financial reports, investors could lose confidence in our reported financial information, we may be unable to obtain additional financing to operate and expand our business and our business and financial condition could be harmed.
Raising additional capital will cause dilution to our existing stockholders, may restrict our operations or require us to relinquish rights, and may require us to seek stockholder approval to authorize additional shares of our common stock.
We intend to pursue private and public equity offerings, debt financings, strategic collaborations and licensing arrangements during 2017 and beyond. To the extent that we raise additional capital through the sale of common stock or securities convertible or exchangeable into common stock, or to the extent, for strategic purposes, we convert or exchange certain of our outstanding securities into common stock, our current stockholders’ ownership interest in our company will be diluted. In addition, the terms of any such securities may include liquidation or other preferences that materially adversely affect rights of our stockholders. Debt financing, if available, would increase our fixed payment obligations and may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional funds through collaboration, strategic partnerships and licensing arrangements with third parties, we may have to relinquish valuable rights to our product candidates, our intellectual property, future revenue streams or grant licenses on terms that are not favorable to us.
We currently have 30.0 million shares of common stock authorized for issuance. Based on the current number of shares of our common stock: (i) outstanding, (ii) reserved for conversion or exchange of our various series of outstanding preferred stock, including for payment of accrued dividends on our outstanding Series B Preferred, (iii) reserved for the exercise of outstanding warrants, and (iv) reserved for the exercise of options granted or available for grant pursuant to our equity incentive plans, at March 31, 2017, we have approximately 8.9 million shares of common stock available for future financing or other activities. We anticipate seeking stockholder approval to amend our Articles of Incorporation to increase the number of shares of common stock we are authorized to issue in order to achieve our near-term or longer-term financing objectives.
Some of our programs have been partially supported by government grant awards, which may not be available to us in the future.
Since inception, we have received substantial funds under grant award programs funded by state and federal governmental agencies, such as the NIH, the NIH’s National Institute of Neurological Disease and Stroke (NINDS) and the NIMH, and the California Institute for Regenerative Medicine (CIRM). To fund a portion of our future research and development programs, we may apply for additional grant funding from such or similar governmental organizations.  However, funding by these governmental organizations may be significantly reduced or eliminated in the future for a number of reasons. For example, some programs are subject to a yearly appropriations process in Congress. In addition, we may not receive funds under future grants because of budgeting constraints of the agency administering the program. Therefore, we cannot assure you that we will receive any future grant funding from any government organization or otherwise.  A restriction on the government funding available to us could reduce the resources that we would be able to devote to future research and development efforts. Such a reduction could delay the introduction of new products and hurt our competitive position.
Our ability to use net operating losses to offset future taxable income is subject to certain limitations.
As of March 31, 2017, we had federal and state net operating loss carryforwards of $77.1 million and $67.6 million, respectively, which begin to expire in fiscal 2018.  Under Section 382 of the Internal Revenue Code of 1986, as amended (theCode) changes in our ownership may limit the amount of our net operating loss carryforwards that could be utilized annually to offset our future taxable income, if any. This limitation would generally apply in the event of a cumulative change in ownership of our company of more than 50% within a three-year period. Any such limitation may significantly reduce our ability to utilize our net operating loss carryforwards and tax credit carryforwards before they expire. Any such limitation, whether as the result of future offerings, prior private placements, sales of our common stock by our existing stockholders or additional sales of our common stock by us in the future, could have a material adverse effect on our results of operations in future years. We have not completed a study to assess whether an ownership change for purposes of Section 382 has occurred, or whether there have been multiple ownership changes since our inception, due to the significant costs and complexities associated with such study.
General Company-Related Risks
If we fail to attract and retain senior management and key scientific personnel, we may be unable to successfully produce, develop and commercialize AV-101, drug rescue NCEs, other potential product candidates and other commercial applications of our stem cell technology.
Our success depends in part on our continued ability to attract, retain and motivate highly qualified management and scientific and technical personnel. We are highly dependent upon our Chief Executive Officer, President and Chief Scientific Officer, Chief Medical Officer and Chief Financial Officer, as well as other employees, consultants and scientific collaborators. As of the date of this Annual Report, we have nine full-time employees, which may make us more reliant on our individual employees than companies with a greater number of employees. The loss of services of any of these individuals could delay or prevent the successful development of AV-101, drug rescue NCEs, other product candidates, and other applications of our stem cell technology, including our production and assessment of potential drug recuse NCEs or disrupt our administrative functions.
-40-
Although we have not historically experienced unique difficulties attracting and retaining qualified employees, we could experience such problems in the future. For example, competition for qualified personnel in the biotechnology and pharmaceuticals field is intense. We will need to hire additional personnel as we expand our research and development and administrative activities. We may not be able to attract and retain quality personnel on acceptable terms.
In addition, we rely on a diverse range of strategic consultants and advisors, including manufacturing, scientific and clinical development, and regulatory advisors, to assist us in designing and implementing our research and development and regulatory strategies and plans, including our AV-101 development and drug rescue strategies and plans. Our consultants and advisors may be employed by employers other than us and may have commitments under consulting or advisory contracts with other entities that may limit their availability to us.
As we seek to advance development of AV-101 for MDD and other CNS-related conditions, as well as stem cell technology-related drug rescue and RM programs, we will need to expand our research and development capabilities and/or contract with third parties to provide these capabilities for us. As our operations expand, we expect that we will need to manage additional relationships with various strategic partners and other third parties. Future growth will impose significant added responsibilities on members of management. Our future financial performance and our ability to develop and commercialize our product candidates and to compete effectively will depend, in part, on our ability to manage any future growth effectively. To that end, we must be able to manage our research and development efforts effectively and hire, train and integrate additional management, administrative and technical personnel. The hiring, training and integration of new employees may be more difficult, costly and/or time-consuming for us because we have fewer resources than a larger organization. We may not be able to accomplish these tasks, and our failure to accomplish any of them could prevent us from successfully growing the company.
If product liability lawsuits are brought against us, we may incur substantial liabilities and may be required to limit commercialization of our product candidates.
If we develop AV-101, drug rescue NCEs, other product candidates, or regenerative medicine product candidates, either on our own or in collaboration with others, we will face inherent risks of product liability as a result of the required clinical testing of such product candidates, and will face an even greater risk if we or our collaborators commercialize any such product candidates. For example, we may be sued if AV-101, any drug rescue NCE, other product candidate, or regenerative medicine product candidate we develop allegedly causes injury or is found to be otherwise unsuitable during product testing, manufacturing, marketing or sale. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability, and a breach of warranties. Claims could also be asserted under state consumer protection acts. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit commercialization of our product candidates. Even successful defense would require significant financial and management resources. Regardless of the merits or eventual outcome, liability claims may result in:
●
decreased demand for products that we may develop;
 
We
●
injury to our reputation;
●
withdrawal of clinical trial participants;
●
costs to defend the related litigation;
●
a diversion of management's time and our resources;
●
substantial monetary awards to trial participants or patients;
●
product recalls, withdrawals or labeling, marketing or promotional restrictions;
Our inability to obtain and retain sufficient product liability insurance at an acceptable cost to protect against potential product liability claims could prevent or inhibit the commercialization of products we develop. Although we maintain liability insurance, any claim that may be brought against us could result in a court judgment or settlement in an amount that is not covered, in whole or in part, by our insurance or that is in excess of the limits of our insurance coverage. Our insurance policies also have limited staffing.various exclusions, and we may be subject to a product liability claim for which we have no coverage. We will have to pay any amounts awarded by a court or negotiated in a settlement that exceed our coverage limitations or that are not covered by our insurance, and we may not have, or be able to obtain, sufficient capital to pay such amounts.
-41-
As a public company, we incur significant administrative workload and expenses to comply with U.S. regulations and requirements imposed by The NASDAQ Stock Market concerning corporate governance and public disclosure.
As a public company with common stock listed on The NASDAQ Capital Market, we must comply with various laws, regulations and requirements, including certain provisions of the Sarbanes-Oxley Act of 2002, as well as rules implemented by the SEC and The NASDAQ Stock Market. Complying with these statutes, regulations and requirements, including our potential strategic partners may, rely on contract manufacturerspublic company reporting requirements, continues to purchase from third-party suppliersoccupy a significant amount of the materials necessarytime of management and involves significant accounting, legal and other expenses. Furthermore, these laws, regulations and requirements require us to produce our product candidates for required studies. There may beobserve greater corporate governance practices than we have employed in the past, including, but not limited to maintaining a smallsufficient number of suppliers for certainindependent directors, increased frequency of board meetings, and holding annual stockholder meetings. Our efforts to comply with these regulations are likely to result in increased general and administrative expenses and management time and attention directed to compliance activities.
Unfavorable global economic or political conditions could adversely affect our business, financial condition or results of operations.
Our results of operations could be adversely affected by global political conditions, as well as general conditions in the global economy and in the global financial and stock markets. Global financial and political crises cause extreme volatility and disruptions in the capital equipment and materials that wecredit markets. A severe or our collaborators use to manufacture our product candidates. Such suppliers may not sell these materialsprolonged economic downturn, such as the recent global financial crisis, could result in a variety of risks to our manufacturers at the times we or they need them or on commercially reasonable terms. We will not have any control over the process or timing of the acquisition of these materials by our manufacturers. Although we and our collaborators generally will not begin a required study unless we or they believe a sufficient supply of a product candidate exists to complete the study, any significant delay in the supply of a product candidate or the material components thereof for an ongoing study due to the need to replace a third-party manufacturer could considerably delay completion of the studies, product testing and potential regulatory approval. If we or our manufacturers are unable to purchase these materials after regulatory approval has been obtainedbusiness, including, weakened demand for our product candidates and our ability to raise additional capital when needed on acceptable terms, if at all. A weak or declining economy could also strain our suppliers, possibly resulting in supply disruption, or cause our customers to delay making payments for our services. Any of the commercial launchforegoing could harm our business and we cannot anticipate all of the ways in which the current economic climate and financial market conditions could adversely impact our business.
We or the third parties upon whom we depend may be adversely affected by natural disasters and our business continuity and disaster recovery plans may not adequately protect us from a serious disaster.
Natural disasters could severely disrupt our operations, and have a material adverse effect on our business, results of operations, financial condition and prospects. If a natural disaster, power outage or other event occurred that prevented us from using all or a significant portion of our headquarters, that damaged critical infrastructure, such as the manufacturing facilities of our third-party CMOs, or that otherwise disrupted operations, it may be difficult or, in certain cases, impossible for us to continue our business for a substantial period of time. The disaster recovery and business continuity plans we have in place may prove inadequate in the event of a serious disaster or similar event. We may incur substantial expenses as a result of the limited nature of our disaster recovery and business continuity plans, which could have a material adverse effect on our business.
Our internal computer systems, or those of our third-party CROs or other contractors or consultants, may fail or suffer security breaches, which could result in a material disruption of our product candidates’ development programs.
Despite the implementation of security measures, our internal computer systems and those of our third-party CROs and other contractors and consultants are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. While we have not experienced any such system failure, accident, or security breach to date, if such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our programs. For example, the loss of clinical trial data for AV-101 or other product candidates could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. To the extent that any disruption or security breach results in a loss of or damage to our data or applications or other data or applications relating to our technology or product candidates, or inappropriate disclosure of confidential or proprietary information, we could incur liabilities and the further development of our product candidates could be delayeddelayed.
We may acquire businesses or thereproducts, or form strategic alliances, in the future, and we may not realize the benefits of such acquisitions.
We may acquire additional businesses or products, form strategic alliances or create joint ventures with third parties that we believe will complement or augment our existing business. If we acquire businesses with promising markets or technologies, we may not be able to realize the benefit of acquiring such businesses if we are unable to successfully integrate them with our existing operations and company culture. We may encounter numerous difficulties in developing, manufacturing and marketing any new products resulting from a strategic alliance or acquisition that delay or prevent us from realizing their expected benefits or enhancing our business. We cannot assure you that, following any such acquisition, we will achieve the expected synergies to justify the transaction.
-42-
Risks Related to Our Intellectual Property Rights
If we are unable to adequately protect our proprietary technology, or obtain and maintain issued patents that are sufficient to protect our product candidates, others could be a shortage in supply,compete against us more directly, which would impairhave a material adverse impact on our business, results of operations, financial condition and prospects.
We strive to protect and enhance the proprietary technologies that we believe are important to our business, including seeking patents intended to cover our products and compositions, their methods of use and any other inventions we consider are important to the development of our business. We also rely on trade secrets to protect aspects of our business that are not amenable to, or that we do not consider appropriate for, patent protection.
Our success will depend significantly on our ability to generate revenues fromobtain and maintain patent and other proprietary protection for commercially important technology, inventions and know-how related to our business, to defend and enforce our patents, should they issue, to preserve the saleconfidentiality of our trade secrets and to operate without infringing the valid and enforceable patents and proprietary rights of third parties. We also rely on know-how, continuing technological innovation and in-licensing opportunities to develop, strengthen and maintain the proprietary position of our product candidates. We own patent applications related to AV-101 and we own and have licensed patents and patent applications related to human pluripotent stem cell technology.

Although we have an issued patent relating to AV-101 in the European Union, we cannot yet provide any assurances that any of our numerous pending U.S. and additional foreign patent applications relating to AV-101 will mature into issued patents and, if they do, that such patents will include claims with a scope sufficient to protect AV-101 or otherwise provide any competitive advantage. Moreover, other parties may have developed technologies that may be related or competitive to our approach, and may have filed or may file patent applications and may have received or may receive patents that may overlap or conflict with our patent applications, either by claiming the same methods or formulations or by claiming subject matter that could dominate our patent position. Such third-party patent positions may limit or even eliminate our ability to obtain patent protection.
The patent positions of biotechnology and pharmaceutical companies, including our patent position, involve complex legal and factual questions, and, therefore, the issuance, scope, validity and enforceability of any additional patent claims that we may obtain cannot be predicted with certainty. Patents, if issued, may be challenged, deemed unenforceable, invalidated, or circumvented. U.S. patents and patent applications may also be subject to interference proceedings,ex partereexamination, orinter partesreview proceedings, supplemental examination and challenges in district court. Patents may be subjected to opposition, post-grant review, or comparable proceedings lodged in various foreign, both national and regional, patent offices. These proceedings could result in either loss of the patent or denial of the patent application or loss or reduction in the scope of one or more of the claims of the patent or patent application. In addition, such proceedings may be costly. Thus, any patents that we may own or exclusively license may not provide any protection against competitors. Furthermore, an adverse decision in an interference proceeding can result in a third party receiving the patent right sought by us, which in turn could affect our ability to develop, market or otherwise commercialize our product candidates.
Furthermore, though a patent is presumed valid and enforceable, its issuance is not conclusive as to its validity or its enforceability and it may not provide us with adequate proprietary protection or competitive advantages against competitors with similar products. Even if a patent issues and is held to be valid and enforceable, competitors may be able to design around our patents, such as using pre-existing or newly developed technology. Other parties may develop and obtain patent protection for more effective technologies, designs or methods. We may not be able to prevent the unauthorized disclosure or use of our technical knowledge or trade secrets by consultants, vendors, former employees and current employees. The laws of some foreign countries do not protect our proprietary rights to the same extent as the laws of the United States, and we may encounter significant problems in protecting our proprietary rights in these countries. If these developments were to occur, they could have a material adverse effect on our sales.
Our ability to enforce our patent rights depends on our ability to detect infringement. It is difficult to detect infringers who do not advertise the components that are used in their products. Moreover, it may be difficult or impossible to obtain evidence of infringement in a competitor’s or potential competitor’s product. Any litigation to enforce or defend our patent rights, even if we were to prevail, could be costly and time-consuming and would divert the attention of our management and key personnel from our business operations. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded if we were to prevail may not be commercially meaningful.
In addition, proceedings to enforce or defend our patents could put our patents at risk of being invalidated, held unenforceable, or interpreted narrowly. Such proceedings could also provoke third parties to assert claims against us, including that some or all of the claims in one or more of our patents are invalid or otherwise unenforceable. If any patents covering our product candidates are invalidated or found unenforceable, our financial position and results of operations would be materially and adversely impacted. In addition, if a court found that valid, enforceable patents held by third parties covered our product candidates, our financial position and results of operations would also be materially and adversely impacted.
-43-
The degree of future protection for our proprietary rights is uncertain, and we cannot ensure that:
●
any of our AV-101 or other pending patent applications, if issued, will include claims having a scope sufficient to protect AV-101 or any other products or product candidates, particularly considering that the compound patent to AV-101 has expired;
●
any of our potential strategic partnerpending patent applications will issue as patents at all;
●
we will be able to successfully commercialize our product candidates, if approved, before our relevant patents expire;
●
we were the first to make the inventions covered by each of our patents and pending patent applications;
●
we were the first to file patent applications for these inventions;
●
others will not develop similar or alternative technologies that do not infringe our patents;
●
others will not use pre-existing technology to effectively compete against us;
●
any of our patents, if issued, will be found to ultimately be valid and enforceable;
●
any patents issued to us will provide a basis for an exclusive market for our commercially viable products, will provide us with any competitive advantages or will not be challenged by third parties;
●
we will develop additional proprietary technologies or product candidates that are separately patentable; or
●
that our commercial activities or products will not infringe upon the patents or proprietary rights of others.
We also rely upon unpatented trade secrets, unpatented know-how and continuing technological innovation to develop and maintain our competitive position, which we seek to protect, in part, by confidentiality agreements with our employees and our collaborators and consultants. It is possible that technology relevant to our business will be independently developed by a person that is not a party to such an agreement.  Furthermore, if the employees and consultants who are parties to these agreements breach or violate the terms of these agreements, we may neednot have adequate remedies for any such breach or violation, and we could lose our trade secrets through such breaches or violations. Further, our trade secrets could otherwise become known or be independently discovered by our competitors.
We may infringe the intellectual property rights of others, which may prevent or delay our product development efforts and stop us from commercializing or increase the costs of commercializing our product candidates, if approved.
Our success will depend in part on our ability to optimizeoperate without infringing the manufacturing processesintellectual property and proprietary rights of third parties. We cannot assure you that our business, products and methods do not or will not infringe the patents or other intellectual property rights of third parties.
The pharmaceutical industry is characterized by extensive litigation regarding patents and other intellectual property rights. Other parties may allege that our product candidates or the use of our technologies infringes patent claims or other intellectual property rights held by them or that we are employing their proprietary technology without authorization. As we continue to develop and, if approved, commercialize our current product candidates and future product candidates, competitors may claim that our technology infringes their intellectual property rights as part of business strategies designed to impede our successful commercialization. There may be third-party patents or patent applications with claims to materials, formulations, methods of manufacture or methods for a particular drug substance and/treatment related to the use or drugmanufacture of our product socandidates. Because patent applications can take many years to issue, third parties may have currently pending patent applications that certainmay later result in issued patents that our product candidates may infringe, or which such third parties claim are infringed by our technologies. The outcome of intellectual property litigation is subject to uncertainties that cannot be producedadequately quantified in advance. The coverage of patents is subject to interpretation by the courts, and the interpretation is not always uniform. If we are sued for patent infringement, we would need to demonstrate that our product candidates, products or methods either do not infringe the patent claims of the relevant patent or that the patent claims are invalid, and we may not be able to do this. Even if we are successful in these proceedings, we may incur substantial costs and the time and attention of our management and scientific personnel could be diverted in pursuing these proceedings, which could have a material adverse effect on us. In addition, we may not have sufficient quantitiesresources to bring these actions to a successful conclusion.
-44-
Patent and other types of intellectual property litigation can involve complex factual and legal questions, and their outcome is uncertain. Any claim relating to intellectual property infringement that is successfully asserted against us may require us to pay substantial damages, including treble damages and attorney’s fees if we are found to be willfully infringing another party’s patents, for past use of the asserted intellectual property and royalties and other consideration going forward if we are forced to take a license. In addition, if any such claim was successfully asserted against us and we could not obtain such a license, we may be forced to stop or delay developing, manufacturing, selling or otherwise commercializing our product candidates.
Even if we are successful in these proceedings, we may incur substantial costs and divert management time and attention in pursuing these proceedings, which could have a material adverse effect on us. If we are unable to avoid infringing the patent rights of others, we may be required to seek a license, defend an infringement action or challenge the validity of the patents in court, or redesign our products. Patent litigation is costly and time-consuming. We may not have sufficient resources to bring these actions to a successful conclusion. In addition, intellectual property litigation or claims could force us to do one or more of the following:
●
cease developing, selling or otherwise commercializing our product candidates;
●
pay substantial damages for past use of the asserted intellectual property;
●
obtain a license from the holder of the asserted intellectual property, which license may not be available on reasonable terms, if at all; and
●
in the case of trademark claims, redesign, or rename, some or all of our product candidates to avoid infringing the intellectual property rights of third parties, which may not be possible and, even if possible, could be costly and time-consuming.
Any of these risks coming to fruition could have a material adverse effect on our business, results of operations, financial condition and prospects.
We may be subject to claims challenging the inventorship or ownership of our patents and other intellectual property.
We enter into confidentiality and intellectual property assignment agreements with our employees, consultants, outside scientific collaborators, sponsored researchers and other advisors. These agreements generally provide that inventions conceived by the party in the course of rendering services to us will be our exclusive property. However, these agreements may not be honored and may not effectively assign intellectual property rights to us. For example, even if we have a consulting agreement in place with an acceptable cost,academic advisor pursuant to supportwhich such academic advisor is required development activitiesto assign any inventions developed in connection with providing services to us, such academic advisor may not have the right to assign such inventions to us, as it may conflict with his or her obligations to assign all such intellectual property to his or her employing institution.
Litigation may be necessary to defend against these and commercialization. Contract manufacturersother claims challenging inventorship or ownership. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, valuable intellectual property. Such an outcome could have a material adverse effect on our business. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees.
Obtaining and maintaining our patent protection depends on compliance with various procedural, document submission, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these requirements.
The U.S. Patent and Trademark Office (USPTO), European Patent Office (EPO) and various other foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other provisions during the patent process. There are situations in which noncompliance can result in abandonment or lapse of a patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. In such an event, competitors might be able to enter the market earlier than would otherwise have been the case.
We may be involved in lawsuits to protect or enforce our patents or the patents of our licensors, which could be expensive, time-consuming and unsuccessful.
Even if the patent applications we own or license are issued, competitors may infringe these patents. To counter infringement or unauthorized use, we may be required to file infringement claims, which can be expensive and time-consuming. In addition, in an infringement proceeding, a court may decide that a patent of ours or our licensors is not valid, is unenforceable and/or is not infringed, or may refuse to stop the other party from using the technology at issue on the grounds that our patents do not cover the technology in question. An adverse result in any litigation or defense proceedings could put one or more of our patents at risk of being invalidated or interpreted narrowly and could put our patent applications at risk of not issuing.
Interference proceedings provoked by third parties or brought by us may be necessary to determine the priority of inventions with respect to our patents or patent applications or those of our licensors. An unfavorable outcome could require us to cease using the related technology or to attempt to license rights to it from the prevailing party. Our business could be harmed if the prevailing party does not offer us a license on commercially reasonable terms. Our defense of litigation or interference proceedings may fail and, even if successful, may result in substantial costs and distract our management and other employees. We may not be able to prevent, alone or with our licensors, misappropriation of our intellectual property rights, particularly in countries where the laws may not protect those rights as fully as in the United States or European Union.
-45-
Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. There could also be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have a material adverse effect on the price of our common stock.
Issued patents covering our product candidates could be found invalid or unenforceable if challenged in court.
If we or one of our licensing partners initiated legal proceedings against a third party to enforce a patent, if and when issued, covering one of our product candidates, the defendant could counterclaim that the patent covering our product candidate is invalid and/or unenforceable. In patent litigation in the United States, defendant counterclaims alleging invalidity and/or unenforceability are commonplace. Grounds for a validity challenge include alleged failures to meet any of several statutory requirements, including lack of novelty, obviousness or non-enablement. Grounds for unenforceability assertions include allegations that someone connected with prosecution of the patent withheld relevant information from the USPTO or EPO, or made a misleading statement, during prosecution. Third parties may also raise similar claims before administrative bodies in the United States or abroad, even outside the context of litigation. Such mechanisms include re-examination, post grant review and equivalent proceedings in foreign jurisdictions, e.g., opposition proceedings. Such proceedings could result in revocation or amendment of our patents in such a way that they no longer cover our product candidates or competitive products. The outcome following legal assertions of invalidity and unenforceability is unpredictable. With respect to validity, for example, we cannot be certain that there is no invalidating prior art, of which we and the patent examiner were unaware during prosecution. If a defendant were to prevail on a legal assertion of invalidity and/or unenforceability, we would lose at least part, and perhaps all, of the patent protection on our product candidates. Such a loss of patent protection would have a material adverse impact on our business.
We will not seek to protect our intellectual property rights in all jurisdictions throughout the world and we may not be able to adequately demonstrateenforce our intellectual property rights even in the jurisdictions where we seek protection.
Filing, prosecuting and defending patents on product candidates in all countries and jurisdictions throughout the world is prohibitively expensive, and our intellectual property rights in some countries outside the United States could be less extensive than those in the United States, assuming that an optimized product candidate is comparablerights are obtained in the United States. In addition, the laws of some foreign countries do not protect intellectual property rights to a previously manufactured product candidate which could cause significant delaysthe same extent as federal and increased costs to our or our collaborators’ development programs. Our manufacturersstate laws in the United States. Consequently, we may not be able to manufactureprevent third parties from practicing our inventions in all countries outside the United States, or from selling or importing products made using our inventions in and into the United States or other jurisdictions. The statutory deadlines for pursuing patent protection in individual foreign jurisdictions are based on the priority date of each of our patent applications. For the patent applications relating to AV-101, as well as for many of the patent families that we own or license, the relevant statutory deadlines have not yet expired. Thus, for each of the patent families that we believe provide coverage for our lead product candidates at a cost or in quantities or in a timely manner necessary to develop and commercialize them. If we successfully commercialize any of our drugs, we may be required to establish or access large-scale commercial manufacturing capabilities. In addition, assuming that our drug development pipeline increases and matures, we will have a greater need for clinical trial and commercial manufacturing capacity. To meet our projected needs for commercial manufacturing, third party manufactures with whom we work will need to increase their scale of production ortechnologies, we will need to secure alternate suppliers.decide whether and where to pursue protection outside the United States.

If,Competitors may use our technologies in jurisdictions where we do not pursue and obtain patent protection to develop their own products and further, may export otherwise infringing products to territories where we have patent protection, but enforcement is not as strong as that in the United States. These products may compete with our products and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing. Even if we pursue and obtain issued patents in particular jurisdictions, our patent claims or other intellectual property rights may not be effective or sufficient to prevent third parties from so competing.
The laws of some foreign countries do not protect intellectual property rights to the same extent as the laws of the United States. Many companies have encountered significant problems in protecting and defending intellectual property rights in certain foreign jurisdictions. The legal systems of some countries, particularly developing countries, do not favor the enforcement of patents and other intellectual property protection, especially those relating to biotechnology. This could make it difficult for us to stop the infringement of our patents, if obtained, or the misappropriation of our other intellectual property rights. For example, many foreign countries have compulsory licensing laws under which a patent owner must grant licenses to third parties. In addition, many countries limit the enforceability of patents against third parties, including government agencies or government contractors. In these countries, patents may provide limited or no benefit. Patent protection must ultimately be sought on a country-by-country basis, which is an expensive and time-consuming process with uncertain outcomes. Accordingly, we may choose not to seek patent protection in certain countries, and we will not have the benefit of patent protection in such countries.
Furthermore, proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or interpreted narrowly, could put our patent applications at risk of not issuing and could provoke third parties to assert claims against us. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.
-46-
We are dependent, in part, on licensed intellectual property. If we were to lose our rights to licensed intellectual property, we may not be able to continue developing or commercializing our product candidates, if approved. If we breach any of the agreements under which we license the use, development and commercialization rights to our product candidates or technology from third parties or, in certain cases, we fail to meet certain development or payment deadlines, we could lose license rights that are important to our business.
We are a party to a number of license agreements under which we are granted rights to intellectual property that are or could become important to our business, and we expect that we may need to enter into additional license agreements in the future. Our existing license agreements impose, and we expect that future license agreements will impose on us, various development, regulatory and/or commercial diligence obligations, payment of fees, milestones and/or royalties and other obligations. If we fail to comply with our obligations under these agreements, or we are subject to a bankruptcy, the licensor may have the right to terminate the license, in which event we would not be able to develop or market products, which could be covered by the license. Our business could suffer, for example, if any current or future licenses terminate, if the licensors fail to abide by the terms of the license, if the licensed patents or other rights are found to be invalid or unenforceable, or if we are unable to enter into licensing or collaboration agreementsnecessary licenses on acceptable terms. See “Business—Intellectual Property” herein for the sales, marketing and distributiona description of our Drug Rescue Variantslicense agreements, which includes a description of the termination provisions of these agreements.
As we have done previously, we may need to obtain licenses from third parties to advance our research or allow commercialization of our product candidates, and we cannot provide any assurances that third-party patents do not exist that might be enforced against our current product candidates or future products in the absence of such a license. We may fail to obtain any of these licenses on commercially reasonable terms, if at all. Even if we are able to obtain a license, it may be non-exclusive, thereby giving our competitors access to the same technologies licensed to us. In that event, we may be required to expend significant time and resources to develop or license replacement technology. If we are unable to do so, we may be unable to develop or commercialize the affected product candidates, which could materially harm our business and the third parties owning such intellectual property rights could seek either an injunction prohibiting our sales, or, with respect to our sales, an obligation on our part to pay royalties and/or other forms of compensation.
Licensing of intellectual property is of critical importance to our business and involves complex legal, business and scientific issues. Disputes may arise between us and our licensors regarding intellectual property subject to a license agreement, including:
●
the scope of rights granted under the license agreement and other interpretation-related issues;
●
whether and the extent to which our technology and processes infringe on intellectual property of the licensor that is not subject to the licensing agreement;
●
our right to sublicense patent and other rights to third parties under collaborative development relationships;
●
our diligence obligations with respect to the use of the licensed technology in relation to our development and commercialization of our product candidates, such as AV-101,and what activities satisfy those diligence obligations; and
●
the ownership of inventions and know-how resulting from the joint creation or use of intellectual property by our licensors and us and our partners.
If disputes over intellectual property that we have licensed prevent or impair our ability to maintain our current licensing arrangements on acceptable terms, we may be unable to successfully develop and commercialize the affected product candidates.
We have entered into several licenses to support our various stem cell technology-related programs. We may enter into additional license(s) to third-party intellectual property that are necessary or useful to our business. Our current licenses and any future licenses that we may enter into impose various royalty payments, milestone, and other obligations on us. For example, the licensor may retain control over patent prosecution and maintenance under a license agreement, in which case, we may not be successfulable to adequately influence patent prosecution or prevent inadvertent lapses of coverage due to failure to pay maintenance fees. If we fail to comply with any of our obligations under a current or future license agreement, our licensor(s) may allege that we have breached our license agreement and may accordingly seek to terminate our license with them. In addition, future licensor(s) may decide to terminate our license at will. Termination of any of our current or future licenses could result in commercializing our Drug Rescue Variants and other product candidates.

We currently have a relatively small numberloss of employees and do not have a sales or marketing infrastructure, and we, includingthe right to use the licensed intellectual property, which could materially adversely affect our executive officers, do not have any significant sales, marketing or distribution experience. We will be opportunistic in seeking to collaborate with othersability to develop and commercialize Drug Rescue Variantsa product candidate or product, if approved, as well as harm our competitive business position and our business prospects.
In addition, if our licensors fail to abide by the terms of the license, if the licensors fail to prevent infringement by third parties, if the licensed patents or other rights are found to be invalid or unenforceable, or if we are unable to enter into necessary licenses on acceptable terms our business could suffer.
-47-
Some intellectual property which we have licensed may have been discovered through government funded programs and thus may be subject to federal regulations such as “march-in” rights, certain reporting requirements, and a preference for U.S. industry. Compliance with such regulations may limit our exclusive rights, subject us to expenditure of resources with respect to reporting requirements, and limit our ability to contract with non-U.S. manufacturers.
Some of the intellectual property rights we have licensed or license in the future may have been generated through the use of U.S. government funding and may therefore be subject to certain federal regulations. As a result, the U.S. government may have certain rights to intellectual property embodied in our current or future product candidates pursuant to the Bayh-Dole Act of 1980 (Bayh-Dole Act). These U.S. government rights in certain inventions developed under a government-funded program include a non-exclusive, non-transferable, irrevocable worldwide license to use inventions for any governmental purpose. In addition, the U.S. government has the right to require us to grant exclusive, partially exclusive, or non-exclusive licenses to any of these inventions to a third party if it determines that: (i) adequate steps have not been taken to commercialize the invention; (ii) government action is necessary to meet public health or safety needs; or (iii) government action is necessary to meet requirements for public use under federal regulations (also referred to as “march-in rights”). The U.S. government also has the right to take title to these inventions if we fail, or the applicable licensor fails, to disclose the invention to the government and fail to file an application to register the intellectual property within specified time limits. In addition, the U.S. government may acquire title to these inventions in any country in which a patent application is not filed within specified time limits. Intellectual property generated under a government funded program is also subject to certain reporting requirements, compliance with which may require us, or the applicable licensor, to expend substantial resources. In addition, the U.S. government requires that any products embodying the subject invention or produced through the use of the subject invention be manufactured substantially in the U.S. The manufacturing preference requirement can be waived if the owner of the intellectual property can show that reasonable but unsuccessful efforts have been made to grant licenses on similar terms to potential licensees that would be likely to manufacture substantially in the U.S. or that under the circumstances domestic manufacture is not commercially feasible. This preference for U.S. manufacturers may limit our ability to contract with non-U.S. product manufacturers for products covered by such intellectual property.
In the event we apply for additional U.S. government funding, and when they are developed and approved.  we discover compounds or drug candidates as a result of such funding, intellectual property rights to such discoveries may be subject to the applicable provisions of the Bayh-Dole Act.
If we enter into arrangements with third parties to perform sales, marketingdo not obtain additional protection under the Hatch-Waxman Amendments and distribution servicessimilar foreign legislation by extending the patent terms and obtaining data exclusivity for our products,product candidates, our business may be materially harmed.
Depending upon the resulting revenuestiming, duration and specifics of FDA marketing approval of our product candidates, one or more of the profitability from these revenuesU.S. patents we own or license may be eligible for limited patent term restoration under the Drug Price Competition and Patent Term Restoration Act of 1984, referred to us are likelyas the Hatch-Waxman Amendments. The Hatch-Waxman Amendments permit a patent restoration term of up to be lower than if we had sold, marketedfive years as compensation for patent term lost during product development and distributed our products ourselves. In addition,the FDA regulatory review process. However, we may not be successfulgranted an extension because of, for example, failing to apply within applicable deadlines, failing to apply prior to expiration of relevant patents or otherwise failing to satisfy applicable requirements. For example, we may not be granted an extension if the active ingredient of AV-101 is used in entering into arrangements with third partiesanother drug company’s product candidate and that product candidate is the first to sell, market and distribute our Drug Rescue Variantsobtain FDA approval. Moreover, the applicable time period or other product candidates or maythe scope of patent protection afforded could be less than we request. If we are unable to do soobtain patent term extension or restoration or the term of any such extension is less than we request, our competitors may obtain approval of competing products following our patent expiration, and our ability to generate revenues could be materially adversely affected.
Changes in U.S. patent law could diminish the value of patents in general, thereby impairing our ability to protect our products.
As is the case with other biotechnology companies, our success is heavily dependent on termsintellectual property, particularly patents. Obtaining and enforcing patents in the biotechnology industry involve both technological and legal complexity, and is therefore costly, time-consuming and inherently uncertain. In addition, the United States has recently enacted and is currently implementing wide-ranging patent reform legislation: the Leahy-Smith America Invents Act, referred to as the America Invents Act. The America Invents Act includes a number of significant changes to U.S. patent law. These include provisions that are favorable to us. We likelyaffect the way patent applications will be prosecuted and may also affect patent litigation. It is not yet clear what, if any, impact the America Invents Act will have little control over such third parties, and anyon the operation of these third parties may fail to devote the necessary resources and attention to sell, market and distribute our products effectively.  If we do not establish sales, marketing and distribution capabilities successfully, in collaboration with third parties, we will not be successful in commercializing our product candidates.

Our business is subject to the risks of earthquakes, fire, floods and other natural catastrophic events, and to interruption by man-made problems such as computer viruses or terrorism.
Our corporate headquarters are located in the San Francisco Bay Area, a region known for seismic activity. A significant natural disaster, such as an earthquake, fire or a flood, could harm our business. In addition,However, the America Invents Act and its implementation could increase the uncertainties and costs surrounding the prosecution of our servers are vulnerable to computer viruses, break-inspatent applications and similar disruptionsthe enforcement or defense of any patents that may issue from unauthorized tampering with our computer systems. In addition, actspatent applications, all of terrorism or warwhich could cause disruptions inhave a material adverse effect on our business or the economy as a whole.and financial condition.
 
 
-48-
-34-
In addition, recent U.S. Supreme Court rulings have narrowed the scope of patent protection available in certain circumstances and weakened the rights of patent owners in certain situations. The full impact of these decisions is not yet known. For example, on March 20, 2012 in Mayo Collaborative Services, DBA Mayo Medical Laboratories, et al. v. Prometheus Laboratories, Inc., the Court held that several claims drawn to measuring drug metabolite levels from patient samples and correlating them to drug doses were not patentable subject matter. The decision appears to impact diagnostics patents that merely apply a law of nature via a series of routine steps and it has created uncertainty around the ability to obtain patent protection for certain inventions. Additionally, on June 13, 2013 in Association for Molecular Pathology v. Myriad Genetics, Inc., the Court held that claims to isolated genomic DNA are not patentable, but claims to complementary DNA molecules are patent eligible because they are not a natural product. The effect of the decision on patents for other isolated natural products is uncertain. Additionally, on March 4, 2014, the USPTO issued a memorandum to patent examiners providing guidance for examining claims that recite laws of nature, natural phenomena or natural products under the Myriad and Prometheus decisions. This guidance did not limit the application of Myriad to DNA but, rather, applied the decision to other natural products. Further, in 2015, in Ariosa Diagnostics, Inc. v. Sequenom, Inc., the Court of Appeals for the Federal Circuit held that methods for detecting fetal genetic defects were not patent eligible subject matter.
In addition to increasing uncertainty with regard to our ability to obtain future patents, this combination of events has created uncertainty with respect to the value of patents, once obtained. Depending on these and other decisions by the U.S. Congress, the federal courts and the USPTO, the laws and regulations governing patents could change in unpredictable ways that would weaken our ability to obtain new patents or to enforce any patents that may issue in the future.
We may be subject to damages resulting from claims that we or our employees have wrongfully used or disclosed alleged trade secrets of their former employers.
Certain of our current employees have been, and certain of our future employees may have been, previously employed at other biotechnology or pharmaceutical companies, including our competitors or potential competitors. We also engage advisors and consultants who are concurrently employed at universities or who perform services for other entities.
Although we are not aware of any claims currently pending or threatened against us, we may be subject to claims that we or our employees, advisors or consultants have inadvertently or otherwise used or disclosed intellectual property, including trade secrets or other proprietary information, of a former employer or other third party. We have and may in the future also be subject to claims that an employee, advisor or consultant performed work for us that conflicts with that person’s obligations to a third party, such as an employer, and thus, that the third party has an ownership interest in the intellectual property arising out of work performed for us. Litigation may be necessary to defend against these claims. Even if we are successful in defending against these claims, litigation could result in substantial costs and be a distraction to management. If we fail in defending such claims, in addition to paying monetary claims, we may lose valuable intellectual property rights or personnel. A loss of key personnel or their work product could hamper or prevent our ability to commercialize our product candidates, which would materially adversely affect our commercial development efforts.
Numerous factors may limit any potential competitive advantage provided by our intellectual property rights.
The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations, and may not adequately protect our business, provide a barrier to entry against our competitors or potential competitors, or permit us to maintain our competitive advantage. Moreover, if a third party has intellectual property rights that cover the practice of our technology, we may not be able to fully exercise or extract value from our intellectual property rights. The following examples are illustrative:
●
others may be able to develop and/or practice technology that is similar to our technology or aspects of our technology but that is not covered by the claims of patents, should such patents issue from our patent applications;
●
we might not have been the first to make the inventions covered by a pending patent application that we own;
●
we might not have been the first to file patent applications covering an invention;
●
others may independently develop similar or alternative technologies without infringing our intellectual property rights;
●
pending patent applications that we own or license may not lead to issued patents;
●
patents, if issued, that we own or license may not provide us with any competitive advantages, or may be held invalid or unenforceable, as a result of legal challenges by our competitors;
●
third parties may compete with us in jurisdictions where we do not pursue and obtain patent protection;
●
we may not be able to obtain and/or maintain necessary or useful licenses on reasonable terms or at all; and
●
the patents of others may have an adverse effect on our business.
-49-
Should any of these events occur, they could significantly harm our business and results of operations.
If, instead of identifying drug rescue candidates based on information available to us in the public domain, we seek to in-license drug rescue candidates from biotechnology, medicinal chemistry and pharmaceutical companies, academic, governmental and nonprofit research institutions, including the NIH, or other third-parties, there can be no assurances that we will obtain material ownership or economic participation rights over intellectual property we may derive from such licenses or similar rights to the drug rescue NCEs we may produce and develop. If we are unable to obtain ownership or substantial economic participation rights over intellectual property related to drug rescue NCEs we produce and develop, our business may be adversely affected.
Risks Related to our Securities
The limited public market for our securities may adversely affect an investor’s ability to liquidate an investment in the Company.
Our common stock is currently quoted on The NASDAQ Capital Market, however, there is presently limited trading activity.  We can give no assurance that an active market will develop, or if developed, that it will be sustained.  If an investor acquires shares of our common stock, the investor may not be able to liquidate the shares should there be a need or desire to do so.
Market volatility may affect our stock price and the value of your investment.
The market price for our common stock, similar to other biopharmaceutical companies, is likely to be volatile. The market price of our common stock may fluctuate significantly in response to a number of factors, most of which we cannot control, including, among others:
●
plans for, progress of or results from non-clinical and clinical development activities related to our product candidates;
●
the failure of the FDA to approve our product candidates;
●
announcements of new products, technologies, commercial relationships, acquisitions or other events by us or our competitors;
●
the success or failure of other CNS therapies;
●
regulatory or legal developments in the United States and other countries;
●
failure of our product candidates, if approved, to achieve commercial success;
●
fluctuations in stock market prices and trading volumes of similar companies;
●
general market conditions and overall fluctuations in U.S. equity markets;
●
variations in our quarterly operating results;
●
changes in our financial guidance or securities analysts’ estimates of our financial performance;
●
changes in accounting principles;
●
our ability to raise additional capital and the terms on which we can raise it;
●
sales of large blocks of our common stock, including sales by our executive officers, directors and significant stockholders;
●
additions or departures of key personnel;
●
discussion of us or our stock price by the press and by online investor communities; and
●
other risks and uncertainties described in these risk factors.
-50-
Future sales and issuances of our common stock may cause our stock price to decline.
Sales or issuances of a substantial number of shares of our common stock in the public market, or the perception that these sales or issuances are occurring or might occur, could significantly reduce the market price of our common stock and impair our ability to raise adequate capital through the sale of additional equity securities.
The stock market in general, and small biopharmaceutical companies like ours in particular, have frequently experienced volatility in the market prices for securities that often has been unrelated to the operating performance of the underlying companies. These broad market and industry fluctuations may adversely affect the market price of our common stock, regardless of our operating performance. In certain recent situations in which the market price of a stock has been volatile, holders of that stock have instituted securities class action litigation against such company that issued the stock. If any of our stockholders were to bring a lawsuit against us, the defense and disposition of the lawsuit could be costly and divert the time and attention of our management and harm our operating results. Additionally, if the trading volume of our common stock remains low and limited there will be an increased level of volatility and you may not be able to generate a return on your investment.
A significant portion of our total outstanding shares are restricted from immediate resale but may be sold into the market in the near future. Future sales of shares by existing stockholders could cause our stock price to decline, even if our business is doing well.
Sales of a substantial number of shares of our common stock in the public market could occur at any time. These sales, or the perception in the market that the holders of a large number of shares intend to sell shares, could reduce the market price of our common stock. Historically, there has been a limited public market for shares of our common stock. Future sales and issuances of a substantial number of shares of our common stock in the public market, including shares issued upon the conversion of our Series A Preferred, Series B Preferred or Series C Preferred, and the exercise of outstanding options and warrants for common stock which are issuable upon exercise, in the public market, or the perception that these sales and issuances are occurring or might occur, could significantly reduce the market price for our common stock and impair our ability to raise adequate capital through the sale of equity securities.
Our principal institutional stockholders may continue to have substantial control over us and could limit your ability to influence the outcome of key transactions, including changes in control.
Certain of our current institutional stockholders own a substantial portion of our outstanding capital stock, including our common stock, Series A Preferred, Series B Preferred, and Series C Preferred, all of which preferred stock is convertible into a substantial number of shares of common stock.  Accordingly, institutional stockholders may exert significant influence over us and over the outcome of any corporate actions requiring approval of holders of our common stock, including the election of directors and amendments to our organizational documents, such as increases in our authorized shares of common stock, any merger, consolidation or sale of all or substantially all of our assets or any other significant corporate transactions. These stockholders may also delay or prevent a change of control of us, even if such a change of control would benefit our other stockholders. The significant concentration of stock ownership may adversely affect the trading price of our common stock due to investors’ perception that conflicts of interest may exist or arise. Furthermore, the interests of our principal institutional stockholders may not always coincide with your interests or the interests of other stockholders may act in a manner that advances its best interests and not necessarily those of other stockholders, including seeking a premium value for its common stock, which might affect the prevailing market price for our common stock.
If equity research analysts do not publish research or reports about our business or if they issue unfavorable commentary or downgrade our common stock, the price of our common stock could decline.
The trading market for our common stock relies in part on the research and reports that equity research analysts publish about us and our business. We do not control these analysts. The price of our common stock could decline if one or more equity research analysts downgrade our common stock or if analysts issue other unfavorable commentary or cease publishing reports about us or our business.
There may be additional issuances of shares of preferred stock in the future.
Our Restated Articles of Incorporation (theArticles) permit us to issue up to 10.0 million shares of preferred stock.  Our Board of Directors has authorized the issuance of (i) 500,000 shares of Series A Preferred, all of which shares are issued and outstanding at March 31, 2017; (ii) 4.0 million shares of Series B 10% Convertible Preferred stock, of which approximately 1.2 million shares remain issued and outstanding at March 31, 2017; and (iii) 3.0 million shares of Series C Convertible Preferred Stock, of which approximately 2.3 million shares are issued and outstanding at March 31, 2017. Our Board of Directors could authorize the issuance of additional series of preferred stock in the future and such preferred stock could grant holders preferred rights to our assets upon liquidation, the right to receive dividends before dividends would be declared to holders of our common stock, and the right to the redemption of such shares, possibly together with a premium, prior to the redemption of the common stock. In the event and to the extent that we do issue additional preferred stock in the future, the rights of holders of our common stock could be impaired thereby, including without limitation, with respect to liquidation.
-51-
We do not intend to pay dividends on our common stock and, consequently, our stockholders’ ability to achieve a return on their investment will depend on appreciation in the price of our common stock.
We have never declared or paid any cash dividend on our common stock and do not currently intend to do so in the foreseeable future. We currently anticipate that we will retain future earnings for the development, operation and expansion of our business and do not anticipate declaring or paying any cash dividends in the foreseeable future. Therefore, the success of an investment in shares of our common stock will depend upon any future appreciation in their value. There is no guarantee that shares of our common stock will appreciate in value or even maintain the price at which our stockholders purchased them.
 
We incur significant costs to ensure compliance with corporate governance, federal securities law and accounting requirements.

Since becoming a public company by means of a strategic reverse merger in 2011, we have been subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (Exchange Act), which requires that we file annual, quarterly and current reports with respect to our business and financial condition, and the rules and regulations implemented by the Securities and Exchange Commission (SEC,), the Sarbanes-Oxley Act of 2002, the Dodd-Frank Act, and the Public Company Accounting Oversight Board, each of which imposes additional reporting and other obligations on public companies.  We have incurred and will continue to incur significant costs to comply with these public company reporting requirements, including accounting and related audit costs, legal costs to comply with corporate governance requirements and other costs of operating as a public company. These legal and financial compliance costs will continue to require us to divert a significant amount of money that we could otherwise use to achieve our research and development and other strategic objectives.

The filing and internal control reporting requirements imposed by federal securities laws, rules and regulations on companies that are not “smaller reporting companies” under federal securities laws are rigorous and, once we are no longer a smaller reporting company, we may not be able to continue to meet them, resulting in a possible decline in the price of our common stock and our inability to obtain future financing. Certain of these requirements may require us to carry out activities we have not done previously and complying with such requirements may divert management’s attention from other business concerns, which could have a material adverse effect on our business, results of operations, financial condition and cash flows. Any failure to adequately comply with applicable federal securities laws, rules or regulations could subject us to fines or regulatory actions, which may materially adversely affect our business, results of operations and financial condition.

In addition, changing laws, regulations and standards relating to corporate governance and public disclosure are creating uncertainty for public companies, increasing legal and financial compliance costs and making some activities more time consuming. These laws, regulations and standards are subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We will continue to invest resources to comply with evolving laws, regulations and standards, however this investment may result in increased general and administrative expenses and a diversion of management’s time and attention from revenue-generating activities to compliance activities. If our efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to their application and practice, regulatory authorities may initiate legal proceedings against us and our business may be adversely affected.

Risks Related to Production, Development, and Regulatory Approval of Product Candidates
Even if we are able to begin clinical trails for a Drug Rescue Variant, we may encounter considerable delays and/or expend considerable resources without producing a marketable product capable of generating revenue.

We may never generate revenues from sales of a Drug Rescue Variant or any other product because of a variety of risks inherent in our business, including the following:
·
clinical trials may not demonstrate the safety and efficacy of any Drug Rescue Variant, other new drug candidate, biological candidate or regenerative medicine product candidate;
·
completion of nonclinical or clinical trials may be delayed, or costs of nonclinical or clinical trials may exceed anticipated amounts;
·
we may not be able to obtain regulatory approval of any Drug Rescue Variant, other new drug candidate, biological candidate or regenerative medicine product candidate; or we may experience delays in obtaining any such approval;
·
we may not be able to manufacture, or have manufactured for us, Drug Rescue Variants, other new drug candidates, biological candidates or regenerative medicine product candidates economically, timely and on a commercial scale;
·
we and any licensees of ours may not be able to successfully market Drug Rescue Variants, other new drug candidates, biological candidates or regenerative medicine product candidates;
·
physicians may not prescribe our products, or patients or third party payors may not accept our Drug Rescue Variants, other drug candidates, biological candidates or regenerative medicine product candidates;
·
others may have proprietary rights which prevent us from marketing our Drug Rescue Variants, other new drug candidates, biological candidates or regenerative medicine product candidates; and
·
competitors may sell similar, superior or lower-cost products.
-36-
In the event we are able to begin a clinical trial of a Drug Rescue Variant, our or our collaborator’s future clinical trials may be delayed or halted for many reasons, including:

·
delays or failure reaching agreement on acceptable terms with prospective contract manufacturing organizations (CMOs), contract research organizations (CROs), and clinical trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites;

·
failure of third-party contractors, such as CROs and CMOs, or investigators to comply with regulatory requirements or otherwise meet their contractual obligations in a timely manner;

·
delays or failure in obtaining the necessary approvals from regulators or institutional review boards (IRBs) in order to commence a clinical trial at a prospective trial site;

·
inability to manufacture, or obtain from third parties, a supply of drug product sufficient to complete preclinical studies and clinical trials;

·
the FDA requiring alterations to study designs, preclinical strategy or manufacturing plans;

·
delays in patient enrollment, and variability in the number and types of patients available for clinical trials, or high drop-out rates of patients;

·
clinical trial sites deviating from trial protocols or dropping out of a trial and/or the inability to add new clinical trial sites;

·
difficulty in maintaining contact with patients after treatment, resulting in incomplete data;

·
poor effectiveness of our product candidates during clinical trials;

·
safety issues, including serious adverse events associated with our product candidates and patients' exposure to unacceptable health risks;

·
receipt by a competitor of marketing approval for a product targeting an indication that one of our product candidates targets, such that we are not "first to market" with our product candidate;

·
governmental or regulatory delays and changes in regulatory requirements, policy and guidelines; or

·
varying interpretations of data by the FDA and similar foreign regulatory agencies.
We or our collaborator could also encounter delays if a clinical trial is suspended or terminated by us, our collaborator, the IRBs of the institutions in which a trial is being conducted, by the Data Safety Monitoring Board (DSMB) for a trial, or by the FDA or other regulatory authorities. Such authorities may suspend or terminate a clinical trial due to a number of factors, including failure to conduct the clinical trial in accordance with regulatory requirements or clinical protocols, inspection of the clinical trial operations or trial site by the FDA or other regulatory authorities resulting in the imposition of a clinical hold, unforeseen safety issues or adverse side effects, failure to demonstrate a benefit from using a drug, changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical trial.

Moreover, if we or our collaborators are able to complete a clinical trial of a product candidate, the results of such trial may not be adequate to support marketing approval. For any such trial, if the FDA disagrees with the choice of primary endpoint or the results for the primary endpoint are not robust or significant relative to control, are subject to confounding factors, or are not adequately supported by other study endpoints, including overall survival or complete response rate, the FDA may refuse to approve a Biologics License Application (BLA) or New Drug Application (NDA). The FDA may require additional clinical trials as a condition for approving our product candidates.

-37-
Clinical testing involves the administration of the new drug or biological candidate to healthy human volunteers or to patients under the supervision of a qualified principal investigator, usually a physician, pursuant to an FDA-reviewed protocol. Each clinical study is conducted under the auspices of an institutional review board (IRB) at each of the institutions at which the study will be conducted. A clinical plan, or “protocol,” accompanied by the approval of an IRB, must be submitted to the FDA as part of the IND application prior to commencement of each clinical trial. Human clinical trials are conducted typically in three sequential phases. Phase I trials primarily consist of testing the product’s safety in a small number of patients or healthy volunteers. In Phase II trials, the safety and efficacy of the biological candidate is evaluated in a specific patient population. Phase III trials typically involve additional testing for safety and clinical efficacy in an expanded patient population at geographically dispersed sites. The FDA may order the temporary or permanent discontinuance of a nonclinical or clinical trial at any time for a variety of reasons, particularly if safety concerns exist.

Our or our collaborator’s future clinical trials can be delayed or halted for many reasons, including:

·
delays or failure reaching agreement on acceptable terms with prospective contract manufacturing organizations (CMOs), contract research organizations (CROs), and clinical trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites;
·
failure of third-party contractors, such as CROs and CMOs, or investigators to comply with regulatory requirements or otherwise meet their contractual obligations in a timely manner;
·
delays or failure in obtaining the necessary approvals from regulators or IRBs in order to commence a clinical trial at a prospective trial site;
·
inability to manufacture, or obtain from third parties, a supply of drug product sufficient to complete preclinical studies and clinical trials;
·
the FDA requiring alterations to study designs, preclinical strategy or manufacturing plans;
·
delays in patient enrollment, and variability in the number and types of patients available for clinical trials, or high drop-out rates of patients;
·
clinical trial sites deviating from trial protocols or dropping out of a trial and/or the inability to add new clinical trial sites;
·
difficulty in maintaining contact with patients after treatment, resulting in incomplete data;
·
poor effectiveness of our product candidates during clinical trials;
·
safety issues, including serious adverse events associated with our product candidates and patients' exposure to unacceptable health risks;
·
receipt by a competitor of marketing approval for a product targeting an indication that one of our product candidates targets, such that we are not "first to market" with our product candidate;
·
governmental or regulatory delays and changes in regulatory requirements, policy and guidelines; or
·varying interpretations of data by the FDA and similar foreign regulatory agencies.
We or our collaborator could also encounter delays if a clinical trial is suspended or terminated by us, our collaborator, the IRBs of the institutions in which a trial is being conducted, by the Data Safety Monitoring Board (DSMB) for a trial, or by the FDA or other regulatory authorities. Such authorities may suspend or terminate a clinical trial due to a number of factors, including failure to conduct the clinical trial in accordance with regulatory requirements or clinical protocols, inspection of the clinical trial operations or trial site by the FDA or other regulatory authorities resulting in the imposition of a clinical hold, unforeseen safety issues or adverse side effects, failure to demonstrate a benefit from using a drug, changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical trial.

Moreover, if we or our collaborators are able to complete a clinical trial of a product candidate, the results of such trial may not be adequate to support marketing approval. For any such trial, if the FDA disagrees with the choice of primary endpoint or the results for the primary endpoint are not robust or significant relative to control, are subject to confounding factors, or are not adequately supported by other study endpoints, including overall survival or complete response rate, the FDA may refuse to approve a BLA or NDA. The FDA may require additional clinical trials as a condition for approving our product candidates.
-38-
If we or our collaborator experience delays in the completion of, or termination of, any clinical trial of our product candidates, the commercial prospects of our product candidates will be harmed, and our ability to commence product sales and generate product revenues from any of our product candidates will be delayed. In addition, any delays in completing our clinical trials will increase our costs and slow our product candidate development and approval process. Delays in completing clinical trials could also allow our competitors to obtain marketing approval before we do or shorten the patent protection period during which we may have the exclusive right to commercialize our product candidates. Any of these occurrences may significantly harm our business, financial condition and prospects. In addition, many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of our product candidates.
Results of earlier clinical trials may not be predictive of the results of later-stage clinical trials.

The results of preclinical studies and early clinical trials of product candidates may not be predictive of the results of later-stage clinical trials. Product candidates in later stages of clinical trials may fail to show the desired safety and efficacy results despite having progressed through preclinical studies and initial clinical trials. Many companies in the biopharmaceutical industry have suffered significant setbacks in advanced clinical trials due to adverse safety profiles or lack of efficacy, notwithstanding promising results in earlier studies. Similarly, our future clinical trial results may not be successful for these or other reasons.

This drug candidate development risk is heightened by any changes in planned clinical trials compared to completed clinical trials. As product candidates are developed through preclinical to early and late stage clinical trials towards approval and commercialization, it is customary that various aspects of the development program, such as manufacturing and methods of administration, are altered along the way in an effort to optimize processes and results. While these types of changes are common and are intended to optimize the product candidates for later stage clinical trials, approval and commercialization, such changes do carry the risk that they will not achieve these intended objectives.
For example, the results of planned clinical trials may be adversely affected if we or our collaborator seek to optimize and scale-up production of a product candidate. In such case, we will need to demonstrate comparability between the newly manufactured drug substance and/or drug product relative to the previously manufactured drug substance and/or drug product. Demonstrating comparability may cause us to incur additional costs or delay initiation or completion of our clinical trials, including the need to initiate a dose escalation study and, if unsuccessful, could require us to complete additional preclinical or clinical studies of our product candidates.

If we or our potential strategic partners experience delays in the enrollment of patients in clinical trials involving our product candidates, our receipt of necessary regulatory approvals could be delayed or prevented.

We or our potential strategic partners may not be able to initiate or continue clinical trials for our product candidates if we or they are unable to locate and enroll a sufficient number of eligible patients to participate in these trials as required by the FDA or other regulatory authorities. Patient enrollment, a significant factor in the timing of clinical trials, is affected by many factors including the size and nature of the patient population, the proximity of patients to clinical sites, the eligibility criteria for the trial, the design of the clinical trial, competing clinical trials and clinicians' and patients' perceptions as to the potential advantages of the drug being studied in relation to other available therapies, including any new drugs that may be approved for the indications we or our collaborators may be investigating. If we or they fail to enroll and maintain the number of patients for which the clinical trial was designed, the statistical power of that clinical trial may be reduced, which would make it harder to demonstrate that the product candidate being tested is safe and effective. Additionally, enrollment delays in clinical trials may result in increased development costs for our product candidates, which would cause the value of our common stock to decline and limit our ability to obtain additional financing. Our inability to enroll a sufficient number of patients for any of our current or future clinical trials would result in significant delays or may require us to abandon one or more clinical trials, and, therefore, product candidates, altogether.
-39-
Even if we receive regulatory approval for any of our Drug Rescue Variants or other product candidates, we and/or our potential strategic partners will be subject to ongoing FDA obligations and continued regulatory review, which may result in significant additional expense. Additionally, our product candidates, if approved, could be subject to labeling and other restrictions and market withdrawal and we may be subject to penalties if we fail to comply with regulatory requirements or experience unanticipated problems with our products.

Any regulatory approvals that we or our potential strategic partners receive for our Drug Rescue Variants or other product candidates may also be subject to limitations on the approved indicated uses for which the product may be marketed or to the conditions of approval, or contain requirements for potentially costly post-marketing testing, including Phase 4 clinical trials, and surveillance to monitor the safety and efficacy of the product candidate, all of which could adversely affect the product’s commercial potential and our revenues. In addition, if the FDA approves any of our product candidates, the manufacturing processes, testing, packaging, labeling, storage, distribution, field alert or biological product deviation reporting, adverse event reporting, advertising, promotion and recordkeeping for the product will be subject to extensive and ongoing regulatory requirements. These requirements include submissions of safety and other post-marketing information and reports, as well as continued compliance with cGMP for commercial manufacturing and good clinical practices, or GCP, for any clinical trials that we conduct post-approval. Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with our third-party manufacturers or manufacturing processes, or failure to comply with regulatory requirements, may result in, among other things:

·
restrictions on the marketing or manufacturing of the product, withdrawal of the product from the market, or voluntary or mandatory product recalls;
·
warning letters or holds on clinical trials;
·
refusal by the FDA to approve pending applications or supplements to approved applications filed by us or our strategic partners, or suspension or revocation of product license approvals;
·
product seizure or detention, or refusal to permit the import or export of products; and
·injunctions, fines or the imposition of other civil or criminal penalties.
-40-
Risks Related to Our Financial Position and Capital Requirements

We have incurred significant net losses since inception and anticipate that we will continue to incur substantial operating losses for the foreseeable future. We may never achieve or sustain profitability, which would depress the market price of our common stock, and could cause you to lose all or a part of your investment.

We have incurred significant net losses in each fiscal year since our inception, including net losses of $3.0 million and $12.9 million during the fiscal years ending March 31, 2014 and 2013, respectively.  As of March 31, 2014, we had an accumulated deficit of $70.6 million. We do not know whether or when we will become profitable. To date, although we have generated approximately $16.4 million in revenues, we have not commercialized any products or generated any revenues from product sales. Our losses have resulted principally from costs incurred in our research and development programs and from general and administrative expenses. We anticipate that our operating losses will substantially increase over the next several years as we execute our plan to expand our drug rescue, stem cell technology research and development, drug development and potential commercialization activities. Additionally, we expect that our general and administrative expenses will increase in the event we achieve our goal of obtaining a listing on a national securities exchange. The net losses we incur may fluctuate from quarter to quarter.
If we do not successfully develop, license, sell or obtain regulatory approval for our future product candidates and effectively manufacture, market and sell, or collaborate to accomplish such activities, any product candidates that are approved, we may never generate revenues from product sales, and even if we do generate product sales revenues, we may never achieve or sustain profitability on a quarterly or annual basis. Our failure to become and remain profitable would depress the market price of our common stock and could impair our ability to raise capital, expand our business, diversify our product offerings or continue our operations. A decline in the market price of our common stock also could cause you to lose all or a part of your investment.

We will require substantial additional financing to achieve our goals, and a failure to obtain this necessary capital when needed could force us to delay, limit, reduce or terminate our product development or commercialization efforts.

Since our inception, most of our resources have been dedicated to research and development of the drug rescue capabilities of our human pluripotent stem cell technology. In particular, we have expended substantial resources developing CardioSafe3D and LiverSafe3D, and we will continue to expend substantial resources for the foreseeable future developing LiverSafe3D and CardioSafe3DDrug Rescue Variants. These expenditures will include costs associated with general and administrative costs, facilities costs, research and development, acquiring new technologies, manufacturing product candidates, conducting preclinical experiments and clinical trials and obtaining regulatory approvals, as well as commercializing any products approved for sale. Furthermore, we expect to incur additional costs associated with operating as a public company.
We have no current source of revenue to sustain our present activities, and we do not expect to generate revenue until, and unless, we out-license a Drug Rescue Variant and/or AV-101 to a third party, obtain approval from the FDA or other regulatory authorities and successfully commercialize, on our own or through a future collaboration, one or more of our compounds. As the outcome of our proposed drug rescue and AV-101 development activities and future anticipated clinical trials is highly uncertain, we cannot reasonably estimate the actual amounts necessary to successfully complete the development and commercialization of our product candidates, on our own or in collaboration with others. In addition, other unanticipated costs may arise. As a result of these and other factors, we will need to seek additional capital in the near term to meet our future operating requirements, and may seek additional capital due to favorable market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans.
-41-
Our future capital requirements depend on many factors, including:
·
the number and characteristics of the product candidates we pursue, including Drug Rescue Candidates;
·
the scope, progress, results and costs of researching and developing our product candidates, and conducting preclinical and clinical studies;
·
the timing of, and the costs involved in, obtaining regulatory approvals for our product candidates;
·
the cost of commercialization activities if any of our product candidates are approved for sale, including marketing, sales and distribution costs;
·
the cost of manufacturing our product candidates and any products we successfully commercialize;
·
our ability to establish and maintain strategic partnerships, licensing or other arrangements and the financial terms of such agreements;
·
market acceptance of our products;
·
the effect of competing technological and market developments;
·
our ability to obtain government funding for our programs;
·
the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims necessary to preserve our freedom to operate in the stem cell industry, including litigation costs associated with any claims that we infringe third-party patents or violate other intellectual property rights and the outcome of such litigation;
·
the timing, receipt and amount of potential future licensee fees, milestone payments, and sales of, or royalties on, our future products, if any; and
·the extent to which we acquire or invest in businesses, products and technologies, although we currently have no commitments or agreements relating to any of these types of transactions.
Additional funds may not be available when we need them, on terms that are acceptable to us, or at all. If adequate funds are not available to us on a timely basis, we may be required to delay, limit, reduce or terminate drug rescue programs, preclinical studies, clinical trials or other research and development activities for one or more of our product candidates, or cease or reduce our operating activities and/or sell or license to third parties some or all of our intellectual property, any of which could harm our operating results.
Raising additional capital will cause dilution to our existing stockholders, and may restrict our operations or require us to relinquish rights to our technologies or product candidates.
We will need to seek additional capital through a combination of private and public equity offerings, debt financings, strategic partnerships and alliances and licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interests of existing stockholders will be diluted, and the terms of the new capital may include liquidation or other preferences that adversely affect existing stockholder rights. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take certain actions, such as incurring debt, making capital expenditures or declaring dividends. If we raise additional funds through strategic partnerships and alliances and licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies or product candidates, or grant licenses on terms that are not favorable to us. If we are unable to raise additional funds through equity or debt financing when needed, we may be required to delay, limit, reduce or terminate our product development or commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.
-42-

Some of our programs have been partially supported by government grants, which may not be available to us in the future.
Since inception, we have received substantial funds under grant award programs funded by state and federal governmental agencies, such as the NIH, the NIH’s National Institute of Neurological Disease and Stroke and the California Institute for Regenerative Medicine. To fund a portion of our future research and development programs, we may apply for additional grant funding from such or similar governmental organizations.  However, funding by these governmental organizations may be significantly reduced or eliminated in the future for a number of reasons. For example, some programs are subject to a yearly appropriations process in Congress. In addition, we may not receive funds under future grants because of budgeting constraints of the agency administering the program. Therefore, we cannot assure you that we will receive any future grant funding from any government organization or otherwise.  A restriction on the government funding available to us could reduce the resources that we would be able to devote to future research and development efforts. Such a reduction could delay the introduction of new products and hurt our competitive position.
Our independent auditors have expressed substantial doubt about our ability to continue as a going concern.
Our consolidated financial statements for the year ended March 31, 2014 included in Item 8 of this Annual Report on Form 10-K have been prepared assuming we will continue to operate as a going concern. However, due to our ongoing operating losses and our accumulated deficit, there is doubt about our ability to continue as a going concern. Because we continue to experience net operating losses, our ability to continue as a going concern is subject to our ability to generate a profit and/or obtain necessary funding from outside sources, including obtaining additional funding from the sale of our securities or obtaining loans and grants from financial institutions and/or government agencies where possible. Our continued net operating losses increase the difficulty in completing such sales or securing alternative sources of funding, and there can be no assurances that we will be able to obtain such funding on favorable terms or at all. If we are unable to obtain sufficient financing from the sale of its securities or from alternative sources, it may be required to reduce, defer, or discontinue certain of its research and development activities or it may not be able to continue as a going concern.
Our ability to use net operating losses to offset future taxable income is subject to certain limitations.

If we do not generate sufficient taxable income we may not be able to use a material portion, or any portion, of our existing net operating losses (NOLs). Furthermore, our existing NOLs may be subject to limitations under Section 382 of the Internal Revenue Code of 1986, as amended, which in general provides that a corporation that undergoes an “ownership change” is limited in its ability to utilize its pre- change NOLs to offset future taxable income. Our existing NOLs are subject to limitations arising from previous ownership changes, and if we undergo an ownership change, in connection with a future equity-based financing, series of equity-based financings or otherwise, our ability to utilize NOLs could be further limited by Section 382 of the Internal Revenue Code. Future changes in our stock ownership, some of which are outside of our control, could result in an ownership change under Section 382 of the Internal Revenue Code.

Risks Related to Intellectual Property
We utilize certain technologies that are licensed to us, including key aspects of our Human Clinical Trials in a Test Tube platform.  If the licensors terminate the licenses or fail to maintain or enforce the underlying patents, our competitive position and market share will be harmed, and our business could be adversely affected.
We currently use certain licensed technologies to produce cells that are material to our research and development programs, including our drug rescue programs, and we may enter into additional license agreements in the future. Our rights to use such licensed technologies are subject to the negotiation of, continuation of and compliance with the terms of the applicable licenses, including payment of any royalties and diligence, insurance, indemnification and other obligations. If a licensor believes that we have failed to meet our obligations under a license agreement for non-payment of license fees, non-reimbursement of patent expenses, or otherwise, the licensor could seek to limit or terminate our license rights, which could lead to costly and time-consuming litigation and, potentially, a loss of the licensed rights. During the period of any such litigation, our ability to carry out the development and commercialization of potential products could be significantly and negatively affected.
Our license rights are further subject to the validity of the owner’s intellectual property rights. As such, we are dependent on our licensors to defend the viability of these patents and patent applications. We cannot be certain that drafting and/or prosecution of the licensed patents and patent applications by the licensors have been or will be conducted in compliance with applicable laws and regulations or will result in valid and enforceable patents and other intellectual property rights. Legal action could be initiated by or against the owners of the intellectual property that we license. Even if we are not a party to these legal actions, an adverse outcome could harm our business because it might prevent these other companies or institutions from continuing to license intellectual property that we may need to operate our business. In some cases, we do not control the prosecution, maintenance or filing of the patents to which we hold licenses, or the enforcement of these patents against third parties.
Certain of our license agreements are subject to termination by the licensor in specific circumstances, including non-payment of license fees, royalties and patent-related expenses. Any such termination of these licenses could prevent us from producing cells for our research and development programs and future commercial activities, including selling or marketing products. Because of the complexity of our human pluripotent stem cell technology and the patents we have licensed, determining the scope of the license and related royalty obligation can be difficult and can lead to disputes between us and the licensor. An unfavorable resolution of such a dispute could lead to an increase in the royalties payable pursuant to the license. If a licensor believed we were not paying the royalties or other amounts due under the license or were otherwise not in compliance with the terms of the license, the licensor might attempt to revoke the license. If our license rights were restricted or ultimately lost, our ability to continue our business based on the affected technology would be severely adversely affected.
We may engage in discussions regarding possible commercial, licensing and cross-licensing agreements with third parties from time to time. There can be no assurance that these discussions will lead to the execution of commercial license or cross-license agreements or that such agreements will be on terms that are favorable to us. If these discussions are successful, we could be obligated to pay license fees and royalties to such third parties. If these discussions do not lead to the execution of mutually acceptable agreements, we may be limited or prevented from producing and selling our existing products and developing new products. One or more of the parties involved in such discussions could resort to litigation to protect or enforce its patents and proprietary rights or to determine the scope, coverage and validity of the proprietary rights of others. In addition, if we enter into cross-licensing agreements, there is no assurance that we will be able to effectively compete against others who are licensed under our patents.

If we seek to leverage prior discovery and development of Drug Rescue Candidates under in-license arrangements with academic laboratories, biotechnology companies, the NIH, pharmaceutical companies or other third parties, it is uncertain what ownership rights, if any, we will obtain over intellectual property we derive from such licenses to Drug Rescue Variants we may generate or develop in connection with any such third-party licenses.
If, instead of identifying Drug Rescue Candidates based on information available to us in the public domain, we seek to in-license Drug Rescue Candidates from biotechnology, medicinal chemistry and pharmaceutical companies, academic, governmental and nonprofit research institutions, including the NIH, or other third-parties, there can be no assurances that we will obtain material ownership or economic participation rights over intellectual property we may derive from such licenses or similar rights to the Drug Rescue Variants we may generate and develop. If we are unable to obtain ownership or substantial economic participation rights over intellectual property related to Drug Rescue Variants we generate, our business may be adversely affected.
Our ability to protect our intellectual property and proprietary technology through patents and other means is uncertain, and we could be unsuccessful in obtaining adequate patent protection for one or more of our product candidates.
Our commercial success will depend in part on our ability to protect our intellectual property and proprietary technologies. We rely on patents, where appropriate and available, as well as a combination of copyright, trade secret and trademark laws, license agreements and nondisclosure, confidentiality and other contractual restrictions to protect our proprietary technology. However, these legal means afford only limited protection and may not adequately protect our rights or permit us to gain or keep any competitive advantage. Pending patent applications of ours or our licensors may not issue as patents or may not issue in a form that will be sufficient to protect our proprietary technology and gain or maintain our competitive advantage. Any patents we have obtained or may obtain in the future, or the rights we have licensed, may be subject to re-examination, reissue, opposition or other administrative proceeding, or may be challenged in litigation, and such challenges could result in a determination that the patent is invalid or unenforceable. In addition, competitors may be able to design alternative methods or products that avoid infringement of these patents or technologies. To the extent our intellectual property, including licensed intellectual property, offers inadequate protection, or is found to be invalid or unenforceable, we are exposed to a greater risk of direct competition. If our intellectual property does not provide adequate protection against our competitors’ products, our competitive position could be adversely affected, as could our business. Both the patent application process and the process of managing patent disputes can be time consuming and expensive.
The patent positions of companies in the life sciences industry can be highly uncertain and involve complex legal and factual questions for which important legal principles remain unresolved. A number of life sciences, biopharmaceutical and other companies, universities and research institutions have filed patent applications or have been issued patents relating to stem cells, use of stem cells and other modified cells to treat disease, disorder or injury, and other technologies potentially relevant to or required by our existing and planned products. We cannot be certain that patents we have filed or may file in the future will be issued or granted, or that issued or granted patents will not later be found to be invalid and/or unenforceable. The standards applied by the United States Patent and Trademark Office (US PTO) and foreign patent offices in granting patents are not always applied uniformly or predictably. For example, there is no uniform worldwide policy regarding patentable subject matter or the scope of claims allowable in biotechnology and pharmaceutical patents. Consequently, patents may not issue from our pending or future patent applications. As such, we do not know the degree of future protection that we will have on certain of our proprietary products and technology.
Our patents and patent applications may not be sufficient to protect our products, product candidates and technologies from commercial competition. Our inability to obtain adequate patent protection for our product candidates or platform technology could adversely affect our business. 
Publication of discoveries in scientific or patent literature tends to lag behind actual discoveries by at least several months and sometimes several years. Therefore, the persons or entities that we or our licensors name as inventors in our patents and patent applications may not have been the first to invent the inventions disclosed in the patent applications or patents, or the first to file patent applications for these inventions. As a result, we may not be able to obtain patents for discoveries that we otherwise would consider patentable and that we consider to be extremely significant to our future success.
Where several parties seek U.S. patent protection for the same technology, the US PTO may declare an interference proceeding in order to ascertain the party to which the patent should be issued. Patent interferences are typically complex, highly contested legal proceedings, subject to appeal. They are usually expensive and prolonged, and can cause significant delay in the issuance of patents. Moreover, parties that receive an adverse decision in interference can lose patent rights. Our pending patent applications, or our issued patents, may be drawn into interference proceedings, which may delay or prevent the issuance of patents or result in the loss of issued patent rights. If more groups become engaged in scientific research related to hESCs, the number of patent filings by such groups and therefore the risk of our patents or applications being drawn into interference proceedings may increase. The interference process can also be used to challenge a patent that has been issued to another party.

Outside of the U.S., certain jurisdictions, such as Europe, Japan, New Zealand and Australia, permit oppositions to be filed against the granting of patents. Because we may seek to develop and commercialize our product candidates internationally, securing both proprietary protection and freedom to operate outside of the U.S. is important to our business. In addition, the European Patent Convention prohibits the granting of European patents for inventions that concern “uses of human embryos for industrial or commercial purposes”. The European Patent Office is presently interpreting this prohibition broadly, and is applying it to reject patent claims that pertain to hESCs. However, this broad interpretation is being challenged through the European Patent Office appeals system. As a result, we do not yet know whether or to what extent we will be able to obtain European patent protection for our proprietary hESC-based technology and systems.

Patent opposition proceedings are not currently available in the U.S. patent system, but legislation is pending to introduce them. However, issued U.S. patents can be re-examined by the US PTO at the request of a third party. Patents owned or licensed by us may therefore be subject to re-examination. As in any legal proceeding, the outcome of patent re-examinations is uncertain, and a decision adverse to our interests could result in the loss of valuable patent rights.

Successful challenges to our patents through interference, opposition or re-examination proceedings could result in a loss of patent rights in the relevant jurisdiction(s). As more groups become engaged in scientific research and product development areas of hESCs, the risk of our patents being challenged through patent interferences, oppositions, re-examinations or other means will likely increase. If we institute such proceedings against the patents of other parties and we are unsuccessful, we may be subject to litigation, or otherwise prevented from commercializing potential products in the relevant jurisdiction, or may be required to obtain licenses to those patents or develop or obtain alternative technologies, any of which could harm our business.
Furthermore, if such challenges to our patent rights are not resolved promptly in our favor, our existing business relationships may be jeopardized and we could be delayed or prevented from entering into new collaborations or from commercializing certain products, which could materially harm our business.

Issued patents covering one or more of our product candidates or technologies could be found invalid or unenforceable if challenged in court.

If we were to initiate legal proceedings against a third party to enforce a patent covering one of our product candidates or technologies, the defendant could counterclaim that our patent is invalid and/or unenforceable. In patent litigation in the United States, defendant counterclaims alleging invalidity and/or unenforceability are commonplace. Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, for example, lack of novelty, obviousness or non-enablement. Grounds for an unenforceability assertion could be an allegation that someone connected with prosecution of the patent withheld relevant information from the US PTO, or made a misleading statement, during prosecution. The outcome following legal assertions of invalidity and unenforceability during patent litigation is unpredictable. With respect to the patent validity, we cannot be certain, for example, that there is no invalidating prior art, of which we and the patent examiner were unaware during prosecution. If a defendant were to prevail on a legal assertion of invalidity and/or unenforceability, we would lose at least part, and perhaps all, of the patent protection on one or more of our products or certain aspects of our platform technology, Human Clinical Trials in a Test Tube. Such a loss of patent protection could have a material adverse impact on our business.
Claims that any of our product candidates, including our Human Clinical Trials in a Test Tube, or, if commercialized, the sale or use of our products infringe the patent rights of third parties could result in costly litigation or could require substantial time and money to resolve, even if litigation is avoided.

We cannot guarantee that our product candidates, the use of our product candidates, or our platform technology, do not or will not infringe third party patents. Third parties might allege that we are infringing their patent rights or that we have misappropriated their trade secrets. Such third parties might resort to litigation against us. The basis of such litigation could be existing patents or patents that issue in the future. Our failure to successfully defend against any claims that our product candidates or platform technology infringe the rights of third parties could also adversely affect our business. Failure to obtain any required licenses could restrict our ability to commercialize our products in certain territories or subject us to patent infringement litigation, which could result in us having to cease commercialization of our products and subject us to money damages in such territories.

It is also possible that we may fail to identify relevant patents or applications. For example, applications filed before November 29, 2000 and certain applications filed after that date that will not be filed outside the United States remain confidential until patents issue. Patent applications in the United States and elsewhere are published approximately 18 months after the earliest filing for which priority is claimed, with such earliest filing date being commonly referred to as the priority date. Therefore, patent applications covering our products or platform technology could have been filed by others without our knowledge. Additionally, pending patent applications which have been published can, subject to certain limitations, be later amended in a manner that could cover our platform technologies, our products or the use of our products.

To avoid or settle potential claims with respect to any patent rights of third parties, we may choose or be required to seek a license from a third party and be required to pay license fees or royalties or both. These licenses may not be available on acceptable terms, or at all. Even if we or any future strategic partners were able to obtain a license, the rights may be nonexclusive, which could result in our competitors gaining access to the same intellectual property. Ultimately, we could be prevented from commercializing one or more of our products, or be forced to cease some aspect of our business operations, if, as a result of actual or threatened patent infringement claims, we are unable to enter into licenses on acceptable terms. This could harm our business significantly.

Defending against claims of patent infringement or misappropriation of trade secrets could be costly and time consuming, regardless of the outcome. Even if we were to ultimately prevail, or to settle at an early stage, such litigation could burden us with substantial unanticipated costs. In addition, litigation or threatened litigation could result in significant demands on the time and attention of our management team, distracting them from the pursuit of other business.
Intellectual property litigation may lead to unfavorable publicity that harms our reputation, and could result in unfavorable outcomes that could limit our research and development activities and/or our ability to commercialize certain products.

During the course of any patent litigation, there could be public announcements of the results of hearings, rulings on motions, and other interim proceedings in the litigation. If securities analysts or investors regard these announcements as negative, the perceived value of our products, programs, or intellectual property could be diminished. Moreover, if third parties successfully assert intellectual property rights against us, we might be barred from using certain aspects of our platform technology, or barred from developing and commercializing certain products. Prohibitions against using certain technologies, or prohibitions against commercializing certain products, could be imposed by a court or by a settlement agreement between us and a plaintiff. In addition, if we are unsuccessful in defending against allegations of patent infringement or misappropriation of trade secrets, we may be forced to pay substantial damage awards to the plaintiff. There is inevitable uncertainty in any litigation, including intellectual property litigation. There can be no assurance that we would prevail in any intellectual property litigation, even if the case against us is weak or flawed. If litigation leads to an outcome unfavorable to us, we may be required to obtain a license from the patent owner to continue our research and development programs or to market our product(s). It is possible that the necessary license will not be available to us on commercially acceptable terms, or at all. This could limit our research and development activities, our ability to commercialize certain products, or both.
Most of our competitors are larger than we are and have substantially greater resources. They are, therefore, likely to be able to sustain the costs of complex patent litigation longer than we could. In addition, the uncertainties associated with litigation could have a material adverse effect on our ability to raise the funds necessary to continue our internal research programs, conduct clinical trials, continue to in-license needed technology, or enter into strategic partnerships that would help us bring our product candidates to market.
In addition, any future patent litigation, interference or other administrative proceedings will result in additional expense and distraction of our personnel. An adverse outcome in such litigation or proceedings may expose us or any future strategic partners to loss of our proprietary position, expose us to significant liabilities, or require us to seek licenses that may not be available on commercially acceptable terms, if at all.
Confidentiality agreements with employees and third parties may not prevent unauthorized disclosure of trade secrets and other proprietary information.

In addition to patents, we rely on trade secrets, technical know-how, and proprietary information concerning our business strategy in order to protect our competitive position in the field of stem cell research and product candidate development. In the course of our research and development activities and other business activities, we often rely on confidentiality agreements to protect our proprietary information. Such confidentiality agreements are used, for example, when we talk to vendors of laboratory or clinical development services or potential strategic partners. In addition, each of our employees is required to sign a confidentiality agreement upon joining the Company. We take steps to protect our proprietary information, and our confidentiality agreements are carefully drafted to protect our proprietary interests. Nevertheless, there can be no guarantee that an employee or an outside party will not make an unauthorized disclosure of our proprietary confidential information. This might happen intentionally or inadvertently. It is possible that a competitor will make use of such information, and that our competitive position will be compromised, in spite of any legal action we might take against persons making such unauthorized disclosures.

Trade secrets are difficult to protect. Although we use reasonable efforts to protect our trade secrets, our employees, consultants, contractors, or outside scientific collaborators might intentionally or inadvertently disclose our trade secret information to competitors. Enforcing a claim that a third party illegally obtained and is using any of our trade secrets is expensive and time consuming, and the outcome is unpredictable. In addition, courts outside the United States sometimes are less willing than U.S. courts to protect trade secrets. Moreover, our competitors may independently develop equivalent knowledge, methods and know-how.
Our research and development strategic partners may have rights to publish data and other information to which we have rights. In addition, we sometimes engage individuals or entities to conduct research relevant to our business. The ability of these individuals or entities to publish or otherwise publicly disclose data and other information generated during the course of their research is subject to certain contractual limitations. These contractual provisions may be insufficient or inadequate to protect our confidential information. If we do not apply for patent protection prior to such publication, or if we cannot otherwise maintain the confidentiality of our proprietary technology and other confidential information, then our ability to obtain patent protection or to protect our trade secret information may be jeopardized.

Intellectual property rights do not necessarily address all potential threats to our competitive advantage.

The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations, and may not adequately protect our business, or permit us to maintain our competitive advantage. The following examples are illustrative:

·Others may be able to make compounds that are the same as or similar to our product candidates but that are not covered by the claims of the patents that we may own or have exclusively licensed;
·We or our licensors or any future strategic partners might not have been the first to make the inventions covered by the issued patent or pending patent application that we may own or have exclusively licensed;
·We or our licensors or any future strategic partners might not have been the first to file patent applications covering certain of our inventions;
·Others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing our intellectual property rights;
·It is possible that our pending patent applications will not lead to issued patents;
·Issued patents that we own or have exclusively licensed may not provide us with any competitive advantages, or may be held invalid or unenforceable, as a result of legal challenges by our competitors;
·Our competitors might conduct research and development activities in countries where we do not have patent rights and then use the information learned from such activities to develop competitive products for sale in our major commercial markets;
·We may not develop additional proprietary technologies that are patentable; and
·The patents of others may have an adverse effect on our business.
Changes in U.S. patent law could diminish the value of patents in general, thereby impairing our ability to protect our products.

As is the case with other development stage biotechnology companies, our success is heavily dependent on intellectual property, particularly patents. Obtaining and enforcing patents in the biotechnology and pharmaceutical industries involve both technological and legal complexity. Therefore, obtaining and enforcing patents is costly, time-consuming and inherently uncertain. In addition, Congress has passed patent reform legislation which provides new limitations on attaining, maintaining and enforcing intellectual property. Further, the Supreme Court has ruled on several patent cases in recent years, either narrowing the scope of patent protection available in certain circumstances or weakening the rights of patent owners in certain situations. In addition to increasing uncertainty with regard to our ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents, once obtained. Depending on decisions by the U.S. Congress, the federal courts, and the US PTO, the laws and regulations governing patents could change in unpredictable ways that would weaken our ability to obtain new patents or to enforce our existing patents and patents that we might obtain in the future.
If we are not able to obtain and enforce patent protection or other commercial protection for AV-101, the value of AV-101 will be harmed.
Commercial protection of AV-101, our small molecule drug candidate for neuropathic pain and other neurological conditions is important to our business. Our success related to AV-101 will depend in part on our or a potential collaborator’s ability to obtain and enforce potential patents and maintain our trade secrets and secure New Drug Product Exclusivity provided by the FDA under section 505(c)(3)(E) and 505(j)(5)(F) of the Federal Food, Drug, and Cosmetic Act.

Additional patents may not be granted, and potential U.S. patents, if issued, might not provide us with commercial benefit or might be infringed upon, invalidated or circumvented by others. The principle U.S. method of use patent and its foreign counterparts for AV-101 have expired.  Although we have recently filed three new U.S. patent applications relating to AV-101, we or others with whom we may collaborate for the development and commercialization of AV-101 may choose not to seek, or may be unable to obtain, patent protection in a country that could potentially be an important market for AV-101.
We may become subject to damages resulting from claims that we or our future employees have wrongfully used or disclosed alleged trade secrets of our employees’ former employers.

Our ability to execute on our business plan will depend on the talents and efforts of highly skilled individuals with specialized training in the field of stem cell research and bioassay development, as well as medicinal chemistry and in vitro drug candidate screening and nonclinical and clinical development. Our future success depends on our ability to identify, hire and retain these highly skilled personnel during our development stage. We may hire additional highly skilled scientific and technical employees, including employees who may have been previously employed at biopharmaceutical companies, including our competitors or potential competitors, and who may have executed invention assignments, nondisclosure agreements and/or non-competition agreements in connection with such previous employment. As to such future employees, we may become subject to claims that we, or these future employees, have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of their former employers. Litigation may be necessary to defend against these claims. If we fail in defending such claims, in addition to paying monetary damages, we may lose valuable intellectual property or personnel. A loss of key research personnel or their work product could hamper or prevent our ability to commercialize certain potential products, which could severely harm our business. Even if we are successful in defending against these claims, litigation could result in substantial costs and be a distraction to management.
Risks Related to our Common Stock
There is no assurance that an active, liquid and orderly trading market will develop for our common stock or what the market price of our common stock will be and, as a result, it may be difficult for you to sell your shares of our common stock.

Since we became a publicly-traded company in May 2011, there has been a limited public market for shares of our common stock on the OTCQB Marketplaces (OTCQB). We do not yet meet the initial listing standards of the New York Stock Exchange, the NASDAQ Capital Market, or other similar national securities exchanges. Until our common stock is listed on a broader exchange, we anticipate that it will remain quoted on the OTCQB, another over-the-counter quotation system, or in the “pink sheets.” In those venues, investors may find it difficult to obtain accurate quotations as to the market value of our common stock. In addition, if we fail to meet the criteria set forth in SEC regulations, various requirements would be imposed by law on broker-dealers who sell our securities to persons other than established customers and accredited investors. Consequently, such regulations may deter broker-dealers from recommending or selling our common stock, which may further affect liquidity. This could also make it more difficult to raise additional capital.
We cannot predict the extent to which investor interest in our company will lead to the development of a more active trading market on the OTCQB, whether we will meet the initial listing standards of the New York Stock Exchange, the NASDAQ Capital Market, or other similar national securities exchanges, or how liquid that market might become. If an active trading market does not develop, you may have difficulty selling any of the shares of our common stock that you buy. In addition, the trading price of our common stock may be highly volatile and could be subject to wide fluctuations in response to various factors, some of which are beyond our control. These factors include:

·
actual or anticipated quarterly variation in our results of operations or the results of our competitors;
·
announcements by us or our competitors of new commercial products, significant contracts, commercial relationships or capital commitments;
·
financial projections we may provide to the public, any changes to those projections, or our failure to meet those projections;
·
issuance of new or changed securities analysts’ reports or recommendations for our stock;
·
developments or disputes concerning our intellectual property or other proprietary rights;
·
commencement of, or our involvement in, litigation;
·
market conditions in the biopharmaceutical and life sciences sectors;
·
failure to complete significant sales;
·
changes in legislation and government regulation;
·
public concern regarding the safety, efficacy or other aspects of our products;
·
entering into, changing or terminating collaborative relationships;
·
any shares of our common stock or other securities eligible for future sale;
·
any major change to the composition of our board of directors or management; and
·general economic conditions and slow or negative growth of our markets.
The stock market in general, and biotechnology-based companies like ours in particular, has from time to time experienced volatility in the market prices for securities that often has been unrelated to the operating performance of the underlying companies. These broad market and industry fluctuations may adversely affect the market price of our common stock, regardless of our operating performance. In certain recent situations in which the market price of a stock has been volatile, holders of that stock have instituted securities class action litigation against such company that issued the stock. If any of our stockholders were to bring a lawsuit against us, the defense and disposition of the lawsuit could be costly and divert the time and attention of our management and harm our operating results. Additionally, if the trading volume of our common stock remains low and limited there will be an increased level of volatility and you may not be able to generate a return on your investment.
A significant portion of our total outstanding shares are restricted from immediate resale but may be sold into the market in the near future. Future sales of shares by existing stockholders could cause our stock price to decline, even if our business is doing well.
Sales of a substantial number of shares of our common stock in the public market could occur at any time. These sales, or the perception in the market that the holders of a large number of shares intend to sell shares, could reduce the market price of our common stock. Prior to this date of this report, there has been a limited public market for shares of our common stock on the OTCQB. Future sales of substantial amounts of shares of our common stock, including shares issued upon the exchange of our Series A Preferred Stock, conversion of convertible promissory notes and exercise of outstanding options and warrants for common stock, in the public market, or the possibility of these sales occurring, could cause the prevailing market price for our common stock to fall or impair our ability to raise equity capital in the future.
Our principal institutional stockholders may continue to have substantial control over us and could limit your ability to influence the outcome of key transactions, including changes in control.

Certain of our current institutional stockholders and their respective affiliates beneficially own approximately 46% of our outstanding capital stock, as beneficial ownership is defined by SEC rules and regulations. Accordingly, these stockholders may continue to have substantial influence over the outcome of corporate actions requiring stockholder approval, including the election of directors, any merger, consolidation or sale of all or substantially all of our assets or any other significant corporate transactions. These stockholders may also delay or prevent a change of control of us, even if such a change of control would benefit our other stockholders. The significant concentration of stock ownership may adversely affect the trading price of our common stock due to investors’ perception that conflicts of interest may exist or arise. For information regarding the ownership of our outstanding stock by such stockholders, refer to Item 12, “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” in this Annual Report on Form 10-K.

If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock price and trading volume could decline.

The trading market for our common stock may depend in part on the research and reports that securities or industry analysts publish about us and our business. Securities and industry analysts do not currently, and may never, publish research on our company. If no or too few securities or industry analysts commence coverage of our company, the trading price for our stock would likely be negatively impacted. In the event securities or industry analysts initiate coverage, if one or more of the analysts who cover us downgrade our stock or publish inaccurate or unfavorable research about our business, our stock price would likely decline. In the event we obtain analyst coverage, we will not have any control of the analysts or the content and opinions included in their reports. If one or more equity research analysts cease coverage of our company or fail to publish reports on us regularly, demand for our stock could decrease, which in turn could cause our stock price or trading volume to decline.

There may be additional issuances of shares of preferred stock in the future.
Following approval by our stockholders in October 2011, our Articles of Incorporation permit us to issue up to 10.0 million shares of preferred stock and our Board has authorized the issuance of 500,000 shares of Series A Preferred, all of which shares are currently issued and outstanding.  Our board of directors could authorize the issuance of additional series of preferred stock in the future and such preferred stock could grant holders preferred rights to our assets upon liquidation, the right to receive dividends before dividends would be declared to holders of our common stock, and the right to the redemption of such shares, possibly together with a premium, prior to the redemption of the common stock. In the event and to the extent that we do issue additional preferred stock in the future, the rights of holders of our common stock could be impaired thereby, including without limitation, with respect to liquidation.
Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with GAAP. Our management is currently required to assess the effectiveness of our controls and we are required to disclose changes made in our internal control over financial reporting on a quarterly basis.  As a “smaller reporting company,” however, our independent registered public accounting firm is not required to attest to the effectiveness of our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act of 2002.  If we cannot continue to favorably assess the effectiveness of our internal control over financial reporting, or if our independent registered public accounting firm is unable to provide an unqualified attestation report on our internal controls whenever required in the future, investors could lose confidence in our financial information and the price of our common stock could decline.  Additionally, should we cease to be a “smaller reporting company,” we will incur additional expense and management effort to facilitate the required attestation of the effectiveness of our internal control over financial reporting by our independent registered public accounting firm.
Our common stock may be considered a “penny stock.”
Since we became a publicly-traded company in May 2011, our common stock has traded on the OTCQB at a price of less than $5.00 per share. The SEC has adopted regulations which generally define a “penny stock” as an equity security that has a market price of less than $5.00 per share, subject to specific exemptions. To the extent that the market price of our common stock is less than $5.00 per share and, therefore, may be considered a “penny stock,” brokers and dealers effecting transactions in our common stock must disclose certain information concerning the transaction, obtain a written agreement from the purchaser and determine that the purchaser is reasonably suitable to purchase the securities. These rules may restrict the ability of brokers or dealers to sell our common stock and may affect your ability to sell shares of our common stock. In addition, as long as our common stock remains quoted only on the OTCQB, investors may find it difficult to obtain accurate quotations of the stock, and may find few buyers to purchase such stock and few market makers to support its price.

We have never paid dividends on our capital stock, and we do not anticipate paying any cash dividends in the foreseeable future.
We have paid no cash dividends on any of our classes of capital stock to date and currently intend to retain our future earnings, if any, to fund the development and growth of our business. As a result, capital appreciation, if any, of our common stock will be your sole source of gain for the foreseeable future. Any payment of cash dividends will depend upon our financial condition, contractual restrictions, financing agreement covenants, solvency tests imposed by corporate law, results of operations, anticipated cash requirements and other factors and will be at the discretion of our board of directors. Furthermore, we may incur indebtedness that may severely restrict or prohibit the payment of dividends.

Item 1B.1B.  Unresolved Staff CommentsCom
ments
 
The disclosures in this section are not required since we qualify as a smaller reporting company.

Item 2.  PropertiesProperties

Our principal executive officescorporate headquarters and laboratories are located at 343 Allerton Avenue, South San Francisco, California 94080, where we occupy approximately 10,900 square feet of office and lab space under a lease expiring on July 31, 2017.2022. We believe that our facilities are suitable and adequate for our current and foreseeable needs.

ItemItem 3.  Legal ProceedingProceedings

From time to time, we may become involved in claims and other legal matters arising in the ordinary course of business. We are not presently involved in any legal proceeding nor do we know of any legal proceeding which is threatened or contemplated.None.

Item 4.  MineSafety Disclosures

Not applicable.
 
 
PARTART II

Item 5.  Market for Registrant’s Common Equity, RelatedRelated Stockholder Matters and Issuer Purchases of Equity Securities

Market Information

OnOur common stock was approved for listing and has traded since May 11, 2016 on The NASDAQ Capital Market under the symbol “VTGN”. From June 21, 2011 through May 10, 2016, our common stock began tradingtraded on the OTC Marketplace (OTCQB), under the symbol “VSTA”.  There was no established trading market for our common stock prior to that date.June 21, 2011.
 
Shown below is the range of high and low sales prices for our common stock for the periods indicated as reported by the NASDAQ Capital Market or the OTCQB. The market quotations reflect inter-dealer prices, without retail mark-up, mark-down or commissions and may not necessarily represent actual transactions.
 
 
 
High
 
 
Low
 
Year Ending March 31, 2017
 
 
 
 
 
 
First quarter ending June 30, 2016
 $9.00 
 $3.40 
Second quarter ended September 30, 2016 
 $4.69 
 $2.81 
Third quarter ended December 31, 2016
 $4.50 
 $3.11 
Fourth quarter ended March 31, 2017
 $3.90 
 $1.74 
 
    
    
Year Ending March 31, 2016
    
    
First quarter ending June 30, 2015
 $16.50 
 $8.00 
Second quarter ending September 30, 2015
 $14.90 
 $6.50 
Third quarter ending December 31, 2015
 $10.25 
 $4.00 
Fourth quarter ending March 31, 2016
 $9.97 
 $6.50 
  High  Low 
Year Ending March 31, 2014      
First quarter ending June 30, 2013 $0.90  $0.60 
Second quarter ending September 30, 2013 $0.89  $0.55 
Third quarter ending December 31, 2013 $0.61  $0.26 
Fourth quarter ending March 31, 2014 $0.50  $0.28 
         
Year Ending March 31, 2013        
First quarter ending June 30, 2012 $2.80  $0.50 
Second quarter ending September 30, 2012 $1.50  $0.51 
Third quarter ending December 31, 2012 $0.95  $0.55 
Fourth quarter ending March 31, 2013 $0.90  $0.60 

On June 19, 201427, 2017 the closing price of our common stock on the OTCQBThe NASDAQ Capital Market was $0.65$1.83 per share.

As of June 19, 2014,27, 2017, we had 25,451,877 9,301,472 shares of common stock outstanding and approximately 300700 stockholders of record.  On the same date, one stockholdertwo stockholders held all 500,000 outstanding restricted shares of our Series A Preferred.
Preferred Stock, which shares are convertible into 750,000 shares of common stock; two stockholders held 1,160,240 outstanding shares of our Series B 10% Convertible Preferred Stock, which shares are convertible into 1,160,240 shares of common stock; and one stockholder held all 2,318,012 outstanding shares of our Series C Preferred stock, which shares are convertible into 2,318,012 shares of common stock.
 
Dividend Policy
 
We have notnever paid or declared any cash dividends in the paston our common stock, and we do not anticipate that we will paypaying any cash dividends on our common stock in the foreseeable future.  Covenants in certain of our debt agreements prohibit us from paying dividends while the debt remains outstanding.
Issuer Purchase  Our Series B Preferred accrues dividends at a rate of Equity Securities

There were no repurchases10% per annum, which dividends are payable solely in unregistered shares of our common stock at the time the Series B Preferred is converted into common stock.
Issuer Purchases of Equity Securities
We did not purchase any of our registered equity securities during the fiscal year ended March 31, 2014

-53-
period covered by this Annual Report.
 
Recent Sales of Unregistered Securities
 
During the three years preceding the date of this report, weWe have issued the following securities in private placement transactions which were not registered under the Securities Act of 1933, as amended (Securities Act) and that have not been previously reported in a Quarterly Report on Form 10-Q or a Current Report on Form 8-K:8-K.
  
2013/2014 UnitSale of Units of Common Stock and Warrants in Private Placement
 
OnBetween March 11, 2014,30, 2017 and June 27, 2017, we entered into aself-placed private placement transactions involving securities purchase agreementagreements with an accredited investorinvestors, pursuant to which we sold Unitsunits consisting of an aggregate of (i) a 10% convertible note in the face amount of $37,500 maturing on July 30, 2014 (2013/2014 Unit Note); (ii) 75,000495,001 shares of our restrictedunregistered common stock; and (iii) a warrant(ii) warrants exercisable six months following issuance and through JulyApril 30, 20162021 to purchase 75,000an aggregate of 247,500 shares of our restricted common stock at ana fixed exercise price of $1.00$4.00 per share, (Unit Warrant).subject to adjustment only for customary stock dividends, reclassifications, splits and similar transactions. We received cash proceeds of $37,500$987,800, which we usedexpect to use for general corporate purposes. The Unit Note and related accrued interest are convertible into shares of our restricted common stock at a conversion price of $0.50 per share at or prior to maturity at the option of the investor.  The Unitsunits were offered and sold in a transaction exempt from registration under the Securities Act, in reliance on Section 4(2) thereof.
Securities Issued in Satisfaction of Technology License and Maintenance Fees and Patent Expenses
On April 10, 2014, we  issued (i) a promissory note in the face amount of $300,000 due on the earlier of December 31, 2014 or the completion of a qualified financing, as defined, (ii) 300,000 restricted shares of our common stock and (iii) a warrant exercisable through March 31, 2019 to purchase 300,000 restricted shares of our common stock at an exercise price of $0.50 per share to Icahn School of Medicine at Mount Sinai in satisfaction of $288,400 of license maintenance fees and reimbursable patent prosecution costs.  The securities were issued in aself-placed private placement transaction exempt from registration under the Securities Act in reliance on Section 4(2) thereof.thereof and Rule 506 of Regulation D thereunder.
Securities Issued for ConsultingProfessional Services
 
On May 21, 2014,During December 2016, we issued togranted an accredited investoraggregate of 200,000 restrictedunregistered shares of our common stock, including 100,000 unregistered shares from our Amended and Restated 2016 Stock Incentive Plan, to five accredited investors as full or partial compensation under the termsfor various investor relations, corporate development, and other professional services. The shares of a strategic consulting agreement.  The securitiescommon stock were issued in a private placement transactiontransactions exempt from registration under the Securities Act, in reliance on Section 4(2) thereof.
thereof and Rule 506 of Regulation D thereunder.
 
Item tem 6.  Selected Financial FinancialData
 
The disclosures in this section are not required sincebecause we qualify as a smaller reporting company.

-54-
company under federal securities laws.
 
Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

SpecialCautionary Note Regarding Forward-Looking Statements

This Annual Report on Form 10-K (Annual Report) includes forward-looking statements. All statements contained in this Annual Report on Form 10-K other than statements of historical fact, including statements regarding our future results of operations and financial position, our business strategy and plans, and our objectives for future operations, are forward- looking statements. The words “believe,” “may,” “estimate,” “continue,” “anticipate,” “intend,” “expect” and similar expressions are intended to identify forward-looking statements. We have based these forward- looking statements largely on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives, and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and assumptions,assumptions. Our business is subject to significant risks including, those describedbut not limited to, our ability to obtain additional financing, the results of our research and development efforts, the results of non-clinical and clinical testing, the effect of regulation by the United States Food and Drug Administration (FDA) and other agencies, the impact of competitive products, product development, commercialization and technological difficulties, the effect of our accounting policies, and other risks as detailed in the section entitled “Risk Factors” section. in this Annual Report.  Further, even if our product candidates appear promising at various stages of development, our share price may decrease such that we are unable to raise additional capital without significant dilution or other terms that may be unacceptable to our management, Board of Directors and stockholders.
Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the future events and trends discussed in this Annual Report on Form 10-K may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.
 
You should not rely upon forward-looking statements as predictions of future events. The events and circumstances reflected in the forward-looking statements may not be achieved or occur. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. We are under no duty to update any of these forward-looking statements after the date of this Annual Report on Form 10-K or to conform these statements to actual results or revised expectations. If we do update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward- lookingforward-looking statements.
 
Business Overview

We are a stem cellclinical-stage biopharmaceutical company headquartered in South San Francisco, California and focused on drug rescuedeveloping new generation medicines for depression and regenerative medicine. We believe better cells lead to better medicine™ and that the key to making better cells is precisely controlling the differentiation of human pluripotent stem cells, which are the building blocks of all cells of the human body. For over 15 years, our stem cell research and development teams and collaborators have focused on controlling the differentiation of pluripotent stem cells to produce multiple types of mature, functional, adult human cells, with emphasis on human heart and liver cells for drug rescue applications.
Our Stem Cell Technology Platform - Human Clinical Trials in a Test Tube™
Our stem cell technology platform, which we refer to as Human Clinical Trials in a Test Tube, is based on a combination of proprietary and exclusively licensed technologies for controlling the differentiation of human pluripotent stem cells into multiple types of mature, functional, adult human cells that we use, or plan to develop, to reproduce complex human biology and disease.  We are currently producing human heart cells and liver cells for our drug rescue applications. However, we also intend to advance, internally and through collaborative research projects, production of pluripotent stem cell-derived blood, bone, cartilage, and pancreatic beta-islet cells and explore ways to leverage our stem cell technology platform for regenerative medicine purposes. Our interest in the regenerative medicine arena is on developing novel human disease models for discovery of small molecule drugs and biologics that activate the endogenous growth and healing processes enabling the body to repair tissue damage caused by certain degenerative diseases.
CardioSafe 3D™
Using mature cardiomyocytes (heart cells) differentiated from human pluripotent stem cells, we have developed CardioSafe 3D, as a novel, in vitro bioassayother central nervous system used to assess new drug candidates for potential cardiac toxicity before they are tested in animals or humans. We believe (CardioSafe CNS3D is capable of predicting the in vivo cardiac effects, both toxic and non-toxic, of small molecule drug candidates with greater speed and precision than the long-established, surrogate safety models most often used in drug development, including models using animal cells or live animals, and cellular assays using cadaver, immortalized or transformed cells. Our pluripotent stem cell derived cardiomyocytes (heart cells) and CardioSafe 3D are key components of our Human Clinical Trials in a Test Tube platform and drug rescue programs.
LiverSafe 3D™
Using mature, functional adult hepatocytes (liver cells) derived from human pluripotent stem cells, we are correlating LiverSafe 3D, our second novel stem cell technology-based bioassay system, with reported clinical results. We believe LiverSafe 3D will enable us to assess, early in development, new drug candidates for potential drug-induced liver toxicity and particularly metabolism issues that can result in serious adverse drug-drug interactions, before animal or human testing. We plan to use LiverSafe 3D, and the clinically predictive liver biology insight we believe it will provide us, to expand the scope of our commercial opportunities related to drug rescue.
Drug Rescue
We believe drug rescue using our novel in vitro bioassay systems, CardioSafe 3D and LiverSafe 3D, the foundation of our Human Clinical Trials in a Test Tube platform, is the highest-value near term commercial application of the human cells we produce.  Detailed information is available to us in the public domain regarding the efficacy, pharmacology, formulation and toxicity of promising small molecule drug candidates developed by pharmaceutical and biotechnology companies which have failed due to unexpected heart or liver toxicity. These failed but still promising drug candidates, which we refer to as Drug Rescue Candidates™, have already been optimized and tested by a pharmaceutical or biotechnology company and assessed for efficacy and commercial potential.
Failure of promising Drug Rescue Candidates due to unexpected human clinical toxicity highlights the need for new paradigms to evaluate potential heart and liver toxicity early in drug development. While efforts of pharmaceutical and biotechnology companies to improve their prediction of such human clinical toxicity for new drug candidates is ongoing, the existence of Drug Rescue Candidates™ offers us an opportunity to use our novel stem cell technology to take advantage of prior third-party investment in Drug Rescue Candidates with early signs of efficacy, by significantly reducing the toxicity that caused them to be terminated, and bring new, safer versions back into development protected by new intellectual property. We refer to the new, safer versions of Drug Rescue Candidates we intend to produce with our medicinal chemistry collaborator and validate internally in our bioassay systems as Drug Rescue Variants™.
Through stem cell technology-based drug rescue, our objective is to become a leading source of proprietary, small molecule drug candidates to the global pharmaceutical industry. We have designed our drug rescue model to leverage publicly available information and substantial prior investment by pharmaceutical companies and others in Drug Rescue Candidates. The key commercial objective of our drug rescue model is to generate revenue from license, development and commercialization arrangements involving Drug Rescue Variants. We anticipate that each validated lead Drug Rescue Variant will be suitable as a promising new drug development program, either internally or in collaboration with a strategic partner.
Our Drug Rescue Strategy
We believe the pre-existing public domain knowledge base supporting the therapeutic and commercial potential of our Drug Rescue Candidates will provide us with a valuable head start as we launch our drug rescue programs. Leveraging the substantial prior investments by global pharmaceutical companies and others in discovery, optimization and efficacy validation of Drug Rescue Candidates is an essential component of our drug rescue strategy.
Our current drug rescue emphasis is on Drug Rescue Candidates discontinued prior to FDA market approval due to unexpected cardiac safety concerns. By using our CardioSafe 3D assay platform to enhance our understanding of the cardiac liability profile of Drug Rescue Candidates, biological insight not previously available when the Drug Rescue Candidate was originally discovered and developed, we believe we can demonstrate in vitro proof-of-concept as to the efficacy and safety of Drug Rescue Variants earlier in development and with substantially less investment in discovery, efficacy optimization and development than was required of the pharmaceutical companies prior to their decision to terminate  the Drug Rescue Candidates.) disorders.
 
The key elementsAV-101 is our oral CNS product candidate in Phase 2 clinical development in the United States, initially as a new generation adjunctive treatment for Major Depressive Disorder (MDD) in patients with an inadequate response to standard antidepressants approved by the U.S. Food and Drug Administration (FDA).  AV-101’s mechanism of our action (CardioSafe MOA3D drug rescue strategy are) involves both NMDA (N-methyl-D-aspartate) and AMPA (alpha-amino-3-hydroxy-5-methyl-4-isoxazolepropionic acid) receptors in the brain responsible for fast excitatory synaptic activity throughout the CNS.  AV-101’s MOA is fundamentally differentiated from all FDA-approved antidepressants, as follows:well as all atypical antipsychotics often used adjunctively to augment them. We believe AV-101 also has potential as a new treatment alternative for several additional indications involving the CNS, including epilepsy, Huntington’s disease, L-DOPA-induced dyskinesia associated with Parkinson’s disease, and neuropathic pain. 
 
·
identify potential Drug Rescue Candidates with heart safety issues utilizing drug discovery and development information available in the public domain through open source, licensed databases, and published patents, as well as through our strategic relationships with our drug rescue and scientific advisors and consultants, including Synterys, Inc. and Cato Research Ltd., our preferred provider of contract medicinal chemistry and contract clinical development and regulatory services, respectively;
·
leverage substantial prior research and development investments made by global pharmaceutical companies and others to analyse internally the therapeutic and commercial potential of Drug Rescue Candidates, as important criteria for selection of Drug Rescue Candidates and potential lead Drug Rescue Variants;
·
use CardioSafe 3D to enhance our understanding of the cardiac liability profile of Drug Rescue Candidates, important and more comprehensive biological insights not available when the Drug Rescue Candidates were originally discovered and developed by pharmaceutical companies;
·
leverage our internal knowledge base about each Drug Rescue Candidate’s specific chemistry to design and produce a portfolio of novel potential lead Drug Rescue Variants for each Drug Rescue Candidate;
·
use CardioSafe 3D and pre-existing in vitro efficacy models to assess the efficacy and cardiac safety of potential Drug Rescue Variants and identify and validate a lead Drug Rescue Variant; and
·
internally develop validated lead Drug Rescue Variants or out-license them to a global pharmaceutical company in revenue-generating agreements providing for the full development, market approval and commercial sale.
We believe our exclusive focus on Drug Rescue Candidates with established therapeutic and commercial potential, and our ability to build on that valuable head start using our expertise in human biology, will help us to generate Drug Rescue Variants without incurring certain high costs and risks typically inherent in drug discovery and development. Although we plan to continue to identify Drug Rescue Candidates in the public domain, we may also seek to acquire rights to Drug Rescue Candidates not available to us in the public domain through in-licensing arrangements with third-parties.
Strategic Licensing of Drug Rescue Variants
We believe many pharmaceutical companies are experiencing, and will continue to experience, critical research and development productivity issues, as measured by their lack of, or very low number of, FDA-approved products each year during the past decade. For example, in 2013,Clinical studies conducted at the U.S. pharmaceutical industry invested over $51 billion in research and development and the Center for Drug Evaluation and ResearchNational Institute of Mental Health (CDERNIMH) of the FDA approved a total of only 39 novel drugs, known as New Molecular Entities (NMEs).  In 2013, CDER approved only 27 NMEs, thirteen of which NME approvals (48%) were received by only five pharmaceutical companies, including Bayer (two), GlaxoSmithKline (four), Johnson & Johnson (three), Roche (two) and Takeda (two). Despite remarkable levelspart of research and development investment by the global pharmaceutical industry as a whole, since 2003, the FDA has only approved an average of approximately 26 NMEs per year. In addition, we believe many pharmaceutical companies with established products that are no longer patent protected are also experiencing substantial market pressure from generic competition.
As a result of research and development productivity issues, diminishing product pipelines and generic competition, we believe there is and will continue to be a critical need among pharmaceutical companies to license or acquire the new, safer Drug Rescue Variants we are focused on developing, including companies that originally discovered, developed and ultimately discontinued the Drug Rescue Candidates we select for our drug rescue programs.
Once we achieve proof-of-concept (POC) in vitro as to the efficacy and safety of a lead Drug Rescue Variant, we intend to announce the results of our internal POC studies and, at that time, consider whether we will seek to license that Drug Rescue Variant to a pharmaceutical company, including the company that developed the Drug Rescue Candidate, or further develop it internally on our own.  If we decide to license a lead Drug Rescue Variant to a pharmaceutical company, through a form of license arrangement we believe is generally accepted in the pharmaceutical industry, we anticipate that the pharmaceutical company will be responsible for all subsequent development, manufacturing, regulatory approval, marketing and sale of the Drug Rescue Variant and that we will receive licensing revenue through payments to us from the license upon signing the license agreement, achievement of development and regulatory milestones, and, if approved and marketed, upon commercial sales.
Regenerative Medicine and Drug Discovery 
Although we believe the best and most valuable near term commercial application of our stem cell technology platform, Human Clinical Trials in a Test Tube, is for small molecule drug rescue, we also believe stem cell technology-based regenerative medicine has the potential to transform healthcare in the U.S. over the next decade by altering the fundamental mechanisms of disease.  We are interested in exploring ways to leverage our stem cell technology platform for regenerative medicine purposes, with emphasis on developing novel human disease models for discovery of small molecule drugs with regenerative and therapeutic potential. Our regenerative medicine focus will be based on our expertise in human biology, differentiation of human pluripotent stem cells to develop functional adult human cells and tissues involved in human disease, including blood, bone, cartilage, heart, liver and insulin-producing pancreatic beta-islet cells, and our expertise in formulating customized biological assays with the cells we produce. Among our key objectives will be to explore regenerative medicine opportunities through pilot nonclinical proof-of-concept studies, after which we intend to assess any potential opportunities for further development and commercialization of therapeutically and commercially promising regenerative medicine programs and novel, customized, disease-specific biological assays, either on our own or with strategic partners.
AV-101 for Neuropathic Pain, Epilepsy and Depression
With $8.8 million of grant funding awarded from the U.S. National Institutes of Health we(NIH), by Dr. Carlos Zarate, Jr., Chief of the NIMH’s Experimental Therapeutics & Pathophysiology Branch and its Section on Neurobiology and Treatment of Mood and Anxiety Disorders, have successfully completedfocused on the antidepressant effects of low dose ketamine hydrochloride injection (ketamine), an NMDA receptor antagonist, in MDD patients with inadequate responses to multiple standard antidepressants. These NIMH studies, as well as clinical research at Yale University and other academic institutions, have demonstrated robust antidepressant effects in these MDD patients within twenty-four hours of a single sub-anesthetic dose of ketamine administered by intravenous (IV) injection.
We believe orally-administered AV-101 may have potential to deliver ketamine-like antidepressant effects without ketamine’s psychological and other negative side effects. As published in the October 2015 issue of the peer-reviewed, Journal of Pharmacology and Experimental Therapeutics, in an article titled, The prodrug 4-chlorokynurenine causes ketamine-like antidepressant effects, but not side effects, by NMDA/glycineB-site inhibition, using well-established preclinical models of depression, AV-101 was shown to induce fast-acting, dose-dependent, persistent and statistically significant antidepressant-like responses following a single treatment. These responses were equivalent to those seen with a single sub-anesthetic control dose of ketamine. In addition, these studies confirmed that the fast-acting antidepressant effects of AV-101 were mediated through both inhibiting the GlyB site of the NMDA receptor and activating the AMPA receptor pathway in the brain.
Pursuant to our Cooperative Research and Development Agreement (CRADA) with the NIMH, the NIMH is funding, and Dr. Zarate, as Principal Investigator, and his team are conducting, a small Phase 1 development2 clinical study of AV-101. AV-101 also knownmonotherapy in subjects with treatment-resistant MDD (theNIMH AV-101 MDD Phase 2 Monotherapy Study). We are preparing to launch our 180-patient Phase 2 multi-center, multi-dose, double blind, placebo-controlled efficacy and safety study of AV-101 as “L-4-chlorokynurenine”a new generation adjunctive treatment of MDD in adult patients with an inadequate response to standard, FDA-approved antidepressants (theAV-101 MDD Phase 2 Adjunctive Treatment Study).  Dr. Maurizio Fava, Professor of Psychiatry at Harvard Medical School and “4-Cl-KYN”Director, Division of Clinical Research, Massachusetts General Hospital (MGH) Research Institute, will be the Principal Investigator of our AV-101 MDD Phase 2 Adjunctive Treatment Study.  Dr. Fava was the co-Principal Investigator with Dr. A. John Rush of the STAR*D study, the largest clinical trial conducted in depression to date, whose findings were published in journals such as the New England Journal of Medicine (NEJM) and the Journal of the American Medical Association (JAMA). We currently anticipate completing our AV-101 MDD Phase 2 Adjunctive Treatment Study by the end of 2018 with top line results available in the first quarter of 2019.
VistaStem Therapeutics (VistaStem) is our wholly owned subsidiary focused on applying human pluripotent stem cell (hPSC) technology, internally and with collaborators, to discover, rescue, develop and commercialize (i) proprietary new chemical entities (NCEs) for CNS and other diseases and (ii) regenerative medicine (RM) involving hPSC-derived blood, cartilage, heart and liver cells.  Our internal drug rescue programs are designed to utilizeCardioSafe 3D, is an orally available non-sedating,our customized cardiac bioassay system, to develop small molecule prodrug candidate aimed atNCEs for our pipeline.  In December 2016, we exclusively sublicensed to BlueRock Therapeutics LP, a next generation RM company established by Bayer AG and Versant Ventures, rights to certain proprietary technologies relating to the multi-billion dollar neurologicalproduction of cardiac stem cells for the treatment of heart disease and disorders market, including neuropathic pain,(theBlueRock Agreement). In a serious and chronic condition causing pain after an injurymanner similar to our exclusive sublicense agreement with BlueRock Therapeutics, VistaStem may pursue additional RM collaborations or disease of the peripheral licensing transactions involving blood, cartilage, and/or central nervous system, epilepsy, depression and Parkinson’s disease. Our AV-101 IND application, on file with the FDA, covers clinical developmentliver cells derived from hPSCs for neuropathic pain.  However, we believe the Phase 1 AV-101 safety studies completed to date will support development of AV-101 for multiple indications, including epilepsy, depression and Parkinson’s disease. We intend to seek potential opportunities for further clinical development and commercialization of AV-101 for neuropathic pain, epilepsy, depression and Parkinson’s disease, on our own (A) cell-based therapy, (B) cell repair therapy, and/or with strategic partners. In the event that we successfully complete one or more strategic partnering arrangements for AV-101, we plan to use the net proceeds from such an arrangement(s) to expand our stem cell technology-based drug rescue and regenerative medicine programs.
(C) tissue engineering. 
 
The Merger

VistaGen Therapeutics, Inc., a California corporation incorporated on May 26, 1998, (VistaGen California),dba VistaStem, is our wholly-owned subsidiary. Excaliber Enterprises, Ltd. (Excaliber), a publicly-held company (formerly OTCBB: EXCA) was incorporated under the laws of the State of Nevada on October 6, 2005. Pursuant to a strategic merger transaction on May 11, 2011, Excaliber acquired all outstanding shares of VistaGen CaliforniaVistaStem in exchange for 6,836,452341,823 shares of our common stock and assumed all of VistaGen California’sVistaStem’s pre-Merger obligations (the Merger). Shortly after the Merger, Excaliber’s name was changed to “VistaGen Therapeutics, Inc.” (a Nevada corporation).
 
VistaGen California,VistaStem, as the accounting acquirer in the Merger, recorded the Merger as the issuance of common stock for the net monetary assets of Excaliber, accompanied by a recapitalization.  The accounting treatment for the Merger was identical to that resulting from a reverse acquisition, except that we recorded no goodwill or other intangible assets. A total of 1,569,00078,450 shares of our common stock, representing the shares held by stockholders of Excaliber immediately prior to the Merger and effected for a post-Merger two-for-one (2:1) stock split, have been retroactivelyare reflected as outstanding for all periods presented in the Consolidated Financial Statements of the Company included in Item 8 of this Annual Report on Form 10-K. Additionally, the Consolidated Balance Sheets retroactively reflect the $0.001 par value of Excaliber’s common stock.
 
In October 2011, our stockholders amended our Articles of Incorporation to authorize us to issue up to 200 million shares of common stock and up to 10 million shares of preferred stock and to authorize our Board of Directors to prescribe the classes, series and the number of each class or series of preferred stock and the voting powers, designations, preferences, limitations, restrictions and relative rights of each class or series of preferred stock.  In December 2011, our Board of Directors authorized the creation of a series of up to 500,000 shares of Series A Preferred Stock, par value $0.001 (Series A Preferred).  Pursuant to the Note Exchange and Purchase Agreement of October 11, 2012 (the October 2012 Agreement), as amended, between us and Platinum Long Term Growth VII, LLC (Platinum), currently our largest institutional security holder, Platinum has the right and option to exchange the 500,000 shares of our Series A Preferred Stock that it holds for (i) 15,000,000 restricted shares of our common stock, and (ii) a five-year warrant to purchase 7,500,000 restricted shares of our common stock at an exercise price of $0.50 per share.

-58-
The Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K represent the activity of VistaGen CaliforniaVistaStem from May 26, 1998, and the consolidated activity of VistaGen CaliforniaVistaStem and Excaliber (now VistaGen Therapeutics, Inc., a Nevada corporation), from May 11, 2011 (the date of the Merger). The Consolidated Financial Statements also include the accounts of VistaGen California’sVistaStem’s two inactive wholly-owned subsidiaries, Artemis Neuroscience, Inc., a Maryland corporation (Artemis), and VistaStem Canada, Inc., a corporation organized under the laws of Ontario, Canada (VistaStem Canada).

Financial Operations Overview

Net Loss

We are in the development stage and, since inception, have devoted substantially all of our time and efforts to hPSC research and bioassay development, small molecule drug development, creating, protecting and patenting intellectual property, recruiting personnel and raising working capital.  As of March 31, 2014, we had an accumulated deficit of $70.6 million. Our net loss for the years ended March 31, 2014 and 2013 was $3.0 million and $12.9 million, respectively. We expect these conditions to continue for the foreseeable future as we expand our drug rescue activities and the capabilities of our Human Clinical Trials in a Test Tube™ platform.
 
Summary of Fiscal Year 2014
During fiscal 2014, our scientific personnel have continued to expand the drug rescue capabilities of CardioSafe 3D and further develop LiverSafe 3D. Our internal scientific operations were curtailed somewhat during our second fiscal quarter as we decommissioned our former lab space in preparation for the move to expanded lab and office facilities at the end of July 2013, and completed the corresponding relocation, recalibration and recertification of our laboratories and equipment following the move. Limited cash resources following the move, resulting in part from the failure to close the financing described below, continued to restrict certain scientific activities and collaborations for the remainder of the fiscal year. Nevertheless, we have continued to advance the capabilities of our heart and liver cells and pursue our internal evaluation of prospective drug rescue candidates. We successfully completed Phase 1 clinical development of AV-101 during our fiscal year ended March 31, 2013 and directed effort during the first quarter of fiscal 2014 to finalizing AV-101 Phase 1b clinical study reports, as required under the terms of our NIH grant awards and to facilitate further collaborative development of AV-101.

Throughout fiscal 2014, our executive management has been significantly focused on providing sufficient operating capital to advance our research and development objectives while meeting our continuing operational needs. To that end, in April 2013, we entered into a Securities Purchase Agreement (as amended, Securities Purchase Agreement) with Autilion AG, a company organized and existing under the laws of Switzerland (Autilion), under which Autilion is contractually obligated to purchase an aggregate of 72.0 million restricted shares of our common stock at a purchase price of $0.50 per share for aggregate cash proceeds to us of $36.0 million (the Autilion Financing).  To date, Autilion has completed only a nominal closing under the Securities Purchase Agreement.  Therefore, Autilion is in default under the Securities Purchase Agreement and we can give no assurance that Autilion will complete a material closing under the Securities Purchase Agreement. 
To meet our working capital needs as a result of Autilion's default under the Securities Purchase Agreement, during June and July 2013, we offered certain warrant holders the opportunity to exercise outstanding warrants having an exercise price of $1.50 per share to purchase shares of our restricted common stock at a reduced exercise price of $0.50 per share. Participating warrant holders exercised modified warrants to purchase an aggregate of 528,370 restricted shares of our common stock and we received cash proceeds of $264,200.  In addition, certain long-term warrant holders exercised modified warrants to purchase 16,646 restricted shares of our common stock in lieu of payment by us in satisfaction of amounts due for professional services in the aggregate amount of $8,300. Additionally, in July 2013, we issued to Platinum a senior secured convertible note in the face amount of $250,000 (the July 2013 Note) and a five-year warrant to purchase 250,000 restricted shares of our common stock at an exercise price of $0.50 per share. Between August 2013 and March 14, 2014, we entered into securities purchase agreements with certain accredited investors pursuant to which we sold units of our securities (Units) consisting, in aggregate, of: (i) 10% convertible notes maturing on July 30, 2014 in the aggregate face amount of $1,007,500; (ii) an aggregate of 2,015,000 restricted shares of our common stock; and (iii) warrants exercisable through July 30, 2016 to purchase an aggregate of 2,015,000 restricted shares of our common stock at an exercise price of $1.00 per share.  We received cash proceeds of $1,007,500 from the sale of the Units, including $50,000 in lieu of repayment of previous advances made to us by one of our executive officers.
-59-
Between late-March 2014 and the date of this report, we have entered into subscription agreements with accredited investors, including Platinum, which has purchased $750,000 of such securities through June 19, 2014,  pursuant to which we sold Units of our securities consisting, in aggregate, of: (i) 10% convertible notes maturing on March 31, 2015 in the aggregate face amount of $1,515,000; (ii) an aggregate of 1,515,000 restricted shares of our common stock; and (iii) warrants exercisable through December 31, 2016 to purchase an aggregate of 1,515,000 restricted shares of our common stock at an exercise price of $0.50 per share.
Given our working capital constraints during fiscal 2014, we attempted to minimize cash commitments and expenditures for external research and development and general and administrative services to the greatest extent possible, particularly during the later portion of the fiscal year.  The following table summarizes the results of our operations for the fiscal years ended March 31, 2014 and 2013 (amounts in $000):
  Fiscal Years Ended March 31, 
  2014  2013 
       
Revenues:      
 Grant revenue $-  $200 
Operating expenses:        
 Research and development  2,481   3,431 
 General and administrative  2,548   3,562 
  Total operating expenses  5,029   6,993 
Loss from operations  (5,029)  (6,793)
Other expenses, net:        
 Interest expense, net  (1,503)  (921)
 Change in warrant liabilities  3,567   (1,636)
 Loss on early extinguishment of debt  -   (3,568)
 Other income  -   35 
Loss before income taxes  (2,965)  (12,883)
Income taxes  (3)  (4)
Net loss $(2,968) $(12,887)
  Deemed dividend on Series A Preferred Stock  -   (10,193)
Net loss attributable to common stockholders $(2,968) $(23,080)

Revenue

We have successfully completed our Phase I development of AV-101, our pro-drug candidate for the treatment of neuropathic pain and, potentially, depression and other neurological conditions. Our NIH grant related to AV-101 expired in its normal course on June 30, 2012.  We had drawn the maximum amount available under the grant prior to its expiration.  Revenue associated with our earlier subcontract research arrangement terminated in May 2012.  We had no other grant or contract revenue sources during the fiscal year ended March 31, 2014.
-60-
Research and Development Expense
Research and development expense represented approximately 49% of our operating expenses for each of the years ended March 31, 2014 and 2013. Research and development costs are expensed as incurred. Research and development expense consists of both internal and external expenses incurred in sponsored stem cell research and drug development activities, costs associated with the development of AV-101 and costs related to the licensing, application and prosecution of our intellectual property.  These expenses primarily consist of the following:
·
salaries, benefits, including stock-based compensation costs, travel and related expense for personnel associated with research and development activities;
·
fees to contract research organizations and other professional service providers for services related to the conduct and analysis of clinical trials and other development activities;
·
fees to third parties for access to licensed technology and costs associated with securing and maintaining patents related to our internally generated inventions:
·
laboratory supplies and materials;
·
leasing and depreciation of laboratory equipment; and
·
allocated costs of facilities and infrastructure.
General and Administrative Expense
General and administrative expense consists primarily of salaries and related expense, including stock-based compensation expense, for personnel in executive, finance and accounting, and other support functions. Other costs include professional fees for legal, investor relations and accounting services and other strategic consulting and public company expenses as well as facility costs not otherwise included in research and development expense.
Other Expenses, Net

In both fiscal 2014 and 2013, we incurred interest expense, including discount amortization with respect to certain notes, on the outstanding balances of our Senior Secured Convertible Promissory Notes issued to Platinum during fiscal 2013 and in July 2013, on the new and modified notes issued to Morrison &Foerster, Cato Research Ltd. and University Health Network during August and September 2012, and on various notes issued to certain service providers during fiscal years 2011 and 2012. Additionally, in fiscal 2014, we incurred interest expense and related discount amortization attributable to the convertible notes issued in connection with the sale of Units between August 2013 and March 2014.  In fiscal 2013, we incurred  non-cash losses on extinguishment of debt resulting from the modification of indebtedness to Platinum, Morrison & Foerster, Cato Research Ltd., and University Health Network, as well as the conversion by the holders of our 12% Convertible Promissory Notes issued in February 2012 into restricted shares of our common stock and warrants in November 2012.  In fiscal 2014 and 2013, we recorded income and expense, respectively, related to the changes in the fair values of the warrants issued or issuable in connection with the various Senior Secured Convertible Promissory Notes issued to Platinum during fiscal 2013 and 2014.
In fiscal 2013, we also recorded a non-cash deemed dividend related to the modification of the exchange rights of our Series A Preferred Stock held by Platinum and the impact of the prospective issuance of a five-year warrant to purchase restricted shares of our common stock upon Platinum’s exercise of its Series A Preferred Stock exchange rights.
-61-
Critical Accounting Policies and Estimates

We consider certain accounting policies related to revenue recognition, impairment of long-lived assets, research and development, stock-based compensation, warrant liability and income taxes to be critical accounting policies that require the use of significant judgments and estimates relating to matters that are inherently uncertain and may result in materially different results under different assumptions and conditions. The preparation of financial statements in conformity with United States generally accepted accounting principles (GAAP) requires us to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes to the consolidated financial statements. These estimates include useful lives for property and equipment and related depreciation calculations, and assumptions for valuing options, warrants and other stock-based compensation. Our actual results could differ from these estimates.

-55-
Revenue Recognition
 
Although we do not currently have any such arrangements, weWe have historically generated revenue principally from collaborative research and development arrangements, licensing and technology access fees and government grants.  We recognize revenue under the provisions of the SEC issued Staff Accounting Bulletin 104, Topic 13,Revenue Recognition Revised and Updated (SAB 104) and Accounting Standards Codification (ASC) 605-25,Revenue Arrangements-Multiple Element Arrangements (ASC 605-25). Revenue for arrangements not having multiple deliverables, as outlined in ASC 605-25, is recognized once costs are incurred and collectability is reasonably assured.

Revenue arrangements with multiple components are divided into separate units of accounting if certain criteria are met, including whether the delivered component has stand-alone value to the customer. Consideration received is allocated among the separate units of accounting based on their respective selling prices.  The selling price for each unit is based on vendor-specific objective evidence, or VSOE, if available, third party evidence if VSOE is not available, or estimated selling price if neither VSOE nor third party evidence is available.  The applicable revenue recognition criteria are then applied to each of the units.

We recognize revenue when the four basic criteria of revenue recognition are met: (i) a contractual agreement exists; (ii) the transfer of technology has been completed or services have been rendered; (iii) the fee is fixed or determinable; and (iv) collectability is reasonably assured. For each source of revenue, we comply with the above revenue recognition criteria in the following manner:
 
●
·Collaborative arrangements typically consist of non-refundable and/or exclusive technology access fees, cost reimbursements for specific research and development spending, and various milestone and future product royalty payments.  If the delivered technology does not have stand-alone value, the amount of revenue allocable to the delivered technology is deferred.  Non-refundable upfront fees with stand-alone value that are not dependent on future performance under these agreements are recognized as revenue when received, and are deferred if we have continuing performance obligations and have no objective and reliable evidence of the fair value of those obligations.  We recognize non-refundable upfront technology access fees under agreements in which we have a continuing performance obligation ratably, on a straight-line basis, over the period in which we are obligated to provide services.  Cost reimbursements for research and development spending are recognized when the related costs are incurred and when collectability is reasonably assured.  Payments received related to substantive, performance-based “at-risk” milestones are recognized as revenue upon achievement of the milestone event specified in the underlying contracts, which represent the culmination of the earnings process.  Amounts received in advance are recorded as deferred revenue until the technology is transferred, costs are incurred, or a milestone is reached.
Collaborative arrangements typically consist of non-refundable and/or exclusive technology access fees, cost reimbursements for specific research and development spending, and various future product development milestone and royalty payments.  If the delivered technology does not have stand-alone value, the amount of revenue allocable to the delivered technology is deferred.  Non-refundable upfront fees with stand-alone value that are not dependent on future performance under these agreements are recognized as revenue when received, and are deferred if we have continuing performance obligations and have no objective and reliable evidence of the fair value of those obligations.  We recognize non-refundable upfront technology access fees under agreements in which we have a continuing performance obligation ratably, on a straight-line basis, over the period in which we are obligated to provide services.  Cost reimbursements for research and development spending are recognized when the related costs are incurred and when collectability is reasonably assured.  Payments received related to substantive, performance-based “at-risk” milestones are recognized as revenue upon achievement of the milestone event specified in the underlying contracts, which represent the culmination of the earnings process.  Amounts received in advance are recorded as deferred revenue until the technology is transferred, costs are incurred, or a milestone is reached.
●
Technology license agreements typically consist of non-refundable upfront license fees, annual minimum access fees and/or royalty payments. Non-refundable upfront license fees and annual minimum payments received with separable stand-alone values are recognized when the technology is transferred or accessed, provided that the technology transferred or accessed is not dependent on the outcome of the continuing research and development efforts. Otherwise, revenue is recognized over the period of our continuing involvement.
●
Government grant awards, which support our research efforts on specific projects, generally provide for reimbursement of approved costs as defined in the terms of grant awards. We recognize grant revenue when associated project costs are incurred.

·Technology license agreements typically consist of non-refundable upfront license fees, annual minimum access fees and/or royalty payments. Non-refundable upfront license fees and annual minimum payments received with separable stand-alone values are recognized when the technology is transferred or accessed, provided that the technology transferred or accessed is not dependent on the outcome of the continuing research and development efforts. Otherwise, revenue is recognized over the period of our continuing involvement.
As described more completely in Note 3, Summary of Significant Accounting Policies, to the accompanying Consolidated Financial Statements contained in Item 8 of this Annual Report, the Financial Accounting Standards Board (the FASB) has recently issued new guidance regarding revenue recognition. This new guidance will be effective for our fiscal year beginning April 1, 2018, with earlier adoption permitted. We have completed our initial assessment of the new guidance and will be developing an implementation plan to evaluate the accounting and disclosure requirements under the new guidance. Based on our assessment to date, we do not believe that adoption of the new guidance will have a material impact on our consolidated financial statements. We have not yet finalized our transition method for adoption of the new guidance.

·Government grant awards, which support our research efforts on specific projects, generally provide for reimbursement of approved costs as defined in the terms of grant awards. We recognize grant revenue when associated project costs are incurred.


Impairment of Long-Lived Assets
 
In accordance with ASC 360-10, Property, Plant & Equipment—Overall, we review for impairment whenever events or changes in circumstances indicate that the carrying amount of property and equipment may not be recoverable. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition. In the event that such cash flows are not expected to be sufficient to recover the carrying amount of the assets, we write down the assets to their estimated fair values and recognize the loss in the statementsConsolidated Statements of operations.Operations and Comprehensive Loss.

Research and Development Expenses

Research and development expenses includeare composed of both internal and external costs.  Internal costs include salaries and employment relatedemployment-related expenses of scientific personnel and direct project costs.  External research and development expenses consist primarily of sponsored stem cell research and development costs, costs associated with clinical and non-clinical development of AV-101, our lead drugoral CNS prodrug candidate in Phase 2 clinical development for Major Depressive Disorder, sponsored stem cell research and development costs, and costs related to the application and prosecution of patents related to AV-101 and our stem cell technology platform, Human Clinical Trials in a Test Tube™, and AV-101.platform. All such costs are charged to expense as incurred.

Stock-Based Compensation

We account for stock-based payment arrangements in accordance with ASC 718, Compensation-Stock Compensation and ASC 505-50, Equity-Equity Based Payments to Non-Employees which requires the recognition ofrecognize non-cash compensation expense using a fair-value based method, for all costs related to stock-based payments including stock options and restricted stock awards.  We recognize compensation cost for all share-based awards to employees based on theirthe grant date fair value. Share-based compensationvalue of the award.  We record this expense is recognized over the period during which the employee is required to perform serviceservices in exchange for the award, which generally represents the scheduled vesting period.  We have granted no restricted stock awards nor do we have any 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.

We use the Black-Scholes option pricing model to estimate the fair value of stock-based awards as of the grant date. The Black-Scholes model is complex and dependent upon key data input estimates. The primary data inputs with the greatest degree of judgment are the expected termsterm of the stock options and the estimated volatility of our stock price. The Black-Scholes model is highly sensitive to changes in these two inputs. The expected term of the options represents the period of time that options granted are expected to be outstanding. We use the simplified method to estimate the expected term as an input into the Black-Scholes option pricing model. We determine expected volatility using the historical method, which, because of the limited period during which our stock has been publicly traded and its historically limited trading volume, is based on the historical daily trading data of the common stock of a peer group of public companies over the expected term of the option.

Warrant Liability
Although we did not have a warrant liability at March 31, 2017 or 2016, in conjunction with certain Senior Secured Convertible Promissory Notes that we issued to Platinum Long Term Growth VII, LLC (PLTG) between October 2012 and July 2013 and the related warrants, and the contingently issuable Series A Exchange Warrant (collectively, thePLTG Warrants), we determined that the PLTG Warrants included certain exercise price and other adjustment features requiring them to be treated as noncash liabilities. Accordingly, the PLTG Warrants were recorded at their issuance-date estimated fair values and marked to market at each subsequent reporting period, recording the change in the fair value as non-cash expense or non-cash income. The key component in determining the fair value of the PLTG Warrants and the related liability was the market price of our common stock, which is subject to significant fluctuation and is not under our control. The resulting change in the fair value of the warrant liability on our net income or loss was therefore also subject to significant fluctuation and would have continued to be so until all of the PLTG Warrants were issued and exercised, amended, cancelled or expired. Assuming all other fair value inputs remained generally constant, we recorded an increase in the warrant liability and non-cash losses when our stock price increased and a decrease in the warrant liability and non-cash income when our stock price decreased.
Notwithstanding the foregoing, and as described in Note 9,Capital Stock, to the Consolidated Financial Statements included in Item 8 of this Annual Report, on May 12, 2015, we entered into an agreement with PLTG pursuant to which we (i) fixed the exercise price of the PLTG Warrants at $7.00 per share, (ii) eliminated the exercise price reset features and (iii) fixed the number of shares of our common stock issuable thereunder.  This agreement and the related amendments to the PLTG Warrants resulted in the elimination of the warrant liability with respect to the PLTG Warrants during the quarter ending June 30, 2015. As further described in Note 9,Capital Stock, the PLTG Warrants, including the right to receive the Series A Exchange Warrant, were cancelled in exchange for our issuance of shares of our Series C Preferred stock to PLTG in January 2016.
Income Taxes

We account for income taxes using the asset and liability approach for financial reporting purposes. We recognize deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are established, when necessary, to reduce the deferred tax assets to an amount expected to be realized.
 
Recent Accounting Pronouncements
 
See Note 3 to the consolidated financial statementsConsolidated Financial Statements included in Item 8 in this Annual Report on Form 10-K for information on recent accounting pronouncements.
 
 
Results of Operations
 
Financial Operations Overview and Results of Operations
Net Loss
We have not yet achieved recurring revenue-generating status from any of our product candidates or technologies. Since inception, we have devoted substantially all of our time and efforts to developing our lead CNS product candidate, AV-101, from early non-clinical studies to our ongoing Phase 2 clinical development program in MDD, as well as stem cell technology research and development, bioassay development, small molecule drug development, and creating, protecting and patenting intellectual property related to our product candidates and technologies, with the corollary initiatives of recruiting and retaining personnel and raising working capital. As of March 31, 2017, we had an accumulated deficit of approximately $142.0 million. Our net loss for the fiscal years ended March 31, 2017 and 2016 was approximately $10.3 million and $47.2 million, respectively, the latter amount including a non-recurring, non-cash loss of approximately $26.7 million attributable to the extinguishment and conversion of approximately $15.9 million carrying value of prior indebtedness into our equity securities between May and September 2015 at a Conversion Price (the stated value of the equity received) of $7.00 per share. We expect losses to continue for the foreseeable future, primarily related to our further clinical development of AV-101 for the adjunctive treatment of MDD, as well as a range of other CNS indications.
Summary of Our Fiscal Year Ended March 31, 2017
During Fiscal 2017, we have continued to (i) advance non-clinical and clinical development of AV-101 as a potential new generation antidepressant and as a new therapeutic alternative for several other CNS indications with significant unmet medical need, (ii) expand the regulatory foundation to support broad Phase 2 clinical development of AV-101 in the U.S. and, (iii) on a limited basis, advance (a) the predictive toxicology capabilities ofCardioSafe3D for small molecule NCE drug rescue and development applications, (b) our participation in the FDA’s Comprehensive in-vitro Proarrhythmia Assay (CiPA) initiative designed to change the landscape of preclinical drug development by providing a more complete and accurate in vitro assessment of potential drug effects on cardiac risk, and (c) collaborative regenerative medicine opportunities related to our cardiac stem cell technology platform.
Pursuant to our Cooperative Research and Development Agreement (CRADA) with the NIH, the NIH is funding, and Dr. Carlos Zarate Jr. of the NIMH is conducting the NIMH AV-101 MDD Phase 2 Monotherapy Study. We currently anticipate that the NIMH will complete the NIMH AV-101 MDD Phase 2 Monotherapy Study in 2017, with top line results during the first half of 2018. In addition, we continue to prepare for our AV-101 Phase 2 Adjunctive Treatment Study.We currently anticipate completing our AV-101 MDD Phase 2 Adjunctive Treatment Study by the end of 2018 with top line results available in the first quarter of 2019.
In May 2016, we consummated an underwritten public offering of our securities pursuant to which we received net proceeds of approximately $9.54 million and issued to institutional investors an aggregate of 2,570,040 registered shares of our common stock and five-year warrants exercisable at $5.30 per share to purchase an aggregate of 2,705,883 shares of our common stock (May 2016 Public Offering). In connection with the May 2016 Public Offering, our common stock was approved for listing on The NASDAQ Capital Market, where it has traded under the symbol “VTGN” since May 11, 2016. Please see the section titled “Liquidity and Capital Resources” below, for a discussion of our expected future capital requirements.
In addition to bolstering our Clinical and Regulatory Advisory Board with the appointment of Dr. Maurizio Fava (Harvard University) as Chairman and the addition of members Dr. Sanjay Matthew (Baylor University) and Dr. Thomas Laughren (former director, FDA’s Division of Psychiatry), all pre-eminent opinion leaders in the field of depression, and the addition of veteran healthcare executive Jerry Gin, Ph.D., MBA to our Board of Directors, we enhanced our management team with the addition of Mark A. Smith, MD, Ph.D., as our Chief Medical Officer in June 2016. Dr. Smith has over 20 years of pharmaceutical industry and CNS drug development experience.  He has been a successful project leader in both drug discovery and development on projects resulting in approximately 20 investigational new drugs (INDs).  Dr. Smith has directed clinical trials examining depression, bipolar disorder, anxiety, schizophrenia, Alzheimer’s disease, ADHD and agitation in Phase 1 through Phase 2b. In addition, Dr. Smith has vast knowledge and expertise in translational neuroscience, clinical trial design and regulatory interactions. Further, in September 2016, we appointed Mark A. McPartland as our Vice President of Corporate Development. Mr. McPartland has over 20 years of experience in corporate development, capital markets, corporate communications and management consulting for companies at varying stage of their corporate evolution, including early- and mid-stage biopharmaceutical companies. Mr. McPartland is primarily concentrating his efforts in expanding awareness of VistaGen across a range of investors, researchers, patients, clinicians and potential partners.
In December 2016, we entered into the BlueRock Agreement with BlueRock Therapeutics, LP, a next generation regenerative medicine company recently established by Bayer AG and Versant Ventures (BlueRock), pursuant to which BlueRock received exclusive rights to utilize certain technologies exclusively licensed by us from University Health Network (UHN) for the production of cardiac stem cells for the treatment of heart disease. We retained rights to technology licensed from UHN related to small molecule, protein and antibody drug discovery, drug rescue and drug development, including small molecules with cardiac regenerative potential, as well as small molecule, protein and antibody testing involving cardiac cells. In January 2017, we received an upfront cash payment of $1.25 million under the BlueRock Agreement and we may potentially receive additional cash milestones and royalty payments in the future upon BlueRock’s achievement of certain development objectives and commercial sales.
As a matter of course, we attempt to minimize to the greatest extent possible cash commitments and expenditures for both internal and external research and development and general and administrative services. To further advance the non-clinical and clinical development of AV-101 and our stem cell technology platform, as well as support our operating activities, we will continue to carefully manage our routine operating costs, including our internal employee related expenses, as well as external costs relating to regulatory consulting, contract research and development, investor relations and corporate development, legal, acquisition and protection of intellectual property, accounting, public company compliance and other professional services and internal costs. 
Comparison of Fiscal Years Ended March 31, 20142017 and 20132016

Revenue   

The following table comparessummarizes the results of our primary revenue sources between the periods (in $000):

  Fiscal Years Ended March 31, 
  2014  2013 
       
NIH - AV-101 grant $-  $187 
Subcontract revenue  -   13 
         
Total Revenue $-  $200 

We have successfully completed our Phase I development of AV-101, our prodrug candidateoperations for the treatment of neuropathic painfiscal years ended March 31, 2017 and 2016 (amounts in thousands).
 
 
 Fiscal Years Ended March 31,
 
 
 
 2017
 
 
 2016
 
 
 
 
 
 
 
 
Sublicense revenue
 $1,250 
 $- 
Operating expenses:
    
    
Research and development
  5,204 
  3,932 
General and administrative
  6,295 
  13,919 
Total operating expenses
  11,499 
  17,851 
 
    
    
Loss from operations
  (10,249)
  (17,851)
 
    
    
Interest expense (net)
  (5)
  (771)
Change in warrant liabilities
  - 
  (1,895)
Loss on extinguishment of debt
  - 
  (26,700)
Other expense
  - 
  (2)
 
    
    
Loss before income taxes
  (10,254)
  (47,219)
Income taxes
  (2)
  (2)
 
    
    
Net loss
  (10,256)
  (47,221)
Accrued dividend on Series B Preferred Stock
  (1,257)
  (2,140)
Deemed dividend on Series B Preferred Stock
  (111)
  (2,058)
Net loss attributable to common stockholders 
 $(11,624)
 $(51,419)
Revenue
We recognized $1.25 million in sublicense revenue pursuant to the BlueRock Agreement in the quarter ended December 31, 2016. While we may potentially depressionreceive additional payments and royalties under the BlueRock Agreement in the future, in the event certain performance-based milestones and commercial sales are achieved, the agreement might not provide recurring revenue to us in the near term. We reported no other neurological conditions. Our NIH grant relatedrevenue for the fiscal years ended March 31, 2017 or 2016 and we presently have no revenue generating arrangements with respect to AV-101 expired in its normal course on June 30, 2012.  We had drawnor other potential product candidates. However, as indicated previously, our CRADA with the maximum amount available underNIH provides for the grant priorNIH to its expiration.  Revenue associated with our earlier subcontract research arrangement terminated in May 2012.fully fund and conduct the NIMH AV-101 MDD Phase 2 Monotherapy Study.

Research and Development Expense

Research and development expense decreased by 28%totaled $5,203,700 for the fiscal year ended March 31, 2017 (Fiscal 2017), an increase of approximately 33% compared with the $3,931,600 incurred for the fiscal year ended March 31, 2016 (Fiscal 2016), demonstrating our increased focus on the continuing non-clinical and clinical development of AV-101 and our preparations to $2.5 millionlaunch our AV-101 MDD Phase 2 Adjunctive Treatment Study, which we currently anticipate to begin in fiscal 2014 comparedthe first quarter of 2018. Of the amounts reported, non-cash expenses, related primarily to $3.4 milliongrants or modifications of our equity securities, totaled approximately $534,000 in fiscal 2013.Fiscal 2017 and $1,749,000 in Fiscal 2016. The following table comparesindicates the primary components of research and development expense betweenfor each of the periods (in $000)(amounts in thousands):
 
 
Fiscal Years Ended March 31,
 
 
 
2017
 
 
2016
 
 
 
 
 
 
 
 
Salaries and benefits
 $1,331 
 $818 
Stock-based compensation
  375 
  1,093 
Consulting and other professional services
  (75)
  112 
Technology licenses and royalties, including UHN
  746 
  1,010 
Project-related research and supplies:
    
    
AV-101
  2,292 
  406 
Stem cell and all other
  185 
  100 
 
  2,477 
  506 
Rent
  310 
  219 
Depreciation
  37 
  37 
Warrant modification expense
  - 
  135 
All other
  3 
  2 
 
    
    
Total Research and Development Expense
 $5,204 
 $3,932 
 
  Fiscal Years Ended March 31, 
  2014  2013 
       
Salaries and benefits $902  $792 
Stock-based compensation  453   510 
UHN research under SRCA  160   466 
Consulting services  53   14 
Technology licenses and royalties  484   136 
Project-related third-party research and supplies:        
AV-101  51   1,079 
All other including CardioSafe and LiverSafe  145   293 
   196   1,372 
Rent  185   115 
Depreciation  44   26 
All other  4   - 
         
Total Research and Development Expense $2,481  $3,431 
 
-59-
 
The increase in research and development salaries and benefits expense reflects the impact of (i) the additionhiring of a research technicianour Chief Medical Officer (CMO) in April 2013; (ii) the partial restoration in April 2013 of an earlier voluntary salary reduction to below his contractual pay rates taken by our President and Chief Scientific Officer; and (iii) general annual increases in employee benefits costs. In addition to the ratable amortization of stock-based compensation expense over the requisite service period of the respective grants made in fiscal 2014 and in prior years, stock-based compensation expense for fiscal 2014 includes approximately $82,000 as the impact of October 2013 and December 2013 modifications to reduce the exercise price of certain outstanding option grants to $0.40 per share or $0.50 per share,June 2016, as well as approximately $157,000 attributable to the expense resulting from the March 2014salary increases and March 2013 grants of warrantsbonus payments granted to our President and Chief Scientific Officer that vest over three years, subject(CSO) and to certain vesting acceleration events. Stock-basedthe four non-officer members of our scientific staff.
The decrease in stock based compensation expense for fiscal 2013 includes approximately $89,000 fromis primarily attributable to the impact$852,200 fair value, determined using the Black-Scholes Option Pricing Model and the assumptions indicated in Note 13,Stock Option Plans and 401(k) Plan, to the accompanying Consolidated Financial Statements in Part 8 of October 2012 modifications reducingthis Report, of the exercise priceSeptember 2015 grant of immediately vested and expensed warrants to $0.75 per share and reducing any remaining vesting periodpurchase 150,000 shares of our common stock granted to two years for certainour CSO. Stock compensation expense in Fiscal 2017 reflects the ratable amortization of option grants having exercise prices between $1.13 per share and $2.58 per share made to certainour CSO and CMO, scientific employeesstaff and consultants, in prior yearsNovember 2016, June 2016 (CSO and approximately $268,000 attributableCMO only) and September 2015. Our stock options are generally amortized over a two-year to four-year vesting period. A substantial number of the expense resulting from the March 2013 grant of a warrant to our President and Chief Scientific Officer. Our 2012/2013 sponsored research project budget under the collaboration agreement with Dr. Gordon Keller’s laboratory at UHN ended on September 30, 2013. We are currently in discussions with Dr. Keller and UHN regarding the scope of our 2013/2014 sponsored research project budget under the agreement, and we anticipate finalizing such budget in the near term. The expense recorded in fiscal 2013 reflects our stem cell research collaboration in accordance with our agreements with UHNoption grants made in the third and fourth quarters ofor prior to our fiscal year ended March 31, 20122014 became fully-vested and were fully-expensed by March 31, 2017.
Consulting services reflects fees paid or accrued for scientific, non-clinical and clinical development and regulatory advisory and consulting services rendered to us by third-parties, primarily by members of our scientific and CNS clinical and regulatory advisory boards. The reduction in a further modification effective beginning in October 2012. Technology license expense increased significantly in fiscal 2014for Fiscal 2017 primarily reflects the rationalization of our stem cell-related scientific advisory board and related accruals, including as a result of the BlueRock Agreement.
Technology license expense reflects both recurring annual fees as well as legal counsel and other costs forrelated to patent prosecution and protection that we are requiredpursuant to fund under the terms of certain of our stem cell technology license agreements.agreements or for other potential commercial purposes. We recognize these costs as they are invoiced to us by the licensors and they do not occur ratably throughout the year or between years. We began Phase 1b clinical trialsAdditionally, in both periods, this expense includes legal counsel and other costs we have incurred to advance in the U.S. and numerous foreign countries several pending patent applications with respect to AV-101 and our stem cell technology platform. Technology license-related legal expense for Fiscal 2017 also includes $55,000 representing the fair value of AV-101 early in calendar 2012, completing them by mid-year 2012. We recorded significanta warrant granted to intellectual property counsel as partial compensation for services. Fiscal 2017 expense further includes a net of $158,000 related to the trialssublicense consideration paid to University Health Network (UHN) related to the BlueRock Agreement plus additional fees and expenses related to two new cardiac stem cell technology related licenses that we acquired from UHN, net of amounts previously accrued in connection with our prior sponsored research collaboration with UHN. Technology license expense for Fiscal 2016 included (i) approximately $153,000 of fees and expenses incurred for additional stem cell technology related licenses acquired in connection with our agreement with UHN; (ii) $120,000 of noncash expense resulting from the grants to two intellectual property legal service providers in July 2015 of an aggregate of 10,000 shares of our Series B Preferred, and (iii) $254,000 of noncash expense resulting from the March 2016 grant of immediately-vested warrants to purchase an aggregate of 50,000 shares of our common stock to two intellectual property legal service providers.
AV-101 expenses for Fiscal 2017 include continuing costs incurred to develop more efficient and cost-effective proprietary production methods for AV-101 and for certain pre-production and preclinical trial analyses and procedures to facilitate Phase 2 clinical development of AV-101 in the U.S., including our AV-101 MDD Phase 2 Adjunctive Treatment Study. We expect these expenses to increase significantly during fiscal 2013.2018 as we continue preparations for, initiate and conduct our AV-101 expensesMDD Phase 2 Adjunctive Treatment Study. Additionally, AV-101 expense in fiscal 2014 reflectboth periods reflects the costs associated with finalizing themonitoring for and responding to potential feedback related to our AV-101 Phase 1 clinical trial results, preparing the final clinical trialsafety program and addressing other reportsmatters required under the terms of theour prior NIH grant and monitoring for feedback related to the reports, activities performedawards, primarily through our contract research collaborator,CRO for our Phase 1 safety studies, Cato Research Ltd. We do not track internal researchThe increase in stem cell and developmentother project related expenses including compensationin Fiscal 2017 primarily reflects in-house costs by project as we do not currently believe that such project accounting is necessary givenassociated with our participation in the level and overlap of project resources, including staffing, that are dedicated to our internal research and development projects. FDA’s CiPA project.
The increase in rent expense in Fiscal 2017 reflects both the impact of the scheduled rent increase for our South San Francisco headquarters and depreciationlaboratory facilities effective August 2016 as well as the impact of accounting for the November 2016 lease amendment extending the lease of those facilities by five years from July 31, 2017 to July 31, 2022.
Warrant modification expense in fiscal 2014Fiscal 2016 reflects increased rental coststhe increase in fair value resulting from the November 2015 modification of outstanding warrants to purchase an aggregate of 315,000 shares of our common stock held by our CSO and a key scientific advisor to reduce the amortizationexercise prices thereof from a range of tenant improvements related$9.25 to our relocation$12.80 per share to expanded facilities$7.00 per share. No similar modifications occurred in late-July 2013.Fiscal 2017.

General and Administrative Expense

General and administrative expense decreased to $6,294,800 in Fiscal 2017 from $13,918,600 in Fiscal 2016 primarily as a result of the decrease in non-cash stock compensation expense attributable to option and warrant grants to employees, officers and independent Board members in Fiscal 2016, partially offset by 29%an increase in non-cash expense related to $2.5 milliongrants of equity securities in fiscal 2014 comparedpayment of certain professional services during Fiscal 2017. Of the amounts reported, non-cash expenses, related primarily to $3.6 milliongrants or modifications of our equity securities, totaled approximately $3,100,000 in fiscal 2013.Fiscal 2017 and $11,939,000 in Fiscal 2016. The following table comparesindicates the primary components of general and administrative expense betweenexpenses for each of the periods (in $000)(amounts in thousands):

 Fiscal Years Ended March 31, 
 
Fiscal Years Ended March 31,
 
 2014  2013 
 
2017
 
 
2016
 
      
 
 
 
Salaries and benefits $675  $617 
 $1,206 
 $694 
Stock-based compensation  684   731 
  476 
  2,949 
Consulting Services  94   157 
Board fees
  140 
  98 
Legal, accounting and other professional fees  340   554 
  2,093 
  3,405 
Investor relations  120   622 
  1,219 
  172 
Insurance  130   122 
  165 
  140 
Travel and entertainment  18   37 
  179 
  96 
Rent and utilities  139   85 
  220 
  157 
Warrant modification expense  205   507 
  427 
  6,083 
All other expenses  143   130 
  170 
  125 
        
    
Total General and Administrative Expense $2,548  $3,562 
 $6,295 
 $13,919 
 
-60-
-65-
 
The increase in administrative salaries and benefits expense reflects the impact of (i) the partial restoration in April 2013 of an earlier voluntary salary reductionincreases and bonus payments granted to below his contractual pay rate taken by our Chief Executive Officer; (ii) the September 2012 conversion of ourOfficer (CEO), Chief Financial Officer (CFO), and a member of our administrative staff and the change in that employee’s status from part-time consultant to full-time, employee status; (iii)as well as the April 2013 conversionhiring of an administrative assistant from consultantour VP, Corporate Development in September 2016.
The decrease in stock based compensation expense is primarily attributable to employee status,the $2,841,000 fair value, determined using the Black-Scholes Option Pricing Model and (iv) general annual increasesthe assumptions indicated in employee benefits costs; all offset byNote 13,Stock Option Plans and 401(k) Plan, to the impactaccompanying Consolidated Financial Statements in Item 8 of voluntary resignationsthis Report, of the September 2015 grant of immediately vested and expensed warrants to purchase 500,000 shares of our common stock granted to our CEO, CFO, independent members of our Board of Directors and certain administrative personnel. In addition toconsultants. Stock compensation expense in Fiscal 2017 reflects the ratable amortization of stock-based compensation expenseoption grants made to our CEO, CFO, independent members of our Board of Directors and administrative staff and consultants, in November 2016, June 2016 (CEO, CFO and independent Board members only) and September 2015, as well as to our VP-Corporate Development upon the commencement of his employment in September 2016. Our stock options are generally amortized over the requisite service perioda two-year to four-year vesting period. A substantial number of the respectiveoption grants made in or prior to our fiscal year ended March 31, 2014 became fully-vested and in prior years, stock-based compensation expensewere fully-expensed by March 31, 2017.
Board fees includes fees recognized for fiscal 2014 includes approximately $170,000 as the impactservices of October 2013 and December 2013 modifications to reduce the exercise price of certain outstanding option grants to $0.40 per share or $0.50 per share, as well as approximately $299,000 attributable to the expense resulting from the March 2014 and March 2013 grants of warrants vesting over three years, subject to certain vesting acceleration events, to certain members of our senior management and to the independent members of our Board of Directors. Stock-basedWe added an additional independent director, Dr. Jerry Gin, to our Board in March 2016.
Legal, accounting and other professional fees in Fiscal 2017 and Fiscal 2016 includes $337,500 and $1,012,500, respectively, of non-cash expense recognized pursuant to the June 2015 grant of an aggregate of 90,000 shares of our Series B Preferred having an aggregate fair value at the time of issuance of $1,350,000 as compensation for financial advisory and corporate development service contracts with two independent service providers for services performed between July 2015 and June 2016. During Fiscal 2017, in addition to the expense noted above attributable to the June 2015 Series B Preferred grant, we granted an aggregate of 25,000 unregistered shares of our common stock having a fair value at the date of issuance of $108,500 to a legal services provider as partial compensation for fiscal 2013services and an aggregate of 320,000 unregistered shares of our common stock having a fair value at the date of issuance of $1,058,800 as partial compensation for financial advisory, investment banking and business development services. During Fiscal 2016, in addition to the expense noted above attributable to the June 2015 Series B Preferred grant, we also granted (i) an aggregate of 50,000 shares of our common stock having an aggregate fair value of $500,000 pursuant to two corporate development contracts initiated during the first quarter of Fiscal 2016; (ii) 25,000 shares of our Series B Preferred having a fair value of $250,000 to legal counsel as compensation for services in connection with our debt restructuring and other corporate finance matters, and (iii) 15,750 shares of our unregistered common stock and a five-year warrant to purchase 7,500 unregistered shares of our common stock having an aggregate fair value of $138,000 in connection with investment banking services. In both years, professional services expense also includes approximately $44,000 reflectingcash payments for routine legal fees and expenses and the impactexpense related to the annual audit of October 2012 modifications reducingthe prior year financial statements, preparation of the prior year income tax returns, and quarterly reviews of current year financial statements.
Investor relations expense includes the fees of our external service providers for a significantly expanded broad spectrum of institutional investor relations and market awareness and support functions and, particularly during Fiscal 2017, initiatives that included numerous meetings in multiple U.S. markets and other communication activities focused on expanding market awareness of the Company, including among investment professionals and investment advisors, and individual and institutional investors. During Fiscal 2017, in addition to cash fees and expenses we incurred, we granted an aggregate of 160,000 unregistered shares of our common stock to six investor relations and market awareness service providers as full or partial compensation for their services and recognized non-cash expense of $472,800, representing the fair value of the stock at the time of issuance. We also granted three-year, immediately exercisable warrants to purchase an aggregate of 75,000 shares of our unregistered common stock at exercise prices ranging from $4.50 per share to $6.00 per share to three investor relations service providers and recognized non-cash expense of $172,300 representing the fair value of the warrants at the time of issuance.
In both periods, travel expense reflects costs associated with presentations to and meetings in numerous U.S. markets with existing and potential investors and investment professionals and advisors, media and securities analysts, as well as various investor relations, market awareness and corporate development initiatives, in Fiscal 2017 by our CEO, CMO and VP, Corporate Development.
As described more completely in Note 9,Capital Stock, to the accompanying Consolidated Financial Statements for the years ended March 31, 2017 and 2016 in Item 8 of this Report, between January 2016 and December 2016, we entered into various warrant exchange agreements with certain warrant holders pursuant to which those holders exchanged outstanding warrants to purchase shares of our common stock for a lesser number of unregistered shares of our common stock. In both periods, we accounted for these transactions as warrant modifications. Between April 2016 and December 2016, certain warrant holders agreed to exchange an aggregate of 224,513 shares of our common stock for an aggregate of 156,246 shares of our unregistered common stock, resulting in our recognition of an aggregate of $350,700 in noncash expense attributable to the increase in fair value related to Fiscal 2017 warrant exchanges. Further, in December 2016, we modified an outstanding warrant to reduce the exercise price from $8.00 per share to $0.75$3.51 per share and reducing any remaining vesting periodincrease the number of shares exercisable under the warrant from 25,000 shares to two years for certain option grants having exercise prices between $1.13 per share and $2.58 per share made to certain administrative employees and consultants50,000 shares, recognizing $76,900 in prior years, and approximately $535,000expense as the incremental fair value attributable to the modification. Noncash warrant modification expense resulting fromin Fiscal 2016 includes (i) $122,000 representing the March 2013 grantsincrease in the fair value attributable to the June 2015 modification of outstanding warrants to certain memberspurchase an aggregate of 54,576 shares of our senior management andcommon stock to reduce the exercise prices thereof, generally from $30.00 per share to $10.00 per share; (ii) $358,000 representing the increase in the fair value attributable to the November 2015 modification of outstanding warrants to purchase an aggregate of 808,553 shares of our common stock previously granted to our CEO, CFO, and independent members of our Board of Directors. The reduction in legal, accounting and other professional fees reflects the impact of converting our Chief Financial Officer from part-time consultantDirectors to full-time employee status, as noted above, a reduction in legal expenses and the absence in fiscal 2014 of non-cash expense related to the granting of warrants to certain administrative consultants and service providers. During fiscal 2013, we engaged third parties to provide us with investor relations services and to conduct market awareness initiatives, however, for strategic purposes, we significantly scaled back those initiatives during fiscal 2014. The fiscal 2014 increase in rent and utilities expenses reflects higher costs related to our relocation to expanded facilities in late-July 2013. Warrant modification expense for fiscal 2014 reflects the impact of October 2013, December 2013 and February 2014 strategic reductions inreduce the exercise priceprices thereof from a range of certain outstanding warrants, generally from $1.75 per share or $1.50$9.25 to $12.80 per share to $0.50$7.00 per share,share; and in certain cases,(iii) $5,603,200 representing the extension of the term of outstanding warrants by approximately one year. In fiscal 2013, we recorded warrant modification expense also related to the reduction of the exercise price of certain outstanding warrants.  Theaggregate increase in other expenses for 2013 includes one-time costs associated with our late-July 2013 relocation to new facilities.
Other Expenses, Net   

In both fiscal 2014 and 2013, other expenses, net includes interest expense, including non-cash discount amortization, on our outstanding promissory notes, net of interest income, as well as the non-cash impact of changes in the fair value of certain warrant exchange transactions conducted during the warrant liabilities related to warrants issued or issuable to Platinum as a resultfourth quarter of the October 2012Fiscal 2016. In January 2016, we entered into an Exchange Agreement with Platinum, as amended,PLTG pursuant to which PLTG exchanged warrants, including all outstanding PLTG Warrants and in fiscal 2014, the warrant issuedshares issuable pursuant to Platinum in July 2013. In fiscal 2013, other expenses, net additionally includes the non-cash loss on extinguishmentSeries A Preferred Exchange Warrant, to purchase an aggregate of debt resulting from the modification of indebtedness to Platinum, Morrison & Foerster, Cato Research Ltd., and University Health Network, as well as the conversion by the holders2,824,016 shares of our 12%common stock for 2,118,012 unregistered shares of our Series C Convertible Promissory Notes issuedPreferred Stock (Series C Preferred) at the ratio of 0.75 share of Series C Preferred for each warrant share cancelled. We recognized related noncash warrant modification expense of $3,195,000. In February and March 2016, we entered into similar agreements with certain other warrant holders pursuant to which such warrant holders exchanged outstanding warrants to purchase an aggregate of 1,086,611 shares of our common stock for an aggregate of 814,989 shares of our unregistered common stock. We recognized an additional $2,362,000 in non-cash warrant modification expense. In February 2012 into restricted2016, we also extended the term of certain outstanding warrants to purchase an aggregate of 91,230 shares of our common stock and warrantsrecognized $46,000 of non-cash expense as a result of such modifications.
Interest and Other Expenses, Net
Interest expense, net, totaled $4,600 for Fiscal 2017, a significant decrease compared to the $70,800 reported for Fiscal 2016, resulting from the extinguishment of substantially all of our promissory notes, as well as other indebtedness, having an aggregate carrying value at the time of extinguishment of approximately $15,900,000, between May 2015 and August 2015 by conversion into our shares of our Series B Preferred at a conversion price of $7.00 per share or cash repayment and the related elimination of note interest and discount amortization. The following table summarizes the primary components of interest expense for each of the periods (amounts in November 2012.thousands):
 
 
Fiscal Years Ended March 31,
 
 
 
2017
 
 
2016
 
 
 
 
 
 
 
 
Interest expense on promissory notes
 $1 
 $209 
Amortization of discount on promissory notes
  - 
  565 
Other interest expense, including on capital leases and premium financing
  4 
  3 
     Total interest expense
  5 
  777 
Effect of foreign currency fluctuations on notes payable
  - 
  (6)
Interest income
  - 
  - 
 
    
    
Interest expense, net
 $5 
 $771 
Interest expense on promissory notes in Fiscal 2017 represents only the interest accrued on our promissory note to Progressive Medical Research prior to its repayment in June 2016. The substantial overall decrease in interest expense on promissory notes and the related amortization of discounts on such notes between the periods reflects the cessation of interest accrual and discount amortization upon the extinguishment and conversion of all outstanding Senior Secured Convertible Notes, certain 10% convertible notes (2014 Unit Notes) and other outstanding promissory notes into shares of our Series B Preferred between May 2015 and August 2015.
 
 
The following table comparesUnder the primary componentsterms of net interest expense between the periods (in $000):

  Fiscal Years Ended March 31, 
  2014  2013 
       
Interest expense on promissory notes, including discount amortization $1,547  $796 
Charge for fair value of replacement warrants issued in connection        
with exercise of modified warrants  -   36 
Charge related to losses on accounts payable settled by issuance        
of common stock or notes payable  -   80 
Charge for investment banker warrants related to February 2012 Convertible        
promissory notes  -   28 
Charge for legal fees related to issuance of Senior Secured Promissory        
Notes to Platinum under June and October 2012 agreements  -   59 
Other interest expense, including on capital leases and premium financing  15   5 
   1,562   1,004 
Effect of foreign currency fluctuations on notes payable  (49)  (53)
Interest Income  (10)  (30)
         
Interest Expense, net $1,503  $921 

The increase in interest expense is primarily attributable to the accrued interest and discount amortization recorded for the July 2012 through July 2013 issuances and restructuring of an aggregate of $3.5 million of 10% senior secured convertible notes to Platinum, including the $250,000 convertible note issued in July 2013, as well as the restructuring in September and October 2012 of an additional $3.9 million of debt into new convertible notes to other service providers, including Morrison & Foerster, Cato Research Ltd., and University Health Network. These transactions are described in greater detail in Note 9, Convertible Promissory Notes and Other Notes Payable, in the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.

In conjunction with the issuance to Platinum, pursuant to theour October 2012 Note Exchange and Purchase Agreement ofwith PLTG, we issued certain Senior Secured Convertible Promissory Notes and thea related Exchange Warrant and Investment Warrants inbetween October 2012 February 2013 and March 2013, and in connection with the similar senior secured convertible promissory note and related warrant issued to Platinum in July 2013, (as described more completely in Note 9, Convertible Promissory Notes and Other Notes Payable, in the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K), and the contingent issuance2013. Upon PLTG’s exchange of the Series A Exchange Warrant to Platinum upon Platinum’s exchange of shares of our Series A Preferred Stock held by PlatinumPLTG into shares of our common stock, we were also required to issue a Series A Exchange Warrant to PLTG. We determined that the various warrants included certain exercise price resets and other adjustment features requiring us to treat the warrants to be treated as liabilities. Accordingly, we recorded a non-cashnoncash warrant liability at its estimated fair value as of the date of warrant issuance or contract execution. During fiscal 2014, we recognized non-cash income of $3,566,900 related to the net decrease in the estimated fair value of these liabilities since March 31, 2013, or issuance in the case of the warrant issued in July 2013, which resulted from a combination of both the decrease in the market price of our common stock during that period and an agreement with Platinum in May 2013 pursuant to which the stated exercise price of the warrants was reduced from $1.50 per share to $0.50 per share, and (ii).  During fiscal 2013, we recognized non-cash expense of $1,635,800 attributable to the net increase in the fair value of these liabilities between the issuance date of the warrants and March 31, 2013, primarily as the result of the increase in the market price of our common stock during that period.

During fiscal 2013, we recognized non-cash losses on the early extinguishment of debt in the aggregate amount of $3.6 million primarily as a result of the restructuring of notes payable to Platinum and Cato Holding Company, and the restructuring of accounts payable to Cato Research, Ltd. and University Health Network that were converted in to notes payable, as well as upon the conversion by the holders of our 12% Convertible Promissory Notes issued in February 2012 into restricted shares of our common stock and warrants, all of which were treated as extinguishment of debt for accounting purposes, all asAs described more completely in Note 9, Convertible Promissory Notes and Other Notes Payable,Capital Stock, into the Consolidated Financial Statements included in Item 8 of this Annual Report, on Form 10-K.

-67-
Tablein May 2015, we entered into an agreement with PLTG pursuant to which we amended the various warrants and fixed the exercise price thereof and eliminated the anti-dilution reset features that had previously required the warrants to be treated as liabilities and carried at fair value. Accordingly, during the first quarter of ContentsFiscal 2016, we adjusted these warrants to their fair value, reflecting an increase in the fair value in the amount of $1,894,700 since March 31, 2015, resulting primarily from the increase in the market price of our common stock in relation to the exercise price of the warrants, and then subsequently eliminated the entire warrant liability with respect to these warrants. In January 2016, the PLTG warrants were cancelled and exchanged for shares of our Series C Preferred stock.
 
In fiscal 2013, in connection with the October 2012 Note ExchangeBetween May 2015 and Purchase AgreementAugust 2015 we entered with Platinum, as described in Note 9, extinguished outstanding promissory notes and other indebtedness having a carrying value of approximately $15,900,000, including our Senior Secured Convertible PromissoryNotes, our 2014 Unit Notes and Otherother debt and certain adjustments thereto that were either already due and payable or would have otherwise matured prior to March 31, 2016 by converting such balances into shares of our Series B Preferred at a conversion price (the stated value of the Series B Preferred issued) of $7.00 per share. We treated the conversion of the indebtedness into Series B Preferred as extinguishments of debt for accounting purposes. Since the fair value of the Series B Preferred we negotiated in settlement of the promissory notes and other indebtedness exceeded the carrying value of the debts, we incurred non-recurring noncash losses on each of the extinguishments. Additionally, under the terms of our May 2015 agreement with PLTG in which PLTG agreed to, among other things, convert the Senior Secured Notes Payable,and certain other of our convertible promissory notes into Series B Preferred, we issued to PLTG 400,000 shares of Series B Preferred having an aggregate fair value of $4,000,000 and Note 10, Series B Warrants to purchase 1,200,000 shares of our common stock having an aggregate of fair value of $8,270,900Capital Stock. We recognized this aggregate fair value as a further non-recurring noncash component of l,oss on extinguishment of debt. Many of the 2014 Unit Notes that were converted into Series B Preferred contained a beneficial conversion feature at the time they were originally issued. We accounted for the repurchase of the beneficial conversion feature at the time the 2014 Unit Notes were extinguished and converted, an aggregate of $2,237,200, as a reduction to the loss on extinguishment of debt. We recorded an aggregate net non-recurring non-cash loss of approximately $26,700,000 million attributable to the extinguishment of substantially all of our indebtedness as a result of the conversion of such indebtedness into shares of our Series B Preferred at a conversion price (stated value) of $7.00 per share.
We allocated the proceeds from self-placed private placement sales of Series B Preferred Units to the Series B Preferred and the Series B Warrants based on their relative fair values on the dates of the sales. The difference between the relative fair value per share of the Series B Preferred, approximately $4.20 per share and $4.13 per share for Fiscal 2017 and Fiscal 2016, respectively, and its conversion price (or stated value) of $7.00 per share represented a deemed dividend to the purchasers of the Series B Preferred Units. Accordingly, we recognized a deemed dividend in the aggregate amount of $111,100 and $2,058,000 in arriving at net loss attributable to common stockholders for Fiscal 2017 and Fiscal 2016 in the accompanying Consolidated Financial StatementsStatement of Operations and Comprehensive Loss included in Item 8 of this Annual ReportReport. Further, we recognized $1,257,000 and $2,140,500 for Fiscal 2017 and Fiscal 2016, respectively, representing the 10% cumulative dividend payable on Form 10-K, we recorded a non-cash deemedour Series B Preferred as an additional deduction in arriving at net loss attributable to common stockholders in the accompanying Consolidated Statement of Operations and Comprehensive Loss, included in this Annual Report. The reduction in the dividend accrual results from the automatic conversion of $10.2 million as a resultan aggregate of 2,403,051 shares of Series B Preferred upon our completion of the modificationMay 2016 Public Offering and a subsequent voluntary conversion of the exchange rights for the Series A Preferred Stock held by Platinum and the related contingent issuance of a five-year warrant to purchase87,500 shares of our common stock upon Platinum’s exerciseSeries B Preferred in August 2016, as disclosed in Note 9,Capital Stock, to the accompanying Consolidated Financial Statements in Item 8 of its Series A Preferred Stock exchange rights.this Annual Report.

Liquidity and Capital Resources
 
Since our inception in May 1998 through March 31, 2014,2017, we have financed our operations and technology acquisitions primarily through the issuance and sale of our equity and debt securities, including convertible promissory notes and short-term promissory notes, for aggregate cash proceeds of approximately $26.0$44.7 million, as well as from an aggregate of approximately $16.4$17.6 million of strategic collaboration payments, intellectual property sublicensing, government research grant awards strategic collaboration payments and other revenues.revenues, but not including the fair market value of the NIMH AV-101 MDD Phase 2 Monotherapy Study being fully funded and conducted by the NIMH pursuant to our CRADA. Additionally, we have issued equity securities with an approximate aggregate value at issuance of $12.6$30.8 million primarily as compensationin non-cash settlements of certain liabilities, including liabilities for professional services rendered to us since inception.  At March 31, 2014, we had negligible cash and cash equivalents. To meet our cash needs and fund our working capital requirements after March 31, 2014 andor as compensation for such services.
During the first quarter of Fiscal 2017, prior to the expected completionconsummation of the Autilion Financing (described below) or an alternate debt- or equity-based financing, through June 19, 2014,our May 2016 Public Offering, we entered into securities purchase agreements withsold to accredited investors in self-placed private placement transactions Series B Preferred Units consisting of 39,714 unregistered shares of our Series B Preferred Stock, par value $0.001 per share (Series B Preferred), and five year warrants to purchase 39,714 shares of our common stock, and we received cash proceeds of $278,000.
On May 16, 2016, we consummated the May 2016 Public Offering, an underwritten public offering pursuant to which we sold to such accredited investors certain Units for aggregatereceived net cash proceeds of $1,465,000, consisting of: (i) 10% subordinate convertible promissory notes in the aggregate face amount of $1,465,000 maturing on March 31, 2015; (ii)approximately $9.5 million and issued an aggregate of 1,465,000 restricted shares of our common stock; and (iii) warrants exercisable through December 31, 2016 to purchase an aggregate of 1,465,000 restricted2,570,040 registered shares of our common stock at the public offering price of $4.24 per share and five-year warrants to purchase up to 2,705,883 registered shares of common stock, with an exercise price of $0.50$5.30 per share.  We anticipate that our cash expenditures duringshare, at the next twelve months will be approximately $4.0public offering price of $0.01 per warrant, including shares and warrants issued pursuant to $6.0 million.the exercise of the underwriters' over-allotment option.
 
In April 2013,During the last two quarters of Fiscal 2017, we entered into the Securities Purchase Agreement with Autilion, under which Autilion is contractually obligatedsold to accredited investors units consisting of an aggregate of 124,250 unregistered shares of our common stock and three-year and five-year warrants to purchase an aggregate of 72.045,375 shares of our unregistered common stock. We received cash proceeds of $342,400 from this self-placed private placement.
Additionally, in January 2017, we received a cash payment of $1.25 million restrictedpursuant to our grant of a sublicense under the BlueRock Agreement.
At March 31, 2017, we had a cash and cash equivalents balance of $2.9 million. This amount was not sufficient to enable us to fund our planned operations, including expected cash expenditures of approximately $12 million for the twelve months following the issuance of these financial statements, including expenditures required to further prepare for, launch and satisfy a significant portion of the projected expenses associated with our proposed AV-101 MDD Phase 2 Adjunctive Treatment Study. However, during the first quarter of our fiscal year ending March 31, 2018 (Fiscal 2018), we sold to accredited investors in a self-placed private placement units consisting of an aggregate of 437,751 unregistered shares of our common stock at aand warrants to purchase pricean aggregate of $0.50 per share for aggregate cash proceeds to us of $36.0 million.  To date, Autilion has completed only a nominal closing under the Securities Purchase Agreement.  Therefore, Autilion is in default under the Securities Purchase Agreement, and we can provide no assurance that Autilion will complete a material closing under the Securities Purchase Agreement.   In the event that Autilion does not complete a material closing under the Securities Purchase Agreement in the near term, we will need to obtain from $4.0 million to $6.0 million from alternative financing sources to execute our current business plan. Substantial additional financing may not be available to us on a timely basis, on terms acceptable to us, or at all. In the event we are unable to obtain substantial additional financing on a timely basis, our business, financial condition, and results of operations may be harmed, the price of our stock may decline, and we may not be able to continue as a going concern.
In the event Autilion completes a closing under the Securities Purchase Agreement in an amount exceeding $13.0 million, and we issue to Autilion over 26 million218,875 unregistered shares of our restricted common stock pursuant to which we received $837,300 in connection with such closing, Autilion will control in excess of 50% of our issued and outstanding common stock, resulting in a change in control ofcash proceeds, bringing total proceeds for the Company.  In addition, substantial dilutionSpring 2017 Private Placement to existing stockholders will occur upon completion of a material portion of the Autilion Financing, or completion of an alternate equity-based financing. 
-68-
approximately $1.0 million (theTable of ContentsSpring 2017 Private Placement
).
 
If and as necessary,Further, although our current financial resources are not yet sufficient to fully fund completion of the AV-101 MDD Phase 2 Adjunctive Treatment Study, we may seek to complete a combination of additional private placements or public offerings of our securities, which may include both debt and equity securities, stem cell technology-based research and development collaborations, stem cell technology and drug candidate license fees and government grant awards. Although we have been successful since May 1998 withanticipate raising sufficient additional capital foras and when necessary and advisable to sustain our operations and achieve our key corporate objectives through at least the next twelve months, including initiating and conducting the AV-101 MDD Phase 2 Adjunctive Treatment Study in an ordinary course manner. In furtherance of that objective, on January 23, 2017, we will continuefiled with the U.S. Securities and Exchange Commission (SEC) our Registration Statement on Form S-3 (Registration No. 333-215671) covering the potential future sale of our equity securities from time to pursue additional financing opportunities as necessary to meet our business objectives,time in the future. The SEC declared this Registration Statement effective in May 2017. However, there can be no assurance that substantial additional capitalfuture financing will be available to us in sufficient amounts, in a timely manner, or on terms favorableacceptable to us, if at all.
We may also seek research and without substantial dilutiondevelopment collaborations that could generate revenue, funding for development of AV-101 and additional product candidates, as well as additional government grant awards and agreements similar to our current stockholders, if at all. If we are unableCRADA with the NIMH, which provides for the NIMH to complete one or more private placements or public offerings, or otherwise obtain sufficient financing throughfully fund the NIMH’s ongoing NIMH AV-101 MDD Phase 2 Monotherapy Study. Such strategic collaborations may provide non-dilutive resources to advance our strategic initiatives while reducing a portion of our future cash outlays and working capital requirements. In a manner similar to the BlueRock Agreement, we may also pursue similar arrangements with third-parties covering other of our intellectual property. Although we may seek additional collaborations that could generate revenue and/or non-dilutive funding for development of AV-101 and other product candidates, as well as new government grant awards we may be required to delay, scale back or discontinue certain drug rescue and/or research and development activities, and this may adversely affect our ability to continue as a going concern. If we obtain additional financing by selling our equity or debt securities, we anticipate that substantial dilutionagreements similar to our existing stockholdersCRADA with NIMH, no assurance can be provided that any such collaborations, awards or agreements will result. occur in the future.  
Our future working capital requirements will depend on many factors, including, without limitation, the scope and nature of strategic opportunities related to our success and the success of certain other companies in clinical trials, including our development and commercialization of AV-101 as an adjunctive treatment for MDD and other potential CNS conditions, and various applications of our stem cell technology platform, including drug rescuethe availability of, and cell therapy research and development efforts, the success of such programs, our ability to obtain, government grant awards and agreements, and our ability to enter into strategic collaborations with institutions on terms acceptable to us. To further advance drug rescue applicationsthe clinical development of AV-101 and our stem cell technology platform, as well as support our operating activities, we plan to continue to carefully manage our monthlyroutine operating costs, associated with salariesincluding our employee headcount and benefits, regulatoryrelated expenses, as well as the timing of and public company consulting, contractprojected costs relating to key research and development projects, including our expenses associated with our proposed AV-101 MDD Phase 2 Adjunctive Treatment Study, regulatory consulting, CRO services, investor relations and corporate development, legal, acquisition and protection of intellectual property, accounting, public company compliance and other professional services and working capital costs. 
Notwithstanding the foregoing, substantial additional financing may not be available to us on a timely basis, on acceptable terms, or at all. If we are unable to obtain substantial additional financing on a timely basis when needed in 2017 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.  
Cash and Cash Equivalents
 
The following table summarizes changes in cash and cash equivalents for the periods stated (in thousands):

 Fiscal Years Ended 
 March 31, 
 
Fiscal Years Ended March 31,
 
 2014  2013 
 
2017
 
 
2016
 
      
 
 
 
Net cash used in operating activities $(2,126) $(3,463)
 $(7,263)
 $(4,808)
Net cash used in investing activities  (10)  (135)
  (239)
  (26)
Net cash provided by financing activities  1,498   4,155 
  9,994 
  5,193 
        
    
Net increase (decrease) in cash and cash equivalents  (638)  557 
Net increase in cash and cash equivalents
  2,492 
  359 
Cash and cash equivalents at beginning of period  638   81 
  429 
  70 
        
    
Cash and cash equivalents at end of period $-  $638 
 $2,921 
 $429 

Off-Balance Sheet Arrangements
 
Other than contractual obligations incurred in the normal course of business, we do not have any off-balance sheet financing arrangements or liabilities, guarantee contracts, retained or contingent interests in transferred assets or any obligation arising out of a material variable interest in an unconsolidated entity. VistaGen CaliforniaVistaStem has two inactive, wholly-ownedwholly owned subsidiaries, Artemis Neuroscience, Inc., a Maryland corporation, and VistaStem Canada, Inc., an Ontario corporation.

Item 7A.  QuantitativeQuantitative and Qualitative Disclosures About Market Risk
 
The disclosures in this section are not required sincebecause we qualify as a smaller reporting company.company under federal securities laws.

 
Item 8.  Financial StatementsStatements and Supplementary Data

INDEXINDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 
 
Page
Report of Independent Registered Public Accounting Firm
F-1 67
Consolidated Balance Sheets
F-2 68
Consolidated Statements of Operations and Comprehensive Loss
F-3 69
Consolidated Statements of Cash Flows
F-4 70
Consolidated Statements of Preferred Stock
F-6
Consolidated Statements of Stockholders' DeficitEquity (Deficit)
F-7 71
Notes to Consolidated Financial Statements
F-9 72
 
 
REPORTREPORT OF INDEPENDENT REGISTEREDREGISTERED PUBLIC ACCOUNTING FIRM
 
The Merger
VistaGen Therapeutics, Inc., a California corporation incorporated on May 26, 1998, dba VistaStem, is our wholly-owned subsidiary. Excaliber Enterprises, Ltd. (Excaliber), a publicly-held company (formerly OTCBB: EXCA) was incorporated under the laws of the State of Nevada on October 6, 2005. Pursuant to a strategic merger transaction on May 11, 2011, Excaliber acquired all outstanding shares of VistaStem in exchange for 341,823 shares of our common stock and assumed all of VistaStem’s pre-Merger obligations (theMerger). Shortly after the Merger, Excaliber’s name was changed to “VistaGen Therapeutics, Inc.” (a Nevada corporation).
VistaStem, as the accounting acquirer in the Merger, recorded the Merger as the issuance of common stock for the net monetary assets of Excaliber, accompanied by a recapitalization.  The accounting treatment for the Merger was identical to that resulting from a reverse acquisition, except that we recorded no goodwill or other intangible assets. A total of 78,450 shares of our common stock, representing the shares held by stockholders of Excaliber immediately prior to the Merger are reflected as outstanding for all periods presented in the Consolidated Financial Statements of the Company included in Item 8 of this Annual Report on Form 10-K. Additionally, the Consolidated Balance Sheets reflect the $0.001 par value of Excaliber’s common stock.
The Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K represent the activity of VistaStem from May 26, 1998, and the consolidated activity of VistaStem and Excaliber (now VistaGen Therapeutics, Inc., a Nevada corporation), from May 11, 2011 (the date of the Merger). The Consolidated Financial Statements also include the accounts of VistaStem’s two inactive wholly-owned subsidiaries, Artemis Neuroscience, Inc., a Maryland corporation (Artemis), and VistaStem Canada, Inc., a corporation organized under the laws of Ontario, Canada (VistaStem Canada).
Critical Accounting Policies and Estimates
We consider certain accounting policies related to revenue recognition, impairment of long-lived assets, research and development, stock-based compensation, warrant liability and income taxes to be critical accounting policies that require the use of significant judgments and estimates relating to matters that are inherently uncertain and may result in materially different results under different assumptions and conditions. The preparation of financial statements in conformity with United States generally accepted accounting principles (GAAP) requires us to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes to the consolidated financial statements. These estimates include useful lives for property and equipment and related depreciation calculations, and assumptions for valuing options, warrants and other stock-based compensation. Our actual results could differ from these estimates.
Revenue Recognition
We have historically generated revenue principally from collaborative research and development arrangements, licensing and technology access fees and government grants.  We recognize revenue under the provisions of the SEC issued Staff Accounting Bulletin 104, Topic 13,Revenue Recognition Revised and Updated(SAB 104) and Accounting Standards Codification (ASC) 605-25,Revenue Arrangements-Multiple Element Arrangements(ASC 605-25). Revenue for arrangements not having multiple deliverables, as outlined in ASC 605-25, is recognized once costs are incurred and collectability is reasonably assured.
Revenue arrangements with multiple components are divided into separate units of accounting if certain criteria are met, including whether the delivered component has stand-alone value to the customer. Consideration received is allocated among the separate units of accounting based on their respective selling prices.  The selling price for each unit is based on vendor-specific objective evidence, orVSOE, if available, third party evidence if VSOE is not available, or estimated selling price if neither VSOE nor third party evidence is available.  The applicable revenue recognition criteria are then applied to each of the units.
We recognize revenue when the four basic criteria of revenue recognition are met: (i) a contractual agreement exists; (ii) the transfer of technology has been completed or services have been rendered; (iii) the fee is fixed or determinable; and (iv) collectability is reasonably assured. For each source of revenue, we comply with the above revenue recognition criteria in the following manner:
●
Collaborative arrangements typically consist of non-refundable and/or exclusive technology access fees, cost reimbursements for specific research and development spending, and various future product development milestone and royalty payments.  If the delivered technology does not have stand-alone value, the amount of revenue allocable to the delivered technology is deferred.  Non-refundable upfront fees with stand-alone value that are not dependent on future performance under these agreements are recognized as revenue when received, and are deferred if we have continuing performance obligations and have no objective and reliable evidence of the fair value of those obligations.  We recognize non-refundable upfront technology access fees under agreements in which we have a continuing performance obligation ratably, on a straight-line basis, over the period in which we are obligated to provide services.  Cost reimbursements for research and development spending are recognized when the related costs are incurred and when collectability is reasonably assured.  Payments received related to substantive, performance-based “at-risk” milestones are recognized as revenue upon achievement of the milestone event specified in the underlying contracts, which represent the culmination of the earnings process.  Amounts received in advance are recorded as deferred revenue until the technology is transferred, costs are incurred, or a milestone is reached.
●
Technology license agreements typically consist of non-refundable upfront license fees, annual minimum access fees and/or royalty payments. Non-refundable upfront license fees and annual minimum payments received with separable stand-alone values are recognized when the technology is transferred or accessed, provided that the technology transferred or accessed is not dependent on the outcome of the continuing research and development efforts. Otherwise, revenue is recognized over the period of our continuing involvement.
●
Government grant awards, which support our research efforts on specific projects, generally provide for reimbursement of approved costs as defined in the terms of grant awards. We recognize grant revenue when associated project costs are incurred.

As described more completely in Note 3, Summary of Significant Accounting Policies, to the accompanying Consolidated Financial Statements contained in Item 8 of this Annual Report, the Financial Accounting Standards Board (the FASB) has recently issued new guidance regarding revenue recognition. This new guidance will be effective for our fiscal year beginning April 1, 2018, with earlier adoption permitted. We have completed our initial assessment of the new guidance and will be developing an implementation plan to evaluate the accounting and disclosure requirements under the new guidance. Based on our assessment to date, we do not believe that adoption of the new guidance will have a material impact on our consolidated financial statements. We have not yet finalized our transition method for adoption of the new guidance.
Impairment of Long-Lived Assets
In accordance with ASC 360-10, Property, Plant & Equipment—Overall, we review for impairment whenever events or changes in circumstances indicate that the carrying amount of property and equipment may not be recoverable. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition. In the event that such cash flows are not expected to be sufficient to recover the carrying amount of the assets, we write down the assets to their estimated fair values and recognize the loss in the Consolidated Statements of Operations and Comprehensive Loss.
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 clinical and non-clinical development of AV-101, our oral CNS prodrug candidate in Phase 2 clinical development for Major Depressive Disorder, sponsored stem cell research and development costs, and costs related to the application and prosecution of patents related to AV-101 and our stem cell technology platform. All such costs are charged to expense as incurred.
Stock-Based Compensation
We recognize non-cash compensation expense for all stock-based awards to employees based on the grant date fair value of the award.  We record this expense over the period during which the employee is required to perform services in exchange for the award, which generally represents the scheduled vesting period.  We have granted no restricted stock awards nor do we have any 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.
We use the Black-Scholes option pricing model to estimate the fair value of stock-based awards as of the grant date. The Black-Scholes model is complex and dependent upon key data input estimates. The primary data inputs with the greatest degree of judgment are the expected term of the stock options and the estimated volatility of our stock price. The Black-Scholes model is highly sensitive to changes in these two inputs. The expected term of the options represents the period of time that options granted are expected to be outstanding. We use the simplified method to estimate the expected term as an input into the Black-Scholes option pricing model. We determine expected volatility using the historical method, which, because of the limited period during which our stock has been publicly traded and its historically limited trading volume, is based on the historical daily trading data of the common stock of a peer group of public companies over the expected term of the option.
Warrant Liability
Although we did not have a warrant liability at March 31, 2017 or 2016, in conjunction with certain Senior Secured Convertible Promissory Notes that we issued to Platinum Long Term Growth VII, LLC (PLTG) between October 2012 and July 2013 and the related warrants, and the contingently issuable Series A Exchange Warrant (collectively, thePLTG Warrants), we determined that the PLTG Warrants included certain exercise price and other adjustment features requiring them to be treated as noncash liabilities. Accordingly, the PLTG Warrants were recorded at their issuance-date estimated fair values and marked to market at each subsequent reporting period, recording the change in the fair value as non-cash expense or non-cash income. The key component in determining the fair value of the PLTG Warrants and the related liability was the market price of our common stock, which is subject to significant fluctuation and is not under our control. The resulting change in the fair value of the warrant liability on our net income or loss was therefore also subject to significant fluctuation and would have continued to be so until all of the PLTG Warrants were issued and exercised, amended, cancelled or expired. Assuming all other fair value inputs remained generally constant, we recorded an increase in the warrant liability and non-cash losses when our stock price increased and a decrease in the warrant liability and non-cash income when our stock price decreased.
Notwithstanding the foregoing, and as described in Note 9,Capital Stock, to the Consolidated Financial Statements included in Item 8 of this Annual Report, on May 12, 2015, we entered into an agreement with PLTG pursuant to which we (i) fixed the exercise price of the PLTG Warrants at $7.00 per share, (ii) eliminated the exercise price reset features and (iii) fixed the number of shares of our common stock issuable thereunder.  This agreement and the related amendments to the PLTG Warrants resulted in the elimination of the warrant liability with respect to the PLTG Warrants during the quarter ending June 30, 2015. As further described in Note 9,Capital Stock, the PLTG Warrants, including the right to receive the Series A Exchange Warrant, were cancelled in exchange for our issuance of shares of our Series C Preferred stock to PLTG in January 2016.
Income Taxes
We account for income taxes using the asset and liability approach for financial reporting purposes. We recognize deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are established, when necessary, to reduce the deferred tax assets to an amount expected to be realized.
Recent Accounting Pronouncements
See Note 3 to the Consolidated Financial Statements included in Item 8 in this Annual Report on Form 10-K for information on recent accounting pronouncements.
Results of Operations
Financial Operations Overview and Results of Operations
Net Loss
We have not yet achieved recurring revenue-generating status from any of our product candidates or technologies. Since inception, we have devoted substantially all of our time and efforts to developing our lead CNS product candidate, AV-101, from early non-clinical studies to our ongoing Phase 2 clinical development program in MDD, as well as stem cell technology research and development, bioassay development, small molecule drug development, and creating, protecting and patenting intellectual property related to our product candidates and technologies, with the corollary initiatives of recruiting and retaining personnel and raising working capital. As of March 31, 2017, we had an accumulated deficit of approximately $142.0 million. Our net loss for the fiscal years ended March 31, 2017 and 2016 was approximately $10.3 million and $47.2 million, respectively, the latter amount including a non-recurring, non-cash loss of approximately $26.7 million attributable to the extinguishment and conversion of approximately $15.9 million carrying value of prior indebtedness into our equity securities between May and September 2015 at a Conversion Price (the stated value of the equity received) of $7.00 per share. We expect losses to continue for the foreseeable future, primarily related to our further clinical development of AV-101 for the adjunctive treatment of MDD, as well as a range of other CNS indications.
Summary of Our Fiscal Year Ended March 31, 2017
During Fiscal 2017, we have continued to (i) advance non-clinical and clinical development of AV-101 as a potential new generation antidepressant and as a new therapeutic alternative for several other CNS indications with significant unmet medical need, (ii) expand the regulatory foundation to support broad Phase 2 clinical development of AV-101 in the U.S. and, (iii) on a limited basis, advance (a) the predictive toxicology capabilities ofCardioSafe3D for small molecule NCE drug rescue and development applications, (b) our participation in the FDA’s Comprehensive in-vitro Proarrhythmia Assay (CiPA) initiative designed to change the landscape of preclinical drug development by providing a more complete and accurate in vitro assessment of potential drug effects on cardiac risk, and (c) collaborative regenerative medicine opportunities related to our cardiac stem cell technology platform.
Pursuant to our Cooperative Research and Development Agreement (CRADA) with the NIH, the NIH is funding, and Dr. Carlos Zarate Jr. of the NIMH is conducting the NIMH AV-101 MDD Phase 2 Monotherapy Study. We currently anticipate that the NIMH will complete the NIMH AV-101 MDD Phase 2 Monotherapy Study in 2017, with top line results during the first half of 2018. In addition, we continue to prepare for our AV-101 Phase 2 Adjunctive Treatment Study.We currently anticipate completing our AV-101 MDD Phase 2 Adjunctive Treatment Study by the end of 2018 with top line results available in the first quarter of 2019.
In May 2016, we consummated an underwritten public offering of our securities pursuant to which we received net proceeds of approximately $9.54 million and issued to institutional investors an aggregate of 2,570,040 registered shares of our common stock and five-year warrants exercisable at $5.30 per share to purchase an aggregate of 2,705,883 shares of our common stock (May 2016 Public Offering). In connection with the May 2016 Public Offering, our common stock was approved for listing on The NASDAQ Capital Market, where it has traded under the symbol “VTGN” since May 11, 2016. Please see the section titled “Liquidity and Capital Resources” below, for a discussion of our expected future capital requirements.
In addition to bolstering our Clinical and Regulatory Advisory Board with the appointment of Dr. Maurizio Fava (Harvard University) as Chairman and the addition of members Dr. Sanjay Matthew (Baylor University) and Dr. Thomas Laughren (former director, FDA’s Division of Psychiatry), all pre-eminent opinion leaders in the field of depression, and the addition of veteran healthcare executive Jerry Gin, Ph.D., MBA to our Board of Directors, we enhanced our management team with the addition of Mark A. Smith, MD, Ph.D., as our Chief Medical Officer in June 2016. Dr. Smith has over 20 years of pharmaceutical industry and CNS drug development experience.  He has been a successful project leader in both drug discovery and development on projects resulting in approximately 20 investigational new drugs (INDs).  Dr. Smith has directed clinical trials examining depression, bipolar disorder, anxiety, schizophrenia, Alzheimer’s disease, ADHD and agitation in Phase 1 through Phase 2b. In addition, Dr. Smith has vast knowledge and expertise in translational neuroscience, clinical trial design and regulatory interactions. Further, in September 2016, we appointed Mark A. McPartland as our Vice President of Corporate Development. Mr. McPartland has over 20 years of experience in corporate development, capital markets, corporate communications and management consulting for companies at varying stage of their corporate evolution, including early- and mid-stage biopharmaceutical companies. Mr. McPartland is primarily concentrating his efforts in expanding awareness of VistaGen across a range of investors, researchers, patients, clinicians and potential partners.
In December 2016, we entered into the BlueRock Agreement with BlueRock Therapeutics, LP, a next generation regenerative medicine company recently established by Bayer AG and Versant Ventures (BlueRock), pursuant to which BlueRock received exclusive rights to utilize certain technologies exclusively licensed by us from University Health Network (UHN) for the production of cardiac stem cells for the treatment of heart disease. We retained rights to technology licensed from UHN related to small molecule, protein and antibody drug discovery, drug rescue and drug development, including small molecules with cardiac regenerative potential, as well as small molecule, protein and antibody testing involving cardiac cells. In January 2017, we received an upfront cash payment of $1.25 million under the BlueRock Agreement and we may potentially receive additional cash milestones and royalty payments in the future upon BlueRock’s achievement of certain development objectives and commercial sales.
As a matter of course, we attempt to minimize to the greatest extent possible cash commitments and expenditures for both internal and external research and development and general and administrative services. To further advance the non-clinical and clinical development of AV-101 and our stem cell technology platform, as well as support our operating activities, we will continue to carefully manage our routine operating costs, including our internal employee related expenses, as well as external costs relating to regulatory consulting, contract research and development, investor relations and corporate development, legal, acquisition and protection of intellectual property, accounting, public company compliance and other professional services and internal costs. 
Comparison of Fiscal Years Ended March 31, 2017 and 2016
The following table summarizes the results of our operations for the fiscal years ended March 31, 2017 and 2016 (amounts in thousands).
 
 
 Fiscal Years Ended March 31,
 
 
 
 2017
 
 
 2016
 
 
 
 
 
 
 
 
Sublicense revenue
 $1,250 
 $- 
Operating expenses:
    
    
Research and development
  5,204 
  3,932 
General and administrative
  6,295 
  13,919 
Total operating expenses
  11,499 
  17,851 
 
    
    
Loss from operations
  (10,249)
  (17,851)
 
    
    
Interest expense (net)
  (5)
  (771)
Change in warrant liabilities
  - 
  (1,895)
Loss on extinguishment of debt
  - 
  (26,700)
Other expense
  - 
  (2)
 
    
    
Loss before income taxes
  (10,254)
  (47,219)
Income taxes
  (2)
  (2)
 
    
    
Net loss
  (10,256)
  (47,221)
Accrued dividend on Series B Preferred Stock
  (1,257)
  (2,140)
Deemed dividend on Series B Preferred Stock
  (111)
  (2,058)
Net loss attributable to common stockholders 
 $(11,624)
 $(51,419)
Revenue
We recognized $1.25 million in sublicense revenue pursuant to the BlueRock Agreement in the quarter ended December 31, 2016. While we may potentially receive additional payments and royalties under the BlueRock Agreement in the future, in the event certain performance-based milestones and commercial sales are achieved, the agreement might not provide recurring revenue to us in the near term. We reported no other revenue for the fiscal years ended March 31, 2017 or 2016 and we presently have no revenue generating arrangements with respect to AV-101 or other potential product candidates. However, as indicated previously, our CRADA with the NIH provides for the NIH to fully fund and conduct the NIMH AV-101 MDD Phase 2 Monotherapy Study.
Research and Development Expense
Research and development expense totaled $5,203,700 for the fiscal year ended March 31, 2017 (Fiscal 2017), an increase of approximately 33% compared with the $3,931,600 incurred for the fiscal year ended March 31, 2016 (Fiscal 2016), demonstrating our increased focus on the continuing non-clinical and clinical development of AV-101 and our preparations to launch our AV-101 MDD Phase 2 Adjunctive Treatment Study, which we currently anticipate to begin in the first quarter of 2018. Of the amounts reported, non-cash expenses, related primarily to grants or modifications of our equity securities, totaled approximately $534,000 in Fiscal 2017 and $1,749,000 in Fiscal 2016. The following table indicates the primary components of research and development expense for each of the periods (amounts in thousands):
 
 
Fiscal Years Ended March 31,
 
 
 
2017
 
 
2016
 
 
 
 
 
 
 
 
Salaries and benefits
 $1,331 
 $818 
Stock-based compensation
  375 
  1,093 
Consulting and other professional services
  (75)
  112 
Technology licenses and royalties, including UHN
  746 
  1,010 
Project-related research and supplies:
    
    
AV-101
  2,292 
  406 
Stem cell and all other
  185 
  100 
 
  2,477 
  506 
Rent
  310 
  219 
Depreciation
  37 
  37 
Warrant modification expense
  - 
  135 
All other
  3 
  2 
 
    
    
Total Research and Development Expense
 $5,204 
 $3,932 
The increase in salaries and benefits reflects the impact of the hiring of our Chief Medical Officer (CMO) in June 2016, as well as salary increases and bonus payments granted to our President and Chief Scientific Officer (CSO) and to the four non-officer members of our scientific staff.
The decrease in stock based compensation expense is primarily attributable to the $852,200 fair value, determined using the Black-Scholes Option Pricing Model and the assumptions indicated in Note 13,Stock Option Plans and 401(k) Plan, to the accompanying Consolidated Financial Statements in Part 8 of this Report, of the September 2015 grant of immediately vested and expensed warrants to purchase 150,000 shares of our common stock granted to our CSO. Stock compensation expense in Fiscal 2017 reflects the ratable amortization of option grants made to our CSO and CMO, scientific staff and consultants, in November 2016, June 2016 (CSO and CMO only) and September 2015. Our stock options are generally amortized over a two-year to four-year vesting period. A substantial number of the option grants made in or prior to our fiscal year ended March 31, 2014 became fully-vested and were fully-expensed by March 31, 2017.
Consulting services reflects fees paid or accrued for scientific, non-clinical and clinical development and regulatory advisory and consulting services rendered to us by third-parties, primarily by members of our scientific and CNS clinical and regulatory advisory boards. The reduction in expense for Fiscal 2017 primarily reflects the rationalization of our stem cell-related scientific advisory board and related accruals, including as a result of the BlueRock Agreement.
Technology license expense reflects both recurring annual fees as well as legal counsel and other costs related to patent prosecution and protection pursuant to certain of our stem cell technology license agreements or for other potential commercial purposes. We recognize these costs as they are invoiced to us by the licensors and they do not occur ratably throughout the year or between years. Additionally, in both periods, this expense includes legal counsel and other costs we have incurred to advance in the U.S. and numerous foreign countries several pending patent applications with respect to AV-101 and our stem cell technology platform. Technology license-related legal expense for Fiscal 2017 also includes $55,000 representing the fair value of a warrant granted to intellectual property counsel as partial compensation for services. Fiscal 2017 expense further includes a net of $158,000 related to the sublicense consideration paid to University Health Network (UHN) related to the BlueRock Agreement plus additional fees and expenses related to two new cardiac stem cell technology related licenses that we acquired from UHN, net of amounts previously accrued in connection with our prior sponsored research collaboration with UHN. Technology license expense for Fiscal 2016 included (i) approximately $153,000 of fees and expenses incurred for additional stem cell technology related licenses acquired in connection with our agreement with UHN; (ii) $120,000 of noncash expense resulting from the grants to two intellectual property legal service providers in July 2015 of an aggregate of 10,000 shares of our Series B Preferred, and (iii) $254,000 of noncash expense resulting from the March 2016 grant of immediately-vested warrants to purchase an aggregate of 50,000 shares of our common stock to two intellectual property legal service providers.
AV-101 expenses for Fiscal 2017 include continuing costs incurred to develop more efficient and cost-effective proprietary production methods for AV-101 and for certain pre-production and preclinical trial analyses and procedures to facilitate Phase 2 clinical development of AV-101 in the U.S., including our AV-101 MDD Phase 2 Adjunctive Treatment Study. We expect these expenses to increase significantly during fiscal 2018 as we continue preparations for, initiate and conduct our AV-101 MDD Phase 2 Adjunctive Treatment Study. Additionally, AV-101 expense in both periods reflects the costs associated with monitoring for and responding to potential feedback related to our AV-101 Phase 1 clinical safety program and addressing other matters required under the terms of our prior NIH grant awards, primarily through our CRO for our Phase 1 safety studies, Cato Research Ltd. The increase in stem cell and other project related expenses in Fiscal 2017 primarily reflects in-house costs associated with our participation in the FDA’s CiPA project.
The increase in rent expense in Fiscal 2017 reflects both the impact of the scheduled rent increase for our South San Francisco headquarters and laboratory facilities effective August 2016 as well as the impact of accounting for the November 2016 lease amendment extending the lease of those facilities by five years from July 31, 2017 to July 31, 2022.
Warrant modification expense in Fiscal 2016 reflects the increase in fair value resulting from the November 2015 modification of outstanding warrants to purchase an aggregate of 315,000 shares of our common stock held by our CSO and a key scientific advisor to reduce the exercise prices thereof from a range of $9.25 to $12.80 per share to $7.00 per share. No similar modifications occurred in Fiscal 2017.
General and Administrative Expense
General and administrative expense decreased to $6,294,800 in Fiscal 2017 from $13,918,600 in Fiscal 2016 primarily as a result of the decrease in non-cash stock compensation expense attributable to option and warrant grants to employees, officers and independent Board members in Fiscal 2016, partially offset by an increase in non-cash expense related to grants of equity securities in payment of certain professional services during Fiscal 2017. Of the amounts reported, non-cash expenses, related primarily to grants or modifications of our equity securities, totaled approximately $3,100,000 in Fiscal 2017 and $11,939,000 in Fiscal 2016. The following table indicates the primary components of general and administrative expenses for each of the periods (amounts in thousands):
 
 
Fiscal Years Ended March 31,
 
 
 
2017
 
 
2016
 
 
 
 
 
 
 
 
Salaries and benefits
 $1,206 
 $694 
Stock-based compensation
  476 
  2,949 
Board fees
  140 
  98 
Legal, accounting and other professional fees
  2,093 
  3,405 
Investor relations
  1,219 
  172 
Insurance
  165 
  140 
Travel and entertainment
  179 
  96 
Rent and utilities
  220 
  157 
Warrant modification expense
  427 
  6,083 
All other expenses
  170 
  125 
 
    
    
Total General and Administrative Expense
 $6,295 
 $13,919 
The increase in salaries and benefits reflects the impact of salary increases and bonus payments granted to our Chief Executive Officer (CEO), Chief Financial Officer (CFO), and a member of our administrative staff and the change in that employee’s status from part-time to full-time, as well as the hiring of our VP, Corporate Development in September 2016.
The decrease in stock based compensation expense is primarily attributable to the $2,841,000 fair value, determined using the Black-Scholes Option Pricing Model and the assumptions indicated in Note 13,Stock Option Plans and 401(k) Plan, to the accompanying Consolidated Financial Statements in Item 8 of this Report, of the September 2015 grant of immediately vested and expensed warrants to purchase 500,000 shares of our common stock granted to our CEO, CFO, independent members of our Board of Directors and Stockholders
VistaGen Therapeutics, Inc.
(certain consultants. Stock compensation expense in Fiscal 2017 reflects the ratable amortization of option grants made to our CEO, CFO, independent members of our Board of Directors and administrative staff and consultants, in November 2016, June 2016 (CEO, CFO and independent Board members only) and September 2015, as well as to our VP-Corporate Development upon the commencement of his employment in September 2016. Our stock options are generally amortized over a development stage company)

We have auditedtwo-year to four-year vesting period. A substantial number of the accompanying consolidated balance sheets of VistaGen Therapeutics, Inc. (a development stage company) as ofoption grants made in or prior to our fiscal year ended March 31, 2014 became fully-vested and 2013were fully-expensed by March 31, 2017.
Board fees includes fees recognized for the services of independent members of our Board of Directors. We added an additional independent director, Dr. Jerry Gin, to our Board in March 2016.
Legal, accounting and other professional fees in Fiscal 2017 and Fiscal 2016 includes $337,500 and $1,012,500, respectively, of non-cash expense recognized pursuant to the June 2015 grant of an aggregate of 90,000 shares of our Series B Preferred having an aggregate fair value at the time of issuance of $1,350,000 as compensation for financial advisory and corporate development service contracts with two independent service providers for services performed between July 2015 and June 2016. During Fiscal 2017, in addition to the expense noted above attributable to the June 2015 Series B Preferred grant, we granted an aggregate of 25,000 unregistered shares of our common stock having a fair value at the date of issuance of $108,500 to a legal services provider as partial compensation for services and an aggregate of 320,000 unregistered shares of our common stock having a fair value at the date of issuance of $1,058,800 as partial compensation for financial advisory, investment banking and business development services. During Fiscal 2016, in addition to the expense noted above attributable to the June 2015 Series B Preferred grant, we also granted (i) an aggregate of 50,000 shares of our common stock having an aggregate fair value of $500,000 pursuant to two corporate development contracts initiated during the first quarter of Fiscal 2016; (ii) 25,000 shares of our Series B Preferred having a fair value of $250,000 to legal counsel as compensation for services in connection with our debt restructuring and other corporate finance matters, and (iii) 15,750 shares of our unregistered common stock and a five-year warrant to purchase 7,500 unregistered shares of our common stock having an aggregate fair value of $138,000 in connection with investment banking services. In both years, professional services expense also includes cash payments for routine legal fees and expenses and the expense related to the annual audit of the prior year financial statements, preparation of the prior year income tax returns, and quarterly reviews of current year financial statements.
Investor relations expense includes the fees of our external service providers for a significantly expanded broad spectrum of institutional investor relations and market awareness and support functions and, particularly during Fiscal 2017, initiatives that included numerous meetings in multiple U.S. markets and other communication activities focused on expanding market awareness of the Company, including among investment professionals and investment advisors, and individual and institutional investors. During Fiscal 2017, in addition to cash fees and expenses we incurred, we granted an aggregate of 160,000 unregistered shares of our common stock to six investor relations and market awareness service providers as full or partial compensation for their services and recognized non-cash expense of $472,800, representing the fair value of the stock at the time of issuance. We also granted three-year, immediately exercisable warrants to purchase an aggregate of 75,000 shares of our unregistered common stock at exercise prices ranging from $4.50 per share to $6.00 per share to three investor relations service providers and recognized non-cash expense of $172,300 representing the fair value of the warrants at the time of issuance.
In both periods, travel expense reflects costs associated with presentations to and meetings in numerous U.S. markets with existing and potential investors and investment professionals and advisors, media and securities analysts, as well as various investor relations, market awareness and corporate development initiatives, in Fiscal 2017 by our CEO, CMO and VP, Corporate Development.
As described more completely in Note 9,Capital Stock, to the accompanying Consolidated Financial Statements for the years ended March 31, 2017 and 2016 in Item 8 of this Report, between January 2016 and December 2016, we entered into various warrant exchange agreements with certain warrant holders pursuant to which those holders exchanged outstanding warrants to purchase shares of our common stock for a lesser number of unregistered shares of our common stock. In both periods, we accounted for these transactions as warrant modifications. Between April 2016 and December 2016, certain warrant holders agreed to exchange an aggregate of 224,513 shares of our common stock for an aggregate of 156,246 shares of our unregistered common stock, resulting in our recognition of an aggregate of $350,700 in noncash expense attributable to the increase in fair value related to Fiscal 2017 warrant exchanges. Further, in December 2016, we modified an outstanding warrant to reduce the exercise price from $8.00 per share to $3.51 per share and increase the number of shares exercisable under the warrant from 25,000 shares to 50,000 shares, recognizing $76,900 in expense as the incremental fair value attributable to the modification. Noncash warrant modification expense in Fiscal 2016 includes (i) $122,000 representing the increase in the fair value attributable to the June 2015 modification of outstanding warrants to purchase an aggregate of 54,576 shares of our common stock to reduce the exercise prices thereof, generally from $30.00 per share to $10.00 per share; (ii) $358,000 representing the increase in the fair value attributable to the November 2015 modification of outstanding warrants to purchase an aggregate of 808,553 shares of our common stock previously granted to our CEO, CFO, and independent members of our Board of Directors to reduce the exercise prices thereof from a range of $9.25 to $12.80 per share to $7.00 per share; and (iii) $5,603,200 representing the aggregate increase in the fair value of certain warrant exchange transactions conducted during the fourth quarter of Fiscal 2016. In January 2016, we entered into an Exchange Agreement with PLTG pursuant to which PLTG exchanged warrants, including all outstanding PLTG Warrants and the shares issuable pursuant to the Series A Preferred Exchange Warrant, to purchase an aggregate of 2,824,016 shares of our common stock for 2,118,012 unregistered shares of our Series C Convertible Preferred Stock (Series C Preferred) at the ratio of 0.75 share of Series C Preferred for each warrant share cancelled. We recognized related noncash warrant modification expense of $3,195,000. In February and March 2016, we entered into similar agreements with certain other warrant holders pursuant to which such warrant holders exchanged outstanding warrants to purchase an aggregate of 1,086,611 shares of our common stock for an aggregate of 814,989 shares of our unregistered common stock. We recognized an additional $2,362,000 in non-cash warrant modification expense. In February 2016, we also extended the term of certain outstanding warrants to purchase an aggregate of 91,230 shares of our common stock and recognized $46,000 of non-cash expense as a result of such modifications.
Interest and Other Expenses, Net
Interest expense, net, totaled $4,600 for Fiscal 2017, a significant decrease compared to the $70,800 reported for Fiscal 2016, resulting from the extinguishment of substantially all of our promissory notes, as well as other indebtedness, having an aggregate carrying value at the time of extinguishment of approximately $15,900,000, between May 2015 and August 2015 by conversion into our shares of our Series B Preferred at a conversion price of $7.00 per share or cash repayment and the related consolidated statementselimination of operationsnote interest and comprehensive loss, cash flows, preferreddiscount amortization. The following table summarizes the primary components of interest expense for each of the periods (amounts in thousands):
 
 
Fiscal Years Ended March 31,
 
 
 
2017
 
 
2016
 
 
 
 
 
 
 
 
Interest expense on promissory notes
 $1 
 $209 
Amortization of discount on promissory notes
  - 
  565 
Other interest expense, including on capital leases and premium financing
  4 
  3 
     Total interest expense
  5 
  777 
Effect of foreign currency fluctuations on notes payable
  - 
  (6)
Interest income
  - 
  - 
 
    
    
Interest expense, net
 $5 
 $771 
Interest expense on promissory notes in Fiscal 2017 represents only the interest accrued on our promissory note to Progressive Medical Research prior to its repayment in June 2016. The substantial overall decrease in interest expense on promissory notes and the related amortization of discounts on such notes between the periods reflects the cessation of interest accrual and discount amortization upon the extinguishment and conversion of all outstanding Senior Secured Convertible Notes, certain 10% convertible notes (2014 Unit Notes) and other outstanding promissory notes into shares of our Series B Preferred between May 2015 and August 2015.
Under the terms of our October 2012 Note Exchange and Purchase Agreement with PLTG, we issued certain Senior Secured Convertible Promissory Notes and a related Exchange Warrant and Investment Warrants between October 2012 and July 2013. Upon PLTG’s exchange of the shares of our Series A Preferred Stock held by PLTG into shares of our common stock, we were also required to issue a Series A Exchange Warrant to PLTG. We determined that the various warrants included certain exercise price resets and stockholders’ deficitother adjustment features requiring us to treat the warrants as liabilities. Accordingly, we recorded a noncash warrant liability at its estimated fair value as of the date of warrant issuance or contract execution. As described in Note 9,Capital Stock,to the Consolidated Financial Statements included in Item 8 of this Annual Report, in May 2015, we entered into an agreement with PLTG pursuant to which we amended the various warrants and fixed the exercise price thereof and eliminated the anti-dilution reset features that had previously required the warrants to be treated as liabilities and carried at fair value. Accordingly, during the first quarter of Fiscal 2016, we adjusted these warrants to their fair value, reflecting an increase in the fair value in the amount of $1,894,700 since March 31, 2015, resulting primarily from the increase in the market price of our common stock in relation to the exercise price of the warrants, and then subsequently eliminated the entire warrant liability with respect to these warrants. In January 2016, the PLTG warrants were cancelled and exchanged for shares of our Series C Preferred stock.
Between May 2015 and August 2015 we extinguished outstanding promissory notes and other indebtedness having a carrying value of approximately $15,900,000, including our Senior Secured Convertible Notes, our 2014 Unit Notes and other debt and certain adjustments thereto that were either already due and payable or would have otherwise matured prior to March 31, 2016 by converting such balances into shares of our Series B Preferred at a conversion price (the stated value of the Series B Preferred issued) of $7.00 per share. We treated the conversion of the indebtedness into Series B Preferred as extinguishments of debt for accounting purposes. Since the fair value of the Series B Preferred we negotiated in settlement of the promissory notes and other indebtedness exceeded the carrying value of the debts, we incurred non-recurring noncash losses on each of the extinguishments. Additionally, under the terms of our May 2015 agreement with PLTG in which PLTG agreed to, among other things, convert the Senior Secured Notes and certain other of our convertible promissory notes into Series B Preferred, we issued to PLTG 400,000 shares of Series B Preferred having an aggregate fair value of $4,000,000 and Series B Warrants to purchase 1,200,000 shares of our common stock having an aggregate of fair value of $8,270,900. We recognized this aggregate fair value as a further non-recurring noncash component of loss on extinguishment of debt. Many of the 2014 Unit Notes that were converted into Series B Preferred contained a beneficial conversion feature at the time they were originally issued. We accounted for the years then ended,repurchase of the beneficial conversion feature at the time the 2014 Unit Notes were extinguished and converted, an aggregate of $2,237,200, as a reduction to the loss on extinguishment of debt. We recorded an aggregate net non-recurring non-cash loss of approximately $26,700,000 million attributable to the extinguishment of substantially all of our indebtedness as a result of the conversion of such indebtedness into shares of our Series B Preferred at a conversion price (stated value) of $7.00 per share.
We allocated the proceeds from self-placed private placement sales of Series B Preferred Units to the Series B Preferred and the Series B Warrants based on their relative fair values on the dates of the sales. The difference between the relative fair value per share of the Series B Preferred, approximately $4.20 per share and $4.13 per share for Fiscal 2017 and Fiscal 2016, respectively, and its conversion price (or stated value) of $7.00 per share represented a deemed dividend to the periodpurchasers of the Series B Preferred Units. Accordingly, we recognized a deemed dividend in the aggregate amount of $111,100 and $2,058,000 in arriving at net loss attributable to common stockholders for Fiscal 2017 and Fiscal 2016 in the accompanying Consolidated Statement of Operations and Comprehensive Loss included in Item 8 of this Annual Report. Further, we recognized $1,257,000 and $2,140,500 for Fiscal 2017 and Fiscal 2016, respectively, representing the 10% cumulative dividend payable on our Series B Preferred as an additional deduction in arriving at net loss attributable to common stockholders in the accompanying Consolidated Statement of Operations and Comprehensive Loss, included in this Annual Report. The reduction in the dividend accrual results from the automatic conversion of an aggregate of 2,403,051 shares of Series B Preferred upon our completion of the May 26,2016 Public Offering and a subsequent voluntary conversion of 87,500 shares of our Series B Preferred in August 2016, as disclosed in Note 9,Capital Stock, to the accompanying Consolidated Financial Statements in Item 8 of this Annual Report.
Liquidity and Capital Resources
Since our inception in May 1998 (inception) through March 31, 2014. These2017, we have financed our operations and technology acquisitions primarily through the issuance and sale of our equity and debt securities, including convertible promissory notes and short-term promissory notes, for cash proceeds of approximately $44.7 million, as well as from an aggregate of approximately $17.6 million of strategic collaboration payments, intellectual property sublicensing, government research grant awards and other revenues, but not including the fair market value of the NIMH AV-101 MDD Phase 2 Monotherapy Study being fully funded and conducted by the NIMH pursuant to our CRADA. Additionally, we have issued equity securities with an approximate aggregate value at issuance of $30.8 million in non-cash settlements of certain liabilities, including liabilities for professional services rendered to us or as compensation for such services.
During the first quarter of Fiscal 2017, prior to the consummation of our May 2016 Public Offering, we sold to accredited investors in self-placed private placement transactions Series B Preferred Units consisting of 39,714 unregistered shares of our Series B Preferred Stock, par value $0.001 per share (Series B Preferred), and five year warrants to purchase 39,714 shares of our common stock, and we received cash proceeds of $278,000.
On May 16, 2016, we consummated the May 2016 Public Offering, an underwritten public offering pursuant to which we received net cash proceeds of approximately $9.5 million and issued an aggregate of 2,570,040 registered shares of our common stock at the public offering price of $4.24 per share and five-year warrants to purchase up to 2,705,883 registered shares of common stock, with an exercise price of $5.30 per share, at the public offering price of $0.01 per warrant, including shares and warrants issued pursuant to the exercise of the underwriters' over-allotment option.
During the last two quarters of Fiscal 2017, we sold to accredited investors units consisting of an aggregate of 124,250 unregistered shares of our common stock and three-year and five-year warrants to purchase an aggregate of 45,375 shares of our unregistered common stock. We received cash proceeds of $342,400 from this self-placed private placement.
Additionally, in January 2017, we received a cash payment of $1.25 million pursuant to our grant of a sublicense under the BlueRock Agreement.
At March 31, 2017, we had a cash and cash equivalents balance of $2.9 million. This amount was not sufficient to enable us to fund our planned operations, including expected cash expenditures of approximately $12 million for the twelve months following the issuance of these financial statements, are the responsibilityincluding expenditures required to further prepare for, launch and satisfy a significant portion of the Company's management. Our responsibility isprojected expenses associated with our proposed AV-101 MDD Phase 2 Adjunctive Treatment Study. However, during the first quarter of our fiscal year ending March 31, 2018 (Fiscal 2018), we sold to expressaccredited investors in a self-placed private placement units consisting of an opinionaggregate of 437,751 unregistered shares of our common stock and warrants to purchase an aggregate of 218,875 unregistered shares of our common stock pursuant to which we received $837,300 in cash proceeds, bringing total proceeds for the Spring 2017 Private Placement to approximately $1.0 million (theSpring 2017 Private Placement).
Further, although our current financial resources are not yet sufficient to fully fund completion of the AV-101 MDD Phase 2 Adjunctive Treatment Study, we anticipate raising sufficient additional capital as and when necessary and advisable to sustain our operations and achieve our key corporate objectives through at least the next twelve months, including initiating and conducting the AV-101 MDD Phase 2 Adjunctive Treatment Study in an ordinary course manner. In furtherance of that objective, on these consolidated financial statements basedJanuary 23, 2017, we filed with the U.S. Securities and Exchange Commission (SEC) our Registration Statement on Form S-3 (Registration No. 333-215671) covering the potential future sale of our audits.equity securities from time to time in the future. The SEC declared this Registration Statement effective in May 2017. However, there can be no assurance that future financing will be available in sufficient amounts, in a timely manner, or on terms acceptable to us, if at all.

We conductedmay also seek research and development collaborations that could generate revenue, funding for development of AV-101 and additional product candidates, as well as additional government grant awards and agreements similar to our audits in accordancecurrent CRADA with the standardsNIMH, which provides for the NIMH to fully fund the NIMH’s ongoing NIMH AV-101 MDD Phase 2 Monotherapy Study. Such strategic collaborations may provide non-dilutive resources to advance our strategic initiatives while reducing a portion of our future cash outlays and working capital requirements. In a manner similar to the Public Company Accounting Oversight Board (United States). Those standards requireBlueRock Agreement, we may also pursue similar arrangements with third-parties covering other of our intellectual property. Although we may seek additional collaborations that could generate revenue and/or non-dilutive funding for development of AV-101 and other product candidates, as well as new government grant awards and/or agreements similar to our CRADA with NIMH, no assurance can be provided that any such collaborations, awards or agreements will occur in the future.  
Our future working capital requirements will depend on many factors, including, without limitation, the scope and nature of opportunities related to our success and the success of certain other companies in clinical trials, including our development and commercialization of AV-101 as an adjunctive treatment for MDD and other potential CNS conditions, and various applications of our stem cell technology platform, the availability of, and our ability to obtain, government grant awards and agreements, and our ability to enter into collaborations on terms acceptable to us. To further advance the clinical development of AV-101 and 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 performrelated expenses, as well as the audittiming of and projected costs relating to key research and development projects, including our expenses associated with our proposed AV-101 MDD Phase 2 Adjunctive Treatment Study, regulatory consulting, CRO services, investor relations and corporate development, legal, acquisition and protection of intellectual property, accounting, public company compliance and other professional services and working capital costs. 
Notwithstanding the foregoing, substantial additional financing may not be available to us on a timely basis, on acceptable terms, or at all. If we are unable to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining,substantial additional financing on a testtimely basis evidence supporting the amountswhen needed in 2017 and disclosures in thebeyond, our business, financial statements, assessing the accounting principles usedcondition, and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of VistaGen Therapeutics, Inc. (a development stage company) at March 31, 2014 and 2013, and the consolidated results of its 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 its cash flows for the years then ended,development activities and for the period from May 26, 1998 (inception) through March 31, 2014, in conformity with U.S. generally accepted accounting principles.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company is a development stage company, haswe may not yet generated sustainable revenues, has suffered recurring losses from operations and has a stockholders’ deficit, all of which raise substantial doubt about its abilitybe able to continue as a going concern.  The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
 
/s/ OUM & CO. LLP
San Francisco, California
June 23, 2014
 
VISTAGEN THERAPEUTICS, INC.
(a development stage company)
CONSOLIDATED BALANCE SHEETS
(Amounts in dollars, except share amounts)
  March 31,  March 31, 
  2014  2013 
ASSETS 
 Current assets:      
 Cash and cash equivalents $-  $638,100 
 Prepaid expenses and other current assets  40,500   33,700 
 Total current assets  40,500   671,800 
 Property and equipment, net  176,300   180,700 
 Security deposits and other assets  46,900   29,000 
 Total assets $263,700  $881,500 
         
LIABILITIES AND STOCKHOLDERS’ DEFICIT 
 Current liabilities:        
 Accounts payable $2,443,900  $1,353,600 
 Accrued expenses  625,600   342,900 
 Advance from officer  3,600   - 
 Current portion of notes payable and accrued interest  1,442,300   617,200 
 Current portion of notes payable to related parties and accrued interest  290,400   93,000 
 Convertible promissory notes and accrued interest, net of discount of $697,400 at March 31, 2014  396,000   - 
 Capital lease obligations  3,900   7,600 
 Total current liabilities  5,205,700   2,414,300 
 Non-current liabilities:        
     Senior secured convertible promissory notes, net of discount of $2,085,900 at March 31, 2014 and $1,963,100 at March 31, 2013 and accrued interest  1,929,800   1,425,700 
 Notes payable, net of discount of $848,100 at March 31, 2014 and $1,142,600 at March 31, 2013 and accrued interest  1,797,600   2,091,800 
 Notes payable to related parties, net of discount of $103,200 at March 31, 2014 and $147,200 at March 31, 2013 and accrued interest  1,057,100   1,106,000 
 Warrant liability  2,973,900   6,394,000 
 Deferred rent liability  97,400   - 
 Capital lease obligations  2,100   6,100 
 Total non-current liabilities  7,857,900   11,023,600 
 Total liabilities  13,063,600   13,437,900 
         
 Commitments and contingencies        
         
 Stockholders’ deficit:        
      Preferred stock, $0.001 par value; 10,000,000 shares, including 500,000 Series A shares, authorized at March 31, 2014 and 2013; 500,000 Series A shares issued and outstanding at March 31, 2014 and 2013  500   500 
 Common stock, $0.001 par value; 200,000,000 shares authorized at March 31, 2014 and 2013; 26,200,185 and 23,480,169 shares issued at March 31, 2014 and March 31, 2013, respectively  26,200   23,500 
 Additional paid-in capital  61,976,500   59,266,000 
 Treasury stock, at cost, 2,713,308 shares of common stock held at March 31, 2014 and 2013  (3,968,100)  (3,968,100)
 Note receivable from sale of common stock  (198,100)  (209,100)
 Deficit accumulated during development stage  (70,636,900)  (67,669,200)
 Total stockholders’ deficit  (12,799,900)  (12,556,400)
 Total liabilities and stockholders’ deficit $263,700  $881,500 
 
Cash and Cash Equivalents
The following table summarizes changes in cash and cash equivalents for the periods stated (in thousands):
 
 
Fiscal Years Ended March 31,
 
 
 
2017
 
 
2016
 
 
 
 
 
 
 
 
Net cash used in operating activities
 $(7,263)
 $(4,808)
Net cash used in investing activities
  (239)
  (26)
Net cash provided by financing activities
  9,994 
  5,193 
 
    
    
 Net increase in cash and cash equivalents
  2,492 
  359 
 Cash and cash equivalents at beginning of period
  429 
  70 
 
    
    
 Cash and cash equivalents at end of period
 $2,921 
 $429 
Off-Balance Sheet Arrangements
Other than contractual obligations incurred in the normal course of business, we do not have any off-balance sheet financing arrangements or liabilities, guarantee contracts, retained or contingent interests in transferred assets or any obligation arising out of a material variable interest in an unconsolidated entity. VistaStem has two inactive, wholly owned subsidiaries, Artemis Neuroscience, Inc., a Maryland corporation, and VistaStem Canada, Inc., an Ontario corporation.
See accompanying notes to consolidated financial statements.Item 7A.  Quan
titative and Qualitative Disclosures About Market Risk
 The disclosures in this section are not required because we qualify as a smaller reporting company under federal securities laws.
 
-65-
F-2
 
VISTAGEN THERAPEUTICS, INC.
(a development stage company)
CONSOLIDATED STATEMENTS OF OPEItem 8.  Financial StaRATIONS AND COMPREHENSIVE LOSStements and Supplementary Data
(Amounts in dollars, except share amounts)

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
        May 26, 1998 
        (Inception) 
  Fiscal Years Ended  Through 
  March 31,  March 31, 
  2014  2013  2014 
Revenues:         
 Grant revenue $-  $200,400  $12,963,100 
 Collaboration revenue  -   -   2,283,600 
 Other  -   -   1,123,500 
  Total revenues  -   200,400   16,370,200 
Operating expenses:            
 Research and development  2,480,600   3,430,800   32,036,300 
 Acquired in-process research and development  -   -   7,523,200 
 General and administrative  2,548,300   3,562,700   33,229,400 
  Total operating expenses  5,028,900   6,993,500   72,788,900 
Loss from operations  (5,028,900)  (6,793,100)  (56,418,700)
Other expenses, net:            
 Interest expense, net  (1,503,000)  (920,700)  (11,865,200)
 Change in warrant and put and note extension option liabilities  3,566,900   (1,635,800)  2,349,600 
  Loss on early extinguishment of debt  -   (3,567,800)  (4,761,300)
 Other income  -   34,400   81,900 
Loss before income taxes  (2,965,000)  (12,883,000)  (70,613,700)
Income taxes  (2,700)  (3,700)  (23,200)
Net loss  (2,967,700)  (12,886,700)  (70,636,900)
             
  Deemed dividend on Series A Preferred stock  -   (10,193,200)  (10,193,200)
             
Net loss attributable to common stockholders $(2,967,700) $(23,079,900) $(80,830,100)
             
Basic net loss attributable to common stockholders per common share
 $(0.14) $(1.27)    
             
Diluted net loss attributable to common stockholders per common share
 $(0.19) $(1.27)    
             
Weighted average shares used in computing:            
      Basic net loss attributable to common stockholders per common share
  21,973,149   18,108,444     
      Diluted net loss attributable to common stockholders per common share
  21,973,149   18,108,444     
             
Comprehensive loss $(2,967,700) $(12,886,700) $(70,636,900)

See accompanying notes to consolidated financial statements.
Page
Report of Independent Registered Public Accounting Firm
 67
Consolidated Balance Sheets
 68
Consolidated Statements of Operations and Comprehensive Loss
 69
Consolidated Statements of Cash Flows
 70
Consolidated Statements of Stockholders' Equity (Deficit)
 71
Notes to Consolidated Financial Statements
 72

 
VISTAGEN THERAPEUTICS, INC.
(a development stage company)
CONSOLIDATED STATEMERNTSEPORT OF CASH FLOWSINDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
(Amounts in dollars)
 
        Period From May 26, 1998 (Inception) Through March 31, 2014 
         
         
  Fiscal Years Ended March 31,   
  2014  2013   
 Cash flows from operating activities:         
  Net loss $(2,967,700) $(12,886,700) $(70,636,900)
  Adjustments to reconcile net loss to net cash used in operating activities:            
   Depreciation and amortization  54,600   33,800   832,100 
   Amortization of discounts on convertible and promissory notes  640,000   254,800   5,315,500 
   Change in warrant liability and put and note term extension option liabilities  (3,566,900)  1,635,800   (2,349,700)
   Stock-based compensation  1,137,300   1,241,300   6,732,900 
   Expense related to modification of warrants  204,300   508,200   1,454,200 
   Non-cash rent and relocation expense  56,800   -   56,800 
   Interest income on note receivable for stock purchase  (1,200)  (27,600)  (28,800)
   Fair value of common stock granted for services following the Merger  -   340,000   852,700 
   Fair value of warrants granted for services and interest following the Merger  60,700   183,800   748,300 
   Gain on currency fluctuation  (48,600)  (53,000)  (101,600)
Fair value of additional warrants granted pursuant to exercises of modified warrants  -   35,900   174,000 
   Loss on settlements of accounts payable  -   78,300   78,300 
   Acquired in-process research and development  -   -   7,523,200 
   Loss on early extinguishment of debt  -   3,567,800   4,761,300 
Fair value of Series C preferred stock, common stock, and warrants granted for services prior to the Merger  -   -   3,150,900 
   Fair value of common stock issued for note term modification  -   -   22,400 
   Consulting services by related parties settled by issuing promissory notes  -   -   44,600 
   Gain on sale of assets  -   -   (16,800)
   Changes in operating assets and liabilities:            
    Unbilled contract payments receivable  -   106,200   - 
    Prepaid expenses and other current assets  92,700   46,200   134,400 
    Security deposits and other assets  (17,900)  -   (46,900)
    Accounts payable and accrued expenses, including accrued interest  2,229,900   1,485,200   18,201,400 
    Deferred revenues  -   (13,200)  - 
     Net cash used in operating activities  (2,126,000)  (3,463,200)  (23,097,700)
             
 Cash flows from investing activities:            
  Purchases of equipment, net  (9,600)  (135,400)  (825,800)
     Net cash used in investing activities  (9,600)  (135,400)  (825,800)
             
 Cash flows from financing activities:            
  Net proceeds from issuance of common stock and warrants, including Units  1,075,500   1,185,100   5,060,600 
  Proceeds from exercise of modified warrants  264,200   262,100   1,692,600 
  Net proceeds from issuance of Platinum notes and warrants  250,000   3,222,100   7,172,100 
  Advance from officer  64,000   -   64,000 
  Proceeds from issuance of notes under line of credit  -   -   200,000 
  Proceeds from issuance of 7% note payable to founding stockholder  -   -   90,000 
  Net proceeds from issuance of 7% convertible notes  -   -   575,000 
  Net proceeds from issuance of 10% convertible notes and warrants  -   -   1,655,000 
  Net proceeds from issuance of preferred stock and warrants  -   -   4,198,600 
  Net proceeds from issuance of notes and warrants from 2006 to 2010  -   -   4,851,800 
  Net proceeds from issuance of February 2012 12% convertible notes and warrants  -   -   466,500 
  Repayment of capital lease obligations  (7,600)  (16,900)  (125,000)
  Repayment of notes  (148,600)  (496,700)  (1,977,700)
     Net cash provided by financing activities  1,497,500   4,155,700   23,923,500 
 Net (decrease) increase in cash and cash equivalents  (638,100)  557,100   - 
 Cash and cash equivalents at beginning of period  638,100   81,000   - 
 Cash and cash equivalents at end of period $-  $638,100  $- 
             
 Supplemental disclosure of cash flow activities:            
  Cash paid for interest $21,000  $225,900  $686,600 
  Cash paid for income taxes $2,700  $3,700  $23,200 

VISTAGEN THERAPEUTICS, INC.
(a development stage company)
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(Amounts in dollars, except share amounts)

        Period From 
        May 26, 1998 
        (Inception) 
  Twelve Months Ended March 31,  Through 
  2014  2013  March 31, 2014 
          
 Supplemental disclosure of noncash activities:         
    Forgiveness of accrued compensation and accrued interest payable to officers transferred to equity
 $-  $-  $800,000 
    Exercise of warrants and options in exchange for debt cancellation
 $-  $-  $112,800 
    Settlement of accrued and prepaid interest by issuance of Series C Preferred Stock
 $-  $-  $35,300 
Conversion of 10% notes payable, net of discount, and   related accrued interest of $408,600 into Series C Preferred stock $-  $-  $2,050,300 
Issuance of Series B-1 Preferred stock for acquired in-process    research and development $-  $-  $7,523,200 
Conversion of 7% notes payable, net of discount, and   related accrued interest of $3,800 into Series B Preferred stock $-  $-  $508,000 
    Conversion of accounts payable into convertible promissory notes
 $-  $-  $893,700 
    Conversion of accounts payable into note payable
 $-  $1,558,500  $4,368,800 
    Conversion of accounts payable into common stock
 $-  $103,200  $1,927,300 
Conversion of accrued interest on convertible promissory   notes into common stock $-  $-  $921,400 
    Notes receivable from sale of common stock to related parties upon exercise of options and warrants
 $-  $-  $149,800 
    Capital lease obligations
 $-  $-  $139,700 
Recognition of put option and note term extension option liabilities upon   issuance of Original Platinum Notes $-  $-  $141,200 
Incremental fair value of put option and note term extension   option liabilities from debt modifications $-  $-  $479,400 
    Incremental fair value of note conversion option from debt modification
 $-  $-  $1,891,200 
    Incremental fair value of warrant from debt modifications
 $-  $-  $276,700 
    Recognition of warrant liability upon adoption of new accounting standard
 $-  $-  $151,300 
    Fair value of warrants issued with August 2010 short term notes
 $-  $-  $130,900 
    Note discount upon issuance of August 2010 short term notes
 $-  $-  $320,000 
    Fair value of warrants issued with February 2012 12 % convertible notes
 $-  $-  $542,000 
    Note discount upon issuance of February 2012 12% convertible notes
 $-  $-  $495,200 
    Conversion of 2006/2007 and 2008/2010 Notes into Units, including accrued interest of $1,365,600
 $-  $-  $6,174,800 
    Conversion of all series of pre-Merger preferred stock into Units
 $-  $-  $14,534,800 
    Conversion of 2011 Platinum Note into Series A Preferred Stock, including accrued   interest of $611,100 and conversion premium
 $-  $-  $5,763,900 
    Conversion of 7% note payable and accrued interest of $11,500 into common stock and warrants
 $-  $-  $19,500 
    Conversion of accounts payable to Morrison & Foerster, McCarthy Tetrault and Desjardins into notes payable $-  $-  $1,603,400 
    Accounts payable and cancellation premium converted into 2011 Private Placement Units
 $-  $-  $169,000 
    Accrued interest on Cato Holding Company note converted to note payable
 $-  $-  $90,800 
    Accounts payable settled in December 2011 and May/June 2012 warrant exercises
 $-  $12,500  $280,100 
    Insurance premiums settled by issuing note payable
 $98,300  $110,100  $296,900 
    Conversion of accrued interest and fees on February 2012 Notes into 2012   Private Placement Units
 $-  $92,900  $92,900 
    Accrued interest on July and August 2012 Notes to Platinum converted into Exchange Note
 $-  $22,600  $22,600 
    Accounts payable settled by issuance of stock or notes payable and stock
 $-  $104,900  $104,900 
    Accounts payable converted into 2012 Private Placement Units
 $-  $50,000  $50,000 
Recognition of warrant liability upon issuance to Platinum of October 2012 Exchange Note and October 2012, February 2013 and March 2013 Investment Notes and July 2013 Convertible Note
 $146,800  $1,690,000  $1,836,800 
    Recognition of warrant liability for potential issuance to Platinum of Series A Exchange Warrant under the terms of the October 2012 Agreement
 $-  $3,068,200  $3,068,200 
See accompanying notes to consolidated financial statements.

VISTAGEN THERAPEUTICS, INC.
(a development stage company)
CONSOLIDATED STATEMENTS OF PREFERRED STOCK
Period from May 26, 1998 (inception) through March 31, 2014
(Amounts in dollars, except share amounts)
  Preferred  Series A  Series B  Series B-1  Series C  Total 
  Stock  Preferred  Preferred  Preferred  Preferred  Preferred 
  (Shares)  Stock  Stock  Stock  Stock  Stock 
                   
Balances at May 26, 1998 (inception)  -  $-  $-  $-  $-  $- 
Issuance of Series A preferred stock at $2.302 per share for cash, net of issuance costs of $29,500
  431,930   964,700   -   -   -   964,700 
Issuance of Series B preferred stock at $5.545 per share for cash, including conversion of $575,000 face value of 7% convertible notes plus accrued accrued interest of $3,800, net of unamortized note discount of $70,800 and issuance costs of $137,000
  515,568   -   2,651,100   -   -   2,651,100 
Issuance of Series B-1 preferred stock at $5.545 per share for acquired in-process research and development
  1,356,750   -   -   7,523,200   -   7,523,200 
Issuance of Series C preferred stock at $6.00 per share for cash, including conversion of $1,655,000 face value of 10% convertible notes plus accrued interest of $408,600, net of unamortized note discount of $13,200 and issuance costs of $47,900
  533,658   -   -   -   3,140,800   3,140,800 
Issuance of Series C preferred stock at $6.00 per share for services and in payment of interest on line of credit
  46,749   -   -   -   280,500   280,500 
Proceeds allocated to warrants issued in connection with Series C preferred stock
  -   -   -   -   (25,500)  (25,500)
Balances at March 31, 2006 through March 31, 2011  2,884,655   964,700   2,651,100   7,523,200   3,395,800   14,534,800 
Conversion of all series of VistaGen California preferred stock into common stock at May 11, 2011 in connection with the Merger
  (2,884,655)  (964,700)  (2,651,100)  (7,523,200)  (3,395,800)  (14,534,800)
Balances at May 11, 2011 through March 31, 2014  -  $-  $-  $-  $-  $- 
See accompanying notes to consolidated financial statements.

VISTAGEN THERAPEUTICS, INC.
(a development stage company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
Period from May 26, 1998 (inception) through March 31, 2014
(Amounts in dollars, except share amounts)
  Series A Preferred Stock  Common Stock  Additional Paid-in Capital  Treasury Stock   Notes Receivable from Sale of Stock  Deficit Accumulated During the Development Stage  Total Stockholders’ Deficit 
  Shares  Amount  Shares  Amount           
                            
Balances at May 26, 1998(inception)  -  $-   -  $-  $-  $-  $-  $-  $- 
Sale of common stock for cash  -   -   1,211,086   1,200   24,900   -   -   -   26,100 
Fair value of common stock issued for services  -   -   403,375   400   359,400   -   -   -   359,800 
Fair value of warrants issued for services  -   -   -   -   481,700   -   -   -   481,700 
Common stock issued upon exercise of options from 1999 and 2008 Stock Incentive Plans and SAB Plan
  -   -   410,863   400   314,900   -   (149,800)  -   165,500 
Common stock issued for cancellation of accounts payable and accrued interest (FY 2010)
  -   -   1,646,792   1,600   2,468,600   -   -   -   2,470,200 
Accrued interest on notes receivable  -   -   -   -   -   -   (34,300)  -   (34,300)
Proceeds allocated to warrants issued in connection with convertible and other notes issued in fiscal years 2001 through 2011, including Original Platinum Notes, and Series C preferred stock
  -   -   -   -   1,059,100   -   -   -   1,059,100 
Share-based compensation expense  -   -   -   -   2,763,000   -   -   -   2,763,000 
Incremental fair value of note conversion options from debt modification (FY 2010 and 2011)
  -   -   -   -   1,891,200   -   -   -   1,891,200 
Forgiveness of accrued compensation and accrued interest payable to officers (FY 2007)
  -   -   -   -   799,900   -   -   -   799,900 
Effect of reverse stock split  (FY 2009)  -   -   (6)  -   -   -   -   -   - 
Effect of the Merger          1,569,000   1,600   (1,600)  -   -   -   - 
Cumulative effect of adopting new accounting standard  -   -   -   -   (293,700)  -   -   142,300   (151,400)
Net loss for fiscal years 1999 through 2011  -   -   -   -   -   -   -   (42,715,300)  (42,715,300)
                                     
Balances at March 31, 2011  -  $-   5,241,110  $5,200  $9,867,400  $-  $(184,100) $(42,573,000) $(32,884,500)
                                     
Share-based compensation expense  -   -   -   -   1,591,300   -   -   -   1,591,300 
Accrued interest on notes receivable  -   -   -   -       -   (1,000)  -   (1,000)
Reclassification of warrant liability to equity  -   -   -   -   424,100   -   -   -   424,100 
Incremental value of Platinum note modification  -   -   -   -   1,070,600   -   -   -   1,070,600 
Incremental value of Morrison & Foerster warrant modification  -   -   -   -   58,700   -   -   -   58,700 
Stock issued in May 2011 Private Placement, net of $202,000 placement fees
  -   -   2,216,106   2,200   3,674,000   -   (500,000)  -   3,176,200 
Payments on note receivable for sale of stock  -   -                   250,000       250,000 
Stock issued upon conversion of convertible promissory notes  -   -   3,528,290   3,500   6,171,300   -   -   -   6,174,800 
Stock issued upon conversion of all series of VistaGen California preferred stock
  -   -   2,884,655   2,900   14,531,900   -   -   -   14,534,800 
Fair value of stock issued for services prior to the Merger  -   -   1,371,743   1,400   2,224,100   -   -   -   2,225,500 
Forgiveness of notes at the Merger  -   -   -   -   -   -   185,100   -   185,100 
Stock issued upon exercise of modified warrants (including Platinum exercises)
  -   -   3,121,259   3,100   3,426,200   -   -   -   3,429,300 
Incremental value of warrant modifications (including modification of Platinum warrants)
  -   -   -   -   1,028,900   -   -   -   1,028,900 
Fair value of bonus warrants under FY 2012 Discounted Warrant Exercise Program
  -   -   -   -   138,100   -   -   -   138,100 
Stock issued in Fall 2011 Follow-on Offering  -   -   63,570   100   111,200   -   -   -   111,300 
Stock issued upon exercise of options from the 1999 Stock Incentive Plan
  -   -   113,979   100   102,100   -   -   -   102,200 
Fair value of stock issued for services following the Merger  -   -   155,555   200   451,800   -   -   -   452,000 
Fair value of warrants issued for services  -   -   -   -   564,500   -   -   -   564,500 
Proceeds allocated to warrants issued and beneficial conversion  feature in connection with 12% convertible notes
  -   -   -   -   461,700   -   -   -   461,700 
Stock issued in connection with note term extension  -   -   8,000   -   22,400   -   -   -   22,400 
Stock issued upon conversion of Platinum Note to equity (net of Platinum warrant exercise reflected above)
  231,090   200   -   -   3,387,700   -   -   -   3,387,900 
Common stock exchanged for Series A Preferred under agreements with Platinum: Common Stock Exchange Agreement
  45,980   -   -   -   750,600   (750,600)  -   -   - 
Note and Warrant Exchange Agreement  159,985   200   -       2,480,900   (2,481,100)          - 
Net loss for fiscal year 2012  -   -   -   -   -   -   -   (12,209,500)  (12,209,500)
                                     
Balances at March 31, 2012  437,055  $400   18,704,267  $18,700  $52,539,500  $(3,231,700) $(250,000) $(54,782,500) $(5,705,600)
VISTAGEN THERAPEUTICS, INC.
(a development stage company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT (continued)
Period from May 26, 1998 (inception) through March 31, 2013
(Amounts in $100s, except share and per share amounts)
  Series A Preferred Stock  Common Stock  
Additional
Paid-in
  Treasury  
Notes
Receivable
from Sale of
  
Deficit
Accumulated
During the
Development
  
Total
Stockholders’
 
  Shares  Amount  Shares  Amount  Capital  Stock  Stock  Stage  Deficit 
Balances at March 31, 2012  437,055  $400   18,704,267  $18,700  $52,539,500  $(3,231,700) $(250,000) $(54,782,500) $(5,705,600)
                                     
Share-based compensation expense  -   -   -   -   1,241,300   -   -   -   1,241,300 
Fair value of common stock issued for services  -   -   400,000   400   339,600   -   -   -   340,000 
Fair value of warrants issued for services  -   -   -   -   106,200   -   -   -   106,200 
Shares issued upon exercise of modified warrants  -   -   549,056   500   274,000   -   -   -   274,500 
Incremental fair value of modified warrants  -   -   -   -   440,700   -   -   -   440,700 
Fair value of warrants issued upon exercise of moddified warrants  -   -   -   -   35,900   -   -   -   35,900 
Fair value of shares issued in settlement of accounts payable  -   -   103,235   100   103,100   -   -   -   103,200 
   
Common stock exchanged for Series A Preferred under 2012 Exchange Agreement with Platinum
  62,945   100   -   -   736,300   (736,400)  -   -   - 
Payment on note receivable from sale of stock  -   -   -   -   -   -   66,900   -   66,900 
Modification of note receivable from sale of stock  -   -   -   -   -   -   (26,000)  -   (26,000)
Incremental fair value of modified warrant and fair value of warrant issued in connection with Morrison & Foerster note payable restructuring
  -   -   -   -   998,500   -   -   -   998,500 
Fair value of warrant issued to Cato Holding Company in connection with note payable restructuring
  -   -   -   -   120,500   -   -   -   120,500 
Fair value of warrant issued to Cato Research, Ltd. in connection accounts payable restructuring
  -   -   -   -   486,200   -   -   -   486,200 
Fair value of warrant issued to University Health Network in connection with accounts payable restructure
  -   -   -   -   264,800   -   -   -   264,800 
Fair value of warrants issued to Morrison & Foerster, Cato Research Ltd. and University Health Network in connection with accrued interest on underlying notes
  -   -   -   -   49,400   -   -   -   49,400 
Sale of Units in Winter 2012 Private Placement, net  -   -   2,366,330   2,400   1,246,600   -   -   -   1,249,000 
Exchange of February 2012 convertible notes for Units  -   -   1,357,281   1,400   1,214,200   -   -   -   1,215,600 
Fair value of warrants issued to banker in connection with exchange of February 2012 convertible notes
  -   -   -   -   28,200   -   -   -   28,200 
Premium of fair value over face value of Exchange Note issued to Platinum in October 2012
  -   -   -   -   1,083,200   -   -   -   1,083,200 
Fair value of Series A Exchange Warrant issuable to Platinum recorded as a Warrant Liability
  -   -   -��  -   (3,068,200)  -   -   -   (3,068,200)
Proceeds allocated to beneficial conversion feature of Investment Notes issued to Platinum in October 2012, February 2013 and March 2013
  -   -   -   -   958,500   -   -   -   958,500 
Incremental fair value of warrant modifications in February 2013  -   -   -   -   67,500   -   -   -   67,500 
Net loss for fiscal year 2013  -   -   -   -   -   -   -   (12,886,700)  (12,886,700)
                                     
Balances at March 31, 2013  500,000  $500   23,480,169  $23,500  $59,266,000  $(3,968,100) $(209,100) $(67,669,200) $(12,556,400)
                                     
 Share-based compensation expense  -   -   -   -   1,137,300   -   -   -   1,137,300 
Proceeds from sale of common stock for cash, including exercises of warrants under Discount Warrant Exercise Program  -   -   655,016   700   335,200   -   -   -   335,900 
Beneficial conversion feature on note issued to Platinum in July 2013  -   -   -   -   100,700   -   -   -   100,700 
Payment on note receivable from sale of stock  -   -   -   -   -   -   11,000   -   11,000 
Allocated proceeds from sale of Units for cash under Winter 2013/2014 Private Placement, including beneficial conversion feature
  -   -   2,015,000   2,000   836,200   -   -   -   838,200 
Allocated proceeds from sale of Units for cash under Spring 2014 Private Placement, including beneficial conversion feature
  -   -   50,000   -   36,000               36,000 
 Incremental fair value of warrant modifications  -   -   -   -   204,300   -   -   -   204,300 
Fair value of warrants issued to Morrison & Foerster, Cato Research Ltd. and University Health Network in connection with accrued interest on underlying notes
  -   -   -   -   60,800   -   -   -   60,800 
 Net loss for fiscal year 2014  -   -   -   -   -   -   -   (2,967,700)  (2,967,700)
                                     
Balances at March 31, 2014  500,000  $500   26,200,185  $26,200  $61,976,500  $(3,968,100) $(198,100) $(70,636,900) $(12,799,900)
See accompanying notes to consolidated financial statements.
VISTAGEN THERAPEUTICS, INC.
(a development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.  Description of Business

VistaGen Therapeutics, Inc., a Nevada corporation (“VistaGen” or the “Company”), is a biotechnology company with expertise in human pluripotent stem cell technology.  The Company is applying and developing its stem cell technology for drug rescue and regenerative medicine. The Company’s primary focus is on leveraging its stem cell technology platform, which it refers to as Human Clinical Trials in a Test Tube™, the human cells it produces, its novel, human cell-based bioassay systems, and medicinal chemistry to produce small molecule Drug Rescue Variants.  These are new, safer variants of promising small molecule drug candidates previously discovered, developed and ultimately discontinued by pharmaceutical companies and others, after substantial investment and prior to market approval, due to unexpected heart or liver safety concerns.  The Company refers to these promising drug candidates that are now potentially suitable for drug rescue as Drug Rescue Candidates These Drug Rescue Candidates have already been tested extensively and validated by a pharmaceutical or biotechnology company for their therapeutic (efficacy) and commercial potential. The key commercial objective of the Company’s drug rescue strategy is to generate revenue from license, development and commercialization arrangements involving new, safer and proprietary Drug Rescue Variants that it produces with its contract medicinal chemistry collaborator and validates internally in its human cell-based bioassay systems prior to license. The Company anticipates that each validated lead Drug Rescue Variant will be suitable as a promising drug development program, either internally or in collaboration with a strategic partner. Through stem cell technology-based drug rescue, the Company intends to become a leading source of proprietary, small molecule drug candidates to the global pharmaceutical industry.
In parallel with its drug rescue activities, the Company is also interested in exploring ways to leverage its stem cell technology platform for regenerative medicine purposes, with emphasis on developing novel human disease models for discovery of small molecule drugs and biologics with regenerative and therapeutic potential. The Company’s regenerative medicine focus would be based on its expertise in human biology and differentiation of human pluripotent stem cells to develop functional adult human cells and tissues involved in human disease, including blood, bone, cartilage, heart, liver and insulin-producing pancreatic beta-islet cells. Among its key objectives will be to explore regenerative medicine opportunities through pilot nonclinical proof-of-concept studies, after which the Company intends to assess any potential opportunities for further development and commercialization of therapeutically and commercially promising regenerative medicine programs, either on its own or with strategic partners.
AV-101 is VistaGen's orally-available, small molecule prodrug candidate which has successfully completed Phase 1 clinical development in the Unites States for treatment of neuropathic pain, a serious and chronic condition causing pain after an injury or disease of the peripheral or central nervous system that affects millions of people worldwide. The NIH awarded VistaGen approximately $8.8 million for preclinical and Phase 1 clinical development of AV-101. The Company intends to pursue potential opportunities for further clinical development and commercialization of AV-101 for neuropathic pain, epilepsy and depression, on its own and with strategic partners. In the event that it successfully completes a strategic partnering arrangement for AV-101, the Company plans to use the net proceeds from such an arrangement to expand its stem cell technology-based drug rescue and regenerative medicine programs.

VistaGen is in the development stage and, since inception, has devoted substantially all of its time and efforts to human pluripotent stem cell technology research and development, including, among other things, bioassay system development, small molecule drug development, creating, protecting and patenting intellectual property, recruiting personnel and raising working capital.


The Merger

VistaGen Therapeutics, Inc., a California corporation incorporated on May 26, 1998, (“VistaGen California”),dba VistaStem, is aour wholly-owned subsidiary of the Company.subsidiary. Excaliber Enterprises, Ltd. (“(Excaliber”), a publicly-held company (formerly OTCBB: EXCA) was incorporated under the laws of the State of Nevada on October 6, 2005. Pursuant to a strategic merger transaction on May 11, 2011, Excaliber acquired all outstanding shares of VistaGen CaliforniaVistaStem in exchange for 6,836,452341,823 shares of the Company’sour common stock and assumed all of VistaGen California’sVistaStem’s pre-Merger obligations (the “Merger”). Shortly after the Merger, Excaliber’s name was changed to “VistaGen Therapeutics, Inc.” (a Nevada corporation).

VistaGen California,VistaStem, as the accounting acquirer in the Merger, recorded the Merger as the issuance of common stock for the net monetary assets of Excaliber, accompanied by a recapitalization.  The accounting treatment for the Merger was identical to that resulting from a reverse acquisition, except that the Companywe recorded no goodwill or other intangible assets. A total of 1,569,00078,450 shares of our common stock, representing the shares held by stockholders of Excaliber immediately prior to the Merger and effected for a post-Merger two-for-one (2:1) stock split, have been retroactivelyare reflected as outstanding for all periods presented in the accompanying Consolidated Financial Statements of the Company.Company included in Item 8 of this Annual Report on Form 10-K. Additionally, the accompanying Consolidated Balance Sheets of the Company retroactively reflect the $0.001 par value of Excaliber’s common stock.
 
In October 2011, the Company’s stockholders amended the Company’s Articles of Incorporation to authorize the Company to issue up to 200 million shares of common stock and up to 10 million shares of preferred stock and to authorize the Company’s Board of Directors to prescribe the classes, series and the number of each class or series of preferred stock and the voting powers, designations, preferences, limitations, restrictions and relative rights of each class or series of preferred stock.  In December 2011, the Company’s Board of Directors authorized the creation of a series of up to 500,000 shares of Series A Preferred Stock, par value $0.001 (“Series A Preferred”), all of which are held by Platinum Long Term Growth VII, LLC (“Platinum”), currently the Company’s largest institutional security holder.  Pursuant to the Note Exchange and Purchase Agreement of October 11, 2012, as amended, between the Company and Platinum, Platinum has the right and option to exchange the 500,000 shares of the Company’s Series A Preferred it holds for (i) 15,000,000 restricted shares of the Company’s common stock, and (ii) a five-year warrant to purchase 7,500,000 restricted shares of the Company’s common stock at an exercise price of $0.50 per share (see Note 10, Capital Stock).
The Consolidated Financial Statements included in Item 8 of the Company in this Annual Report on Form 10-K represent the activity of VistaGen CaliforniaVistaStem from May 26, 1998, and the consolidated activity of VistaGen CaliforniaVistaStem and Excaliber (now VistaGen Therapeutics, Inc., a Nevada corporation), from May 11, 2011 (the date of the Merger). The Consolidated Financial Statements of the Company included in this Report also include the accounts of VistaGen California’sVistaStem’s two inactive wholly-owned subsidiaries, Artemis Neuroscience, Inc., a Maryland corporation (“(Artemis”), and VistaStem Canada, Inc., a corporation organized under the laws of Ontario, Canada (“(VistaStem Canada”).

2.  BasisCritical Accounting Policies and Estimates
We consider certain accounting policies related to revenue recognition, impairment of Presentationlong-lived assets, research and Going Concerndevelopment, stock-based compensation, warrant liability and income taxes to be critical accounting policies that require the use of significant judgments and estimates relating to matters that are inherently uncertain and may result in materially different results under different assumptions and conditions. The preparation of financial statements in conformity with United States generally accepted accounting principles (GAAP) requires us to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes to the consolidated financial statements. These estimates include useful lives for property and equipment and related depreciation calculations, and assumptions for valuing options, warrants and other stock-based compensation. Our actual results could differ from these estimates.
Revenue Recognition
We have historically generated revenue principally from collaborative research and development arrangements, licensing and technology access fees and government grants.  We recognize revenue under the provisions of the SEC issued Staff Accounting Bulletin 104, Topic 13,Revenue Recognition Revised and Updated(SAB 104) and Accounting Standards Codification (ASC) 605-25,Revenue Arrangements-Multiple Element Arrangements(ASC 605-25). Revenue for arrangements not having multiple deliverables, as outlined in ASC 605-25, is recognized once costs are incurred and collectability is reasonably assured.
Revenue arrangements with multiple components are divided into separate units of accounting if certain criteria are met, including whether the delivered component has stand-alone value to the customer. Consideration received is allocated among the separate units of accounting based on their respective selling prices.  The selling price for each unit is based on vendor-specific objective evidence, orVSOE, if available, third party evidence if VSOE is not available, or estimated selling price if neither VSOE nor third party evidence is available.  The applicable revenue recognition criteria are then applied to each of the units.
We recognize revenue when the four basic criteria of revenue recognition are met: (i) a contractual agreement exists; (ii) the transfer of technology has been completed or services have been rendered; (iii) the fee is fixed or determinable; and (iv) collectability is reasonably assured. For each source of revenue, we comply with the above revenue recognition criteria in the following manner:
●
Collaborative arrangements typically consist of non-refundable and/or exclusive technology access fees, cost reimbursements for specific research and development spending, and various future product development milestone and royalty payments.  If the delivered technology does not have stand-alone value, the amount of revenue allocable to the delivered technology is deferred.  Non-refundable upfront fees with stand-alone value that are not dependent on future performance under these agreements are recognized as revenue when received, and are deferred if we have continuing performance obligations and have no objective and reliable evidence of the fair value of those obligations.  We recognize non-refundable upfront technology access fees under agreements in which we have a continuing performance obligation ratably, on a straight-line basis, over the period in which we are obligated to provide services.  Cost reimbursements for research and development spending are recognized when the related costs are incurred and when collectability is reasonably assured.  Payments received related to substantive, performance-based “at-risk” milestones are recognized as revenue upon achievement of the milestone event specified in the underlying contracts, which represent the culmination of the earnings process.  Amounts received in advance are recorded as deferred revenue until the technology is transferred, costs are incurred, or a milestone is reached.
●
Technology license agreements typically consist of non-refundable upfront license fees, annual minimum access fees and/or royalty payments. Non-refundable upfront license fees and annual minimum payments received with separable stand-alone values are recognized when the technology is transferred or accessed, provided that the technology transferred or accessed is not dependent on the outcome of the continuing research and development efforts. Otherwise, revenue is recognized over the period of our continuing involvement.
●
Government grant awards, which support our research efforts on specific projects, generally provide for reimbursement of approved costs as defined in the terms of grant awards. We recognize grant revenue when associated project costs are incurred.

TheAs described more completely in Note 3, Summary of Significant Accounting Policies, to the accompanying Consolidated Financial Statements contained in Item 8 of this Annual Report, the Financial Accounting Standards Board (the FASB) has recently issued new guidance regarding revenue recognition. This new guidance will be effective for our fiscal year beginning April 1, 2018, with earlier adoption permitted. We have completed our initial assessment of the Companynew guidance and will be developing an implementation plan to evaluate the accounting and disclosure requirements under the new guidance. Based on our assessment to date, we do not believe that adoption of the new guidance will have been prepared assuminga material impact on our consolidated financial statements. We have not yet finalized our transition method for adoption of the Company will continue as a going concern. As a development stage company without sustainable revenues, VistaGen has experienced recurring lossesnew guidance.
Impairment of Long-Lived Assets
In accordance with ASC 360-10, Property, Plant & Equipment—Overall, we review for impairment whenever events or changes in circumstances indicate that the carrying amount of property and negativeequipment may not be recoverable. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from operations. From inception throughthe use of the asset and its eventual disposition. In the event that such cash flows are not expected to be sufficient to recover the carrying amount of the assets, we write down the assets to their estimated fair values and recognize the loss in the Consolidated Statements of Operations and Comprehensive Loss.
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 clinical and non-clinical development of AV-101, our oral CNS prodrug candidate in Phase 2 clinical development for Major Depressive Disorder, sponsored stem cell research and development costs, and costs related to the application and prosecution of patents related to AV-101 and our stem cell technology platform. All such costs are charged to expense as incurred.
Stock-Based Compensation
We recognize non-cash compensation expense for all stock-based awards to employees based on the grant date fair value of the award.  We record this expense over the period during which the employee is required to perform services in exchange for the award, which generally represents the scheduled vesting period.  We have granted no restricted stock awards nor do we have any 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.
We use the Black-Scholes option pricing model to estimate the fair value of stock-based awards as of the grant date. The Black-Scholes model is complex and dependent upon key data input estimates. The primary data inputs with the greatest degree of judgment are the expected term of the stock options and the estimated volatility of our stock price. The Black-Scholes model is highly sensitive to changes in these two inputs. The expected term of the options represents the period of time that options granted are expected to be outstanding. We use the simplified method to estimate the expected term as an input into the Black-Scholes option pricing model. We determine expected volatility using the historical method, which, because of the limited period during which our stock has been publicly traded and its historically limited trading volume, is based on the historical daily trading data of the common stock of a peer group of public companies over the expected term of the option.
Warrant Liability
Although we did not have a warrant liability at March 31, 2014, VistaGen has2017 or 2016, in conjunction with certain Senior Secured Convertible Promissory Notes that we issued to Platinum Long Term Growth VII, LLC (PLTG) between October 2012 and July 2013 and the related warrants, and the contingently issuable Series A Exchange Warrant (collectively, thePLTG Warrants), we determined that the PLTG Warrants included certain exercise price and other adjustment features requiring them to be treated as noncash liabilities. Accordingly, the PLTG Warrants were recorded at their issuance-date estimated fair values and marked to market at each subsequent reporting period, recording the change in the fair value as non-cash expense or non-cash income. The key component in determining the fair value of the PLTG Warrants and the related liability was the market price of our common stock, which is subject to significant fluctuation and is not under our control. The resulting change in the fair value of the warrant liability on our net income or loss was therefore also subject to significant fluctuation and would have continued to be so until all of the PLTG Warrants were issued and exercised, amended, cancelled or expired. Assuming all other fair value inputs remained generally constant, we recorded an increase in the warrant liability and non-cash losses when our stock price increased and a decrease in the warrant liability and non-cash income when our stock price decreased.
Notwithstanding the foregoing, and as described in Note 9,Capital Stock, to the Consolidated Financial Statements included in Item 8 of this Annual Report, on May 12, 2015, we entered into an agreement with PLTG pursuant to which we (i) fixed the exercise price of the PLTG Warrants at $7.00 per share, (ii) eliminated the exercise price reset features and (iii) fixed the number of shares of our common stock issuable thereunder.  This agreement and the related amendments to the PLTG Warrants resulted in the elimination of the warrant liability with respect to the PLTG Warrants during the quarter ending June 30, 2015. As further described in Note 9,Capital Stock, the PLTG Warrants, including the right to receive the Series A Exchange Warrant, were cancelled in exchange for our issuance of shares of our Series C Preferred stock to PLTG in January 2016.
Income Taxes
We account for income taxes using the asset and liability approach for financial reporting purposes. We recognize deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are established, when necessary, to reduce the deferred tax assets to an amount expected to be realized.
Recent Accounting Pronouncements
See Note 3 to the Consolidated Financial Statements included in Item 8 in this Annual Report on Form 10-K for information on recent accounting pronouncements.
Results of Operations
Financial Operations Overview and Results of Operations
Net Loss
We have not yet achieved recurring revenue-generating status from any of our product candidates or technologies. Since inception, we have devoted substantially all of our time and efforts to developing our lead CNS product candidate, AV-101, from early non-clinical studies to our ongoing Phase 2 clinical development program in MDD, as well as stem cell technology research and development, bioassay development, small molecule drug development, and creating, protecting and patenting intellectual property related to our product candidates and technologies, with the corollary initiatives of recruiting and retaining personnel and raising working capital. As of March 31, 2017, we had an accumulated deficit accumulated during its development stage of $70.6approximately $142.0 million. The Company expects these conditionsOur net loss for the fiscal years ended March 31, 2017 and 2016 was approximately $10.3 million and $47.2 million, respectively, the latter amount including a non-recurring, non-cash loss of approximately $26.7 million attributable to the extinguishment and conversion of approximately $15.9 million carrying value of prior indebtedness into our equity securities between May and September 2015 at a Conversion Price (the stated value of the equity received) of $7.00 per share. We expect losses to continue for the foreseeable future, primarily related to our further clinical development of AV-101 for the adjunctive treatment of MDD, as it expands its well as a range of other CNS indications.
Summary of Our Fiscal Year Ended March 31, 2017
Human Clinical TrialsDuring Fiscal 2017, we have continued to (i) advance non-clinical and clinical development of AV-101 as a potential new generation antidepressant and as a new therapeutic alternative for several other CNS indications with significant unmet medical need, (ii) expand the regulatory foundation to support broad Phase 2 clinical development of AV-101 in the U.S. and, (iii) on a Test Tubelimited basis, advance (a) the predictive toxicology capabilities of™ platform and executes itsCardioSafe3D for small molecule NCE drug rescue programs and potentially,development applications, (b) our participation in the FDA’s Comprehensive in-vitro Proarrhythmia Assay (CiPA) initiative designed to change the landscape of preclinical drug development by providing a more complete and accurate in vitro assessment of potential drug effects on cardiac risk, and (c) collaborative regenerative medicine programs.opportunities related to our cardiac stem cell technology platform.
Pursuant to our Cooperative Research and Development Agreement (CRADA) with the NIH, the NIH is funding, and Dr. Carlos Zarate Jr. of the NIMH is conducting the NIMH AV-101 MDD Phase 2 Monotherapy Study. We currently anticipate that the NIMH will complete the NIMH AV-101 MDD Phase 2 Monotherapy Study in 2017, with top line results during the first half of 2018. In addition, we continue to prepare for our AV-101 Phase 2 Adjunctive Treatment Study.We currently anticipate completing our AV-101 MDD Phase 2 Adjunctive Treatment Study by the end of 2018 with top line results available in the first quarter of 2019.
In May 2016, we consummated an underwritten public offering of our securities pursuant to which we received net proceeds of approximately $9.54 million and issued to institutional investors an aggregate of 2,570,040 registered shares of our common stock and five-year warrants exercisable at $5.30 per share to purchase an aggregate of 2,705,883 shares of our common stock (May 2016 Public Offering). In connection with the May 2016 Public Offering, our common stock was approved for listing on The NASDAQ Capital Market, where it has traded under the symbol “VTGN” since May 11, 2016. Please see the section titled “Liquidity and Capital Resources” below, for a discussion of our expected future capital requirements.
In addition to bolstering our Clinical and Regulatory Advisory Board with the appointment of Dr. Maurizio Fava (Harvard University) as Chairman and the addition of members Dr. Sanjay Matthew (Baylor University) and Dr. Thomas Laughren (former director, FDA’s Division of Psychiatry), all pre-eminent opinion leaders in the field of depression, and the addition of veteran healthcare executive Jerry Gin, Ph.D., MBA to our Board of Directors, we enhanced our management team with the addition of Mark A. Smith, MD, Ph.D., as our Chief Medical Officer in June 2016. Dr. Smith has over 20 years of pharmaceutical industry and CNS drug development experience.  He has been a successful project leader in both drug discovery and development on projects resulting in approximately 20 investigational new drugs (INDs).  Dr. Smith has directed clinical trials examining depression, bipolar disorder, anxiety, schizophrenia, Alzheimer’s disease, ADHD and agitation in Phase 1 through Phase 2b. In addition, Dr. Smith has vast knowledge and expertise in translational neuroscience, clinical trial design and regulatory interactions. Further, in September 2016, we appointed Mark A. McPartland as our Vice President of Corporate Development. Mr. McPartland has over 20 years of experience in corporate development, capital markets, corporate communications and management consulting for companies at varying stage of their corporate evolution, including early- and mid-stage biopharmaceutical companies. Mr. McPartland is primarily concentrating his efforts in expanding awareness of VistaGen across a range of investors, researchers, patients, clinicians and potential partners.
In December 2016, we entered into the BlueRock Agreement with BlueRock Therapeutics, LP, a next generation regenerative medicine company recently established by Bayer AG and Versant Ventures (BlueRock), pursuant to which BlueRock received exclusive rights to utilize certain technologies exclusively licensed by us from University Health Network (UHN) for the production of cardiac stem cells for the treatment of heart disease. We retained rights to technology licensed from UHN related to small molecule, protein and antibody drug discovery, drug rescue and drug development, including small molecules with cardiac regenerative potential, as well as small molecule, protein and antibody testing involving cardiac cells. In January 2017, we received an upfront cash payment of $1.25 million under the BlueRock Agreement and we may potentially receive additional cash milestones and royalty payments in the future upon BlueRock’s achievement of certain development objectives and commercial sales.
As a matter of course, we attempt to minimize to the greatest extent possible cash commitments and expenditures for both internal and external research and development and general and administrative services. To further advance the non-clinical and clinical development of AV-101 and our stem cell technology platform, as well as support our operating activities, we will continue to carefully manage our routine operating costs, including our internal employee related expenses, as well as external costs relating to regulatory consulting, contract research and development, investor relations and corporate development, legal, acquisition and protection of intellectual property, accounting, public company compliance and other professional services and internal costs. 
 
 
Comparison of Fiscal Years Ended March 31, 2017 and 2016
The following table summarizes the results of our operations for the fiscal years ended March 31, 2017 and 2016 (amounts in thousands).
 
 
 Fiscal Years Ended March 31,
 
 
 
 2017
 
 
 2016
 
 
 
 
 
 
 
 
Sublicense revenue
 $1,250 
 $- 
Operating expenses:
    
    
Research and development
  5,204 
  3,932 
General and administrative
  6,295 
  13,919 
Total operating expenses
  11,499 
  17,851 
 
    
    
Loss from operations
  (10,249)
  (17,851)
 
    
    
Interest expense (net)
  (5)
  (771)
Change in warrant liabilities
  - 
  (1,895)
Loss on extinguishment of debt
  - 
  (26,700)
Other expense
  - 
  (2)
 
    
    
Loss before income taxes
  (10,254)
  (47,219)
Income taxes
  (2)
  (2)
 
    
    
Net loss
  (10,256)
  (47,221)
Accrued dividend on Series B Preferred Stock
  (1,257)
  (2,140)
Deemed dividend on Series B Preferred Stock
  (111)
  (2,058)
Net loss attributable to common stockholders 
 $(11,624)
 $(51,419)
Revenue
We recognized $1.25 million in sublicense revenue pursuant to the BlueRock Agreement in the quarter ended December 31, 2016. While we may potentially receive additional payments and royalties under the BlueRock Agreement in the future, in the event certain performance-based milestones and commercial sales are achieved, the agreement might not provide recurring revenue to us in the near term. We reported no other revenue for the fiscal years ended March 31, 2017 or 2016 and we presently have no revenue generating arrangements with respect to AV-101 or other potential product candidates. However, as indicated previously, our CRADA with the NIH provides for the NIH to fully fund and conduct the NIMH AV-101 MDD Phase 2 Monotherapy Study.
Research and Development Expense
Research and development expense totaled $5,203,700 for the fiscal year ended March 31, 2017 (Fiscal 2017), an increase of approximately 33% compared with the $3,931,600 incurred for the fiscal year ended March 31, 2016 (Fiscal 2016), demonstrating our increased focus on the continuing non-clinical and clinical development of AV-101 and our preparations to launch our AV-101 MDD Phase 2 Adjunctive Treatment Study, which we currently anticipate to begin in the first quarter of 2018. Of the amounts reported, non-cash expenses, related primarily to grants or modifications of our equity securities, totaled approximately $534,000 in Fiscal 2017 and $1,749,000 in Fiscal 2016. The following table indicates the primary components of research and development expense for each of the periods (amounts in thousands):
 
 
Fiscal Years Ended March 31,
 
 
 
2017
 
 
2016
 
 
 
 
 
 
 
 
Salaries and benefits
 $1,331 
 $818 
Stock-based compensation
  375 
  1,093 
Consulting and other professional services
  (75)
  112 
Technology licenses and royalties, including UHN
  746 
  1,010 
Project-related research and supplies:
    
    
AV-101
  2,292 
  406 
Stem cell and all other
  185 
  100 
 
  2,477 
  506 
Rent
  310 
  219 
Depreciation
  37 
  37 
Warrant modification expense
  - 
  135 
All other
  3 
  2 
 
    
    
Total Research and Development Expense
 $5,204 
 $3,932 
The increase in salaries and benefits reflects the impact of the hiring of our Chief Medical Officer (CMO) in June 2016, as well as salary increases and bonus payments granted to our President and Chief Scientific Officer (CSO) and to the four non-officer members of our scientific staff.
The decrease in stock based compensation expense is primarily attributable to the $852,200 fair value, determined using the Black-Scholes Option Pricing Model and the assumptions indicated in Note 13,Stock Option Plans and 401(k) Plan, to the accompanying Consolidated Financial Statements in Part 8 of this Report, of the September 2015 grant of immediately vested and expensed warrants to purchase 150,000 shares of our common stock granted to our CSO. Stock compensation expense in Fiscal 2017 reflects the ratable amortization of option grants made to our CSO and CMO, scientific staff and consultants, in November 2016, June 2016 (CSO and CMO only) and September 2015. Our stock options are generally amortized over a two-year to four-year vesting period. A substantial number of the option grants made in or prior to our fiscal year ended March 31, 2014 became fully-vested and were fully-expensed by March 31, 2017.
Consulting services reflects fees paid or accrued for scientific, non-clinical and clinical development and regulatory advisory and consulting services rendered to us by third-parties, primarily by members of our scientific and CNS clinical and regulatory advisory boards. The reduction in expense for Fiscal 2017 primarily reflects the rationalization of our stem cell-related scientific advisory board and related accruals, including as a result of the BlueRock Agreement.
Technology license expense reflects both recurring annual fees as well as legal counsel and other costs related to patent prosecution and protection pursuant to certain of our stem cell technology license agreements or for other potential commercial purposes. We recognize these costs as they are invoiced to us by the licensors and they do not occur ratably throughout the year or between years. Additionally, in both periods, this expense includes legal counsel and other costs we have incurred to advance in the U.S. and numerous foreign countries several pending patent applications with respect to AV-101 and our stem cell technology platform. Technology license-related legal expense for Fiscal 2017 also includes $55,000 representing the fair value of a warrant granted to intellectual property counsel as partial compensation for services. Fiscal 2017 expense further includes a net of $158,000 related to the sublicense consideration paid to University Health Network (UHN) related to the BlueRock Agreement plus additional fees and expenses related to two new cardiac stem cell technology related licenses that we acquired from UHN, net of amounts previously accrued in connection with our prior sponsored research collaboration with UHN. Technology license expense for Fiscal 2016 included (i) approximately $153,000 of fees and expenses incurred for additional stem cell technology related licenses acquired in connection with our agreement with UHN; (ii) $120,000 of noncash expense resulting from the grants to two intellectual property legal service providers in July 2015 of an aggregate of 10,000 shares of our Series B Preferred, and (iii) $254,000 of noncash expense resulting from the March 2016 grant of immediately-vested warrants to purchase an aggregate of 50,000 shares of our common stock to two intellectual property legal service providers.
AV-101 expenses for Fiscal 2017 include continuing costs incurred to develop more efficient and cost-effective proprietary production methods for AV-101 and for certain pre-production and preclinical trial analyses and procedures to facilitate Phase 2 clinical development of AV-101 in the U.S., including our AV-101 MDD Phase 2 Adjunctive Treatment Study. We expect these expenses to increase significantly during fiscal 2018 as we continue preparations for, initiate and conduct our AV-101 MDD Phase 2 Adjunctive Treatment Study. Additionally, AV-101 expense in both periods reflects the costs associated with monitoring for and responding to potential feedback related to our AV-101 Phase 1 clinical safety program and addressing other matters required under the terms of our prior NIH grant awards, primarily through our CRO for our Phase 1 safety studies, Cato Research Ltd. The increase in stem cell and other project related expenses in Fiscal 2017 primarily reflects in-house costs associated with our participation in the FDA’s CiPA project.
The increase in rent expense in Fiscal 2017 reflects both the impact of the scheduled rent increase for our South San Francisco headquarters and laboratory facilities effective August 2016 as well as the impact of accounting for the November 2016 lease amendment extending the lease of those facilities by five years from July 31, 2017 to July 31, 2022.
Warrant modification expense in Fiscal 2016 reflects the increase in fair value resulting from the November 2015 modification of outstanding warrants to purchase an aggregate of 315,000 shares of our common stock held by our CSO and a key scientific advisor to reduce the exercise prices thereof from a range of $9.25 to $12.80 per share to $7.00 per share. No similar modifications occurred in Fiscal 2017.
General and Administrative Expense
General and administrative expense decreased to $6,294,800 in Fiscal 2017 from $13,918,600 in Fiscal 2016 primarily as a result of the decrease in non-cash stock compensation expense attributable to option and warrant grants to employees, officers and independent Board members in Fiscal 2016, partially offset by an increase in non-cash expense related to grants of equity securities in payment of certain professional services during Fiscal 2017. Of the amounts reported, non-cash expenses, related primarily to grants or modifications of our equity securities, totaled approximately $3,100,000 in Fiscal 2017 and $11,939,000 in Fiscal 2016. The following table indicates the primary components of general and administrative expenses for each of the periods (amounts in thousands):
 
 
Fiscal Years Ended March 31,
 
 
 
2017
 
 
2016
 
 
 
 
 
 
 
 
Salaries and benefits
 $1,206 
 $694 
Stock-based compensation
  476 
  2,949 
Board fees
  140 
  98 
Legal, accounting and other professional fees
  2,093 
  3,405 
Investor relations
  1,219 
  172 
Insurance
  165 
  140 
Travel and entertainment
  179 
  96 
Rent and utilities
  220 
  157 
Warrant modification expense
  427 
  6,083 
All other expenses
  170 
  125 
 
    
    
Total General and Administrative Expense
 $6,295 
 $13,919 
The increase in salaries and benefits reflects the impact of salary increases and bonus payments granted to our Chief Executive Officer (CEO), Chief Financial Officer (CFO), and a member of our administrative staff and the change in that employee’s status from part-time to full-time, as well as the hiring of our VP, Corporate Development in September 2016.
The decrease in stock based compensation expense is primarily attributable to the $2,841,000 fair value, determined using the Black-Scholes Option Pricing Model and the assumptions indicated in Note 13,Stock Option Plans and 401(k) Plan, to the accompanying Consolidated Financial Statements in Item 8 of this Report, of the September 2015 grant of immediately vested and expensed warrants to purchase 500,000 shares of our common stock granted to our CEO, CFO, independent members of our Board of Directors and certain consultants. Stock compensation expense in Fiscal 2017 reflects the ratable amortization of option grants made to our CEO, CFO, independent members of our Board of Directors and administrative staff and consultants, in November 2016, June 2016 (CEO, CFO and independent Board members only) and September 2015, as well as to our VP-Corporate Development upon the commencement of his employment in September 2016. Our stock options are generally amortized over a two-year to four-year vesting period. A substantial number of the option grants made in or prior to our fiscal year ended March 31, 2014 became fully-vested and were fully-expensed by March 31, 2017.
Board fees includes fees recognized for the services of independent members of our Board of Directors. We added an additional independent director, Dr. Jerry Gin, to our Board in March 2016.
Legal, accounting and other professional fees in Fiscal 2017 and Fiscal 2016 includes $337,500 and $1,012,500, respectively, of non-cash expense recognized pursuant to the June 2015 grant of an aggregate of 90,000 shares of our Series B Preferred having an aggregate fair value at the time of issuance of $1,350,000 as compensation for financial advisory and corporate development service contracts with two independent service providers for services performed between July 2015 and June 2016. During Fiscal 2017, in addition to the expense noted above attributable to the June 2015 Series B Preferred grant, we granted an aggregate of 25,000 unregistered shares of our common stock having a fair value at the date of issuance of $108,500 to a legal services provider as partial compensation for services and an aggregate of 320,000 unregistered shares of our common stock having a fair value at the date of issuance of $1,058,800 as partial compensation for financial advisory, investment banking and business development services. During Fiscal 2016, in addition to the expense noted above attributable to the June 2015 Series B Preferred grant, we also granted (i) an aggregate of 50,000 shares of our common stock having an aggregate fair value of $500,000 pursuant to two corporate development contracts initiated during the first quarter of Fiscal 2016; (ii) 25,000 shares of our Series B Preferred having a fair value of $250,000 to legal counsel as compensation for services in connection with our debt restructuring and other corporate finance matters, and (iii) 15,750 shares of our unregistered common stock and a five-year warrant to purchase 7,500 unregistered shares of our common stock having an aggregate fair value of $138,000 in connection with investment banking services. In both years, professional services expense also includes cash payments for routine legal fees and expenses and the expense related to the annual audit of the prior year financial statements, preparation of the prior year income tax returns, and quarterly reviews of current year financial statements.
Investor relations expense includes the fees of our external service providers for a significantly expanded broad spectrum of institutional investor relations and market awareness and support functions and, particularly during Fiscal 2017, initiatives that included numerous meetings in multiple U.S. markets and other communication activities focused on expanding market awareness of the Company, including among investment professionals and investment advisors, and individual and institutional investors. During Fiscal 2017, in addition to cash fees and expenses we incurred, we granted an aggregate of 160,000 unregistered shares of our common stock to six investor relations and market awareness service providers as full or partial compensation for their services and recognized non-cash expense of $472,800, representing the fair value of the stock at the time of issuance. We also granted three-year, immediately exercisable warrants to purchase an aggregate of 75,000 shares of our unregistered common stock at exercise prices ranging from $4.50 per share to $6.00 per share to three investor relations service providers and recognized non-cash expense of $172,300 representing the fair value of the warrants at the time of issuance.
In both periods, travel expense reflects costs associated with presentations to and meetings in numerous U.S. markets with existing and potential investors and investment professionals and advisors, media and securities analysts, as well as various investor relations, market awareness and corporate development initiatives, in Fiscal 2017 by our CEO, CMO and VP, Corporate Development.
As described more completely in Note 9,Capital Stock, to the accompanying Consolidated Financial Statements for the years ended March 31, 2017 and 2016 in Item 8 of this Report, between January 2016 and December 2016, we entered into various warrant exchange agreements with certain warrant holders pursuant to which those holders exchanged outstanding warrants to purchase shares of our common stock for a lesser number of unregistered shares of our common stock. In both periods, we accounted for these transactions as warrant modifications. Between April 2016 and December 2016, certain warrant holders agreed to exchange an aggregate of 224,513 shares of our common stock for an aggregate of 156,246 shares of our unregistered common stock, resulting in our recognition of an aggregate of $350,700 in noncash expense attributable to the increase in fair value related to Fiscal 2017 warrant exchanges. Further, in December 2016, we modified an outstanding warrant to reduce the exercise price from $8.00 per share to $3.51 per share and increase the number of shares exercisable under the warrant from 25,000 shares to 50,000 shares, recognizing $76,900 in expense as the incremental fair value attributable to the modification. Noncash warrant modification expense in Fiscal 2016 includes (i) $122,000 representing the increase in the fair value attributable to the June 2015 modification of outstanding warrants to purchase an aggregate of 54,576 shares of our common stock to reduce the exercise prices thereof, generally from $30.00 per share to $10.00 per share; (ii) $358,000 representing the increase in the fair value attributable to the November 2015 modification of outstanding warrants to purchase an aggregate of 808,553 shares of our common stock previously granted to our CEO, CFO, and independent members of our Board of Directors to reduce the exercise prices thereof from a range of $9.25 to $12.80 per share to $7.00 per share; and (iii) $5,603,200 representing the aggregate increase in the fair value of certain warrant exchange transactions conducted during the fourth quarter of Fiscal 2016. In January 2016, we entered into an Exchange Agreement with PLTG pursuant to which PLTG exchanged warrants, including all outstanding PLTG Warrants and the shares issuable pursuant to the Series A Preferred Exchange Warrant, to purchase an aggregate of 2,824,016 shares of our common stock for 2,118,012 unregistered shares of our Series C Convertible Preferred Stock (Series C Preferred) at the ratio of 0.75 share of Series C Preferred for each warrant share cancelled. We recognized related noncash warrant modification expense of $3,195,000. In February and March 2016, we entered into similar agreements with certain other warrant holders pursuant to which such warrant holders exchanged outstanding warrants to purchase an aggregate of 1,086,611 shares of our common stock for an aggregate of 814,989 shares of our unregistered common stock. We recognized an additional $2,362,000 in non-cash warrant modification expense. In February 2016, we also extended the term of certain outstanding warrants to purchase an aggregate of 91,230 shares of our common stock and recognized $46,000 of non-cash expense as a result of such modifications.
Interest and Other Expenses, Net
Interest expense, net, totaled $4,600 for Fiscal 2017, a significant decrease compared to the $70,800 reported for Fiscal 2016, resulting from the extinguishment of substantially all of our promissory notes, as well as other indebtedness, having an aggregate carrying value at the time of extinguishment of approximately $15,900,000, between May 2015 and August 2015 by conversion into our shares of our Series B Preferred at a conversion price of $7.00 per share or cash repayment and the related elimination of note interest and discount amortization. The following table summarizes the primary components of interest expense for each of the periods (amounts in thousands):
 
 
Fiscal Years Ended March 31,
 
 
 
2017
 
 
2016
 
 
 
 
 
 
 
 
Interest expense on promissory notes
 $1 
 $209 
Amortization of discount on promissory notes
  - 
  565 
Other interest expense, including on capital leases and premium financing
  4 
  3 
     Total interest expense
  5 
  777 
Effect of foreign currency fluctuations on notes payable
  - 
  (6)
Interest income
  - 
  - 
 
    
    
Interest expense, net
 $5 
 $771 
Interest expense on promissory notes in Fiscal 2017 represents only the interest accrued on our promissory note to Progressive Medical Research prior to its repayment in June 2016. The substantial overall decrease in interest expense on promissory notes and the related amortization of discounts on such notes between the periods reflects the cessation of interest accrual and discount amortization upon the extinguishment and conversion of all outstanding Senior Secured Convertible Notes, certain 10% convertible notes (2014 Unit Notes) and other outstanding promissory notes into shares of our Series B Preferred between May 2015 and August 2015.
Under the terms of our October 2012 Note Exchange and Purchase Agreement with PLTG, we issued certain Senior Secured Convertible Promissory Notes and a related Exchange Warrant and Investment Warrants between October 2012 and July 2013. Upon PLTG’s exchange of the shares of our Series A Preferred Stock held by PLTG into shares of our common stock, we were also required to issue a Series A Exchange Warrant to PLTG. We determined that the various warrants included certain exercise price resets and other adjustment features requiring us to treat the warrants as liabilities. Accordingly, we recorded a noncash warrant liability at its estimated fair value as of the date of warrant issuance or contract execution. As described in Note 9,Capital Stock,to the Consolidated Financial Statements included in Item 8 of this Annual Report, in May 2015, we entered into an agreement with PLTG pursuant to which we amended the various warrants and fixed the exercise price thereof and eliminated the anti-dilution reset features that had previously required the warrants to be treated as liabilities and carried at fair value. Accordingly, during the first quarter of Fiscal 2016, we adjusted these warrants to their fair value, reflecting an increase in the fair value in the amount of $1,894,700 since March 31, 2015, resulting primarily from the increase in the market price of our common stock in relation to the exercise price of the warrants, and then subsequently eliminated the entire warrant liability with respect to these warrants. In January 2016, the PLTG warrants were cancelled and exchanged for shares of our Series C Preferred stock.
Between May 2015 and August 2015 we extinguished outstanding promissory notes and other indebtedness having a carrying value of approximately $15,900,000, including our Senior Secured Convertible Notes, our 2014 Unit Notes and other debt and certain adjustments thereto that were either already due and payable or would have otherwise matured prior to March 31, 2016 by converting such balances into shares of our Series B Preferred at a conversion price (the stated value of the Series B Preferred issued) of $7.00 per share. We treated the conversion of the indebtedness into Series B Preferred as extinguishments of debt for accounting purposes. Since the fair value of the Series B Preferred we negotiated in settlement of the promissory notes and other indebtedness exceeded the carrying value of the debts, we incurred non-recurring noncash losses on each of the extinguishments. Additionally, under the terms of our May 2015 agreement with PLTG in which PLTG agreed to, among other things, convert the Senior Secured Notes and certain other of our convertible promissory notes into Series B Preferred, we issued to PLTG 400,000 shares of Series B Preferred having an aggregate fair value of $4,000,000 and Series B Warrants to purchase 1,200,000 shares of our common stock having an aggregate of fair value of $8,270,900. We recognized this aggregate fair value as a further non-recurring noncash component of loss on extinguishment of debt. Many of the 2014 Unit Notes that were converted into Series B Preferred contained a beneficial conversion feature at the time they were originally issued. We accounted for the repurchase of the beneficial conversion feature at the time the 2014 Unit Notes were extinguished and converted, an aggregate of $2,237,200, as a reduction to the loss on extinguishment of debt. We recorded an aggregate net non-recurring non-cash loss of approximately $26,700,000 million attributable to the extinguishment of substantially all of our indebtedness as a result of the conversion of such indebtedness into shares of our Series B Preferred at a conversion price (stated value) of $7.00 per share.
We allocated the proceeds from self-placed private placement sales of Series B Preferred Units to the Series B Preferred and the Series B Warrants based on their relative fair values on the dates of the sales. The difference between the relative fair value per share of the Series B Preferred, approximately $4.20 per share and $4.13 per share for Fiscal 2017 and Fiscal 2016, respectively, and its conversion price (or stated value) of $7.00 per share represented a deemed dividend to the purchasers of the Series B Preferred Units. Accordingly, we recognized a deemed dividend in the aggregate amount of $111,100 and $2,058,000 in arriving at net loss attributable to common stockholders for Fiscal 2017 and Fiscal 2016 in the accompanying Consolidated Statement of Operations and Comprehensive Loss included in Item 8 of this Annual Report. Further, we recognized $1,257,000 and $2,140,500 for Fiscal 2017 and Fiscal 2016, respectively, representing the 10% cumulative dividend payable on our Series B Preferred as an additional deduction in arriving at net loss attributable to common stockholders in the accompanying Consolidated Statement of Operations and Comprehensive Loss, included in this Annual Report. The reduction in the dividend accrual results from the automatic conversion of an aggregate of 2,403,051 shares of Series B Preferred upon our completion of the May 2016 Public Offering and a subsequent voluntary conversion of 87,500 shares of our Series B Preferred in August 2016, as disclosed in Note 9,Capital Stock, to the accompanying Consolidated Financial Statements in Item 8 of this Annual Report.
Liquidity and Capital Resources
Since our inception in May 1998 and through March 2014, the Company has31, 2017, we have financed itsour operations and technology acquisitions primarily through the issuance and sale of our equity and debt securities, including convertible promissory notes and short-term promissory notes, for aggregate cash proceeds of approximately $26.0$44.7 million, as well as from an aggregate of approximately $16.4$17.6 million of strategic collaboration payments, intellectual property sublicensing, government research grant awards strategic collaboration payments and other revenues.revenues, but not including the fair market value of the NIMH AV-101 MDD Phase 2 Monotherapy Study being fully funded and conducted by the NIMH pursuant to our CRADA. Additionally, during the same period, the Company haswe have issued equity securities with an approximate aggregate value at issuance of $12.6$30.8 million in non-cash settlements of certain liabilities, including liabilities for professional services rendered to the Companyus or as compensation for such services.
During the first quarter of Fiscal 2017, prior to the consummation of our May 2016 Public Offering, we sold to accredited investors in self-placed private placement transactions Series B Preferred Units consisting of 39,714 unregistered shares of our Series B Preferred Stock, par value $0.001 per share (Series B Preferred), and five year warrants to purchase 39,714 shares of our common stock, and we received cash proceeds of $278,000.
On May 16, 2016, we consummated the May 2016 Public Offering, an underwritten public offering pursuant to which we received net cash proceeds of approximately $9.5 million and issued an aggregate of 2,570,040 registered shares of our common stock at the public offering price of $4.24 per share and five-year warrants to purchase up to 2,705,883 registered shares of common stock, with an exercise price of $5.30 per share, at the public offering price of $0.01 per warrant, including shares and warrants issued pursuant to the exercise of the underwriters' over-allotment option.
During the last two quarters of Fiscal 2017, we sold to accredited investors units consisting of an aggregate of 124,250 unregistered shares of our common stock and three-year and five-year warrants to purchase an aggregate of 45,375 shares of our unregistered common stock. We received cash proceeds of $342,400 from this self-placed private placement.
Additionally, in January 2017, we received a cash payment of $1.25 million pursuant to our grant of a sublicense under the BlueRock Agreement.
At March 31, 2014, the Company did not have sufficient2017, we had a cash orand cash equivalents balance of $2.9 million. This amount was not sufficient to enable itus to fund itsour planned operations, including expected cash expenditures of approximately $5$12 million throughfor the next twelve months. To meet its cash needsmonths following the issuance of these financial statements, including expenditures required to further prepare for, launch and fund its working capital requirements aftersatisfy a significant portion of the projected expenses associated with our proposed AV-101 MDD Phase 2 Adjunctive Treatment Study. However, during the first quarter of our fiscal year ending March 31, 2014 and prior2018 (Fiscal 2018), we sold to a debt- or equity-based financing, through June 19, 2014, the Company entered into securities purchase agreements with accredited investors and institutions pursuant to which it sold to such accredited investorsin a self-placed private placement units of our securities (“Units”), for aggregate proceeds of $1,465,000, consisting of: (i) 10% subordinate convertible promissory notes in the aggregate face amount of $1,465,000 maturing on March 31, 2015; (ii) an aggregate of 1,465,000 restricted437,751 unregistered shares of itsour common stock;stock and (iii) warrants exercisable through December 31, 2016 to purchase an aggregate of 1,465,000 restricted218,875 unregistered shares of itsour common stock at an exercise price of $0.50 per share. pursuant to which we received $837,300 in cash proceeds, bringing total proceeds for the Spring 2017 Private Placement to approximately $1.0 million (theSpring 2017 Private Placement).
 
In April 2013, the Company entered into a Securities Purchase Agreement (as amended, “Securities Purchase Agreement”) with Autilion AG, a company organized and existing under the laws of Switzerland (“Autilion”), under which Autilion is contractually obligatedFurther, although our current financial resources are not yet sufficient to purchase an aggregate of 72.0 million restricted sharesfully fund completion of the Company’s  common stockAV-101 MDD Phase 2 Adjunctive Treatment Study, we anticipate raising sufficient additional capital as and when necessary and advisable to sustain our operations and achieve our key corporate objectives through at a purchase priceleast the next twelve months, including initiating and conducting the AV-101 MDD Phase 2 Adjunctive Treatment Study in an ordinary course manner. In furtherance of $0.50 per share for aggregate cash proceedsthat objective, on January 23, 2017, we filed with the U.S. Securities and Exchange Commission (SEC) our Registration Statement on Form S-3 (Registration No. 333-215671) covering the potential future sale of our equity securities from time to time in the Company of $36.0 million (the “Autilion Financing”).  To date, Autilion has completed only a nominal closing under the Securities Purchase Agreement. Therefore, Autilion isfuture. The SEC declared this Registration Statement effective in default under the Securities Purchase Agreement, and the CompanyMay 2017. However, there can providebe no assurance that Autilionfuture financing will completebe available in sufficient amounts, in a material closing undertimely manner, or on terms acceptable to us, if at all.
We may also seek research and development collaborations that could generate revenue, funding for development of AV-101 and additional product candidates, as well as additional government grant awards and agreements similar to our current CRADA with the Securities Purchase Agreement.   InNIMH, which provides for the event that Autilion does not completeNIMH to fully fund the NIMH’s ongoing NIMH AV-101 MDD Phase 2 Monotherapy Study. Such strategic collaborations may provide non-dilutive resources to advance our strategic initiatives while reducing a material portion of the Autilion Financing pursuantour future cash outlays and working capital requirements. In a manner similar to the Securities PurchaseBlueRock Agreement, we may also pursue similar arrangements with third-parties covering other of our intellectual property. Although we may seek additional collaborations that could generate revenue and/or non-dilutive funding for development of AV-101 and other product candidates, as well as new government grant awards and/or agreements similar to our CRADA with NIMH, no assurance can be provided that any such collaborations, awards or agreements will occur in the near term,future.  
Our future working capital requirements will depend on many factors, including, without limitation, the Company will needscope and nature of opportunities related to our success and the success of certain other companies in clinical trials, including our development and commercialization of AV-101 as an adjunctive treatment for MDD and other potential CNS conditions, and various applications of our stem cell technology platform, the availability of, and our ability to obtain, from $4.0 milliongovernment grant awards and agreements, and our ability to $6.0 million from alternative financing sourcesenter into collaborations on terms acceptable to execute its businessus. To further advance the clinical development of AV-101 and our stem cell technology platform, as well as support our operating activities, we plan overto continue to carefully manage our routine operating costs, including our employee headcount and related expenses, as well as the next twelvetiming of and projected costs relating to fifteen months. Substantialkey research and development projects, including our expenses associated with our proposed AV-101 MDD Phase 2 Adjunctive Treatment Study, regulatory consulting, CRO services, investor relations and corporate development, legal, acquisition and protection of intellectual property, accounting, public company compliance and other professional services and working capital costs. 
Notwithstanding the foregoing, substantial additional financing may not be available to the Companyus on a timely basis, on acceptable terms, or at all. In the event the Company isIf we are unable to obtain substantial additional financing on a timely basis itswhen needed in 2017 and beyond, our business, financial condition, and results of operations may be harmed, the price of itsour stock may decline, we may be required to reduce, defer, or discontinue certain of our research and itdevelopment activities and we may not be able to continue as a going concern.
-64-
Cash and Cash Equivalents
The following table summarizes changes in cash and cash equivalents for the periods stated (in thousands):
 
 
Fiscal Years Ended March 31,
 
 
 
2017
 
 
2016
 
 
 
 
 
 
 
 
Net cash used in operating activities
 $(7,263)
 $(4,808)
Net cash used in investing activities
  (239)
  (26)
Net cash provided by financing activities
  9,994 
  5,193 
 
    
    
 Net increase in cash and cash equivalents
  2,492 
  359 
 Cash and cash equivalents at beginning of period
  429 
  70 
 
    
    
 Cash and cash equivalents at end of period
 $2,921 
 $429 
Off-Balance Sheet Arrangements
Other than contractual obligations incurred in the normal course of business, we do not have any off-balance sheet financing arrangements or liabilities, guarantee contracts, retained or contingent interests in transferred assets or any obligation arising out of a material variable interest in an unconsolidated entity. VistaStem has two inactive, wholly owned subsidiaries, Artemis Neuroscience, Inc., a Maryland corporation, and VistaStem Canada, Inc., an Ontario corporation.
Item 7A.  Quantitative and Qualitative Disclosures About Market Risk
 
 The disclosures in this section are not required because we qualify as a smaller reporting company under federal securities laws.
-65-
To meet its working capital needs during the fiscal year ended March 31, 2014, the Company issued an additional Senior Secured Convertible Promissory Note to Platinum,Item 8.  Financial Statements and sold Units consistingSupplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Report of Independent Registered Public Accounting Firm
 67
Consolidated Balance Sheets
 68
Consolidated Statements of Operations and Comprehensive Loss
 69
Consolidated Statements of Cash Flows
 70
Consolidated Statements of Stockholders' Equity (Deficit)
 71
Notes to Consolidated Financial Statements
 72
-66-
Convertible Promissory Notes and Other Notes PayableREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM, and Note 10, Capital Stock. To provide working capital for operations from March 31, 2014 through the date of this report, the Company completed private placements of its securities to Platinum and other accredited investors resulting in aggregate cash proceeds of $1,465,000, as described in Note 17, Subsequent Events.
 
To the extent necessary,Board of Directors and Stockholders
VistaGen Therapeutics, Inc.
We have audited the accompanying consolidated balance sheets of VistaGen Therapeutics, Inc. as of March 31, 2017 and 2016 and the related consolidated statements of operations and comprehensive loss, cash flows, and stockholders’ equity (deficit) for each of the two fiscal years in the period ended March 31, 2017. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of VistaGen Therapeutics, Inc. at March 31, 2017 and 2016, and the consolidated results of its operations and its cash flows for each of the two fiscal years in the period ended March 31, 2017, in conformity with U.S. generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming that the Company may also seekwill continue as a going concern. As discussed in Note 2 to meet its future cash needs and fund its working capital requirements through a combination of additional private placements of its securities, which may include both debt and equity securities, research and development collaborations, license fees, and government grant awards. Alternatively,the consolidated financial statements, the Company may seek tohas not yet generated sustainable revenues, has suffered recurring losses and negative cash flows from operations and has minimal stockholders’ equity, all of which raise additional capital through a registered public offering ofsubstantial doubt about its securities.  In May 2014, the Company filed a Registration Statement on Form S-1 with the Securities and Exchange Commission covering the potential sale of shares of its common stock in a registered public offering. Additionally, the Company believes that its participation in strategic collaborations, including licensing transactions, may provide additional cash in support of its future working capital requirements.  If the Company is unable to obtain sufficient financing from the Autilion Financing or alternative sources, it may be required to reduce, defer, or discontinue certain of its research and development activities or it may not be ableability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
 
/s/ OUM & Co. LLP
San Francisco, California
June 28, 2017
 
-67-
F-11
VISTAGEN THERAPEUTICS, INC.
CONSOLIDATED BALANCE SHEETS
(Amounts in dollars, except share amounts)
 
 
March 31,
 
 
 March 31,
 
 
 
 2017
 
 
 2016
 
 
 
 
 
 
 
 
 
 ASSETS
 
Current assets:
 
 
 
 
 
 
Cash and cash equivalents
 $2,921,300 
 $428,500 
Prepaid expenses and other current assets
  456,600 
  426,800 
  Total current assets
  3,377,900
  855,300 
Property and equipment, net
  286,500 
  87,600 
Security deposits and other assets
  47,800 
  46,900 
  Total assets
 $3,712,200 
 $989,800 
 
    
    
 
 LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
 
Current liabilities:
    
    
Accounts payable
 $867,300 
 $936,000 
Accrued expenses
  443,000 
  814,000 
Current portion of notes payable and accrued interest
  54,800 
  43,600 
Capital lease obligations
  2,400 
  1,100 
 Total current liabilities
  1,367,500 
  1,794,700 
 
    
    
Non-current liabilities:
    
    
Notes payable
  - 
  27,200 
Accrued dividends on Series B Preferred Stock
  1,577,800 
  2,089,600 
Deferred rent liability
  139,200 
  55,500 
Capital lease obligations
  11,900 
  - 
  Total non-current liabilities
  1,728,900 
  2,172,300 
  Total liabilities
  3,096,400 
  3,967,000 
 
    
    
Commitments and contingencies
    
    
 
    
    
Stockholders’ equity (deficit):
    
    
Preferred stock, $0.001 par value; 10,000,000 shares authorized at March 31, 2017 and March 31, 2016:
 
    
Series A Preferred, 500,000 shares authorized and outstanding at March 31, 2017 and March 31, 2016
  500 
  500 
Series B Preferred; 4,000,000 shares authorized at March 31, 2017 and March 31, 2016; 1,160,240 shares and 3,663,077 shares issued and outstanding at March 31, 2017 and March 31, 2016, respectively
  1,200 
  3,700 
Series C Preferred: 3,000,000 shares authorized at March 31, 2017 and March 31, 2017; 2,318,012 shares issued and outstanding at March 31, 2017 and March 31, 2016
  2,300 
  2,300 
Common stock, $0.001 par value; 30,000,000 shares authorized at March 31, 2017 and March 31, 2016;
 
    
8,974,386 and 2,623,145 shares issued at March 31, 2017 and March 31, 2016, respectively
  9,000 
  2,600 
Additional paid-in capital
  146,569,600 
  132,725,000 
Treasury stock, at cost, 135,665 shares of common stock held at March 31, 2017 and March 31, 2016
  (3,968,100)
  (3,968,100)
Accumulated deficit
  (141,998,700)
  (131,743,200)
  Total stockholders’ equity (deficit)
  615,800 
  (2,977,200)
  Total liabilities and stockholders’ equity (deficit)
 $3,712,200 
 $989,800 
See accompanying notes to consolidated financial statements.
-68-
VISTAGEN THERAPEUTICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Amounts in dollars, except share amounts)
 
 
 Fiscal Years Ended
March 31,
 
 
 
2017
 
 
2016
 
Revenues:
 
 
 
 
 
 
Sublicense fees
 $1,250,000 
 $- 
Total revenues
  1,250,000 
  - 
Operating expenses:
    
    
Research and development
  5,203,700 
  3,931,600 
General and administrative
  6,294,800 
  13,918,600 
Total operating expenses
  11,498,500 
  17,850,200 
Loss from operations
  (10,248,500)
  (17,850,200)
Other expenses, net:
    
    
Interest expense, net
  (4,600)
  (770,800)
Change in warrant liability
  - 
  (1,894,700)
Loss on extinguishment of debt
  - 
  (26,700,200)
Other expense
  - 
  (2,300)
Loss before income taxes
  (10,253,100)
  (47,218,200)
Income taxes
  (2,400)
  (2,300)
Net loss and comprehensive loss
  (10,255,500)
  (47,220,500)
 
    
    
Accrued dividend on Series B Preferred stock
  (1,257,000)
  (2,140,500)
Deemed dividend on Series B Preferred Units
  (111,100)
  (2,058,000)
 
    
    
Net loss attributable to common stockholders
 $(11,623,600)
 $(51,419,000)
 
    
    
Basic and diluted net loss attributable to common stockholders
    
    
per common share
 $(1.54)
 $(29.08)
 
    
    
Weighted average shares used in computing basic and diluted net loss attributable
    
    
 to common stockholders per common share
  7,531,642 
  1,767,957 
See accompanying notes to consolidated financial statements.
-69-
VISTAGEN THERAPEUTICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in dollars)
 
 
 Fiscal Years Ended
March 31,
 
 
 
2017
 
 
2016
 
 Cash flows from operating activities:
 
 
 
 
 
 
  Net loss
 $(10,255,500)
 $(47,220,500)
  Adjustments to reconcile net loss to net cash used in operating activities:
    
    
   Depreciation and amortization
  54,900 
  53,500 
   Amortization of discounts on convertible and promissory notes
  - 
  564,800 
   Change in warrant liability
  - 
  1,894,700 
   Stock-based compensation
  851,300 
  4,041,400 
   Expense related to modification of warrants, including exchange of warrants  for Series C Preferred and common stock
  427,500 
  6,218,000 
   Amortization of deferred rent
  83,700 
  (27,500)
   Fair value of common stock granted for services
  1,640,100 
  829,200 
   Fair value of Series B Preferred stock granted for services
  375,000 
  1,382,500 
   Fair value of warrants granted for services
  240,300 
  1,280,800 
   Gain on currency fluctuation
  - 
  (6,400)
   Loss on extinguishment of debt
  - 
  26,700,200 
   Loss on disposition of fixed assets
  - 
  2,300 
   Changes in operating assets and liabilities:
    
    
    Prepaid expenses, security deposit and other current assets
  (227,700)
  25,700 
    Accounts payable and accrued expenses, including accrued interest
  (451,700)
  (547,200)
   Net cash used in operating activities
  (7,262,100)
  (4,808,500)
 
    
    
 Cash flows from investing activities:
    
    
  Purchases of equipment
  (239,100)
  (26,300)
Net cash used in investing activities
  (239,100)
  (26,300)
 
    
    
 Cash flows from financing activities:
    
    
  Net proceeds from issuance of common stock and warrants, including Units
  9,899,500 
  280,000 
  Net proceeds from issuance of Series B Preferred Units
  278,000 
  5,025,800 
  Repayment of capital lease obligations
  (1,300)
  (1,000)
  Repayment of notes
  (182,200)
  (111,500)
Net cash provided by financing activities
  9,994,000 
  5,193,300 
 Net increase in cash and cash equivalents
  2,492,800 
  358,500 
 Cash and cash equivalents at beginning of period
  428,500 
  70,000 
 Cash and cash equivalents at end of period
 $2,921,300 
 $428,500 
 
    
    
 Supplemental disclosure of cash flow activities:
    
    
    Cash paid for interest
 $16,600 
 $12,700 
    Cash paid for income taxes
 $2,400 
 $2,400 
 
    
    
 Supplemental disclosure of noncash activities:
    
    
Conversion of Senior Secured Notes, Subordinate Convertible Notes, Promissory
    
    
Notes, Accounts payable and other debt into Series B Preferred
 $- 
 $18,891,400 
Insurance premiums settled by issuing note payable
 $178,200 
 $79,400 
Accrued dividends on Series B Preferred
 $1,257,000 
 $2,140,500 
Accrued dividends on Series B Preferred settled upon conversion by issuance of common stock
 $1,768,800 
 $50,900 
Acquisition of equipment under capital lease
 $14,700 
 $- 
See accompanying notes to consolidated financial statements.
-70-
VISTAGEN THERAPEUTICS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
Fiscal Years Ended March 31, 2017 and 2016
(Amounts in dollars, except share amounts)
 
 Series A Preferred Stock 
 Series B Preferred Stock 
 Series C Preferred Stock 
  Common Stock 
 Additional Paid-in 
 Treasury 
 Accumulated 
 Total Stockholders' Equity 
 
  Shares 
  Amount 
  Shares 
  Amount 
  Shares 
  Amount 
  Shares 
  Amount 
  Capital 
 Stock 
 Deficit 
  (Deficit) 
Balances at March 31, 2015
  500,000 
 $500 
  - 
 $- 
  - 
 $- 
  1,677,126 
 $1,700 
 $67,945,800 
 $(3,968,100)
 $(84,522,700)
 $(20,542,800)
 
    
    
    
    
    
    
    
    
    
    
    
    
Allocated proceeds from sale of common stock Units for cash under 2014 Unit Private Placement, including beneficial conversion feature
 -
  - 
  - 
  - 
  - 
  - 
  33,000 
  - 
  277,200 
  - 
  - 
  277,200 
Proceeds from sale of Series B Preferred Units for cash under Series B Preferred Unit Private Placement
  - 
  - 
  717,978 
  700 
  - 
  - 
  - 
  - 
  5,025,100 
  - 
  - 
  5,025,800 
Share-based compensation expense
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  4,041,400 
  - 
  - 
  4,041,400 
Conversion of Senior Secured and subordinate promissory notes into Series B Preferred stock, including recapture of beneficial conversion feature upon conversion
  - 
  - 
  3,018,917 
  3,100 
  - 
  - 
  - 
  - 
  42,577,100 
  - 
  - 
  42,580,200 
Elimination of warrant liability resulting from modification of  PLTG Warrants
  - 
  - 
 - 
 - 
  - 
  - 
  - 
  - 
  4,903,100 
  - 
  - 
  4,903,100 
Exchange of common stock for Series B Preferred stock
 -
 - 
  30,000 
  - 
  - 
  - 
  (30,000)
  - 
  - 
  - 
  - 
  - 
Accrued dividends on Series B Preferred stock
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  (2,140,500)
  - 
  - 
  (2,140,500)
Conversion of Series B Preferred stock into common stock, including common stock issued in payment of accrued dividends
    
    
  (228,818)
  (200)
  - 
  - 
  235,655 
  200 
  50,900 
  - 
  - 
  50,900 
Exchange of common stock for Series C Preferred stock
  - 
  - 
  - 
  - 
  200,000 
  200 
  (200,000)
  (200)
  - 
  - 
  - 
  - 
Exchange of outstanding warrants for Series C Preferred stock
  - 
  - 
  - 
  - 
  2,118,012 
  2,100 
  - 
  - 
  3,192,800 
  - 
  - 
  3,194,900 
Exchange of outstanding warrants for common stock and other warrant modifications
  - 
  - 
  - 
  - 
  - 
  - 
  814,989 
  800 
  3,022,300 
  - 
  - 
  3,023,100 
Fair value of common stock, Series B Preferred stock and warrants granted for services
  - 
  - 
  125,000 
  100 
  - 
  - 
  92,375 
  100 
  3,829,800 
  - 
  - 
  3,830,000 
Net loss for fiscal year ended March 31, 2016
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  (47,220,500)
  (47,220,500)
 
    
    
    
    
    
    
    
    
    
    
    
    
Balances at March 31, 2016
  500,000 
 $500 
  3,663,077 
 $3,700 
  2,318,012 
 $2,300 
  2,623,145 
 $2,600 
 $132,725,000 
 $(3,968,100)
 $(131,743,200)
 $(2,977,200)

    
    
    
    
    
    
    
    
    
    
    
    
Proceeds from sale of Series B Preferred Units for cash under Series B Preferred Unit Private Placement
  - 
  - 
  39,714 
  - 
  - 
  - 
  - 
  - 
  278,000 
  - 
  - 
  278,000 
Proceeds from sale of common stock and warrants for cash in May 2016 Public Offering
  - 
  - 
  - 
  - 
  - 
  - 
  2,570,040 
  2,600 
  9,534,500 
  - 
  - 
  9,537,100
Proceeds from sale of common stock and warrants for cash in private placement offerings
  - 
  - 
  - 
  - 
  - 
  - 
  124,250 
  100 
  362,300 
  - 
  - 
  362,400 
Series B Preferred converted to common stock automatically upon consummation of May 2016 Public Offering and voluntarily
  - 
  - 
  (2,542,551)
  (2,500)
  - 
  - 
  2,542,551 
  2,500 
  - 
  - 
  - 
  - 
Common stock issued for dividends upon conversion of Series B Preferred
  - 
  - 
  - 
  - 
  - 
  - 
  453,154 
  500 
  1,768,300 
  - 
  - 
  1,768,800 
Accrued dividends on Series B Preferred stock
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  (1,257,000)
  - 
  - 
  (1,257,000)
Share-based compensation expense
  - 
  - 
  - 
  - 
  - 
  - 
    
    
  851,300 
  - 
  - 
  851,300 
Exchange of outstanding warrants for common stock and other warrant modifications
  - 
  - 
  - 
  - 
  - 
  - 
  156,246 
  200 
  427,300 
  - 
  - 
  427,500 
Fair value of common stock and warrants granted for services
  - 
  - 
  - 
  - 
  - 
  - 
  505,000 
  500 
  1,879,900 
  - 
  - 
  1,880,400 
Net loss for fiscal year ended March 31, 2017
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  (10,255,500)
  (10,255,500)
 
    
    
    
    
    
    
    
    
    
    
    
    
Balances at March 31, 2017
  500,000 
 $500 
  1,160,240 
 $1,200 
  2,318,012 
 $2,300 
  8,974,386 
 $9,000 
 $146,569,600 
 $(3,968,100)
 $(141,998,700)
 $615,800 
See accompanying notes to consolidated financial statements.
-71-
VISTAGEN THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.  Description of Business
We are a clinical-stage biopharmaceutical company focused on developing new generation medicines for depression and other central nervous system (CNS) disorders.
AV-101 is our oral CNS product candidate in Phase 2 clinical development in the United States, initially as a new generation adjunctive treatment for Major Depressive Disorder (MDD) in patients with an inadequate response to standard antidepressants approved by the U.S. Food and Drug Administration (FDA).  AV-101’s mechanism of action (MOA) involves both NMDA (N-methyl-D-aspartate) and AMPA (alpha-amino-3-hydroxy-5-methyl-4-isoxazolepropionic acid) receptors in the brain responsible for fast excitatory synaptic activity throughout the CNS.  AV-101’s MOA is fundamentally differentiated from all FDA-approved antidepressants, as well as all atypical antipsychotics often used adjunctively to augment them. We believe AV-101 also has potential as a new treatment alternative for several additional indications involving the CNS, including epilepsy, Huntington’s disease, L-DOPA-induced dyskinesia associated with Parkinson’s disease, and neuropathic pain. 
Clinical studies conducted at the U.S. National Institute of Mental Health (NIMH), part of the U.S. National Institutes of Health (NIH), by Dr. Carlos Zarate, Jr., Chief of the NIMH’s Experimental Therapeutics & Pathophysiology Branch and its Section on Neurobiology and Treatment of Mood and Anxiety Disorders, have focused on the antidepressant effects of low dose ketamine hydrochloride injection (ketamine), an NMDA receptor antagonist, in MDD patients with inadequate responses to multiple standard antidepressants. These NIMH studies, as well as clinical research at Yale University and other academic institutions, have demonstrated robust antidepressant effects in these MDD patients within twenty-four hours of a single sub-anesthetic dose of ketamine administered by intravenous (IV) injection.
We believe orally-administered AV-101 may have potential to deliver ketamine-like antidepressant effects without ketamine’s psychological and other negative side effects. As published in the October 2015 issue of the peer-reviewed, Journal of Pharmacology and Experimental Therapeutics, in an article titled, The prodrug 4-chlorokynurenine causes ketamine-like antidepressant effects, but not side effects, by NMDA/glycineB-site inhibition, using well-established preclinical models of depression, AV-101 was shown to induce fast-acting, dose-dependent, persistent and statistically significant antidepressant-like responses following a single treatment. These responses were equivalent to those seen with a single sub-anesthetic control dose of ketamine. In addition, these studies confirmed that the fast-acting antidepressant effects of AV-101 were mediated through both inhibiting the GlyB site of the NMDA receptor and activating the AMPA receptor pathway in the brain.
Pursuant to our Cooperative Research and Development Agreement (CRADA) with the NIMH, the NIMH is funding, and Dr. Zarate, as Principal Investigator, and his team are conducting, a small Phase 2 clinical study of AV-101 monotherapy in subjects with treatment-resistant MDD (theNIMH AV-101 MDD Phase 2 Monotherapy Study). We are preparing to launch our 180-patient Phase 2 multi-center, multi-dose, double blind, placebo-controlled efficacy and safety study of AV-101 as a new generation adjunctive treatment of MDD in adult patients with an inadequate response to standard, FDA-approved antidepressants (theAV-101 MDD Phase 2 Adjunctive Treatment Study).  Dr. Maurizio Fava, Professor of Psychiatry at Harvard Medical School and Director, Division of Clinical Research, Massachusetts General Hospital (MGH) Research Institute, will be the Principal Investigator of our AV-101 MDD Phase 2 Adjunctive Treatment Study.  Dr. Fava was the co-Principal Investigator with Dr. A. John Rush of the STAR*D study, the largest clinical trial conducted in depression to date, whose findings were published in journals such as the New England Journal of Medicine (NEJM) and the Journal of the American Medical Association (JAMA).We currently anticipate completing our AV-101 MDD Phase 2 Adjunctive Treatment Study by the end of 2018 with top line results available in the first quarter of 2019.

VistaGen Therapeutics, Inc., a California corporation dba VistaStem Therapeutics (VistaStem), is our wholly owned subsidiary focused on applying human pluripotent stem cell (hPSC) technology, internally and with third-party collaborators, to discover, rescue, develop and commercialize (i) proprietary new chemical entities (NCEs), including small molecule NCEs with regenerative potential, for CNS and other diseases and (ii) cellular therapies involving stem cell-derived blood, cartilage, heart and liver cells.  Our internal drug rescue programs are designed to utilizeCardioSafe 3D, our customized cardiac bioassay system, to develop small molecule NCEs for our pipeline.  In December 2016, we exclusively sublicensed to BlueRock Therapeutics LP, a next generation regenerative medicine company established by Bayer AG and Versant Ventures, rights to certain proprietary technologies relating to the production of cardiac stem cells for the treatment of heart disease (theBlueRock Agreement). VistaStem may also pursue additional potential regenerative medicine (RM) applications, including using blood, cartilage, and/or liver cells derived from hPSCs for (A) cell-based therapy, (B) cell repair therapy, and/or (C) tissue engineering.  In a manner similar to our exclusive sublicense agreement with BlueRock Therapeutics, VistaStem may pursue these additional RM applications in collaboration with third-parties.
-72-
2.  Basis of Presentation and Going Concern
The accompanying Consolidated Financial Statements have been prepared assuming that 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 $142.0 million accumulated from inception through March 31, 2017. We expect losses and negative cash flows from operations to continue for the foreseeable future as we engage in further potential development of AV-101, initially as an adjunctive treatment for MDD, and subsequently as a new treatment alternative for other CNS conditions, execute our drug rescue programs, and pursue potential drug development and regenerative medicine opportunities.
Since our inception in May 1998 through March 31, 2017, we have financed our operations and technology acquisitions primarily through the issuance and sale of equity and debt securities, including convertible promissory notes and short-term promissory notes, for cash proceeds of approximately $44.7 million, as well as from an aggregate of approximately $17.6 million of government research grant awards (excluding the fair market value of the NIMH AV-101 MDD Phase 2 Monotherapy Study), strategic collaboration payments, intellectual property sublicensing and other revenues. Additionally, we have issued equity securities with an approximate value at issuance of $30.8 million in non-cash settlements of certain liabilities, including liabilities for professional services rendered to us or as compensation for such services.
During the first quarter of our fiscal year ended March 31, 2017, we sold to accredited investors Series B Preferred Units consisting of 39,714 unregistered shares of our Series B 10% Convertible Preferred Stock, par value $0.001 per share (Series B Preferred), and five year warrants exercisable at $7.00 per share (Series B Preferred Warrants) to purchase 39,714 shares of our common stock, from which we received cash proceeds of $278,000.
In May 2016, we consummated an underwritten public offering pursuant to which we received net cash proceeds of approximately $9.5 million, after deducting fees and expenses, and .issued an aggregate of 2,570,040 registered shares of our common stock at the public offering price of $4.24 per share and five-year warrants to purchase up to 2,705,883 registered shares of common stock, with an exercise price of $5.30 per share, at the public offering price of $0.01 per warrant, including shares and warrants issued pursuant to the exercise of the underwriters' over-allotment option (theMay 2016 Public Offering).
During the last two quarters of our fiscal year ended March 31, 2017, we sold to accredited investors units consisting of an aggregate of 124,250 unregistered shares of our common stock and three-year and five-year warrants to purchase an aggregate of 45,375 shares of our unregistered common stock. We received cash proceeds of $342,400 from this self-placed private placement.
At March 31, 2017, we had a cash and cash equivalents balance of $2.9 million. This amount was not sufficient to enable us to fund our planned operations, including expected cash expenditures of approximately $12 million for the twelve months following the issuance of these financial statements, including expenditures required to further prepare for, launch and satisfy a significant portion of the projected expenses associated with our proposed AV-101 MDD Phase 2 Adjunctive Treatment Study. However, during the first quarter of our fiscal year ending March 31, 2018 (Fiscal 2018), we sold to accredited investors in a self-placed private placement units consisting of an aggregate of 437,751 unregistered shares of our common stock and warrants to purchase an aggregate of 218,875 unregistered shares of our common stock pursuant to which we received $837,300 in cash proceeds, bringing total proceeds for the Spring 2017 Private Placement to approximately $1.0 million (theSpring 2017 Private Placement).
Our limited cash position at March 31, 2017 plus subsequent proceeds from the Spring 2017 Private Placement considered with our recurring and anticipated losses and negative cash flows from operations make it probable, in the absence of additional financing, that we will not be able to meet our obligations as they come due within one year from the date of this Report, raising substantial doubt that we can continue as a going concern. However, to alleviate that doubt, we plan, as we have in the past, to raise additional financing when needed, primarily through the sale of our equity securities in one or more public offerings or private placements. On January 23, 2017, we filed a Registration Statement on Form S-3 (Registration No. 333-215671) with the Securities and Exchange Commission (theCommission)covering the potential future sale of our equity securities. The Commission declared such Registration Statement effective on May 12, 2017 (theS-3 Registration Statement). As of the date of this Report, we have not yet sold any securities under the S-3 Registration Statement, nor do we have an obligation to do so. At March 31, 2017, we had a limited number of unallocated or unreserved shares of our common stock available for issuance in future offerings or for other purposes. To facilitate a substantial offering of our equity securities to sustain our operations and enable the launch and completion of our AV-101 MDD Phase 2 Adjunctive Treatment Study, our Board of Directors has approved an amendment to our Restated Articles of Incorporation to increase the number of shares of common stock available for issuance thereunder to 100 million shares. Before taking effect, this amendment must be approved by a majority of our stockholders. We plan to present this amendment to our stockholders at our 2017 annual meeting of stockholders to be held in the fall of 2017.
In addition to the sale of our equity securities, we may also seek to enter research and development collaborations that could generate revenue or provide funding for development of AV-101 and additional product candidates. We may also seek additional government grant awards or agreements similar to our current CRADA with the NIMH, which provides for the NIMH to fully fund the NIMH AV-101 MDD Phase 2 Monotherapy Study. Such strategic collaborations may provide non-dilutive resources to advance our strategic initiatives while reducing a portion of our future cash outlays and working capital requirements. In a manner similar to the BlueRock Agreement, we may also pursue similar arrangements with third-parties covering other of our intellectual property. Although we may seek additional collaborations that could generate revenue and/or non-dilutive funding for development of AV-101 and other product candidates, as well as new government grant awards and/or agreements similar to our CRADA with NIMH, no assurance can be provided that any such collaborations, awards or agreements will occur in the future.  
-73-
Our future working capital requirements will depend on many factors, including, without limitation, the scope and nature of opportunities related to our success and the success of certain other companies in clinical trials, including our development and commercialization of AV-101 as an adjunctive treatment for MDD and other potential CNS conditions, and various applications of our stem cell technology platform, the availability of, and our ability to obtain, government grant awards and agreements, and our ability to enter into collaborations on terms acceptable to us. To further advance the clinical development of AV-101 and 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 our stockholders will authorize the issuance of additional shares of our common stock to facilitate further financing opportunities and for other purposes, or that future financing will be available in sufficient amounts, in a timely manner, or on terms acceptable to us, if at all. If we are unable to obtain substantial additional financing on a timely basis when needed later in 2017 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 Consolidated Financial Statements do not include any adjustments that might result from the negative outcome of this uncertainty.
 
3.  Summary of Significant Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“(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, but are not limited to, those relating to stock-based compensation, revenue recognition, and the assumptions used to value warrants, warrant modifications and warrant liabilities.

Principles of Consolidation

The accompanying consolidated financial statements include the Company’s accounts, VistaStem’s accounts and the accounts of VistaGen California’sVistaStem’s two wholly-owned inactive subsidiaries, Artemis Neurosciences and VistaStem Canada.
 
Cash and Cash Equivalents

Cash and cash equivalents are considered to be highly liquid investments with maturities of three months or less at the date of purchase.

Property and Equipment

Property and equipment is stated at cost. Repairs and maintenance costs are expensed in the period incurred. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets. The estimated useful lives of property and equipment range from five to seven years.

Impairment or Disposal of Long-Lived Assets

The Company evaluates itsOur long-lived assets primarilyconsist of property and equipment,equipment. Long-lived assets to be held and used are tested for impairmentrecoverability whenever events or changes in business circumstances indicate that theirthe carrying valueamount of the assets may not be recoverable fromfully recoverable. Factors that we consider in deciding when to perform an impairment review include significant underperformance of the business in relation to expectations, significant negative industry or economic trends, and significant changes or planned changes in our use of the assets. An impairment loss would be recognized when estimated undiscounted future cash flows expected to result from theirthe use or eventual disposition. Ifof an asset are less than its carrying amount. The impairment loss would be based on the estimatesexcess of future undiscounted net cash flows are insufficient to recover the carrying value of the assets, the Company records an impairment loss in the amount by which the carryingimpaired asset over its fair value, of the assets exceeds their fair value. If the assets are determined to be recoverable, but the useful lives are shorter than originally estimated, the Company depreciates or amortizes the net book value of the assets over the newly determined remaining useful lives. The Company hasbased on discounted cash flows. To date, we have not recorded any impairment charges to date.losses on long-lived assets.

Revenue Recognition

Although the Company does not currentlyWe have any such arrangements, it has historically generated revenue principally from collaborative research and development arrangements, licensing and technology transfer agreements, including strategic licenses or sublicenses, and government grants. Revenue arrangements with multiple components are divided into separate units of accounting if certain criteria are met, including whether the delivered component has stand-alone value to the customer. Consideration received is allocated among the separate units of accounting based on their respective selling prices.  The selling price for each unit is based on vendor-specific objective evidence, or VSOE, if available, third party evidence if VSOE is not available, or estimated selling price if neither VSOE nor third party evidence is available.  The applicable revenue recognition criteria are then applied to each of the units.

The Company recognizes
-74-
We recognize revenue when the four basic criteria of revenue recognition are met: (i) a contractual agreement exists; (ii) the transfer of technology has been completed or services have been rendered; (iii) the fee is fixed or determinable; and (iv) collectability is reasonably assured. For each source of revenue, the Company complieswe comply with the above revenue recognition criteria in the following manner:
 
●
F-12
●Collaborative arrangements typically consist of non-refundable and/or exclusive up front technology access fees, cost reimbursements for specific research and development spending, and variousfuture product development milestone and future product royalty payments.  If the delivered technology does not have stand-alone value, the amount of revenue allocable to the delivered technology is deferred.  Non-refundable upfront fees with stand-alone value that are not dependent on future performance under these agreements are recognized as revenue when received, and are deferred if the Company haswe have continuing performance obligations and hashave no objective and reliable evidence of the fair value of those obligations.  The Company recognizesWe recognize non-refundable upfront technology access fees under agreements in which it haswe have a continuing performance obligation ratably, on a straight-line basis, over the period induring which the Company iswe are obligated to provide services.  Cost reimbursements for research and development spending are recognized when the related costs are incurred and when collectability is reasonably assured.  Payments received related to substantive, performance-based “at-risk” milestones are recognized as revenue upon achievement of the milestone event specified in the underlying contracts, which represent the culmination of the earnings process.  Amounts received in advance are recorded as deferred revenue until the technology is transferred, costs are incurred, or a milestone is reached.

●
Technology license agreements typically consist of non-refundable upfront license fees, annual minimum access fees, development and/or regulatory milestone payments and/or royalty payments. Non-refundable upfront license fees and annual minimum payments received with separable stand-alone values are recognized when the technology is transferred or accessed, provided that the technology transferred or accessed is not dependent on the outcome of the continuing research and development efforts. Otherwise, revenue is recognized over the period of the Company’sour continuing involvement, and, in the case of development and/or regulatory milestone payments, when the applicable event triggering such a payment has occurred.

●
Government grants, which support the Company’sour research efforts on specific projects, generally provide for reimbursement of approved costs as defined in the terms of grant awards. Grant revenue is recognized when associated project costs are incurred.

Research and Development Expenses

Research and development expenses includeare composed of both internal and external costs.  Internal costs include salaries and employment relatedemployment-related expenses of the Company’s internal scientific personnel and direct project costs.  External research and development expenses consist primarily of costs associated with clinical and non-clinical development of AV-101, our prodrug candidate in clinical development for MDD, sponsored stem cell research and development costs, costs associated with non-clinical and clinical drug rescue and development activities, including development of AV-101, the Company’s drug development candidate which has successfully completed Phase 1 development, and costs related to protection of the Company’s intellectual property, including, but not limited to, application and prosecution of patents related to the Company’sAV-101 and our stem cell technology platform, Human Clinical Trials in a Test Tube, and AV-101.platform. All such research and development costs are charged to expense as incurred.

Stock-Based Compensation

The Company recognizesWe recognize compensation cost for all stock-based awards to employees in its financial statements based on theirthe grant date fair value. Stock-basedvalue of the award.  We record non-cash, stock-based compensation expense is recognized over the period during which the employee is required to perform serviceservices in exchange for the award, which generally represents the scheduled vesting period of options and warrantsperiod.  We have granted no restricted stock awards to purchase shares of the Company’s common stock. The Company has noemployees nor do we have any awards with market or performance conditions.  For stock-based awardsoption grants to non-employees, the Company re-measureswe re-measure the fair value of suchthe awards as they vest and the resulting value is recognized as an expense during the period over which applicablethe services are performed byperformed. Compensatory grants of stock to non-employees are generally treated as fully-earned at the recipient.time of the grant and the non-cash expense recognized is based on the quoted market price of the stock on the date of grant.

Income Taxes

The Company accountsWe account for income taxes using the asset and liability approach for financial reporting purposes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are established, when necessary, to reduce the deferred tax assets to an amount expected to be realized.
 
F-13
Concentrations of Credit RiskRecent Accounting Pronouncements

Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of cash and cash equivalents. The Company’s investment policies limit any such investments to short-term, low-risk investments. The Company deposits cash and cash equivalents with quality financial institutions and is insuredSee Note 3 to the maximum of federal limitations. BalancesConsolidated Financial Statements included in these accounts may exceed federally insured limits at times.Item 8 in this Annual Report on Form 10-K for information on recent accounting pronouncements.

Warrant Liability

The Company has issued certain warrants to Platinum and, subject to Platinum’s exercise of its rights to exchange shares of the Company’s Series A Preferred that it holds, the Company is also obligated to issue an additional warrant to Platinum, that contain an exercise price adjustment feature in the event the Company subsequently issues additional equity instruments at a price lower than the exercise price of the warrants. The Company accounts for these warrants as non-cash liabilities and estimates their fair value as described in Note 4, Fair Value Measurements; Note 9, Convertible Promissory Notes and Other Notes Payable, and Note 10, Capital Stock. The Company computes the fair value of the warrant liability at each reporting period and the change in the fair value is recorded as non-cash expense or non-cash income. The key component in determining the fair value of the warrant and the related liability is the Company‘s stock price, which is subject to significant fluctuation and is not under the Company’s control. The resulting change in the fair value of the warrant liability on the Company’s net income or loss is therefore also subject to significant fluctuation and will continue to be so until all of the warrants are issued and exercised, amended or expire. Assuming all other fair value inputs remain generally constant, the Company will record an increase in the warrant liability and non-cash expense when its stock price increases and a decrease in the warrant liability and non-cash income when its stock price decreases.

Comprehensive Loss

The Company has no components of other comprehensive loss other than net loss, and accordingly the Company’s comprehensive loss is equivalent to its net loss for the periods presented.

Loss per Common Share

Basic 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 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, the Company adjusts the numerator for the change in the fair value of the warrant liability attributable to outstanding warrants, only if dilutive, and increases the denominator to include the number of potentially dilutive common shares assumed to be outstanding during the period using the treasury stock method. As a result of the Company’s net loss for both periods presented, potentially dilutive securities were excluded from the computation, as their effect would be antidilutive.  Additionally, no potentially dilutive securities were assumed to be converted into common shares and outstanding during either period for purposes of calculating diluted earnings per share.
 
 
-57-
F-14
 
Basic and diluted net loss attributable to common stockholders per share was computed as follows:

  Years Ended March 31, 
  2014  2013 
 Numerator:      
 Net loss attributable to common stockholders for basic earnings per share $(2,967,700) $(23,079,900)
 less: change in fair value of warrant liability attributable to Exchange,        
 Investment and July 2013 Warrants issued to Platinum  (1,219,500)  - 
         
 Net loss for diluted earnings per share attributable to common stockholders $(4,187,200) $(23,079,900)
         
 Denominator:        
 Weighted average basic common shares outstanding  21,973,149   18,108,444 
    Assumed conversion of dilutive securities:        
 Warrants to purchase common stock  -   - 
 Potentially dilutive common shares assumed converted  -   - 
         
 Denominator for diluted earnings per share - adjusted        
 weighted average shares  21,973,149   18,108,444 
         
         
 Basic net loss attributable to common stockholders per common share $(0.14) $(1.27)
         
 Diluted net loss attributable to common stockholders per common share $(0.19) $(1.27)
Results of Operations
 
Financial Operations Overview and Results of Operations
Net Loss
Potentially dilutive securities excludedWe have not yet achieved recurring revenue-generating status from any of our product candidates or technologies. Since inception, we have devoted substantially all of our time and efforts to developing our lead CNS product candidate, AV-101, from early non-clinical studies to our ongoing Phase 2 clinical development program in determining dilutedMDD, as well as stem cell technology research and development, bioassay development, small molecule drug development, and creating, protecting and patenting intellectual property related to our product candidates and technologies, with the corollary initiatives of recruiting and retaining personnel and raising working capital. As of March 31, 2017, we had an accumulated deficit of approximately $142.0 million. Our net loss per common share for the fiscal years ended March 31, 20142017 and 2013 are2016 was approximately $10.3 million and $47.2 million, respectively, the latter amount including a non-recurring, non-cash loss of approximately $26.7 million attributable to the extinguishment and conversion of approximately $15.9 million carrying value of prior indebtedness into our equity securities between May and September 2015 at a Conversion Price (the stated value of the equity received) of $7.00 per share. We expect losses to continue for the foreseeable future, primarily related to our further clinical development of AV-101 for the adjunctive treatment of MDD, as follows:well as a range of other CNS indications.
  Fiscal Years Ended March 31, 
  2014  2013 
       
Series A preferred stock issued and outstanding (1)
  15,000,000   15,000,000 
         
Warrant shares issuable to Platinum upon exercise of common stock warrants by Platinum upon exchange of Series A preferred stock under the terms of the October 11, 2012 Note Purchase and Exchange Agreement  7,500,000   7,500,000 
         
Outstanding options under the 2008 and 1999 Stock Incentive Plans  4,249,271   4,912,604 
         
Outstanding warrants to purchase common stock  17,095,633   14,660,335 
         
10% convertible Exchange Note and Investment Notes issued to Platinum in October 2012, February 2013 and March 2013, including accrued interest through March 31, 2014 (2)
  7,495,957   6,775,682 
         
10% convertible note issued to Platinum on July 26, 2013, including accrued interest through March 31, 2014  535,506   - 
         
10% convertible notes issued as a component of Unit Private Placements, including accrued interest through March 31, 2014  2,186,811   - 
         
Total  54,063,178   48,848,621 
____________
(1)  Assumes exchange under the terms of the October 11, 2012  Note Exchange and Purchase Agreement with Platinum
(2)  Assumes conversion under the terms of the October 11, 2012  Note Exchange and Purchase Agreement with Platinum and the terms of the individual notes
Summary of Our Fiscal Year Ended March 31, 2017
During Fiscal 2017, we have continued to (i) advance non-clinical and clinical development of AV-101 as a potential new generation antidepressant and as a new therapeutic alternative for several other CNS indications with significant unmet medical need, (ii) expand the regulatory foundation to support broad Phase 2 clinical development of AV-101 in the U.S. and, (iii) on a limited basis, advance (a) the predictive toxicology capabilities ofCardioSafe3D for small molecule NCE drug rescue and development applications, (b) our participation in the FDA’s Comprehensive in-vitro Proarrhythmia Assay (CiPA) initiative designed to change the landscape of preclinical drug development by providing a more complete and accurate in vitro assessment of potential drug effects on cardiac risk, and (c) collaborative regenerative medicine opportunities related to our cardiac stem cell technology platform.
Pursuant to our Cooperative Research and Development Agreement (CRADA) with the NIH, the NIH is funding, and Dr. Carlos Zarate Jr. of the NIMH is conducting the NIMH AV-101 MDD Phase 2 Monotherapy Study. We currently anticipate that the NIMH will complete the NIMH AV-101 MDD Phase 2 Monotherapy Study in 2017, with top line results during the first half of 2018. In addition, we continue to prepare for our AV-101 Phase 2 Adjunctive Treatment Study.We currently anticipate completing our AV-101 MDD Phase 2 Adjunctive Treatment Study by the end of 2018 with top line results available in the first quarter of 2019.
In May 2016, we consummated an underwritten public offering of our securities pursuant to which we received net proceeds of approximately $9.54 million and issued to institutional investors an aggregate of 2,570,040 registered shares of our common stock and five-year warrants exercisable at $5.30 per share to purchase an aggregate of 2,705,883 shares of our common stock (May 2016 Public Offering). In connection with the May 2016 Public Offering, our common stock was approved for listing on The NASDAQ Capital Market, where it has traded under the symbol “VTGN” since May 11, 2016. Please see the section titled “Liquidity and Capital Resources” below, for a discussion of our expected future capital requirements.
In addition to bolstering our Clinical and Regulatory Advisory Board with the appointment of Dr. Maurizio Fava (Harvard University) as Chairman and the addition of members Dr. Sanjay Matthew (Baylor University) and Dr. Thomas Laughren (former director, FDA’s Division of Psychiatry), all pre-eminent opinion leaders in the field of depression, and the addition of veteran healthcare executive Jerry Gin, Ph.D., MBA to our Board of Directors, we enhanced our management team with the addition of Mark A. Smith, MD, Ph.D., as our Chief Medical Officer in June 2016. Dr. Smith has over 20 years of pharmaceutical industry and CNS drug development experience.  He has been a successful project leader in both drug discovery and development on projects resulting in approximately 20 investigational new drugs (INDs).  Dr. Smith has directed clinical trials examining depression, bipolar disorder, anxiety, schizophrenia, Alzheimer’s disease, ADHD and agitation in Phase 1 through Phase 2b. In addition, Dr. Smith has vast knowledge and expertise in translational neuroscience, clinical trial design and regulatory interactions. Further, in September 2016, we appointed Mark A. McPartland as our Vice President of Corporate Development. Mr. McPartland has over 20 years of experience in corporate development, capital markets, corporate communications and management consulting for companies at varying stage of their corporate evolution, including early- and mid-stage biopharmaceutical companies. Mr. McPartland is primarily concentrating his efforts in expanding awareness of VistaGen across a range of investors, researchers, patients, clinicians and potential partners.
In December 2016, we entered into the BlueRock Agreement with BlueRock Therapeutics, LP, a next generation regenerative medicine company recently established by Bayer AG and Versant Ventures (BlueRock), pursuant to which BlueRock received exclusive rights to utilize certain technologies exclusively licensed by us from University Health Network (UHN) for the production of cardiac stem cells for the treatment of heart disease. We retained rights to technology licensed from UHN related to small molecule, protein and antibody drug discovery, drug rescue and drug development, including small molecules with cardiac regenerative potential, as well as small molecule, protein and antibody testing involving cardiac cells. In January 2017, we received an upfront cash payment of $1.25 million under the BlueRock Agreement and we may potentially receive additional cash milestones and royalty payments in the future upon BlueRock’s achievement of certain development objectives and commercial sales.
As a matter of course, we attempt to minimize to the greatest extent possible cash commitments and expenditures for both internal and external research and development and general and administrative services. To further advance the non-clinical and clinical development of AV-101 and our stem cell technology platform, as well as support our operating activities, we will continue to carefully manage our routine operating costs, including our internal employee related expenses, as well as external costs relating to regulatory consulting, contract research and development, investor relations and corporate development, legal, acquisition and protection of intellectual property, accounting, public company compliance and other professional services and internal costs. 
Comparison of Fiscal Years Ended March 31, 2017 and 2016
The following table summarizes the results of our operations for the fiscal years ended March 31, 2017 and 2016 (amounts in thousands).
 
 
 Fiscal Years Ended March 31,
 
 
 
 2017
 
 
 2016
 
 
 
 
 
 
 
 
Sublicense revenue
 $1,250 
 $- 
Operating expenses:
    
    
Research and development
  5,204 
  3,932 
General and administrative
  6,295 
  13,919 
Total operating expenses
  11,499 
  17,851 
 
    
    
Loss from operations
  (10,249)
  (17,851)
 
    
    
Interest expense (net)
  (5)
  (771)
Change in warrant liabilities
  - 
  (1,895)
Loss on extinguishment of debt
  - 
  (26,700)
Other expense
  - 
  (2)
 
    
    
Loss before income taxes
  (10,254)
  (47,219)
Income taxes
  (2)
  (2)
 
    
    
Net loss
  (10,256)
  (47,221)
Accrued dividend on Series B Preferred Stock
  (1,257)
  (2,140)
Deemed dividend on Series B Preferred Stock
  (111)
  (2,058)
Net loss attributable to common stockholders 
 $(11,624)
 $(51,419)
Revenue
We recognized $1.25 million in sublicense revenue pursuant to the BlueRock Agreement in the quarter ended December 31, 2016. While we may potentially receive additional payments and royalties under the BlueRock Agreement in the future, in the event certain performance-based milestones and commercial sales are achieved, the agreement might not provide recurring revenue to us in the near term. We reported no other revenue for the fiscal years ended March 31, 2017 or 2016 and we presently have no revenue generating arrangements with respect to AV-101 or other potential product candidates. However, as indicated previously, our CRADA with the NIH provides for the NIH to fully fund and conduct the NIMH AV-101 MDD Phase 2 Monotherapy Study.
Research and Development Expense
Research and development expense totaled $5,203,700 for the fiscal year ended March 31, 2017 (Fiscal 2017), an increase of approximately 33% compared with the $3,931,600 incurred for the fiscal year ended March 31, 2016 (Fiscal 2016), demonstrating our increased focus on the continuing non-clinical and clinical development of AV-101 and our preparations to launch our AV-101 MDD Phase 2 Adjunctive Treatment Study, which we currently anticipate to begin in the first quarter of 2018. Of the amounts reported, non-cash expenses, related primarily to grants or modifications of our equity securities, totaled approximately $534,000 in Fiscal 2017 and $1,749,000 in Fiscal 2016. The following table indicates the primary components of research and development expense for each of the periods (amounts in thousands):
 
 
Fiscal Years Ended March 31,
 
 
 
2017
 
 
2016
 
 
 
 
 
 
 
 
Salaries and benefits
 $1,331 
 $818 
Stock-based compensation
  375 
  1,093 
Consulting and other professional services
  (75)
  112 
Technology licenses and royalties, including UHN
  746 
  1,010 
Project-related research and supplies:
    
    
AV-101
  2,292 
  406 
Stem cell and all other
  185 
  100 
 
  2,477 
  506 
Rent
  310 
  219 
Depreciation
  37 
  37 
Warrant modification expense
  - 
  135 
All other
  3 
  2 
 
    
    
Total Research and Development Expense
 $5,204 
 $3,932 
The increase in salaries and benefits reflects the impact of the hiring of our Chief Medical Officer (CMO) in June 2016, as well as salary increases and bonus payments granted to our President and Chief Scientific Officer (CSO) and to the four non-officer members of our scientific staff.
The decrease in stock based compensation expense is primarily attributable to the $852,200 fair value, determined using the Black-Scholes Option Pricing Model and the assumptions indicated in Note 13,Stock Option Plans and 401(k) Plan, to the accompanying Consolidated Financial Statements in Part 8 of this Report, of the September 2015 grant of immediately vested and expensed warrants to purchase 150,000 shares of our common stock granted to our CSO. Stock compensation expense in Fiscal 2017 reflects the ratable amortization of option grants made to our CSO and CMO, scientific staff and consultants, in November 2016, June 2016 (CSO and CMO only) and September 2015. Our stock options are generally amortized over a two-year to four-year vesting period. A substantial number of the option grants made in or prior to our fiscal year ended March 31, 2014 became fully-vested and were fully-expensed by March 31, 2017.
Consulting services reflects fees paid or accrued for scientific, non-clinical and clinical development and regulatory advisory and consulting services rendered to us by third-parties, primarily by members of our scientific and CNS clinical and regulatory advisory boards. The reduction in expense for Fiscal 2017 primarily reflects the rationalization of our stem cell-related scientific advisory board and related accruals, including as a result of the BlueRock Agreement.
Technology license expense reflects both recurring annual fees as well as legal counsel and other costs related to patent prosecution and protection pursuant to certain of our stem cell technology license agreements or for other potential commercial purposes. We recognize these costs as they are invoiced to us by the licensors and they do not occur ratably throughout the year or between years. Additionally, in both periods, this expense includes legal counsel and other costs we have incurred to advance in the U.S. and numerous foreign countries several pending patent applications with respect to AV-101 and our stem cell technology platform. Technology license-related legal expense for Fiscal 2017 also includes $55,000 representing the fair value of a warrant granted to intellectual property counsel as partial compensation for services. Fiscal 2017 expense further includes a net of $158,000 related to the sublicense consideration paid to University Health Network (UHN) related to the BlueRock Agreement plus additional fees and expenses related to two new cardiac stem cell technology related licenses that we acquired from UHN, net of amounts previously accrued in connection with our prior sponsored research collaboration with UHN. Technology license expense for Fiscal 2016 included (i) approximately $153,000 of fees and expenses incurred for additional stem cell technology related licenses acquired in connection with our agreement with UHN; (ii) $120,000 of noncash expense resulting from the grants to two intellectual property legal service providers in July 2015 of an aggregate of 10,000 shares of our Series B Preferred, and (iii) $254,000 of noncash expense resulting from the March 2016 grant of immediately-vested warrants to purchase an aggregate of 50,000 shares of our common stock to two intellectual property legal service providers.
AV-101 expenses for Fiscal 2017 include continuing costs incurred to develop more efficient and cost-effective proprietary production methods for AV-101 and for certain pre-production and preclinical trial analyses and procedures to facilitate Phase 2 clinical development of AV-101 in the U.S., including our AV-101 MDD Phase 2 Adjunctive Treatment Study. We expect these expenses to increase significantly during fiscal 2018 as we continue preparations for, initiate and conduct our AV-101 MDD Phase 2 Adjunctive Treatment Study. Additionally, AV-101 expense in both periods reflects the costs associated with monitoring for and responding to potential feedback related to our AV-101 Phase 1 clinical safety program and addressing other matters required under the terms of our prior NIH grant awards, primarily through our CRO for our Phase 1 safety studies, Cato Research Ltd. The increase in stem cell and other project related expenses in Fiscal 2017 primarily reflects in-house costs associated with our participation in the FDA’s CiPA project.
The increase in rent expense in Fiscal 2017 reflects both the impact of the scheduled rent increase for our South San Francisco headquarters and laboratory facilities effective August 2016 as well as the impact of accounting for the November 2016 lease amendment extending the lease of those facilities by five years from July 31, 2017 to July 31, 2022.
Warrant modification expense in Fiscal 2016 reflects the increase in fair value resulting from the November 2015 modification of outstanding warrants to purchase an aggregate of 315,000 shares of our common stock held by our CSO and a key scientific advisor to reduce the exercise prices thereof from a range of $9.25 to $12.80 per share to $7.00 per share. No similar modifications occurred in Fiscal 2017.
General and Administrative Expense
General and administrative expense decreased to $6,294,800 in Fiscal 2017 from $13,918,600 in Fiscal 2016 primarily as a result of the decrease in non-cash stock compensation expense attributable to option and warrant grants to employees, officers and independent Board members in Fiscal 2016, partially offset by an increase in non-cash expense related to grants of equity securities in payment of certain professional services during Fiscal 2017. Of the amounts reported, non-cash expenses, related primarily to grants or modifications of our equity securities, totaled approximately $3,100,000 in Fiscal 2017 and $11,939,000 in Fiscal 2016. The following table indicates the primary components of general and administrative expenses for each of the periods (amounts in thousands):
 
 
Fiscal Years Ended March 31,
 
 
 
2017
 
 
2016
 
 
 
 
 
 
 
 
Salaries and benefits
 $1,206 
 $694 
Stock-based compensation
  476 
  2,949 
Board fees
  140 
  98 
Legal, accounting and other professional fees
  2,093 
  3,405 
Investor relations
  1,219 
  172 
Insurance
  165 
  140 
Travel and entertainment
  179 
  96 
Rent and utilities
  220 
  157 
Warrant modification expense
  427 
  6,083 
All other expenses
  170 
  125 
 
    
    
Total General and Administrative Expense
 $6,295 
 $13,919 
The increase in salaries and benefits reflects the impact of salary increases and bonus payments granted to our Chief Executive Officer (CEO), Chief Financial Officer (CFO), and a member of our administrative staff and the change in that employee’s status from part-time to full-time, as well as the hiring of our VP, Corporate Development in September 2016.
The decrease in stock based compensation expense is primarily attributable to the $2,841,000 fair value, determined using the Black-Scholes Option Pricing Model and the assumptions indicated in Note 13,Stock Option Plans and 401(k) Plan, to the accompanying Consolidated Financial Statements in Item 8 of this Report, of the September 2015 grant of immediately vested and expensed warrants to purchase 500,000 shares of our common stock granted to our CEO, CFO, independent members of our Board of Directors and certain consultants. Stock compensation expense in Fiscal 2017 reflects the ratable amortization of option grants made to our CEO, CFO, independent members of our Board of Directors and administrative staff and consultants, in November 2016, June 2016 (CEO, CFO and independent Board members only) and September 2015, as well as to our VP-Corporate Development upon the commencement of his employment in September 2016. Our stock options are generally amortized over a two-year to four-year vesting period. A substantial number of the option grants made in or prior to our fiscal year ended March 31, 2014 became fully-vested and were fully-expensed by March 31, 2017.
Board fees includes fees recognized for the services of independent members of our Board of Directors. We added an additional independent director, Dr. Jerry Gin, to our Board in March 2016.
Legal, accounting and other professional fees in Fiscal 2017 and Fiscal 2016 includes $337,500 and $1,012,500, respectively, of non-cash expense recognized pursuant to the June 2015 grant of an aggregate of 90,000 shares of our Series B Preferred having an aggregate fair value at the time of issuance of $1,350,000 as compensation for financial advisory and corporate development service contracts with two independent service providers for services performed between July 2015 and June 2016. During Fiscal 2017, in addition to the expense noted above attributable to the June 2015 Series B Preferred grant, we granted an aggregate of 25,000 unregistered shares of our common stock having a fair value at the date of issuance of $108,500 to a legal services provider as partial compensation for services and an aggregate of 320,000 unregistered shares of our common stock having a fair value at the date of issuance of $1,058,800 as partial compensation for financial advisory, investment banking and business development services. During Fiscal 2016, in addition to the expense noted above attributable to the June 2015 Series B Preferred grant, we also granted (i) an aggregate of 50,000 shares of our common stock having an aggregate fair value of $500,000 pursuant to two corporate development contracts initiated during the first quarter of Fiscal 2016; (ii) 25,000 shares of our Series B Preferred having a fair value of $250,000 to legal counsel as compensation for services in connection with our debt restructuring and other corporate finance matters, and (iii) 15,750 shares of our unregistered common stock and a five-year warrant to purchase 7,500 unregistered shares of our common stock having an aggregate fair value of $138,000 in connection with investment banking services. In both years, professional services expense also includes cash payments for routine legal fees and expenses and the expense related to the annual audit of the prior year financial statements, preparation of the prior year income tax returns, and quarterly reviews of current year financial statements.
Investor relations expense includes the fees of our external service providers for a significantly expanded broad spectrum of institutional investor relations and market awareness and support functions and, particularly during Fiscal 2017, initiatives that included numerous meetings in multiple U.S. markets and other communication activities focused on expanding market awareness of the Company, including among investment professionals and investment advisors, and individual and institutional investors. During Fiscal 2017, in addition to cash fees and expenses we incurred, we granted an aggregate of 160,000 unregistered shares of our common stock to six investor relations and market awareness service providers as full or partial compensation for their services and recognized non-cash expense of $472,800, representing the fair value of the stock at the time of issuance. We also granted three-year, immediately exercisable warrants to purchase an aggregate of 75,000 shares of our unregistered common stock at exercise prices ranging from $4.50 per share to $6.00 per share to three investor relations service providers and recognized non-cash expense of $172,300 representing the fair value of the warrants at the time of issuance.
In both periods, travel expense reflects costs associated with presentations to and meetings in numerous U.S. markets with existing and potential investors and investment professionals and advisors, media and securities analysts, as well as various investor relations, market awareness and corporate development initiatives, in Fiscal 2017 by our CEO, CMO and VP, Corporate Development.
As described more completely in Note 9,Capital Stock, to the accompanying Consolidated Financial Statements for the years ended March 31, 2017 and 2016 in Item 8 of this Report, between January 2016 and December 2016, we entered into various warrant exchange agreements with certain warrant holders pursuant to which those holders exchanged outstanding warrants to purchase shares of our common stock for a lesser number of unregistered shares of our common stock. In both periods, we accounted for these transactions as warrant modifications. Between April 2016 and December 2016, certain warrant holders agreed to exchange an aggregate of 224,513 shares of our common stock for an aggregate of 156,246 shares of our unregistered common stock, resulting in our recognition of an aggregate of $350,700 in noncash expense attributable to the increase in fair value related to Fiscal 2017 warrant exchanges. Further, in December 2016, we modified an outstanding warrant to reduce the exercise price from $8.00 per share to $3.51 per share and increase the number of shares exercisable under the warrant from 25,000 shares to 50,000 shares, recognizing $76,900 in expense as the incremental fair value attributable to the modification. Noncash warrant modification expense in Fiscal 2016 includes (i) $122,000 representing the increase in the fair value attributable to the June 2015 modification of outstanding warrants to purchase an aggregate of 54,576 shares of our common stock to reduce the exercise prices thereof, generally from $30.00 per share to $10.00 per share; (ii) $358,000 representing the increase in the fair value attributable to the November 2015 modification of outstanding warrants to purchase an aggregate of 808,553 shares of our common stock previously granted to our CEO, CFO, and independent members of our Board of Directors to reduce the exercise prices thereof from a range of $9.25 to $12.80 per share to $7.00 per share; and (iii) $5,603,200 representing the aggregate increase in the fair value of certain warrant exchange transactions conducted during the fourth quarter of Fiscal 2016. In January 2016, we entered into an Exchange Agreement with PLTG pursuant to which PLTG exchanged warrants, including all outstanding PLTG Warrants and the shares issuable pursuant to the Series A Preferred Exchange Warrant, to purchase an aggregate of 2,824,016 shares of our common stock for 2,118,012 unregistered shares of our Series C Convertible Preferred Stock (Series C Preferred) at the ratio of 0.75 share of Series C Preferred for each warrant share cancelled. We recognized related noncash warrant modification expense of $3,195,000. In February and March 2016, we entered into similar agreements with certain other warrant holders pursuant to which such warrant holders exchanged outstanding warrants to purchase an aggregate of 1,086,611 shares of our common stock for an aggregate of 814,989 shares of our unregistered common stock. We recognized an additional $2,362,000 in non-cash warrant modification expense. In February 2016, we also extended the term of certain outstanding warrants to purchase an aggregate of 91,230 shares of our common stock and recognized $46,000 of non-cash expense as a result of such modifications.
Interest and Other Expenses, Net
Interest expense, net, totaled $4,600 for Fiscal 2017, a significant decrease compared to the $70,800 reported for Fiscal 2016, resulting from the extinguishment of substantially all of our promissory notes, as well as other indebtedness, having an aggregate carrying value at the time of extinguishment of approximately $15,900,000, between May 2015 and August 2015 by conversion into our shares of our Series B Preferred at a conversion price of $7.00 per share or cash repayment and the related elimination of note interest and discount amortization. The following table summarizes the primary components of interest expense for each of the periods (amounts in thousands):
 
 
Fiscal Years Ended March 31,
 
 
 
2017
 
 
2016
 
 
 
 
 
 
 
 
Interest expense on promissory notes
 $1 
 $209 
Amortization of discount on promissory notes
  - 
  565 
Other interest expense, including on capital leases and premium financing
  4 
  3 
     Total interest expense
  5 
  777 
Effect of foreign currency fluctuations on notes payable
  - 
  (6)
Interest income
  - 
  - 
 
    
    
Interest expense, net
 $5 
 $771 
Interest expense on promissory notes in Fiscal 2017 represents only the interest accrued on our promissory note to Progressive Medical Research prior to its repayment in June 2016. The substantial overall decrease in interest expense on promissory notes and the related amortization of discounts on such notes between the periods reflects the cessation of interest accrual and discount amortization upon the extinguishment and conversion of all outstanding Senior Secured Convertible Notes, certain 10% convertible notes (2014 Unit Notes) and other outstanding promissory notes into shares of our Series B Preferred between May 2015 and August 2015.
Under the terms of our October 2012 Note Exchange and Purchase Agreement with PLTG, we issued certain Senior Secured Convertible Promissory Notes and a related Exchange Warrant and Investment Warrants between October 2012 and July 2013. Upon PLTG’s exchange of the shares of our Series A Preferred Stock held by PLTG into shares of our common stock, we were also required to issue a Series A Exchange Warrant to PLTG. We determined that the various warrants included certain exercise price resets and other adjustment features requiring us to treat the warrants as liabilities. Accordingly, we recorded a noncash warrant liability at its estimated fair value as of the date of warrant issuance or contract execution. As described in Note 9,Capital Stock,to the Consolidated Financial Statements included in Item 8 of this Annual Report, in May 2015, we entered into an agreement with PLTG pursuant to which we amended the various warrants and fixed the exercise price thereof and eliminated the anti-dilution reset features that had previously required the warrants to be treated as liabilities and carried at fair value. Accordingly, during the first quarter of Fiscal 2016, we adjusted these warrants to their fair value, reflecting an increase in the fair value in the amount of $1,894,700 since March 31, 2015, resulting primarily from the increase in the market price of our common stock in relation to the exercise price of the warrants, and then subsequently eliminated the entire warrant liability with respect to these warrants. In January 2016, the PLTG warrants were cancelled and exchanged for shares of our Series C Preferred stock.
Between May 2015 and August 2015 we extinguished outstanding promissory notes and other indebtedness having a carrying value of approximately $15,900,000, including our Senior Secured Convertible Notes, our 2014 Unit Notes and other debt and certain adjustments thereto that were either already due and payable or would have otherwise matured prior to March 31, 2016 by converting such balances into shares of our Series B Preferred at a conversion price (the stated value of the Series B Preferred issued) of $7.00 per share. We treated the conversion of the indebtedness into Series B Preferred as extinguishments of debt for accounting purposes. Since the fair value of the Series B Preferred we negotiated in settlement of the promissory notes and other indebtedness exceeded the carrying value of the debts, we incurred non-recurring noncash losses on each of the extinguishments. Additionally, under the terms of our May 2015 agreement with PLTG in which PLTG agreed to, among other things, convert the Senior Secured Notes and certain other of our convertible promissory notes into Series B Preferred, we issued to PLTG 400,000 shares of Series B Preferred having an aggregate fair value of $4,000,000 and Series B Warrants to purchase 1,200,000 shares of our common stock having an aggregate of fair value of $8,270,900. We recognized this aggregate fair value as a further non-recurring noncash component of loss on extinguishment of debt. Many of the 2014 Unit Notes that were converted into Series B Preferred contained a beneficial conversion feature at the time they were originally issued. We accounted for the repurchase of the beneficial conversion feature at the time the 2014 Unit Notes were extinguished and converted, an aggregate of $2,237,200, as a reduction to the loss on extinguishment of debt. We recorded an aggregate net non-recurring non-cash loss of approximately $26,700,000 million attributable to the extinguishment of substantially all of our indebtedness as a result of the conversion of such indebtedness into shares of our Series B Preferred at a conversion price (stated value) of $7.00 per share.
We allocated the proceeds from self-placed private placement sales of Series B Preferred Units to the Series B Preferred and the Series B Warrants based on their relative fair values on the dates of the sales. The difference between the relative fair value per share of the Series B Preferred, approximately $4.20 per share and $4.13 per share for Fiscal 2017 and Fiscal 2016, respectively, and its conversion price (or stated value) of $7.00 per share represented a deemed dividend to the purchasers of the Series B Preferred Units. Accordingly, we recognized a deemed dividend in the aggregate amount of $111,100 and $2,058,000 in arriving at net loss attributable to common stockholders for Fiscal 2017 and Fiscal 2016 in the accompanying Consolidated Statement of Operations and Comprehensive Loss included in Item 8 of this Annual Report. Further, we recognized $1,257,000 and $2,140,500 for Fiscal 2017 and Fiscal 2016, respectively, representing the 10% cumulative dividend payable on our Series B Preferred as an additional deduction in arriving at net loss attributable to common stockholders in the accompanying Consolidated Statement of Operations and Comprehensive Loss, included in this Annual Report. The reduction in the dividend accrual results from the automatic conversion of an aggregate of 2,403,051 shares of Series B Preferred upon our completion of the May 2016 Public Offering and a subsequent voluntary conversion of 87,500 shares of our Series B Preferred in August 2016, as disclosed in Note 9,Capital Stock, to the accompanying Consolidated Financial Statements in Item 8 of this Annual Report.
Liquidity and Capital Resources
Since our inception in May 1998 through March 31, 2017, we have financed our operations and technology acquisitions primarily through the issuance and sale of our equity and debt securities, including convertible promissory notes and short-term promissory notes, for cash proceeds of approximately $44.7 million, as well as from an aggregate of approximately $17.6 million of strategic collaboration payments, intellectual property sublicensing, government research grant awards and other revenues, but not including the fair market value of the NIMH AV-101 MDD Phase 2 Monotherapy Study being fully funded and conducted by the NIMH pursuant to our CRADA. Additionally, we have issued equity securities with an approximate aggregate value at issuance of $30.8 million in non-cash settlements of certain liabilities, including liabilities for professional services rendered to us or as compensation for such services.
During the first quarter of Fiscal 2017, prior to the consummation of our May 2016 Public Offering, we sold to accredited investors in self-placed private placement transactions Series B Preferred Units consisting of 39,714 unregistered shares of our Series B Preferred Stock, par value $0.001 per share (Series B Preferred), and five year warrants to purchase 39,714 shares of our common stock, and we received cash proceeds of $278,000.
On May 16, 2016, we consummated the May 2016 Public Offering, an underwritten public offering pursuant to which we received net cash proceeds of approximately $9.5 million and issued an aggregate of 2,570,040 registered shares of our common stock at the public offering price of $4.24 per share and five-year warrants to purchase up to 2,705,883 registered shares of common stock, with an exercise price of $5.30 per share, at the public offering price of $0.01 per warrant, including shares and warrants issued pursuant to the exercise of the underwriters' over-allotment option.
During the last two quarters of Fiscal 2017, we sold to accredited investors units consisting of an aggregate of 124,250 unregistered shares of our common stock and three-year and five-year warrants to purchase an aggregate of 45,375 shares of our unregistered common stock. We received cash proceeds of $342,400 from this self-placed private placement.
Additionally, in January 2017, we received a cash payment of $1.25 million pursuant to our grant of a sublicense under the BlueRock Agreement.
At March 31, 2017, we had a cash and cash equivalents balance of $2.9 million. This amount was not sufficient to enable us to fund our planned operations, including expected cash expenditures of approximately $12 million for the twelve months following the issuance of these financial statements, including expenditures required to further prepare for, launch and satisfy a significant portion of the projected expenses associated with our proposed AV-101 MDD Phase 2 Adjunctive Treatment Study. However, during the first quarter of our fiscal year ending March 31, 2018 (Fiscal 2018), we sold to accredited investors in a self-placed private placement units consisting of an aggregate of 437,751 unregistered shares of our common stock and warrants to purchase an aggregate of 218,875 unregistered shares of our common stock pursuant to which we received $837,300 in cash proceeds, bringing total proceeds for the Spring 2017 Private Placement to approximately $1.0 million (theSpring 2017 Private Placement).
Further, although our current financial resources are not yet sufficient to fully fund completion of the AV-101 MDD Phase 2 Adjunctive Treatment Study, we anticipate raising sufficient additional capital as and when necessary and advisable to sustain our operations and achieve our key corporate objectives through at least the next twelve months, including initiating and conducting the AV-101 MDD Phase 2 Adjunctive Treatment Study in an ordinary course manner. In furtherance of that objective, on January 23, 2017, we filed with the U.S. Securities and Exchange Commission (SEC) our Registration Statement on Form S-3 (Registration No. 333-215671) covering the potential future sale of our equity securities from time to time in the future. The SEC declared this Registration Statement effective in May 2017. However, there can be no assurance that future financing will be available in sufficient amounts, in a timely manner, or on terms acceptable to us, if at all.
We may also seek research and development collaborations that could generate revenue, funding for development of AV-101 and additional product candidates, as well as additional government grant awards and agreements similar to our current CRADA with the NIMH, which provides for the NIMH to fully fund the NIMH’s ongoing NIMH AV-101 MDD Phase 2 Monotherapy Study. Such strategic collaborations may provide non-dilutive resources to advance our strategic initiatives while reducing a portion of our future cash outlays and working capital requirements. In a manner similar to the BlueRock Agreement, we may also pursue similar arrangements with third-parties covering other of our intellectual property. Although we may seek additional collaborations that could generate revenue and/or non-dilutive funding for development of AV-101 and other product candidates, as well as new government grant awards and/or agreements similar to our CRADA with NIMH, no assurance can be provided that any such collaborations, awards or agreements will occur in the future.  
Our future working capital requirements will depend on many factors, including, without limitation, the scope and nature of opportunities related to our success and the success of certain other companies in clinical trials, including our development and commercialization of AV-101 as an adjunctive treatment for MDD and other potential CNS conditions, and various applications of our stem cell technology platform, the availability of, and our ability to obtain, government grant awards and agreements, and our ability to enter into collaborations on terms acceptable to us. To further advance the clinical development of AV-101 and 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 the timing of and projected costs relating to key research and development projects, including our expenses associated with our proposed AV-101 MDD Phase 2 Adjunctive Treatment Study, regulatory consulting, CRO services, investor relations and corporate development, legal, acquisition and protection of intellectual property, accounting, public company compliance and other professional services and working capital costs. 
Notwithstanding the foregoing, substantial additional financing may not be available to us on a timely basis, on acceptable terms, or at all. If we are unable to obtain substantial additional financing on a timely basis when needed in 2017 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.  
Cash and Cash Equivalents
The following table summarizes changes in cash and cash equivalents for the periods stated (in thousands):
 
 
Fiscal Years Ended March 31,
 
 
 
2017
 
 
2016
 
 
 
 
 
 
 
 
Net cash used in operating activities
 $(7,263)
 $(4,808)
Net cash used in investing activities
  (239)
  (26)
Net cash provided by financing activities
  9,994 
  5,193 
 
    
    
 Net increase in cash and cash equivalents
  2,492 
  359 
 Cash and cash equivalents at beginning of period
  429 
  70 
 
    
    
 Cash and cash equivalents at end of period
 $2,921 
 $429 
Off-Balance Sheet Arrangements
Other than contractual obligations incurred in the normal course of business, we do not have any off-balance sheet financing arrangements or liabilities, guarantee contracts, retained or contingent interests in transferred assets or any obligation arising out of a material variable interest in an unconsolidated entity. VistaStem has two inactive, wholly owned subsidiaries, Artemis Neuroscience, Inc., a Maryland corporation, and VistaStem Canada, Inc., an Ontario corporation.
Item 7A.  Quantitative and Qualitative Disclosures About Market Risk
 The disclosures in this section are not required because we qualify as a smaller reporting company under federal securities laws.
Item 8.  Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Report of Independent Registered Public Accounting Firm
 67
Consolidated Balance Sheets
 68
Consolidated Statements of Operations and Comprehensive Loss
 69
Consolidated Statements of Cash Flows
 70
Consolidated Statements of Stockholders' Equity (Deficit)
 71
Notes to Consolidated Financial Statements
 72
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
VistaGen Therapeutics, Inc.
We have audited the accompanying consolidated balance sheets of VistaGen Therapeutics, Inc. as of March 31, 2017 and 2016 and the related consolidated statements of operations and comprehensive loss, cash flows, and stockholders’ equity (deficit) for each of the two fiscal years in the period ended March 31, 2017. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of VistaGen Therapeutics, Inc. at March 31, 2017 and 2016, and the consolidated results of its operations and its cash flows for each of the two fiscal years in the period ended March 31, 2017, in conformity with U.S. generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has not yet generated sustainable revenues, has suffered recurring losses and negative cash flows from operations and has minimal stockholders’ equity, all of which raise substantial doubt about its ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ OUM & Co. LLP
San Francisco, California
June 28, 2017
VISTAGEN THERAPEUTICS, INC.
CONSOLIDATED BALANCE SHEETS
(Amounts in dollars, except share amounts)
 
 
March 31,
 
 
 March 31,
 
 
 
 2017
 
 
 2016
 
 
 
 
 
 
 
 
 
 ASSETS
 
Current assets:
 
 
 
 
 
 
Cash and cash equivalents
 $2,921,300 
 $428,500 
Prepaid expenses and other current assets
  456,600 
  426,800 
  Total current assets
  3,377,900
  855,300 
Property and equipment, net
  286,500 
  87,600 
Security deposits and other assets
  47,800 
  46,900 
  Total assets
 $3,712,200 
 $989,800 
 
    
    
 
 LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
 
Current liabilities:
    
    
Accounts payable
 $867,300 
 $936,000 
Accrued expenses
  443,000 
  814,000 
Current portion of notes payable and accrued interest
  54,800 
  43,600 
Capital lease obligations
  2,400 
  1,100 
 Total current liabilities
  1,367,500 
  1,794,700 
 
    
    
Non-current liabilities:
    
    
Notes payable
  - 
  27,200 
Accrued dividends on Series B Preferred Stock
  1,577,800 
  2,089,600 
Deferred rent liability
  139,200 
  55,500 
Capital lease obligations
  11,900 
  - 
  Total non-current liabilities
  1,728,900 
  2,172,300 
  Total liabilities
  3,096,400 
  3,967,000 
 
    
    
Commitments and contingencies
    
    
 
    
    
Stockholders’ equity (deficit):
    
    
Preferred stock, $0.001 par value; 10,000,000 shares authorized at March 31, 2017 and March 31, 2016:
 
    
Series A Preferred, 500,000 shares authorized and outstanding at March 31, 2017 and March 31, 2016
  500 
  500 
Series B Preferred; 4,000,000 shares authorized at March 31, 2017 and March 31, 2016; 1,160,240 shares and 3,663,077 shares issued and outstanding at March 31, 2017 and March 31, 2016, respectively
  1,200 
  3,700 
Series C Preferred: 3,000,000 shares authorized at March 31, 2017 and March 31, 2017; 2,318,012 shares issued and outstanding at March 31, 2017 and March 31, 2016
  2,300 
  2,300 
Common stock, $0.001 par value; 30,000,000 shares authorized at March 31, 2017 and March 31, 2016;
 
    
8,974,386 and 2,623,145 shares issued at March 31, 2017 and March 31, 2016, respectively
  9,000 
  2,600 
Additional paid-in capital
  146,569,600 
  132,725,000 
Treasury stock, at cost, 135,665 shares of common stock held at March 31, 2017 and March 31, 2016
  (3,968,100)
  (3,968,100)
Accumulated deficit
  (141,998,700)
  (131,743,200)
  Total stockholders’ equity (deficit)
  615,800 
  (2,977,200)
  Total liabilities and stockholders’ equity (deficit)
 $3,712,200 
 $989,800 
See accompanying notes to consolidated financial statements.
VISTAGEN THERAPEUTICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Amounts in dollars, except share amounts)
 
 
 Fiscal Years Ended
March 31,
 
 
 
2017
 
 
2016
 
Revenues:
 
 
 
 
 
 
Sublicense fees
 $1,250,000 
 $- 
Total revenues
  1,250,000 
  - 
Operating expenses:
    
    
Research and development
  5,203,700 
  3,931,600 
General and administrative
  6,294,800 
  13,918,600 
Total operating expenses
  11,498,500 
  17,850,200 
Loss from operations
  (10,248,500)
  (17,850,200)
Other expenses, net:
    
    
Interest expense, net
  (4,600)
  (770,800)
Change in warrant liability
  - 
  (1,894,700)
Loss on extinguishment of debt
  - 
  (26,700,200)
Other expense
  - 
  (2,300)
Loss before income taxes
  (10,253,100)
  (47,218,200)
Income taxes
  (2,400)
  (2,300)
Net loss and comprehensive loss
  (10,255,500)
  (47,220,500)
 
    
    
Accrued dividend on Series B Preferred stock
  (1,257,000)
  (2,140,500)
Deemed dividend on Series B Preferred Units
  (111,100)
  (2,058,000)
 
    
    
Net loss attributable to common stockholders
 $(11,623,600)
 $(51,419,000)
 
    
    
Basic and diluted net loss attributable to common stockholders
    
    
per common share
 $(1.54)
 $(29.08)
 
    
    
Weighted average shares used in computing basic and diluted net loss attributable
    
    
 to common stockholders per common share
  7,531,642 
  1,767,957 
See accompanying notes to consolidated financial statements.
VISTAGEN THERAPEUTICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in dollars)
 
 
 Fiscal Years Ended
March 31,
 
 
 
2017
 
 
2016
 
 Cash flows from operating activities:
 
 
 
 
 
 
  Net loss
 $(10,255,500)
 $(47,220,500)
  Adjustments to reconcile net loss to net cash used in operating activities:
    
    
   Depreciation and amortization
  54,900 
  53,500 
   Amortization of discounts on convertible and promissory notes
  - 
  564,800 
   Change in warrant liability
  - 
  1,894,700 
   Stock-based compensation
  851,300 
  4,041,400 
   Expense related to modification of warrants, including exchange of warrants  for Series C Preferred and common stock
  427,500 
  6,218,000 
   Amortization of deferred rent
  83,700 
  (27,500)
   Fair value of common stock granted for services
  1,640,100 
  829,200 
   Fair value of Series B Preferred stock granted for services
  375,000 
  1,382,500 
   Fair value of warrants granted for services
  240,300 
  1,280,800 
   Gain on currency fluctuation
  - 
  (6,400)
   Loss on extinguishment of debt
  - 
  26,700,200 
   Loss on disposition of fixed assets
  - 
  2,300 
   Changes in operating assets and liabilities:
    
    
    Prepaid expenses, security deposit and other current assets
  (227,700)
  25,700 
    Accounts payable and accrued expenses, including accrued interest
  (451,700)
  (547,200)
   Net cash used in operating activities
  (7,262,100)
  (4,808,500)
 
    
    
 Cash flows from investing activities:
    
    
  Purchases of equipment
  (239,100)
  (26,300)
Net cash used in investing activities
  (239,100)
  (26,300)
 
    
    
 Cash flows from financing activities:
    
    
  Net proceeds from issuance of common stock and warrants, including Units
  9,899,500 
  280,000 
  Net proceeds from issuance of Series B Preferred Units
  278,000 
  5,025,800 
  Repayment of capital lease obligations
  (1,300)
  (1,000)
  Repayment of notes
  (182,200)
  (111,500)
Net cash provided by financing activities
  9,994,000 
  5,193,300 
 Net increase in cash and cash equivalents
  2,492,800 
  358,500 
 Cash and cash equivalents at beginning of period
  428,500 
  70,000 
 Cash and cash equivalents at end of period
 $2,921,300 
 $428,500 
 
    
    
 Supplemental disclosure of cash flow activities:
    
    
    Cash paid for interest
 $16,600 
 $12,700 
    Cash paid for income taxes
 $2,400 
 $2,400 
 
    
    
 Supplemental disclosure of noncash activities:
    
    
Conversion of Senior Secured Notes, Subordinate Convertible Notes, Promissory
    
    
Notes, Accounts payable and other debt into Series B Preferred
 $- 
 $18,891,400 
Insurance premiums settled by issuing note payable
 $178,200 
 $79,400 
Accrued dividends on Series B Preferred
 $1,257,000 
 $2,140,500 
Accrued dividends on Series B Preferred settled upon conversion by issuance of common stock
 $1,768,800 
 $50,900 
Acquisition of equipment under capital lease
 $14,700 
 $- 
See accompanying notes to consolidated financial statements.
VISTAGEN THERAPEUTICS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
Fiscal Years Ended March 31, 2017 and 2016
(Amounts in dollars, except share amounts)
 
 Series A Preferred Stock 
 Series B Preferred Stock 
 Series C Preferred Stock 
  Common Stock 
 Additional Paid-in 
 Treasury 
 Accumulated 
 Total Stockholders' Equity 
 
  Shares 
  Amount 
  Shares 
  Amount 
  Shares 
  Amount 
  Shares 
  Amount 
  Capital 
 Stock 
 Deficit 
  (Deficit) 
Balances at March 31, 2015
  500,000 
 $500 
  - 
 $- 
  - 
 $- 
  1,677,126 
 $1,700 
 $67,945,800 
 $(3,968,100)
 $(84,522,700)
 $(20,542,800)
 
    
    
    
    
    
    
    
    
    
    
    
    
Allocated proceeds from sale of common stock Units for cash under 2014 Unit Private Placement, including beneficial conversion feature
 -
  - 
  - 
  - 
  - 
  - 
  33,000 
  - 
  277,200 
  - 
  - 
  277,200 
Proceeds from sale of Series B Preferred Units for cash under Series B Preferred Unit Private Placement
  - 
  - 
  717,978 
  700 
  - 
  - 
  - 
  - 
  5,025,100 
  - 
  - 
  5,025,800 
Share-based compensation expense
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  4,041,400 
  - 
  - 
  4,041,400 
Conversion of Senior Secured and subordinate promissory notes into Series B Preferred stock, including recapture of beneficial conversion feature upon conversion
  - 
  - 
  3,018,917 
  3,100 
  - 
  - 
  - 
  - 
  42,577,100 
  - 
  - 
  42,580,200 
Elimination of warrant liability resulting from modification of  PLTG Warrants
  - 
  - 
 - 
 - 
  - 
  - 
  - 
  - 
  4,903,100 
  - 
  - 
  4,903,100 
Exchange of common stock for Series B Preferred stock
 -
 - 
  30,000 
  - 
  - 
  - 
  (30,000)
  - 
  - 
  - 
  - 
  - 
Accrued dividends on Series B Preferred stock
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  (2,140,500)
  - 
  - 
  (2,140,500)
Conversion of Series B Preferred stock into common stock, including common stock issued in payment of accrued dividends
    
    
  (228,818)
  (200)
  - 
  - 
  235,655 
  200 
  50,900 
  - 
  - 
  50,900 
Exchange of common stock for Series C Preferred stock
  - 
  - 
  - 
  - 
  200,000 
  200 
  (200,000)
  (200)
  - 
  - 
  - 
  - 
Exchange of outstanding warrants for Series C Preferred stock
  - 
  - 
  - 
  - 
  2,118,012 
  2,100 
  - 
  - 
  3,192,800 
  - 
  - 
  3,194,900 
Exchange of outstanding warrants for common stock and other warrant modifications
  - 
  - 
  - 
  - 
  - 
  - 
  814,989 
  800 
  3,022,300 
  - 
  - 
  3,023,100 
Fair value of common stock, Series B Preferred stock and warrants granted for services
  - 
  - 
  125,000 
  100 
  - 
  - 
  92,375 
  100 
  3,829,800 
  - 
  - 
  3,830,000 
Net loss for fiscal year ended March 31, 2016
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  (47,220,500)
  (47,220,500)
 
    
    
    
    
    
    
    
    
    
    
    
    
Balances at March 31, 2016
  500,000 
 $500 
  3,663,077 
 $3,700 
  2,318,012 
 $2,300 
  2,623,145 
 $2,600 
 $132,725,000 
 $(3,968,100)
 $(131,743,200)
 $(2,977,200)

    
    
    
    
    
    
    
    
    
    
    
    
Proceeds from sale of Series B Preferred Units for cash under Series B Preferred Unit Private Placement
  - 
  - 
  39,714 
  - 
  - 
  - 
  - 
  - 
  278,000 
  - 
  - 
  278,000 
Proceeds from sale of common stock and warrants for cash in May 2016 Public Offering
  - 
  - 
  - 
  - 
  - 
  - 
  2,570,040 
  2,600 
  9,534,500 
  - 
  - 
  9,537,100
Proceeds from sale of common stock and warrants for cash in private placement offerings
  - 
  - 
  - 
  - 
  - 
  - 
  124,250 
  100 
  362,300 
  - 
  - 
  362,400 
Series B Preferred converted to common stock automatically upon consummation of May 2016 Public Offering and voluntarily
  - 
  - 
  (2,542,551)
  (2,500)
  - 
  - 
  2,542,551 
  2,500 
  - 
  - 
  - 
  - 
Common stock issued for dividends upon conversion of Series B Preferred
  - 
  - 
  - 
  - 
  - 
  - 
  453,154 
  500 
  1,768,300 
  - 
  - 
  1,768,800 
Accrued dividends on Series B Preferred stock
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  (1,257,000)
  - 
  - 
  (1,257,000)
Share-based compensation expense
  - 
  - 
  - 
  - 
  - 
  - 
    
    
  851,300 
  - 
  - 
  851,300 
Exchange of outstanding warrants for common stock and other warrant modifications
  - 
  - 
  - 
  - 
  - 
  - 
  156,246 
  200 
  427,300 
  - 
  - 
  427,500 
Fair value of common stock and warrants granted for services
  - 
  - 
  - 
  - 
  - 
  - 
  505,000 
  500 
  1,879,900 
  - 
  - 
  1,880,400 
Net loss for fiscal year ended March 31, 2017
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  (10,255,500)
  (10,255,500)
 
    
    
    
    
    
    
    
    
    
    
    
    
Balances at March 31, 2017
  500,000 
 $500 
  1,160,240 
 $1,200 
  2,318,012 
 $2,300 
  8,974,386 
 $9,000 
 $146,569,600 
 $(3,968,100)
 $(141,998,700)
 $615,800 
See accompanying notes to consolidated financial statements.
VISTAGEN THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.  Description of Business
We are a clinical-stage biopharmaceutical company focused on developing new generation medicines for depression and other central nervous system (CNS) disorders.
AV-101 is our oral CNS product candidate in Phase 2 clinical development in the United States, initially as a new generation adjunctive treatment for Major Depressive Disorder (MDD) in patients with an inadequate response to standard antidepressants approved by the U.S. Food and Drug Administration (FDA).  AV-101’s mechanism of action (MOA) involves both NMDA (N-methyl-D-aspartate) and AMPA (alpha-amino-3-hydroxy-5-methyl-4-isoxazolepropionic acid) receptors in the brain responsible for fast excitatory synaptic activity throughout the CNS.  AV-101’s MOA is fundamentally differentiated from all FDA-approved antidepressants, as well as all atypical antipsychotics often used adjunctively to augment them. We believe AV-101 also has potential as a new treatment alternative for several additional indications involving the CNS, including epilepsy, Huntington’s disease, L-DOPA-induced dyskinesia associated with Parkinson’s disease, and neuropathic pain. 
Clinical studies conducted at the U.S. National Institute of Mental Health (NIMH), part of the U.S. National Institutes of Health (NIH), by Dr. Carlos Zarate, Jr., Chief of the NIMH’s Experimental Therapeutics & Pathophysiology Branch and its Section on Neurobiology and Treatment of Mood and Anxiety Disorders, have focused on the antidepressant effects of low dose ketamine hydrochloride injection (ketamine), an NMDA receptor antagonist, in MDD patients with inadequate responses to multiple standard antidepressants. These NIMH studies, as well as clinical research at Yale University and other academic institutions, have demonstrated robust antidepressant effects in these MDD patients within twenty-four hours of a single sub-anesthetic dose of ketamine administered by intravenous (IV) injection.
We believe orally-administered AV-101 may have potential to deliver ketamine-like antidepressant effects without ketamine’s psychological and other negative side effects. As published in the October 2015 issue of the peer-reviewed, Journal of Pharmacology and Experimental Therapeutics, in an article titled, The prodrug 4-chlorokynurenine causes ketamine-like antidepressant effects, but not side effects, by NMDA/glycineB-site inhibition, using well-established preclinical models of depression, AV-101 was shown to induce fast-acting, dose-dependent, persistent and statistically significant antidepressant-like responses following a single treatment. These responses were equivalent to those seen with a single sub-anesthetic control dose of ketamine. In addition, these studies confirmed that the fast-acting antidepressant effects of AV-101 were mediated through both inhibiting the GlyB site of the NMDA receptor and activating the AMPA receptor pathway in the brain.
Pursuant to our Cooperative Research and Development Agreement (CRADA) with the NIMH, the NIMH is funding, and Dr. Zarate, as Principal Investigator, and his team are conducting, a small Phase 2 clinical study of AV-101 monotherapy in subjects with treatment-resistant MDD (theNIMH AV-101 MDD Phase 2 Monotherapy Study). We are preparing to launch our 180-patient Phase 2 multi-center, multi-dose, double blind, placebo-controlled efficacy and safety study of AV-101 as a new generation adjunctive treatment of MDD in adult patients with an inadequate response to standard, FDA-approved antidepressants (theAV-101 MDD Phase 2 Adjunctive Treatment Study).  Dr. Maurizio Fava, Professor of Psychiatry at Harvard Medical School and Director, Division of Clinical Research, Massachusetts General Hospital (MGH) Research Institute, will be the Principal Investigator of our AV-101 MDD Phase 2 Adjunctive Treatment Study.  Dr. Fava was the co-Principal Investigator with Dr. A. John Rush of the STAR*D study, the largest clinical trial conducted in depression to date, whose findings were published in journals such as the New England Journal of Medicine (NEJM) and the Journal of the American Medical Association (JAMA).We currently anticipate completing our AV-101 MDD Phase 2 Adjunctive Treatment Study by the end of 2018 with top line results available in the first quarter of 2019.

VistaGen Therapeutics, Inc., a California corporation dba VistaStem Therapeutics (VistaStem), is our wholly owned subsidiary focused on applying human pluripotent stem cell (hPSC) technology, internally and with third-party collaborators, to discover, rescue, develop and commercialize (i) proprietary new chemical entities (NCEs), including small molecule NCEs with regenerative potential, for CNS and other diseases and (ii) cellular therapies involving stem cell-derived blood, cartilage, heart and liver cells.  Our internal drug rescue programs are designed to utilizeCardioSafe 3D, our customized cardiac bioassay system, to develop small molecule NCEs for our pipeline.  In December 2016, we exclusively sublicensed to BlueRock Therapeutics LP, a next generation regenerative medicine company established by Bayer AG and Versant Ventures, rights to certain proprietary technologies relating to the production of cardiac stem cells for the treatment of heart disease (theBlueRock Agreement). VistaStem may also pursue additional potential regenerative medicine (RM) applications, including using blood, cartilage, and/or liver cells derived from hPSCs for (A) cell-based therapy, (B) cell repair therapy, and/or (C) tissue engineering.  In a manner similar to our exclusive sublicense agreement with BlueRock Therapeutics, VistaStem may pursue these additional RM applications in collaboration with third-parties.
2.  Basis of Presentation and Going Concern
The accompanying Consolidated Financial Statements have been prepared assuming that 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 $142.0 million accumulated from inception through March 31, 2017. We expect losses and negative cash flows from operations to continue for the foreseeable future as we engage in further potential development of AV-101, initially as an adjunctive treatment for MDD, and subsequently as a new treatment alternative for other CNS conditions, execute our drug rescue programs, and pursue potential drug development and regenerative medicine opportunities.
Since our inception in May 1998 through March 31, 2017, we have financed our operations and technology acquisitions primarily through the issuance and sale of equity and debt securities, including convertible promissory notes and short-term promissory notes, for cash proceeds of approximately $44.7 million, as well as from an aggregate of approximately $17.6 million of government research grant awards (excluding the fair market value of the NIMH AV-101 MDD Phase 2 Monotherapy Study), strategic collaboration payments, intellectual property sublicensing and other revenues. Additionally, we have issued equity securities with an approximate value at issuance of $30.8 million in non-cash settlements of certain liabilities, including liabilities for professional services rendered to us or as compensation for such services.
During the first quarter of our fiscal year ended March 31, 2017, we sold to accredited investors Series B Preferred Units consisting of 39,714 unregistered shares of our Series B 10% Convertible Preferred Stock, par value $0.001 per share (Series B Preferred), and five year warrants exercisable at $7.00 per share (Series B Preferred Warrants) to purchase 39,714 shares of our common stock, from which we received cash proceeds of $278,000.
In May 2016, we consummated an underwritten public offering pursuant to which we received net cash proceeds of approximately $9.5 million, after deducting fees and expenses, and .issued an aggregate of 2,570,040 registered shares of our common stock at the public offering price of $4.24 per share and five-year warrants to purchase up to 2,705,883 registered shares of common stock, with an exercise price of $5.30 per share, at the public offering price of $0.01 per warrant, including shares and warrants issued pursuant to the exercise of the underwriters' over-allotment option (theMay 2016 Public Offering).
During the last two quarters of our fiscal year ended March 31, 2017, we sold to accredited investors units consisting of an aggregate of 124,250 unregistered shares of our common stock and three-year and five-year warrants to purchase an aggregate of 45,375 shares of our unregistered common stock. We received cash proceeds of $342,400 from this self-placed private placement.
At March 31, 2017, we had a cash and cash equivalents balance of $2.9 million. This amount was not sufficient to enable us to fund our planned operations, including expected cash expenditures of approximately $12 million for the twelve months following the issuance of these financial statements, including expenditures required to further prepare for, launch and satisfy a significant portion of the projected expenses associated with our proposed AV-101 MDD Phase 2 Adjunctive Treatment Study. However, during the first quarter of our fiscal year ending March 31, 2018 (Fiscal 2018), we sold to accredited investors in a self-placed private placement units consisting of an aggregate of 437,751 unregistered shares of our common stock and warrants to purchase an aggregate of 218,875 unregistered shares of our common stock pursuant to which we received $837,300 in cash proceeds, bringing total proceeds for the Spring 2017 Private Placement to approximately $1.0 million (theSpring 2017 Private Placement).
Our limited cash position at March 31, 2017 plus subsequent proceeds from the Spring 2017 Private Placement considered with our recurring and anticipated losses and negative cash flows from operations make it probable, in the absence of additional financing, that we will not be able to meet our obligations as they come due within one year from the date of this Report, raising substantial doubt that we can continue as a going concern. However, to alleviate that doubt, we plan, as we have in the past, to raise additional financing when needed, primarily through the sale of our equity securities in one or more public offerings or private placements. On January 23, 2017, we filed a Registration Statement on Form S-3 (Registration No. 333-215671) with the Securities and Exchange Commission (theCommission)covering the potential future sale of our equity securities. The Commission declared such Registration Statement effective on May 12, 2017 (theS-3 Registration Statement). As of the date of this Report, we have not yet sold any securities under the S-3 Registration Statement, nor do we have an obligation to do so. At March 31, 2017, we had a limited number of unallocated or unreserved shares of our common stock available for issuance in future offerings or for other purposes. To facilitate a substantial offering of our equity securities to sustain our operations and enable the launch and completion of our AV-101 MDD Phase 2 Adjunctive Treatment Study, our Board of Directors has approved an amendment to our Restated Articles of Incorporation to increase the number of shares of common stock available for issuance thereunder to 100 million shares. Before taking effect, this amendment must be approved by a majority of our stockholders. We plan to present this amendment to our stockholders at our 2017 annual meeting of stockholders to be held in the fall of 2017.
In addition to the sale of our equity securities, we may also seek to enter research and development collaborations that could generate revenue or provide funding for development of AV-101 and additional product candidates. We may also seek additional government grant awards or agreements similar to our current CRADA with the NIMH, which provides for the NIMH to fully fund the NIMH AV-101 MDD Phase 2 Monotherapy Study. Such strategic collaborations may provide non-dilutive resources to advance our strategic initiatives while reducing a portion of our future cash outlays and working capital requirements. In a manner similar to the BlueRock Agreement, we may also pursue similar arrangements with third-parties covering other of our intellectual property. Although we may seek additional collaborations that could generate revenue and/or non-dilutive funding for development of AV-101 and other product candidates, as well as new government grant awards and/or agreements similar to our CRADA with NIMH, no assurance can be provided that any such collaborations, awards or agreements will occur in the future.  
Our future working capital requirements will depend on many factors, including, without limitation, the scope and nature of opportunities related to our success and the success of certain other companies in clinical trials, including our development and commercialization of AV-101 as an adjunctive treatment for MDD and other potential CNS conditions, and various applications of our stem cell technology platform, the availability of, and our ability to obtain, government grant awards and agreements, and our ability to enter into collaborations on terms acceptable to us. To further advance the clinical development of AV-101 and 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 our stockholders will authorize the issuance of additional shares of our common stock to facilitate further financing opportunities and for other purposes, or that future financing will be available in sufficient amounts, in a timely manner, or on terms acceptable to us, if at all. If we are unable to obtain substantial additional financing on a timely basis when needed later in 2017 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 Consolidated Financial Statements do not include any adjustments that might result from the negative outcome of this uncertainty.
3.  Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles (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, but are not limited to, those relating to stock-based compensation, revenue recognition, and the assumptions used to value warrants, warrant modifications and warrant liabilities.
Principles of Consolidation
The accompanying consolidated financial statements include the Company’s accounts, VistaStem’s accounts and the accounts of VistaStem’s two wholly-owned inactive subsidiaries, Artemis Neurosciences and VistaStem Canada.
Cash and Cash Equivalents
Cash and cash equivalents are considered to be highly liquid investments with maturities of three months or less at the date of purchase.
Property and Equipment
Property and equipment is stated at cost. Repairs and maintenance costs are expensed in the period incurred. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets. The estimated useful lives of property and equipment range from five to seven years.
Impairment of Long-Lived Assets
Our long-lived assets consist of property and equipment. Long-lived assets to be held and used are tested for recoverability whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. Factors that we consider in deciding when to perform an impairment review include significant underperformance of the business in relation to expectations, significant negative industry or economic trends, and significant changes or planned changes in our use of the assets. An impairment loss would be recognized when estimated undiscounted future cash flows expected to result from the use of an asset are less than its carrying amount. The impairment loss would be based on the excess of the carrying value of the impaired asset over its fair value, determined based on discounted cash flows. To date, we have not recorded any impairment losses on long-lived assets.
Revenue Recognition
We have historically generated revenue principally from collaborative research and development arrangements, licensing and technology transfer agreements, including strategic licenses or sublicenses, and government grants. Revenue arrangements with multiple components are divided into separate units of accounting if certain criteria are met, including whether the delivered component has stand-alone value to the customer. Consideration received is allocated among the separate units of accounting based on their respective selling prices.  The selling price for each unit is based on vendor-specific objective evidence, or VSOE, if available, third party evidence if VSOE is not available, or estimated selling price if neither VSOE nor third party evidence is available.  The applicable revenue recognition criteria are then applied to each of the units.
We recognize revenue when four basic criteria of revenue recognition are met: (i) a contractual agreement exists; (ii) the transfer of technology has been completed or services have been rendered; (iii) the fee is fixed or determinable; and (iv) collectability is reasonably assured. For each source of revenue, we comply with the above revenue recognition criteria in the following manner:
●
Collaborative arrangements typically consist of non-refundable and/or exclusive up front technology access fees, cost reimbursements for specific research and development spending, and future product development milestone and royalty payments.  If the delivered technology does not have stand-alone value, the amount of revenue allocable to the delivered technology is deferred.  Non-refundable upfront fees with stand-alone value that are not dependent on future performance under these agreements are recognized as revenue when received, and are deferred if we have continuing performance obligations and have no objective and reliable evidence of the fair value of those obligations.  We recognize non-refundable upfront technology access fees under agreements in which we have a continuing performance obligation ratably, on a straight-line basis, over the period during which we are obligated to provide services.  Cost reimbursements for research and development spending are recognized when the related costs are incurred and when collectability is reasonably assured.  Payments received related to substantive, performance-based “at-risk” milestones are recognized as revenue upon achievement of the milestone event specified in the underlying contracts, which represent the culmination of the earnings process.  Amounts received in advance are recorded as deferred revenue until the technology is transferred, costs are incurred, or a milestone is reached.
●
Technology license agreements typically consist of non-refundable upfront license fees, annual minimum access fees, development and/or regulatory milestone payments and/or royalty payments. Non-refundable upfront license fees and annual minimum payments received with separable stand-alone values are recognized when the technology is transferred or accessed, provided that the technology transferred or accessed is not dependent on the outcome of the continuing research and development efforts. Otherwise, revenue is recognized over the period of our continuing involvement, and, in the case of development and/or regulatory milestone payments, when the applicable event triggering such a payment has occurred.
●
Government grants, which support our research efforts on specific projects, generally provide for reimbursement of approved costs as defined in the terms of grant awards. Grant revenue is recognized when associated project costs are incurred.

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 clinical and non-clinical development of AV-101, our prodrug candidate in clinical development for MDD, sponsored stem cell research and development costs, and costs related to the application and prosecution of patents related to AV-101 and our stem cell technology platform. All such costs are charged to expense as incurred.
Stock-Based Compensation
We recognize compensation cost for all stock-based awards to employees 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 is required to perform services in exchange for the award, which generally represents the scheduled vesting period.  We have granted no restricted stock awards to employees nor do we have any awards with market or performance conditions.  For option grants 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. Compensatory grants of stock to non-employees are generally treated as fully-earned at the time of the grant and the non-cash expense recognized is based on the quoted market price of the stock on the date of grant.
Income Taxes
We account for income taxes using the asset and liability approach for financial reporting purposes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are established, when necessary, to reduce the deferred tax assets to an amount expected to be realized.
Recent Accounting Pronouncements
See Note 3 to the Consolidated Financial Statements included in Item 8 in this Annual Report on Form 10-K for information on recent accounting pronouncements.
Results of Operations
Financial Operations Overview and Results of Operations
Net Loss
We have not yet achieved recurring revenue-generating status from any of our product candidates or technologies. Since inception, we have devoted substantially all of our time and efforts to developing our lead CNS product candidate, AV-101, from early non-clinical studies to our ongoing Phase 2 clinical development program in MDD, as well as stem cell technology research and development, bioassay development, small molecule drug development, and creating, protecting and patenting intellectual property related to our product candidates and technologies, with the corollary initiatives of recruiting and retaining personnel and raising working capital. As of March 31, 2017, we had an accumulated deficit of approximately $142.0 million. Our net loss for the fiscal years ended March 31, 2017 and 2016 was approximately $10.3 million and $47.2 million, respectively, the latter amount including a non-recurring, non-cash loss of approximately $26.7 million attributable to the extinguishment and conversion of approximately $15.9 million carrying value of prior indebtedness into our equity securities between May and September 2015 at a Conversion Price (the stated value of the equity received) of $7.00 per share. We expect losses to continue for the foreseeable future, primarily related to our further clinical development of AV-101 for the adjunctive treatment of MDD, as well as a range of other CNS indications.
Summary of Our Fiscal Year Ended March 31, 2017
During Fiscal 2017, we have continued to (i) advance non-clinical and clinical development of AV-101 as a potential new generation antidepressant and as a new therapeutic alternative for several other CNS indications with significant unmet medical need, (ii) expand the regulatory foundation to support broad Phase 2 clinical development of AV-101 in the U.S. and, (iii) on a limited basis, advance (a) the predictive toxicology capabilities ofCardioSafe3D for small molecule NCE drug rescue and development applications, (b) our participation in the FDA’s Comprehensive in-vitro Proarrhythmia Assay (CiPA) initiative designed to change the landscape of preclinical drug development by providing a more complete and accurate in vitro assessment of potential drug effects on cardiac risk, and (c) collaborative regenerative medicine opportunities related to our cardiac stem cell technology platform.
Pursuant to our Cooperative Research and Development Agreement (CRADA) with the NIH, the NIH is funding, and Dr. Carlos Zarate Jr. of the NIMH is conducting the NIMH AV-101 MDD Phase 2 Monotherapy Study. We currently anticipate that the NIMH will complete the NIMH AV-101 MDD Phase 2 Monotherapy Study in 2017, with top line results during the first half of 2018. In addition, we continue to prepare for our AV-101 Phase 2 Adjunctive Treatment Study.We currently anticipate completing our AV-101 MDD Phase 2 Adjunctive Treatment Study by the end of 2018 with top line results available in the first quarter of 2019.
In May 2016, we consummated an underwritten public offering of our securities pursuant to which we received net proceeds of approximately $9.54 million and issued to institutional investors an aggregate of 2,570,040 registered shares of our common stock and five-year warrants exercisable at $5.30 per share to purchase an aggregate of 2,705,883 shares of our common stock (May 2016 Public Offering). In connection with the May 2016 Public Offering, our common stock was approved for listing on The NASDAQ Capital Market, where it has traded under the symbol “VTGN” since May 11, 2016. Please see the section titled “Liquidity and Capital Resources” below, for a discussion of our expected future capital requirements.
In addition to bolstering our Clinical and Regulatory Advisory Board with the appointment of Dr. Maurizio Fava (Harvard University) as Chairman and the addition of members Dr. Sanjay Matthew (Baylor University) and Dr. Thomas Laughren (former director, FDA’s Division of Psychiatry), all pre-eminent opinion leaders in the field of depression, and the addition of veteran healthcare executive Jerry Gin, Ph.D., MBA to our Board of Directors, we enhanced our management team with the addition of Mark A. Smith, MD, Ph.D., as our Chief Medical Officer in June 2016. Dr. Smith has over 20 years of pharmaceutical industry and CNS drug development experience.  He has been a successful project leader in both drug discovery and development on projects resulting in approximately 20 investigational new drugs (INDs).  Dr. Smith has directed clinical trials examining depression, bipolar disorder, anxiety, schizophrenia, Alzheimer’s disease, ADHD and agitation in Phase 1 through Phase 2b. In addition, Dr. Smith has vast knowledge and expertise in translational neuroscience, clinical trial design and regulatory interactions. Further, in September 2016, we appointed Mark A. McPartland as our Vice President of Corporate Development. Mr. McPartland has over 20 years of experience in corporate development, capital markets, corporate communications and management consulting for companies at varying stage of their corporate evolution, including early- and mid-stage biopharmaceutical companies. Mr. McPartland is primarily concentrating his efforts in expanding awareness of VistaGen across a range of investors, researchers, patients, clinicians and potential partners.
In December 2016, we entered into the BlueRock Agreement with BlueRock Therapeutics, LP, a next generation regenerative medicine company recently established by Bayer AG and Versant Ventures (BlueRock), pursuant to which BlueRock received exclusive rights to utilize certain technologies exclusively licensed by us from University Health Network (UHN) for the production of cardiac stem cells for the treatment of heart disease. We retained rights to technology licensed from UHN related to small molecule, protein and antibody drug discovery, drug rescue and drug development, including small molecules with cardiac regenerative potential, as well as small molecule, protein and antibody testing involving cardiac cells. In January 2017, we received an upfront cash payment of $1.25 million under the BlueRock Agreement and we may potentially receive additional cash milestones and royalty payments in the future upon BlueRock’s achievement of certain development objectives and commercial sales.
As a matter of course, we attempt to minimize to the greatest extent possible cash commitments and expenditures for both internal and external research and development and general and administrative services. To further advance the non-clinical and clinical development of AV-101 and our stem cell technology platform, as well as support our operating activities, we will continue to carefully manage our routine operating costs, including our internal employee related expenses, as well as external costs relating to regulatory consulting, contract research and development, investor relations and corporate development, legal, acquisition and protection of intellectual property, accounting, public company compliance and other professional services and internal costs. 
Comparison of Fiscal Years Ended March 31, 2017 and 2016
The following table summarizes the results of our operations for the fiscal years ended March 31, 2017 and 2016 (amounts in thousands).
 
 
 Fiscal Years Ended March 31,
 
 
 
 2017
 
 
 2016
 
 
 
 
 
 
 
 
Sublicense revenue
 $1,250 
 $- 
Operating expenses:
    
    
Research and development
  5,204 
  3,932 
General and administrative
  6,295 
  13,919 
Total operating expenses
  11,499 
  17,851 
 
    
    
Loss from operations
  (10,249)
  (17,851)
 
    
    
Interest expense (net)
  (5)
  (771)
Change in warrant liabilities
  - 
  (1,895)
Loss on extinguishment of debt
  - 
  (26,700)
Other expense
  - 
  (2)
 
    
    
Loss before income taxes
  (10,254)
  (47,219)
Income taxes
  (2)
  (2)
 
    
    
Net loss
  (10,256)
  (47,221)
Accrued dividend on Series B Preferred Stock
  (1,257)
  (2,140)
Deemed dividend on Series B Preferred Stock
  (111)
  (2,058)
Net loss attributable to common stockholders 
 $(11,624)
 $(51,419)
Revenue
We recognized $1.25 million in sublicense revenue pursuant to the BlueRock Agreement in the quarter ended December 31, 2016. While we may potentially receive additional payments and royalties under the BlueRock Agreement in the future, in the event certain performance-based milestones and commercial sales are achieved, the agreement might not provide recurring revenue to us in the near term. We reported no other revenue for the fiscal years ended March 31, 2017 or 2016 and we presently have no revenue generating arrangements with respect to AV-101 or other potential product candidates. However, as indicated previously, our CRADA with the NIH provides for the NIH to fully fund and conduct the NIMH AV-101 MDD Phase 2 Monotherapy Study.
Research and Development Expense
Research and development expense totaled $5,203,700 for the fiscal year ended March 31, 2017 (Fiscal 2017), an increase of approximately 33% compared with the $3,931,600 incurred for the fiscal year ended March 31, 2016 (Fiscal 2016), demonstrating our increased focus on the continuing non-clinical and clinical development of AV-101 and our preparations to launch our AV-101 MDD Phase 2 Adjunctive Treatment Study, which we currently anticipate to begin in the first quarter of 2018. Of the amounts reported, non-cash expenses, related primarily to grants or modifications of our equity securities, totaled approximately $534,000 in Fiscal 2017 and $1,749,000 in Fiscal 2016. The following table indicates the primary components of research and development expense for each of the periods (amounts in thousands):
 
 
Fiscal Years Ended March 31,
 
 
 
2017
 
 
2016
 
 
 
 
 
 
 
 
Salaries and benefits
 $1,331 
 $818 
Stock-based compensation
  375 
  1,093 
Consulting and other professional services
  (75)
  112 
Technology licenses and royalties, including UHN
  746 
  1,010 
Project-related research and supplies:
    
    
AV-101
  2,292 
  406 
Stem cell and all other
  185 
  100 
 
  2,477 
  506 
Rent
  310 
  219 
Depreciation
  37 
  37 
Warrant modification expense
  - 
  135 
All other
  3 
  2 
 
    
    
Total Research and Development Expense
 $5,204 
 $3,932 
The increase in salaries and benefits reflects the impact of the hiring of our Chief Medical Officer (CMO) in June 2016, as well as salary increases and bonus payments granted to our President and Chief Scientific Officer (CSO) and to the four non-officer members of our scientific staff.
The decrease in stock based compensation expense is primarily attributable to the $852,200 fair value, determined using the Black-Scholes Option Pricing Model and the assumptions indicated in Note 13,Stock Option Plans and 401(k) Plan, to the accompanying Consolidated Financial Statements in Part 8 of this Report, of the September 2015 grant of immediately vested and expensed warrants to purchase 150,000 shares of our common stock granted to our CSO. Stock compensation expense in Fiscal 2017 reflects the ratable amortization of option grants made to our CSO and CMO, scientific staff and consultants, in November 2016, June 2016 (CSO and CMO only) and September 2015. Our stock options are generally amortized over a two-year to four-year vesting period. A substantial number of the option grants made in or prior to our fiscal year ended March 31, 2014 became fully-vested and were fully-expensed by March 31, 2017.
Consulting services reflects fees paid or accrued for scientific, non-clinical and clinical development and regulatory advisory and consulting services rendered to us by third-parties, primarily by members of our scientific and CNS clinical and regulatory advisory boards. The reduction in expense for Fiscal 2017 primarily reflects the rationalization of our stem cell-related scientific advisory board and related accruals, including as a result of the BlueRock Agreement.
Technology license expense reflects both recurring annual fees as well as legal counsel and other costs related to patent prosecution and protection pursuant to certain of our stem cell technology license agreements or for other potential commercial purposes. We recognize these costs as they are invoiced to us by the licensors and they do not occur ratably throughout the year or between years. Additionally, in both periods, this expense includes legal counsel and other costs we have incurred to advance in the U.S. and numerous foreign countries several pending patent applications with respect to AV-101 and our stem cell technology platform. Technology license-related legal expense for Fiscal 2017 also includes $55,000 representing the fair value of a warrant granted to intellectual property counsel as partial compensation for services. Fiscal 2017 expense further includes a net of $158,000 related to the sublicense consideration paid to University Health Network (UHN) related to the BlueRock Agreement plus additional fees and expenses related to two new cardiac stem cell technology related licenses that we acquired from UHN, net of amounts previously accrued in connection with our prior sponsored research collaboration with UHN. Technology license expense for Fiscal 2016 included (i) approximately $153,000 of fees and expenses incurred for additional stem cell technology related licenses acquired in connection with our agreement with UHN; (ii) $120,000 of noncash expense resulting from the grants to two intellectual property legal service providers in July 2015 of an aggregate of 10,000 shares of our Series B Preferred, and (iii) $254,000 of noncash expense resulting from the March 2016 grant of immediately-vested warrants to purchase an aggregate of 50,000 shares of our common stock to two intellectual property legal service providers.
AV-101 expenses for Fiscal 2017 include continuing costs incurred to develop more efficient and cost-effective proprietary production methods for AV-101 and for certain pre-production and preclinical trial analyses and procedures to facilitate Phase 2 clinical development of AV-101 in the U.S., including our AV-101 MDD Phase 2 Adjunctive Treatment Study. We expect these expenses to increase significantly during fiscal 2018 as we continue preparations for, initiate and conduct our AV-101 MDD Phase 2 Adjunctive Treatment Study. Additionally, AV-101 expense in both periods reflects the costs associated with monitoring for and responding to potential feedback related to our AV-101 Phase 1 clinical safety program and addressing other matters required under the terms of our prior NIH grant awards, primarily through our CRO for our Phase 1 safety studies, Cato Research Ltd. The increase in stem cell and other project related expenses in Fiscal 2017 primarily reflects in-house costs associated with our participation in the FDA’s CiPA project.
The increase in rent expense in Fiscal 2017 reflects both the impact of the scheduled rent increase for our South San Francisco headquarters and laboratory facilities effective August 2016 as well as the impact of accounting for the November 2016 lease amendment extending the lease of those facilities by five years from July 31, 2017 to July 31, 2022.
Warrant modification expense in Fiscal 2016 reflects the increase in fair value resulting from the November 2015 modification of outstanding warrants to purchase an aggregate of 315,000 shares of our common stock held by our CSO and a key scientific advisor to reduce the exercise prices thereof from a range of $9.25 to $12.80 per share to $7.00 per share. No similar modifications occurred in Fiscal 2017.
General and Administrative Expense
General and administrative expense decreased to $6,294,800 in Fiscal 2017 from $13,918,600 in Fiscal 2016 primarily as a result of the decrease in non-cash stock compensation expense attributable to option and warrant grants to employees, officers and independent Board members in Fiscal 2016, partially offset by an increase in non-cash expense related to grants of equity securities in payment of certain professional services during Fiscal 2017. Of the amounts reported, non-cash expenses, related primarily to grants or modifications of our equity securities, totaled approximately $3,100,000 in Fiscal 2017 and $11,939,000 in Fiscal 2016. The following table indicates the primary components of general and administrative expenses for each of the periods (amounts in thousands):
 
 
Fiscal Years Ended March 31,
 
 
 
2017
 
 
2016
 
 
 
 
 
 
 
 
Salaries and benefits
 $1,206 
 $694 
Stock-based compensation
  476 
  2,949 
Board fees
  140 
  98 
Legal, accounting and other professional fees
  2,093 
  3,405 
Investor relations
  1,219 
  172 
Insurance
  165 
  140 
Travel and entertainment
  179 
  96 
Rent and utilities
  220 
  157 
Warrant modification expense
  427 
  6,083 
All other expenses
  170 
  125 
 
    
    
Total General and Administrative Expense
 $6,295 
 $13,919 
The increase in salaries and benefits reflects the impact of salary increases and bonus payments granted to our Chief Executive Officer (CEO), Chief Financial Officer (CFO), and a member of our administrative staff and the change in that employee’s status from part-time to full-time, as well as the hiring of our VP, Corporate Development in September 2016.
The decrease in stock based compensation expense is primarily attributable to the $2,841,000 fair value, determined using the Black-Scholes Option Pricing Model and the assumptions indicated in Note 13,Stock Option Plans and 401(k) Plan, to the accompanying Consolidated Financial Statements in Item 8 of this Report, of the September 2015 grant of immediately vested and expensed warrants to purchase 500,000 shares of our common stock granted to our CEO, CFO, independent members of our Board of Directors and certain consultants. Stock compensation expense in Fiscal 2017 reflects the ratable amortization of option grants made to our CEO, CFO, independent members of our Board of Directors and administrative staff and consultants, in November 2016, June 2016 (CEO, CFO and independent Board members only) and September 2015, as well as to our VP-Corporate Development upon the commencement of his employment in September 2016. Our stock options are generally amortized over a two-year to four-year vesting period. A substantial number of the option grants made in or prior to our fiscal year ended March 31, 2014 became fully-vested and were fully-expensed by March 31, 2017.
Board fees includes fees recognized for the services of independent members of our Board of Directors. We added an additional independent director, Dr. Jerry Gin, to our Board in March 2016.
Legal, accounting and other professional fees in Fiscal 2017 and Fiscal 2016 includes $337,500 and $1,012,500, respectively, of non-cash expense recognized pursuant to the June 2015 grant of an aggregate of 90,000 shares of our Series B Preferred having an aggregate fair value at the time of issuance of $1,350,000 as compensation for financial advisory and corporate development service contracts with two independent service providers for services performed between July 2015 and June 2016. During Fiscal 2017, in addition to the expense noted above attributable to the June 2015 Series B Preferred grant, we granted an aggregate of 25,000 unregistered shares of our common stock having a fair value at the date of issuance of $108,500 to a legal services provider as partial compensation for services and an aggregate of 320,000 unregistered shares of our common stock having a fair value at the date of issuance of $1,058,800 as partial compensation for financial advisory, investment banking and business development services. During Fiscal 2016, in addition to the expense noted above attributable to the June 2015 Series B Preferred grant, we also granted (i) an aggregate of 50,000 shares of our common stock having an aggregate fair value of $500,000 pursuant to two corporate development contracts initiated during the first quarter of Fiscal 2016; (ii) 25,000 shares of our Series B Preferred having a fair value of $250,000 to legal counsel as compensation for services in connection with our debt restructuring and other corporate finance matters, and (iii) 15,750 shares of our unregistered common stock and a five-year warrant to purchase 7,500 unregistered shares of our common stock having an aggregate fair value of $138,000 in connection with investment banking services. In both years, professional services expense also includes cash payments for routine legal fees and expenses and the expense related to the annual audit of the prior year financial statements, preparation of the prior year income tax returns, and quarterly reviews of current year financial statements.
Investor relations expense includes the fees of our external service providers for a significantly expanded broad spectrum of institutional investor relations and market awareness and support functions and, particularly during Fiscal 2017, initiatives that included numerous meetings in multiple U.S. markets and other communication activities focused on expanding market awareness of the Company, including among investment professionals and investment advisors, and individual and institutional investors. During Fiscal 2017, in addition to cash fees and expenses we incurred, we granted an aggregate of 160,000 unregistered shares of our common stock to six investor relations and market awareness service providers as full or partial compensation for their services and recognized non-cash expense of $472,800, representing the fair value of the stock at the time of issuance. We also granted three-year, immediately exercisable warrants to purchase an aggregate of 75,000 shares of our unregistered common stock at exercise prices ranging from $4.50 per share to $6.00 per share to three investor relations service providers and recognized non-cash expense of $172,300 representing the fair value of the warrants at the time of issuance.
In both periods, travel expense reflects costs associated with presentations to and meetings in numerous U.S. markets with existing and potential investors and investment professionals and advisors, media and securities analysts, as well as various investor relations, market awareness and corporate development initiatives, in Fiscal 2017 by our CEO, CMO and VP, Corporate Development.
As described more completely in Note 9,Capital Stock, to the accompanying Consolidated Financial Statements for the years ended March 31, 2017 and 2016 in Item 8 of this Report, between January 2016 and December 2016, we entered into various warrant exchange agreements with certain warrant holders pursuant to which those holders exchanged outstanding warrants to purchase shares of our common stock for a lesser number of unregistered shares of our common stock. In both periods, we accounted for these transactions as warrant modifications. Between April 2016 and December 2016, certain warrant holders agreed to exchange an aggregate of 224,513 shares of our common stock for an aggregate of 156,246 shares of our unregistered common stock, resulting in our recognition of an aggregate of $350,700 in noncash expense attributable to the increase in fair value related to Fiscal 2017 warrant exchanges. Further, in December 2016, we modified an outstanding warrant to reduce the exercise price from $8.00 per share to $3.51 per share and increase the number of shares exercisable under the warrant from 25,000 shares to 50,000 shares, recognizing $76,900 in expense as the incremental fair value attributable to the modification. Noncash warrant modification expense in Fiscal 2016 includes (i) $122,000 representing the increase in the fair value attributable to the June 2015 modification of outstanding warrants to purchase an aggregate of 54,576 shares of our common stock to reduce the exercise prices thereof, generally from $30.00 per share to $10.00 per share; (ii) $358,000 representing the increase in the fair value attributable to the November 2015 modification of outstanding warrants to purchase an aggregate of 808,553 shares of our common stock previously granted to our CEO, CFO, and independent members of our Board of Directors to reduce the exercise prices thereof from a range of $9.25 to $12.80 per share to $7.00 per share; and (iii) $5,603,200 representing the aggregate increase in the fair value of certain warrant exchange transactions conducted during the fourth quarter of Fiscal 2016. In January 2016, we entered into an Exchange Agreement with PLTG pursuant to which PLTG exchanged warrants, including all outstanding PLTG Warrants and the shares issuable pursuant to the Series A Preferred Exchange Warrant, to purchase an aggregate of 2,824,016 shares of our common stock for 2,118,012 unregistered shares of our Series C Convertible Preferred Stock (Series C Preferred) at the ratio of 0.75 share of Series C Preferred for each warrant share cancelled. We recognized related noncash warrant modification expense of $3,195,000. In February and March 2016, we entered into similar agreements with certain other warrant holders pursuant to which such warrant holders exchanged outstanding warrants to purchase an aggregate of 1,086,611 shares of our common stock for an aggregate of 814,989 shares of our unregistered common stock. We recognized an additional $2,362,000 in non-cash warrant modification expense. In February 2016, we also extended the term of certain outstanding warrants to purchase an aggregate of 91,230 shares of our common stock and recognized $46,000 of non-cash expense as a result of such modifications.
Interest and Other Expenses, Net
Interest expense, net, totaled $4,600 for Fiscal 2017, a significant decrease compared to the $70,800 reported for Fiscal 2016, resulting from the extinguishment of substantially all of our promissory notes, as well as other indebtedness, having an aggregate carrying value at the time of extinguishment of approximately $15,900,000, between May 2015 and August 2015 by conversion into our shares of our Series B Preferred at a conversion price of $7.00 per share or cash repayment and the related elimination of note interest and discount amortization. The following table summarizes the primary components of interest expense for each of the periods (amounts in thousands):
 
 
Fiscal Years Ended March 31,
 
 
 
2017
 
 
2016
 
 
 
 
 
 
 
 
Interest expense on promissory notes
 $1 
 $209 
Amortization of discount on promissory notes
  - 
  565 
Other interest expense, including on capital leases and premium financing
  4 
  3 
     Total interest expense
  5 
  777 
Effect of foreign currency fluctuations on notes payable
  - 
  (6)
Interest income
  - 
  - 
 
    
    
Interest expense, net
 $5 
 $771 
Interest expense on promissory notes in Fiscal 2017 represents only the interest accrued on our promissory note to Progressive Medical Research prior to its repayment in June 2016. The substantial overall decrease in interest expense on promissory notes and the related amortization of discounts on such notes between the periods reflects the cessation of interest accrual and discount amortization upon the extinguishment and conversion of all outstanding Senior Secured Convertible Notes, certain 10% convertible notes (2014 Unit Notes) and other outstanding promissory notes into shares of our Series B Preferred between May 2015 and August 2015.
Under the terms of our October 2012 Note Exchange and Purchase Agreement with PLTG, we issued certain Senior Secured Convertible Promissory Notes and a related Exchange Warrant and Investment Warrants between October 2012 and July 2013. Upon PLTG’s exchange of the shares of our Series A Preferred Stock held by PLTG into shares of our common stock, we were also required to issue a Series A Exchange Warrant to PLTG. We determined that the various warrants included certain exercise price resets and other adjustment features requiring us to treat the warrants as liabilities. Accordingly, we recorded a noncash warrant liability at its estimated fair value as of the date of warrant issuance or contract execution. As described in Note 9,Capital Stock,to the Consolidated Financial Statements included in Item 8 of this Annual Report, in May 2015, we entered into an agreement with PLTG pursuant to which we amended the various warrants and fixed the exercise price thereof and eliminated the anti-dilution reset features that had previously required the warrants to be treated as liabilities and carried at fair value. Accordingly, during the first quarter of Fiscal 2016, we adjusted these warrants to their fair value, reflecting an increase in the fair value in the amount of $1,894,700 since March 31, 2015, resulting primarily from the increase in the market price of our common stock in relation to the exercise price of the warrants, and then subsequently eliminated the entire warrant liability with respect to these warrants. In January 2016, the PLTG warrants were cancelled and exchanged for shares of our Series C Preferred stock.
Between May 2015 and August 2015 we extinguished outstanding promissory notes and other indebtedness having a carrying value of approximately $15,900,000, including our Senior Secured Convertible Notes, our 2014 Unit Notes and other debt and certain adjustments thereto that were either already due and payable or would have otherwise matured prior to March 31, 2016 by converting such balances into shares of our Series B Preferred at a conversion price (the stated value of the Series B Preferred issued) of $7.00 per share. We treated the conversion of the indebtedness into Series B Preferred as extinguishments of debt for accounting purposes. Since the fair value of the Series B Preferred we negotiated in settlement of the promissory notes and other indebtedness exceeded the carrying value of the debts, we incurred non-recurring noncash losses on each of the extinguishments. Additionally, under the terms of our May 2015 agreement with PLTG in which PLTG agreed to, among other things, convert the Senior Secured Notes and certain other of our convertible promissory notes into Series B Preferred, we issued to PLTG 400,000 shares of Series B Preferred having an aggregate fair value of $4,000,000 and Series B Warrants to purchase 1,200,000 shares of our common stock having an aggregate of fair value of $8,270,900. We recognized this aggregate fair value as a further non-recurring noncash component of loss on extinguishment of debt. Many of the 2014 Unit Notes that were converted into Series B Preferred contained a beneficial conversion feature at the time they were originally issued. We accounted for the repurchase of the beneficial conversion feature at the time the 2014 Unit Notes were extinguished and converted, an aggregate of $2,237,200, as a reduction to the loss on extinguishment of debt. We recorded an aggregate net non-recurring non-cash loss of approximately $26,700,000 million attributable to the extinguishment of substantially all of our indebtedness as a result of the conversion of such indebtedness into shares of our Series B Preferred at a conversion price (stated value) of $7.00 per share.
We allocated the proceeds from self-placed private placement sales of Series B Preferred Units to the Series B Preferred and the Series B Warrants based on their relative fair values on the dates of the sales. The difference between the relative fair value per share of the Series B Preferred, approximately $4.20 per share and $4.13 per share for Fiscal 2017 and Fiscal 2016, respectively, and its conversion price (or stated value) of $7.00 per share represented a deemed dividend to the purchasers of the Series B Preferred Units. Accordingly, we recognized a deemed dividend in the aggregate amount of $111,100 and $2,058,000 in arriving at net loss attributable to common stockholders for Fiscal 2017 and Fiscal 2016 in the accompanying Consolidated Statement of Operations and Comprehensive Loss included in Item 8 of this Annual Report. Further, we recognized $1,257,000 and $2,140,500 for Fiscal 2017 and Fiscal 2016, respectively, representing the 10% cumulative dividend payable on our Series B Preferred as an additional deduction in arriving at net loss attributable to common stockholders in the accompanying Consolidated Statement of Operations and Comprehensive Loss, included in this Annual Report. The reduction in the dividend accrual results from the automatic conversion of an aggregate of 2,403,051 shares of Series B Preferred upon our completion of the May 2016 Public Offering and a subsequent voluntary conversion of 87,500 shares of our Series B Preferred in August 2016, as disclosed in Note 9,Capital Stock, to the accompanying Consolidated Financial Statements in Item 8 of this Annual Report.
Liquidity and Capital Resources
Since our inception in May 1998 through March 31, 2017, we have financed our operations and technology acquisitions primarily through the issuance and sale of our equity and debt securities, including convertible promissory notes and short-term promissory notes, for cash proceeds of approximately $44.7 million, as well as from an aggregate of approximately $17.6 million of strategic collaboration payments, intellectual property sublicensing, government research grant awards and other revenues, but not including the fair market value of the NIMH AV-101 MDD Phase 2 Monotherapy Study being fully funded and conducted by the NIMH pursuant to our CRADA. Additionally, we have issued equity securities with an approximate aggregate value at issuance of $30.8 million in non-cash settlements of certain liabilities, including liabilities for professional services rendered to us or as compensation for such services.
During the first quarter of Fiscal 2017, prior to the consummation of our May 2016 Public Offering, we sold to accredited investors in self-placed private placement transactions Series B Preferred Units consisting of 39,714 unregistered shares of our Series B Preferred Stock, par value $0.001 per share (Series B Preferred), and five year warrants to purchase 39,714 shares of our common stock, and we received cash proceeds of $278,000.
On May 16, 2016, we consummated the May 2016 Public Offering, an underwritten public offering pursuant to which we received net cash proceeds of approximately $9.5 million and issued an aggregate of 2,570,040 registered shares of our common stock at the public offering price of $4.24 per share and five-year warrants to purchase up to 2,705,883 registered shares of common stock, with an exercise price of $5.30 per share, at the public offering price of $0.01 per warrant, including shares and warrants issued pursuant to the exercise of the underwriters' over-allotment option.
During the last two quarters of Fiscal 2017, we sold to accredited investors units consisting of an aggregate of 124,250 unregistered shares of our common stock and three-year and five-year warrants to purchase an aggregate of 45,375 shares of our unregistered common stock. We received cash proceeds of $342,400 from this self-placed private placement.
Additionally, in January 2017, we received a cash payment of $1.25 million pursuant to our grant of a sublicense under the BlueRock Agreement.
At March 31, 2017, we had a cash and cash equivalents balance of $2.9 million. This amount was not sufficient to enable us to fund our planned operations, including expected cash expenditures of approximately $12 million for the twelve months following the issuance of these financial statements, including expenditures required to further prepare for, launch and satisfy a significant portion of the projected expenses associated with our proposed AV-101 MDD Phase 2 Adjunctive Treatment Study. However, during the first quarter of our fiscal year ending March 31, 2018 (Fiscal 2018), we sold to accredited investors in a self-placed private placement units consisting of an aggregate of 437,751 unregistered shares of our common stock and warrants to purchase an aggregate of 218,875 unregistered shares of our common stock pursuant to which we received $837,300 in cash proceeds, bringing total proceeds for the Spring 2017 Private Placement to approximately $1.0 million (theSpring 2017 Private Placement).
Further, although our current financial resources are not yet sufficient to fully fund completion of the AV-101 MDD Phase 2 Adjunctive Treatment Study, we anticipate raising sufficient additional capital as and when necessary and advisable to sustain our operations and achieve our key corporate objectives through at least the next twelve months, including initiating and conducting the AV-101 MDD Phase 2 Adjunctive Treatment Study in an ordinary course manner. In furtherance of that objective, on January 23, 2017, we filed with the U.S. Securities and Exchange Commission (SEC) our Registration Statement on Form S-3 (Registration No. 333-215671) covering the potential future sale of our equity securities from time to time in the future. The SEC declared this Registration Statement effective in May 2017. However, there can be no assurance that future financing will be available in sufficient amounts, in a timely manner, or on terms acceptable to us, if at all.
We may also seek research and development collaborations that could generate revenue, funding for development of AV-101 and additional product candidates, as well as additional government grant awards and agreements similar to our current CRADA with the NIMH, which provides for the NIMH to fully fund the NIMH’s ongoing NIMH AV-101 MDD Phase 2 Monotherapy Study. Such strategic collaborations may provide non-dilutive resources to advance our strategic initiatives while reducing a portion of our future cash outlays and working capital requirements. In a manner similar to the BlueRock Agreement, we may also pursue similar arrangements with third-parties covering other of our intellectual property. Although we may seek additional collaborations that could generate revenue and/or non-dilutive funding for development of AV-101 and other product candidates, as well as new government grant awards and/or agreements similar to our CRADA with NIMH, no assurance can be provided that any such collaborations, awards or agreements will occur in the future.  
Our future working capital requirements will depend on many factors, including, without limitation, the scope and nature of opportunities related to our success and the success of certain other companies in clinical trials, including our development and commercialization of AV-101 as an adjunctive treatment for MDD and other potential CNS conditions, and various applications of our stem cell technology platform, the availability of, and our ability to obtain, government grant awards and agreements, and our ability to enter into collaborations on terms acceptable to us. To further advance the clinical development of AV-101 and 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 the timing of and projected costs relating to key research and development projects, including our expenses associated with our proposed AV-101 MDD Phase 2 Adjunctive Treatment Study, regulatory consulting, CRO services, investor relations and corporate development, legal, acquisition and protection of intellectual property, accounting, public company compliance and other professional services and working capital costs. 
Notwithstanding the foregoing, substantial additional financing may not be available to us on a timely basis, on acceptable terms, or at all. If we are unable to obtain substantial additional financing on a timely basis when needed in 2017 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.  
Cash and Cash Equivalents
The following table summarizes changes in cash and cash equivalents for the periods stated (in thousands):
 
 
Fiscal Years Ended March 31,
 
 
 
2017
 
 
2016
 
 
 
 
 
 
 
 
Net cash used in operating activities
 $(7,263)
 $(4,808)
Net cash used in investing activities
  (239)
  (26)
Net cash provided by financing activities
  9,994 
  5,193 
 
    
    
 Net increase in cash and cash equivalents
  2,492 
  359 
 Cash and cash equivalents at beginning of period
  429 
  70 
 
    
    
 Cash and cash equivalents at end of period
 $2,921 
 $429 
Off-Balance Sheet Arrangements
Other than contractual obligations incurred in the normal course of business, we do not have any off-balance sheet financing arrangements or liabilities, guarantee contracts, retained or contingent interests in transferred assets or any obligation arising out of a material variable interest in an unconsolidated entity. VistaStem has two inactive, wholly owned subsidiaries, Artemis Neuroscience, Inc., a Maryland corporation, and VistaStem Canada, Inc., an Ontario corporation.
Item 7A.  Quantitative and Qualitative Disclosures About Market Risk
 The disclosures in this section are not required because we qualify as a smaller reporting company under federal securities laws.
Item 8.  Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Report of Independent Registered Public Accounting Firm
 67
Consolidated Balance Sheets
 68
Consolidated Statements of Operations and Comprehensive Loss
 69
Consolidated Statements of Cash Flows
 70
Consolidated Statements of Stockholders' Equity (Deficit)
 71
Notes to Consolidated Financial Statements
 72
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
VistaGen Therapeutics, Inc.
We have audited the accompanying consolidated balance sheets of VistaGen Therapeutics, Inc. as of March 31, 2017 and 2016 and the related consolidated statements of operations and comprehensive loss, cash flows, and stockholders’ equity (deficit) for each of the two fiscal years in the period ended March 31, 2017. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of VistaGen Therapeutics, Inc. at March 31, 2017 and 2016, and the consolidated results of its operations and its cash flows for each of the two fiscal years in the period ended March 31, 2017, in conformity with U.S. generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has not yet generated sustainable revenues, has suffered recurring losses and negative cash flows from operations and has minimal stockholders’ equity, all of which raise substantial doubt about its ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ OUM & Co. LLP
San Francisco, California
June 28, 2017
VISTAGEN THERAPEUTICS, INC.
CONSOLIDATED BALANCE SHEETS
(Amounts in dollars, except share amounts)
 
 
March 31,
 
 
 March 31,
 
 
 
 2017
 
 
 2016
 
 
 
 
 
 
 
 
 
 ASSETS
 
Current assets:
 
 
 
 
 
 
Cash and cash equivalents
 $2,921,300 
 $428,500 
Prepaid expenses and other current assets
  456,600 
  426,800 
  Total current assets
  3,377,900
  855,300 
Property and equipment, net
  286,500 
  87,600 
Security deposits and other assets
  47,800 
  46,900 
  Total assets
 $3,712,200 
 $989,800 
 
    
    
 
 LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
 
Current liabilities:
    
    
Accounts payable
 $867,300 
 $936,000 
Accrued expenses
  443,000 
  814,000 
Current portion of notes payable and accrued interest
  54,800 
  43,600 
Capital lease obligations
  2,400 
  1,100 
 Total current liabilities
  1,367,500 
  1,794,700 
 
    
    
Non-current liabilities:
    
    
Notes payable
  - 
  27,200 
Accrued dividends on Series B Preferred Stock
  1,577,800 
  2,089,600 
Deferred rent liability
  139,200 
  55,500 
Capital lease obligations
  11,900 
  - 
  Total non-current liabilities
  1,728,900 
  2,172,300 
  Total liabilities
  3,096,400 
  3,967,000 
 
    
    
Commitments and contingencies
    
    
 
    
    
Stockholders’ equity (deficit):
    
    
Preferred stock, $0.001 par value; 10,000,000 shares authorized at March 31, 2017 and March 31, 2016:
 
    
Series A Preferred, 500,000 shares authorized and outstanding at March 31, 2017 and March 31, 2016
  500 
  500 
Series B Preferred; 4,000,000 shares authorized at March 31, 2017 and March 31, 2016; 1,160,240 shares and 3,663,077 shares issued and outstanding at March 31, 2017 and March 31, 2016, respectively
  1,200 
  3,700 
Series C Preferred: 3,000,000 shares authorized at March 31, 2017 and March 31, 2017; 2,318,012 shares issued and outstanding at March 31, 2017 and March 31, 2016
  2,300 
  2,300 
Common stock, $0.001 par value; 30,000,000 shares authorized at March 31, 2017 and March 31, 2016;
 
    
8,974,386 and 2,623,145 shares issued at March 31, 2017 and March 31, 2016, respectively
  9,000 
  2,600 
Additional paid-in capital
  146,569,600 
  132,725,000 
Treasury stock, at cost, 135,665 shares of common stock held at March 31, 2017 and March 31, 2016
  (3,968,100)
  (3,968,100)
Accumulated deficit
  (141,998,700)
  (131,743,200)
  Total stockholders’ equity (deficit)
  615,800 
  (2,977,200)
  Total liabilities and stockholders’ equity (deficit)
 $3,712,200 
 $989,800 
See accompanying notes to consolidated financial statements.
VISTAGEN THERAPEUTICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Amounts in dollars, except share amounts)
 
 
 Fiscal Years Ended
March 31,
 
 
 
2017
 
 
2016
 
Revenues:
 
 
 
 
 
 
Sublicense fees
 $1,250,000 
 $- 
Total revenues
  1,250,000 
  - 
Operating expenses:
    
    
Research and development
  5,203,700 
  3,931,600 
General and administrative
  6,294,800 
  13,918,600 
Total operating expenses
  11,498,500 
  17,850,200 
Loss from operations
  (10,248,500)
  (17,850,200)
Other expenses, net:
    
    
Interest expense, net
  (4,600)
  (770,800)
Change in warrant liability
  - 
  (1,894,700)
Loss on extinguishment of debt
  - 
  (26,700,200)
Other expense
  - 
  (2,300)
Loss before income taxes
  (10,253,100)
  (47,218,200)
Income taxes
  (2,400)
  (2,300)
Net loss and comprehensive loss
  (10,255,500)
  (47,220,500)
 
    
    
Accrued dividend on Series B Preferred stock
  (1,257,000)
  (2,140,500)
Deemed dividend on Series B Preferred Units
  (111,100)
  (2,058,000)
 
    
    
Net loss attributable to common stockholders
 $(11,623,600)
 $(51,419,000)
 
    
    
Basic and diluted net loss attributable to common stockholders
    
    
per common share
 $(1.54)
 $(29.08)
 
    
    
Weighted average shares used in computing basic and diluted net loss attributable
    
    
 to common stockholders per common share
  7,531,642 
  1,767,957 
See accompanying notes to consolidated financial statements.
VISTAGEN THERAPEUTICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in dollars)
 
 
 Fiscal Years Ended
March 31,
 
 
 
2017
 
 
2016
 
 Cash flows from operating activities:
 
 
 
 
 
 
  Net loss
 $(10,255,500)
 $(47,220,500)
  Adjustments to reconcile net loss to net cash used in operating activities:
    
    
   Depreciation and amortization
  54,900 
  53,500 
   Amortization of discounts on convertible and promissory notes
  - 
  564,800 
   Change in warrant liability
  - 
  1,894,700 
   Stock-based compensation
  851,300 
  4,041,400 
   Expense related to modification of warrants, including exchange of warrants  for Series C Preferred and common stock
  427,500 
  6,218,000 
   Amortization of deferred rent
  83,700 
  (27,500)
   Fair value of common stock granted for services
  1,640,100 
  829,200 
   Fair value of Series B Preferred stock granted for services
  375,000 
  1,382,500 
   Fair value of warrants granted for services
  240,300 
  1,280,800 
   Gain on currency fluctuation
  - 
  (6,400)
   Loss on extinguishment of debt
  - 
  26,700,200 
   Loss on disposition of fixed assets
  - 
  2,300 
   Changes in operating assets and liabilities:
    
    
    Prepaid expenses, security deposit and other current assets
  (227,700)
  25,700 
    Accounts payable and accrued expenses, including accrued interest
  (451,700)
  (547,200)
   Net cash used in operating activities
  (7,262,100)
  (4,808,500)
 
    
    
 Cash flows from investing activities:
    
    
  Purchases of equipment
  (239,100)
  (26,300)
Net cash used in investing activities
  (239,100)
  (26,300)
 
    
    
 Cash flows from financing activities:
    
    
  Net proceeds from issuance of common stock and warrants, including Units
  9,899,500 
  280,000 
  Net proceeds from issuance of Series B Preferred Units
  278,000 
  5,025,800 
  Repayment of capital lease obligations
  (1,300)
  (1,000)
  Repayment of notes
  (182,200)
  (111,500)
Net cash provided by financing activities
  9,994,000 
  5,193,300 
 Net increase in cash and cash equivalents
  2,492,800 
  358,500 
 Cash and cash equivalents at beginning of period
  428,500 
  70,000 
 Cash and cash equivalents at end of period
 $2,921,300 
 $428,500 
 
    
    
 Supplemental disclosure of cash flow activities:
    
    
    Cash paid for interest
 $16,600 
 $12,700 
    Cash paid for income taxes
 $2,400 
 $2,400 
 
    
    
 Supplemental disclosure of noncash activities:
    
    
Conversion of Senior Secured Notes, Subordinate Convertible Notes, Promissory
    
    
Notes, Accounts payable and other debt into Series B Preferred
 $- 
 $18,891,400 
Insurance premiums settled by issuing note payable
 $178,200 
 $79,400 
Accrued dividends on Series B Preferred
 $1,257,000 
 $2,140,500 
Accrued dividends on Series B Preferred settled upon conversion by issuance of common stock
 $1,768,800 
 $50,900 
Acquisition of equipment under capital lease
 $14,700 
 $- 
See accompanying notes to consolidated financial statements.
VISTAGEN THERAPEUTICS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
Fiscal Years Ended March 31, 2017 and 2016
(Amounts in dollars, except share amounts)
 
 Series A Preferred Stock 
 Series B Preferred Stock 
 Series C Preferred Stock 
  Common Stock 
 Additional Paid-in 
 Treasury 
 Accumulated 
 Total Stockholders' Equity 
 
  Shares 
  Amount 
  Shares 
  Amount 
  Shares 
  Amount 
  Shares 
  Amount 
  Capital 
 Stock 
 Deficit 
  (Deficit) 
Balances at March 31, 2015
  500,000 
 $500 
  - 
 $- 
  - 
 $- 
  1,677,126 
 $1,700 
 $67,945,800 
 $(3,968,100)
 $(84,522,700)
 $(20,542,800)
 
    
    
    
    
    
    
    
    
    
    
    
    
Allocated proceeds from sale of common stock Units for cash under 2014 Unit Private Placement, including beneficial conversion feature
 -
  - 
  - 
  - 
  - 
  - 
  33,000 
  - 
  277,200 
  - 
  - 
  277,200 
Proceeds from sale of Series B Preferred Units for cash under Series B Preferred Unit Private Placement
  - 
  - 
  717,978 
  700 
  - 
  - 
  - 
  - 
  5,025,100 
  - 
  - 
  5,025,800 
Share-based compensation expense
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  4,041,400 
  - 
  - 
  4,041,400 
Conversion of Senior Secured and subordinate promissory notes into Series B Preferred stock, including recapture of beneficial conversion feature upon conversion
  - 
  - 
  3,018,917 
  3,100 
  - 
  - 
  - 
  - 
  42,577,100 
  - 
  - 
  42,580,200 
Elimination of warrant liability resulting from modification of  PLTG Warrants
  - 
  - 
 - 
 - 
  - 
  - 
  - 
  - 
  4,903,100 
  - 
  - 
  4,903,100 
Exchange of common stock for Series B Preferred stock
 -
 - 
  30,000 
  - 
  - 
  - 
  (30,000)
  - 
  - 
  - 
  - 
  - 
Accrued dividends on Series B Preferred stock
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  (2,140,500)
  - 
  - 
  (2,140,500)
Conversion of Series B Preferred stock into common stock, including common stock issued in payment of accrued dividends
    
    
  (228,818)
  (200)
  - 
  - 
  235,655 
  200 
  50,900 
  - 
  - 
  50,900 
Exchange of common stock for Series C Preferred stock
  - 
  - 
  - 
  - 
  200,000 
  200 
  (200,000)
  (200)
  - 
  - 
  - 
  - 
Exchange of outstanding warrants for Series C Preferred stock
  - 
  - 
  - 
  - 
  2,118,012 
  2,100 
  - 
  - 
  3,192,800 
  - 
  - 
  3,194,900 
Exchange of outstanding warrants for common stock and other warrant modifications
  - 
  - 
  - 
  - 
  - 
  - 
  814,989 
  800 
  3,022,300 
  - 
  - 
  3,023,100 
Fair value of common stock, Series B Preferred stock and warrants granted for services
  - 
  - 
  125,000 
  100 
  - 
  - 
  92,375 
  100 
  3,829,800 
  - 
  - 
  3,830,000 
Net loss for fiscal year ended March 31, 2016
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  (47,220,500)
  (47,220,500)
 
    
    
    
    
    
    
    
    
    
    
    
    
Balances at March 31, 2016
  500,000 
 $500 
  3,663,077 
 $3,700 
  2,318,012 
 $2,300 
  2,623,145 
 $2,600 
 $132,725,000 
 $(3,968,100)
 $(131,743,200)
 $(2,977,200)

    
    
    
    
    
    
    
    
    
    
    
    
Proceeds from sale of Series B Preferred Units for cash under Series B Preferred Unit Private Placement
  - 
  - 
  39,714 
  - 
  - 
  - 
  - 
  - 
  278,000 
  - 
  - 
  278,000 
Proceeds from sale of common stock and warrants for cash in May 2016 Public Offering
  - 
  - 
  - 
  - 
  - 
  - 
  2,570,040 
  2,600 
  9,534,500 
  - 
  - 
  9,537,100
Proceeds from sale of common stock and warrants for cash in private placement offerings
  - 
  - 
  - 
  - 
  - 
  - 
  124,250 
  100 
  362,300 
  - 
  - 
  362,400 
Series B Preferred converted to common stock automatically upon consummation of May 2016 Public Offering and voluntarily
  - 
  - 
  (2,542,551)
  (2,500)
  - 
  - 
  2,542,551 
  2,500 
  - 
  - 
  - 
  - 
Common stock issued for dividends upon conversion of Series B Preferred
  - 
  - 
  - 
  - 
  - 
  - 
  453,154 
  500 
  1,768,300 
  - 
  - 
  1,768,800 
Accrued dividends on Series B Preferred stock
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  (1,257,000)
  - 
  - 
  (1,257,000)
Share-based compensation expense
  - 
  - 
  - 
  - 
  - 
  - 
    
    
  851,300 
  - 
  - 
  851,300 
Exchange of outstanding warrants for common stock and other warrant modifications
  - 
  - 
  - 
  - 
  - 
  - 
  156,246 
  200 
  427,300 
  - 
  - 
  427,500 
Fair value of common stock and warrants granted for services
  - 
  - 
  - 
  - 
  - 
  - 
  505,000 
  500 
  1,879,900 
  - 
  - 
  1,880,400 
Net loss for fiscal year ended March 31, 2017
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  (10,255,500)
  (10,255,500)
 
    
    
    
    
    
    
    
    
    
    
    
    
Balances at March 31, 2017
  500,000 
 $500 
  1,160,240 
 $1,200 
  2,318,012 
 $2,300 
  8,974,386 
 $9,000 
 $146,569,600 
 $(3,968,100)
 $(141,998,700)
 $615,800 
See accompanying notes to consolidated financial statements.
VISTAGEN THERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.  Description of Business
We are a clinical-stage biopharmaceutical company focused on developing new generation medicines for depression and other central nervous system (CNS) disorders.
AV-101 is our oral CNS product candidate in Phase 2 clinical development in the United States, initially as a new generation adjunctive treatment for Major Depressive Disorder (MDD) in patients with an inadequate response to standard antidepressants approved by the U.S. Food and Drug Administration (FDA).  AV-101’s mechanism of action (MOA) involves both NMDA (N-methyl-D-aspartate) and AMPA (alpha-amino-3-hydroxy-5-methyl-4-isoxazolepropionic acid) receptors in the brain responsible for fast excitatory synaptic activity throughout the CNS.  AV-101’s MOA is fundamentally differentiated from all FDA-approved antidepressants, as well as all atypical antipsychotics often used adjunctively to augment them. We believe AV-101 also has potential as a new treatment alternative for several additional indications involving the CNS, including epilepsy, Huntington’s disease, L-DOPA-induced dyskinesia associated with Parkinson’s disease, and neuropathic pain. 
Clinical studies conducted at the U.S. National Institute of Mental Health (NIMH), part of the U.S. National Institutes of Health (NIH), by Dr. Carlos Zarate, Jr., Chief of the NIMH’s Experimental Therapeutics & Pathophysiology Branch and its Section on Neurobiology and Treatment of Mood and Anxiety Disorders, have focused on the antidepressant effects of low dose ketamine hydrochloride injection (ketamine), an NMDA receptor antagonist, in MDD patients with inadequate responses to multiple standard antidepressants. These NIMH studies, as well as clinical research at Yale University and other academic institutions, have demonstrated robust antidepressant effects in these MDD patients within twenty-four hours of a single sub-anesthetic dose of ketamine administered by intravenous (IV) injection.
We believe orally-administered AV-101 may have potential to deliver ketamine-like antidepressant effects without ketamine’s psychological and other negative side effects. As published in the October 2015 issue of the peer-reviewed, Journal of Pharmacology and Experimental Therapeutics, in an article titled, The prodrug 4-chlorokynurenine causes ketamine-like antidepressant effects, but not side effects, by NMDA/glycineB-site inhibition, using well-established preclinical models of depression, AV-101 was shown to induce fast-acting, dose-dependent, persistent and statistically significant antidepressant-like responses following a single treatment. These responses were equivalent to those seen with a single sub-anesthetic control dose of ketamine. In addition, these studies confirmed that the fast-acting antidepressant effects of AV-101 were mediated through both inhibiting the GlyB site of the NMDA receptor and activating the AMPA receptor pathway in the brain.
Pursuant to our Cooperative Research and Development Agreement (CRADA) with the NIMH, the NIMH is funding, and Dr. Zarate, as Principal Investigator, and his team are conducting, a small Phase 2 clinical study of AV-101 monotherapy in subjects with treatment-resistant MDD (theNIMH AV-101 MDD Phase 2 Monotherapy Study). We are preparing to launch our 180-patient Phase 2 multi-center, multi-dose, double blind, placebo-controlled efficacy and safety study of AV-101 as a new generation adjunctive treatment of MDD in adult patients with an inadequate response to standard, FDA-approved antidepressants (theAV-101 MDD Phase 2 Adjunctive Treatment Study).  Dr. Maurizio Fava, Professor of Psychiatry at Harvard Medical School and Director, Division of Clinical Research, Massachusetts General Hospital (MGH) Research Institute, will be the Principal Investigator of our AV-101 MDD Phase 2 Adjunctive Treatment Study.  Dr. Fava was the co-Principal Investigator with Dr. A. John Rush of the STAR*D study, the largest clinical trial conducted in depression to date, whose findings were published in journals such as the New England Journal of Medicine (NEJM) and the Journal of the American Medical Association (JAMA).We currently anticipate completing our AV-101 MDD Phase 2 Adjunctive Treatment Study by the end of 2018 with top line results available in the first quarter of 2019.

VistaGen Therapeutics, Inc., a California corporation dba VistaStem Therapeutics (VistaStem), is our wholly owned subsidiary focused on applying human pluripotent stem cell (hPSC) technology, internally and with third-party collaborators, to discover, rescue, develop and commercialize (i) proprietary new chemical entities (NCEs), including small molecule NCEs with regenerative potential, for CNS and other diseases and (ii) cellular therapies involving stem cell-derived blood, cartilage, heart and liver cells.  Our internal drug rescue programs are designed to utilizeCardioSafe 3D, our customized cardiac bioassay system, to develop small molecule NCEs for our pipeline.  In December 2016, we exclusively sublicensed to BlueRock Therapeutics LP, a next generation regenerative medicine company established by Bayer AG and Versant Ventures, rights to certain proprietary technologies relating to the production of cardiac stem cells for the treatment of heart disease (theBlueRock Agreement). VistaStem may also pursue additional potential regenerative medicine (RM) applications, including using blood, cartilage, and/or liver cells derived from hPSCs for (A) cell-based therapy, (B) cell repair therapy, and/or (C) tissue engineering.  In a manner similar to our exclusive sublicense agreement with BlueRock Therapeutics, VistaStem may pursue these additional RM applications in collaboration with third-parties.
2.  Basis of Presentation and Going Concern
The accompanying Consolidated Financial Statements have been prepared assuming that 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 $142.0 million accumulated from inception through March 31, 2017. We expect losses and negative cash flows from operations to continue for the foreseeable future as we engage in further potential development of AV-101, initially as an adjunctive treatment for MDD, and subsequently as a new treatment alternative for other CNS conditions, execute our drug rescue programs, and pursue potential drug development and regenerative medicine opportunities.
Since our inception in May 1998 through March 31, 2017, we have financed our operations and technology acquisitions primarily through the issuance and sale of equity and debt securities, including convertible promissory notes and short-term promissory notes, for cash proceeds of approximately $44.7 million, as well as from an aggregate of approximately $17.6 million of government research grant awards (excluding the fair market value of the NIMH AV-101 MDD Phase 2 Monotherapy Study), strategic collaboration payments, intellectual property sublicensing and other revenues. Additionally, we have issued equity securities with an approximate value at issuance of $30.8 million in non-cash settlements of certain liabilities, including liabilities for professional services rendered to us or as compensation for such services.
During the first quarter of our fiscal year ended March 31, 2017, we sold to accredited investors Series B Preferred Units consisting of 39,714 unregistered shares of our Series B 10% Convertible Preferred Stock, par value $0.001 per share (Series B Preferred), and five year warrants exercisable at $7.00 per share (Series B Preferred Warrants) to purchase 39,714 shares of our common stock, from which we received cash proceeds of $278,000.
In May 2016, we consummated an underwritten public offering pursuant to which we received net cash proceeds of approximately $9.5 million, after deducting fees and expenses, and .issued an aggregate of 2,570,040 registered shares of our common stock at the public offering price of $4.24 per share and five-year warrants to purchase up to 2,705,883 registered shares of common stock, with an exercise price of $5.30 per share, at the public offering price of $0.01 per warrant, including shares and warrants issued pursuant to the exercise of the underwriters' over-allotment option (theMay 2016 Public Offering).
During the last two quarters of our fiscal year ended March 31, 2017, we sold to accredited investors units consisting of an aggregate of 124,250 unregistered shares of our common stock and three-year and five-year warrants to purchase an aggregate of 45,375 shares of our unregistered common stock. We received cash proceeds of $342,400 from this self-placed private placement.
At March 31, 2017, we had a cash and cash equivalents balance of $2.9 million. This amount was not sufficient to enable us to fund our planned operations, including expected cash expenditures of approximately $12 million for the twelve months following the issuance of these financial statements, including expenditures required to further prepare for, launch and satisfy a significant portion of the projected expenses associated with our proposed AV-101 MDD Phase 2 Adjunctive Treatment Study. However, during the first quarter of our fiscal year ending March 31, 2018 (Fiscal 2018), we sold to accredited investors in a self-placed private placement units consisting of an aggregate of 437,751 unregistered shares of our common stock and warrants to purchase an aggregate of 218,875 unregistered shares of our common stock pursuant to which we received $837,300 in cash proceeds, bringing total proceeds for the Spring 2017 Private Placement to approximately $1.0 million (theSpring 2017 Private Placement).
Our limited cash position at March 31, 2017 plus subsequent proceeds from the Spring 2017 Private Placement considered with our recurring and anticipated losses and negative cash flows from operations make it probable, in the absence of additional financing, that we will not be able to meet our obligations as they come due within one year from the date of this Report, raising substantial doubt that we can continue as a going concern. However, to alleviate that doubt, we plan, as we have in the past, to raise additional financing when needed, primarily through the sale of our equity securities in one or more public offerings or private placements. On January 23, 2017, we filed a Registration Statement on Form S-3 (Registration No. 333-215671) with the Securities and Exchange Commission (theCommission)covering the potential future sale of our equity securities. The Commission declared such Registration Statement effective on May 12, 2017 (theS-3 Registration Statement). As of the date of this Report, we have not yet sold any securities under the S-3 Registration Statement, nor do we have an obligation to do so. At March 31, 2017, we had a limited number of unallocated or unreserved shares of our common stock available for issuance in future offerings or for other purposes. To facilitate a substantial offering of our equity securities to sustain our operations and enable the launch and completion of our AV-101 MDD Phase 2 Adjunctive Treatment Study, our Board of Directors has approved an amendment to our Restated Articles of Incorporation to increase the number of shares of common stock available for issuance thereunder to 100 million shares. Before taking effect, this amendment must be approved by a majority of our stockholders. We plan to present this amendment to our stockholders at our 2017 annual meeting of stockholders to be held in the fall of 2017.
In addition to the sale of our equity securities, we may also seek to enter research and development collaborations that could generate revenue or provide funding for development of AV-101 and additional product candidates. We may also seek additional government grant awards or agreements similar to our current CRADA with the NIMH, which provides for the NIMH to fully fund the NIMH AV-101 MDD Phase 2 Monotherapy Study. Such strategic collaborations may provide non-dilutive resources to advance our strategic initiatives while reducing a portion of our future cash outlays and working capital requirements. In a manner similar to the BlueRock Agreement, we may also pursue similar arrangements with third-parties covering other of our intellectual property. Although we may seek additional collaborations that could generate revenue and/or non-dilutive funding for development of AV-101 and other product candidates, as well as new government grant awards and/or agreements similar to our CRADA with NIMH, no assurance can be provided that any such collaborations, awards or agreements will occur in the future.  
Our future working capital requirements will depend on many factors, including, without limitation, the scope and nature of opportunities related to our success and the success of certain other companies in clinical trials, including our development and commercialization of AV-101 as an adjunctive treatment for MDD and other potential CNS conditions, and various applications of our stem cell technology platform, the availability of, and our ability to obtain, government grant awards and agreements, and our ability to enter into collaborations on terms acceptable to us. To further advance the clinical development of AV-101 and 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 our stockholders will authorize the issuance of additional shares of our common stock to facilitate further financing opportunities and for other purposes, or that future financing will be available in sufficient amounts, in a timely manner, or on terms acceptable to us, if at all. If we are unable to obtain substantial additional financing on a timely basis when needed later in 2017 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 Consolidated Financial Statements do not include any adjustments that might result from the negative outcome of this uncertainty.
3.  Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles (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, but are not limited to, those relating to stock-based compensation, revenue recognition, and the assumptions used to value warrants, warrant modifications and warrant liabilities.
Principles of Consolidation
The accompanying consolidated financial statements include the Company’s accounts, VistaStem’s accounts and the accounts of VistaStem’s two wholly-owned inactive subsidiaries, Artemis Neurosciences and VistaStem Canada.
Cash and Cash Equivalents
Cash and cash equivalents are considered to be highly liquid investments with maturities of three months or less at the date of purchase.
Property and Equipment
Property and equipment is stated at cost. Repairs and maintenance costs are expensed in the period incurred. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets. The estimated useful lives of property and equipment range from five to seven years.
Impairment of Long-Lived Assets
Our long-lived assets consist of property and equipment. Long-lived assets to be held and used are tested for recoverability whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. Factors that we consider in deciding when to perform an impairment review include significant underperformance of the business in relation to expectations, significant negative industry or economic trends, and significant changes or planned changes in our use of the assets. An impairment loss would be recognized when estimated undiscounted future cash flows expected to result from the use of an asset are less than its carrying amount. The impairment loss would be based on the excess of the carrying value of the impaired asset over its fair value, determined based on discounted cash flows. To date, we have not recorded any impairment losses on long-lived assets.
Revenue Recognition
We have historically generated revenue principally from collaborative research and development arrangements, licensing and technology transfer agreements, including strategic licenses or sublicenses, and government grants. Revenue arrangements with multiple components are divided into separate units of accounting if certain criteria are met, including whether the delivered component has stand-alone value to the customer. Consideration received is allocated among the separate units of accounting based on their respective selling prices.  The selling price for each unit is based on vendor-specific objective evidence, or VSOE, if available, third party evidence if VSOE is not available, or estimated selling price if neither VSOE nor third party evidence is available.  The applicable revenue recognition criteria are then applied to each of the units.
We recognize revenue when four basic criteria of revenue recognition are met: (i) a contractual agreement exists; (ii) the transfer of technology has been completed or services have been rendered; (iii) the fee is fixed or determinable; and (iv) collectability is reasonably assured. For each source of revenue, we comply with the above revenue recognition criteria in the following manner:
●
Collaborative arrangements typically consist of non-refundable and/or exclusive up front technology access fees, cost reimbursements for specific research and development spending, and future product development milestone and royalty payments.  If the delivered technology does not have stand-alone value, the amount of revenue allocable to the delivered technology is deferred.  Non-refundable upfront fees with stand-alone value that are not dependent on future performance under these agreements are recognized as revenue when received, and are deferred if we have continuing performance obligations and have no objective and reliable evidence of the fair value of those obligations.  We recognize non-refundable upfront technology access fees under agreements in which we have a continuing performance obligation ratably, on a straight-line basis, over the period during which we are obligated to provide services.  Cost reimbursements for research and development spending are recognized when the related costs are incurred and when collectability is reasonably assured.  Payments received related to substantive, performance-based “at-risk” milestones are recognized as revenue upon achievement of the milestone event specified in the underlying contracts, which represent the culmination of the earnings process.  Amounts received in advance are recorded as deferred revenue until the technology is transferred, costs are incurred, or a milestone is reached.
●
Technology license agreements typically consist of non-refundable upfront license fees, annual minimum access fees, development and/or regulatory milestone payments and/or royalty payments. Non-refundable upfront license fees and annual minimum payments received with separable stand-alone values are recognized when the technology is transferred or accessed, provided that the technology transferred or accessed is not dependent on the outcome of the continuing research and development efforts. Otherwise, revenue is recognized over the period of our continuing involvement, and, in the case of development and/or regulatory milestone payments, when the applicable event triggering such a payment has occurred.
●
Government grants, which support our research efforts on specific projects, generally provide for reimbursement of approved costs as defined in the terms of grant awards. Grant revenue is recognized when associated project costs are incurred.

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 clinical and non-clinical development of AV-101, our prodrug candidate in clinical development for MDD, sponsored stem cell research and development costs, and costs related to the application and prosecution of patents related to AV-101 and our stem cell technology platform. All such costs are charged to expense as incurred.
Stock-Based Compensation
We recognize compensation cost for all stock-based awards to employees 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 is required to perform services in exchange for the award, which generally represents the scheduled vesting period.  We have granted no restricted stock awards to employees nor do we have any awards with market or performance conditions.  For option grants 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. Compensatory grants of stock to non-employees are generally treated as fully-earned at the time of the grant and the non-cash expense recognized is based on the quoted market price of the stock on the date of grant.
Income Taxes
We account for income taxes using the asset and liability approach for financial reporting purposes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are established, when necessary, to reduce the deferred tax assets to an amount expected to be realized.
Concentrations of Credit Risk
Financial instruments, which potentially subject us to concentrations of credit risk, consist of cash and cash equivalents. Our investment policies limit any such investments to short-term, low-risk investments. We deposit cash and cash equivalents with quality financial institutions and are insured to the maximum of federal limitations. Balances in these accounts may exceed federally insured limits at times.
Warrant Liability
Although we did not have a warrant liability at March 31, 2017 or 2016, in conjunction with certain Senior Secured Convertible Promissory Notes that we issued to Platinum Long Term Growth VII, LLC (PLTG) between October 2012 and July 2013 and the related warrants, and the contingently issuable Series A Exchange Warrant (collectively, thePLTG Warrants), we determined that the PLTG Warrants included certain exercise price and other adjustment features requiring them to be treated as liabilities. Accordingly, the PLTG Warrants were recorded at their issuance-date estimated fair values and marked to market at each subsequent reporting period, recording the change in the fair value as non-cash expense or non-cash income. The key component in determining the fair value of the PLTG Warrants and the related liability was the market price of our common stock, which is subject to significant fluctuation and is not under our control. The resulting change in the fair value of the warrant liability on our net loss was therefore also subject to significant fluctuation and would have continued to be so until all of the PLTG Warrants were issued and exercised, amended or expired. Assuming all other fair value inputs remained generally constant, we recorded an increase in the warrant liability and non-cash losses when our stock price increased and a decrease in the warrant liability and non-cash income when our stock price decreased.
Notwithstanding the foregoing, and as disclosed in Note 9,Capital Stock, in May 2015, we entered into an agreement with PLTG pursuant to which PLTG agreed to amend the PLTG Warrants to (i) fix the exercise price thereof at $7.00 per share, (ii) eliminate the exercise price reset features and (iii) fix the number of shares of our common stock issuable thereunder.  This agreement and the related amendments to the PLTG Warrants resulted in the elimination of the warrant liability with respect to the PLTG Warrants during the quarter ended June 30, 2015 and the recognition of a non-cash loss of $1,874,700 in that quarter, reflecting the change in the fair value of the PLTG Warrants between March 31, 2015 and the date of their amendment. As further disclosed in Note 9,Capital Stock, the PLTG Warrants, including the right to receive the Series A Exchange Warrant, were cancelled in exchange for our issuance of shares of our Series C Preferred stock to PLTG in January 2016.
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 Attributable to Common Stockholders
Basic net income (loss) attributable to common stockholders per share of common stock excludes the effect of dilution and is computed by dividing net income (loss) less the accrual for dividends on our Series B Preferred and the deemed dividend attributable to the issuance of our Series B Preferred Units by the weighted-average number of shares of common stock outstanding for the period. Diluted net income (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 income (loss) attributable to common stockholders per share, we have historically adjusted the numerator for the change in the fair value of the warrant liability attributable to any outstanding PLTG 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 last recognized in the first quarter of our fiscal year ended March 31, 2016, had no impact on the diluted net loss per share calculation for that fiscal year.
As a result of our net loss for both years presented, potentially dilutive securities were excluded from the computation of diluted loss per share, as their effect would be antidilutive.
Basic and diluted net loss attributable to common stockholders per share was computed as follows:
 
 
 Fiscal Years Ended March 31,
 
 
 
 2017
 
 
 2016
 
 Numerator:
 
 
 
 
 
 
Net loss attributable to common stockholders for basic and diluted earnings per share
 $(11,623,600)
 $(51,419,000)
 
    
    
 Denominator:
    
    
 Weighted average basic and diluted common shares outstanding
  7,531,642 
  1,767,957 
 
    
    
 Basic and diluted net loss attributable to common stockholders per common share
 $(1.54)
 $(29.08)
Potentially dilutive securities excluded in determining diluted net loss per common share for the fiscal years ended March 31, 2017 and 2016 are as follows:
 
 
As of March 31,
 
 
 
2017
 
 
2016
 
 
 
 
 
 
 
 
Series A Preferred stock issued and outstanding (1)
  750,000 
  750,000 
 
    
    
Series B Preferred stock issued and outstanding (2)
  1,160,240 
  3,663,077 
 
    
    
Series C Preferred stock issued and outstanding (3)
  2,318,012 
  2,318,012 
 
    
    
Outstanding options under the 2016 (formerly 2008) and 1999 Stock Incentive Plans
  1,659,324 
  336,987 
 
    
    
Outstanding warrants to purchase common stock
  4,577,631 
  1,907,221 
 
    
    
Total
  10,465,207 
  8,975,297 
____________
    
    
(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
We believe the following recent accounting pronouncements or changes in accounting pronouncements are of significance or potential significance to the Company.
In May 2014, the Financial Accounting Standards Board (“(the FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes theall existing revenue recognition requirements, in ASC 605, Revenue Recognition. This ASU is based on the principle thatincluding most industry-specific guidance. The new standard requires a company to recognize revenue is recognized to depict the transfer ofwhen it transfers goods or services to customers in an amount that reflects the consideration to whichthat the entitycompany expects to be entitled in exchangereceive for those goods or services. The ASUstandard creates a five-step model that requires entities to exercise judgment when considering the recognition of revenue, including (1) identifying the contract(s) with the customer, (2) identifying the separate performance obligations in the contract, (3) determining the transaction price, (4) allocating the transaction price to the separate performance obligations, and (5) recognizing revenue as each performance obligation is satisfied. The standard also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including qualitative and quantitative information about contracts with customers, significant judgments and changes in judgments and assets recognized fromwith respect to costs incurred to obtain or fulfill a contract.The effective dateFASB has continued to issue accounting standards updates to clarify and provide implementation guidance related to Revenue from Contracts with Customers, including ASU 2016-08, Revenue from Contract with Customers: Principal versus Agent Considerations, ASU 2016-10,Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing, and ASU 2016-12,Revenue from Contracts with Customers: Narrow-Scope Improvements and Practical Expedients.These amendments address a number of areas, including a company’s identification of its performance obligations in a contract, collectability, non-cash consideration, presentation of sales tax and a company’s evaluation of the nature of its promise to grant a license of intellectual property and whether or not that revenue is recognized over time or at a point in time. These new standards will be effective for our fiscal year beginning April 1, 2018, with earlier adoption permitted. We have completed our initial assessment of the first annual period beginning after December 15, 2016, using onenew guidance and will be developing an implementation plan to evaluate the accounting and disclosure requirements under the new standards. Based on our assessment to date, we do not believe that adoption of two retrospective application methods. The Company is currently evaluatingTopic 606 and the related standards will have a material impact on its Consolidated Financial Statementsour consolidated financial statements. We have not yet finalized our transition method for adoption of adopting this ASU.the new standards.
 
In JuneAugust 2014, the FASB issued ASU No. 2014-10,2014-15, Development Stage Entities (Topic 915)Presentation of Financial Statements—Going Concern (Subtopic 205-40): EliminationDisclosure of CertainUncertainties about an Entity’s Ability to Continue as a Going Concern(ASU 2014-15). The ASU sets forth a requirement for management to evaluate whether there are conditions or events that raise substantial doubt about an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. Specifically, the amendments (1) provide a definition of the term substantial doubt; (2) require an evaluation every reporting period, including interim periods; (3) provide principles for considering the mitigating effect of management’s plans; (4) require certain disclosures when substantial doubt is alleviated as a result of consideration of management’s plans; (5) require an express statement or other disclosures when substantial doubt is not alleviated; and (6) require an assessment for a period of one year after the date the financial statements are issued or available to be issued. Substantial doubt about an entity’s ability to continue as a going concern exists when relevant conditions and events, considered in the aggregate, indicate that it is probable (as defined under ASC 450,Contingencies) that the entity will be unable to meet its obligations as they become due within one year after the date that the financial statements are issued or are available to be issued. If substantial doubt exists, the extent of the required disclosures depends on an evaluation of management’s plans (if any) to mitigate the going concern uncertainty. This evaluation should include consideration of conditions and events that are either known or are reasonably knowable at the date the financial statements are issued or are available to be issued, as well as whether it is probable that management's plans to address the substantial doubt will be implemented and, if so, whether it is probable that the plans will alleviate the substantial doubt. We adopted ASU 2014-15 for our fiscal year ended March 31, 2017 and Note 2,Basis of Presentation andGoing Concern, includes our disclosures regarding substantial doubt about our ability to continue as a going concern and the steps we have planned to alleviate such doubt for the twelve months following the date of the issuance of these Consolidated Financial Reporting Requirements, Including an Amendment to Variable Statements.
In April 2015, the FASB issued ASU No. 2015-03, Interest Entities Guidance in Topic 810, Consolidation- Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. The amendments in this ASU removerequire that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The amendments in this update are effective for financial statements issued for fiscal years ending after December 31, 2015, and interim periods within those fiscal years. We have adopted this ASU effective with our fiscal year beginning April 1, 2016, but have incurred no debt issuance costs since that date.
In November 2015, the FASB issued ASU No. 2015-17, Balance Sheet Classification of Deferred Taxes, which amends existing guidance on income taxes to require the classification of all incrementaldeferred tax assets and liabilities as non-current on the balance sheet. We have adopted this ASU effective with our fiscal year beginning April 1, 2017 on a prospective basis. We do not expect this ASU to have a material impact on our consolidated financial statements

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments - Overall: Recognition and Measurement of Financial Assets and Financial Liabilities. The updated guidance enhances the reporting requirementsmodel for development stage entities.  Among other changes,financial instruments, which includes amendments to address aspects of recognition, measurement, presentation and disclosure. The amendment to the standard is effective for financial statements issued for our fiscal year beginning April 1, 2018. We do not believe that this ASU will no longer require development stage entities to present inception-to-date information about income statement line items, cash flows,have a material impact on our consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases (ASC 842), which will replace the existing guidance in ASC 840, Leases, and equity transactions. Thewhich sets out the principles for the recognition, measurement, presentation and disclosure requirements in Topic 915of leases for both parties to a contract (i.e. lessees and lessors). The new standard requires 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 no longerdetermine 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 requiredaccounted for similar to the first annual periodcurrent guidance for operating leases. The standard is effective for financial statements issued for fiscal years beginning after December 15, 2014.2018, and interim periods within those fiscal years, with early adoption permitted. We are in the process of evaluating the impact that this new guidance will have on our consolidated financial statements.
In March 2016, the FASB issued ASU No. 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting which includes multiple provisions intended to simplify several aspects of accounting for share-based payment transactions, including income tax consequences, classification of awards as either equity or liabilities, an option to recognize gross stock compensation expense with actual forfeitures recognized as they occur, as well as certain classifications on the statement of cash flows. The Company’s adoptionstandard is effective for our fiscal year beginning April 1, 2017. We are evaluating the impact of this ASU will resulton our consolidated financial statements.
In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. The standardreduces the diversity in practice of how certain cash receipts and cash payments are presented and classified in the eliminationstatement of cash flows. The guidance addresses the following eight specific cash flow issues: (1) debt prepayment or debt extinguishment costs, (2) settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the inception-to-date information currently includedborrowing, (3) contingent consideration payments made after a business combination, (4) proceeds from the settlement of insurance claims, (5) proceeds from settlement of corporate-owned life insurance policies, including bank-owned life insurance policies, (6) distributions received from equity method investees, (7) beneficial interests in its Consolidated Statementssecuritization transitions and (8) separately identifiable cash flows and application of Operations and Comprehensive Loss, Cash Flows and Stockholders’ Deficitpredominance principle. The guidance will be effective with thefor our fiscal year beginning in April 2015.1, 2018, and early adoption is permitted. The guidance requires retrospective adoption. We are evaluating the impact of this ASU on our consolidated financial statements and related disclosures.
In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash that changes the presentation of restricted cash and cash equivalents on the statement of cash flows. Restricted cash and restricted cash equivalents must be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. This standard is effective for our fiscal year beginning April 1, 2018, but early adoption is permissible. As we do not currently have nor have we historically had restricted cash or restricted cash equivalents, we do not believe that this ASU will have a material impact on our consolidated financial statements. 
 
4.  Fair Value Measurements

The Company followsWe do not use derivative instruments for hedging of market risks or for trading or speculative purposes.
We follow the principles of fair value accounting as they relate to itsour financial assets and financial liabilities. Fair value is defined as the estimated exit price received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, rather than an entry price that represents the purchase price of an asset or liability.  Where available, fair value is based on observable market prices or parameters, or derived from such prices or parameters.  Where observable prices or inputs are not available, valuation models are applied.  These valuation techniques involve some level of management estimation and judgment, the degree of which is dependent on several factors, including the instrument’s complexity.  The required fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value into three broad levels is described as follows:

●
Level 1 — Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.

Level 1 — Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.
●
Level 2 — Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

●
●
Level 3 — Unobservable inputs (i.e., inputs that reflect the reporting entity’s own assumptions about the assumptions that market participants would use in estimating the fair value of an asset or liability) are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs.Level 2 — Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
●
Level 3 — Unobservable inputs (i.e.,inputs that reflect the reporting entity’s own assumptions about the assumptions that market participants would use in estimating the fair value of an asset or liability) are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs.

A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.  Where quoted prices are available in an active market, securities are classified as Level 1 of the valuation hierarchy. If quoted market prices are not available for the specific financial instrument, then the Company estimateswe estimate fair value by using pricing models, quoted prices of financial instruments with similar characteristics or discounted cash flows. In certain cases where there is limited activity or less transparency around inputs to valuation, financial assets or liabilities are classified as Level 3 within the valuation hierarchy.
 
F-16
The Company does not use derivative instruments for hedging of market risks or for trading or speculative purposes. In conjunction with thecertain Senior Secured Convertible Promissory Notes and related Exchange Warrant and Investment Warrantsthat we issued to Platinum inPLTG between October 2012 Februaryand July 2013 and March 2013 (see Note 9, Convertible Promissory Notes and Other Notes Payable),the related PLTG Warrants, and the potential issuance of thecontingently issuable Series A Exchange Warrant, (see Note 10, Capital Stock), all pursuant to the October 2012 Agreement, and the Senior Secured Convertible Promissory Note and related warrant issued to Platinum in July 2013,  the Companywe determined that the warrants included certain exercise price and other adjustment features requiring the warrants to be treated as liabilities, which were recorded at their issuance-date estimated fair value. The Companyvalues and marked to market at each subsequent reporting period. We determined the fair value of the warrant liabilityliabilities using a Monte Carlo simulation model with Level 3 inputs.(unobservable) inputs, since there was minimal comparable external market data available. Inputs used to determine fair value includeincluded the remaining contractual term of the notes,warrants, risk-free interest rates, expected volatility of the price of the underlying common stock, and the probability of a financing transaction that would trigger a reset in the warrant exercise price, and, in the case of the Series A Exchange Warrant, the probability of Platinum’sPLTG’s exchange of the shares of Series A Preferred it holds into shares of common stock. ChangesThe change in the fair value of these warrant liabilities have beenbetween March 31, 2015 and their subsequent elimination (described below) was recognized as a non-cash income or expense in the Consolidated StatementsStatement of Operations and Comprehensive Loss for the fiscal yearsyear ended March 31, 2014 and 2013.

The fair value hierarchy for liabilities measured at fair value on a recurring basis is as follows:

     Fair Value Measurements at Reporting Date Using 
  Total Carrying Value  Quoted Prices inActive Markets forIdentical Assets  Significant Other Observable Inputs  Significant Unobservable Inputs 
         
    (Level 1)  (Level 2)  (Level 3) 
March 31, 2014:            
 Warrant liability $2,973,900  $-  $-  $2,973,900 
March 31, 2013:                
 Warrant liability $6,394,000  $-  $-  $6,394,000 
2016.
 
DuringIn May 2015, we entered into an agreement with PLTG pursuant to which PLTG agreed to amend the fiscal years ended March 31, 2014PLTG Warrants to (i) fix the exercise price thereof at $7.00 per share, (ii) eliminate the exercise price reset features and 2013, there were no significant changes(iii) fix the number of shares of our common stock issuable thereunder.  This agreement and the related modification of the PLTG Warrants resulted in the elimination of the warrant liability with respect to the valuation models usedPLTG Warrants during the quarter ended June 30, 2015.
In January 2016, we entered into an Exchange Agreement with PLTG pursuant to which PLTG exchanged all outstanding PLTG Warrants plus the shares issuable pursuant to the Series A Preferred Exchange Warrant for purposesunregistered shares of determiningour Series C Convertible Preferred Stock (Series C Preferred) in the fair valueratio of 0.75 share of Series C Preferred for each warrant share cancelled. As a result of the Level 3 warrant liability.Exchange Agreement, all warrants previously issued to PLTG have been cancelled.

The changes in Level 3 liabilities measured at fair value on a recurring basis are as follows:

  (Level 3) 
  Warrant Liability 
    
Balance at March 31, 2012 $- 
     
Recognition of warrant liability upon issuance of Exchange and Investment Warrants to Platinum under October 2012 Agreement
  1,690,000 
Recognition of warrant liability in connection with Series A Exchange Warrant potentially issuable to Platinum under October 2012 Agreement
  3,068,200 
Mark to market loss included in net loss  1,635,800 
     
Balance at March 31, 2013  6,394,000 
     
Recognition of warrant liability upon issuance of Senior Secured Convertible Promissory Note and warrant to Platinum on July 26, 2013
  146,800 
Mark to market gain included in net loss  (3,566,900)
     
Balance at March 31, 2014 $2,973,900 
     
NoWe carried no assets or other liabilities were measured on a recurring basis at fair value at March 31, 20142017 or 2013.

 
5.  Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consist of the following:
 
 
 March 31,
 
 
 
 2017
 
 
 2016
 
 
 
 
 
 
 
 
 Insurance
 $85,800 
 $27,000 
 AV-101 materials and services
  352,800 
  - 
 Prepaid compensation under financial advisory
    
    
     and other consulting agreements
  - 
  337,500 
 Public offering expenses
  11,600 
  57,400 
 All other
  6,400 
  4,900 
 
    
    
 
 $456,600 
 $426,800 
 
  March 31, 
  2014  2013 
       
Insurance $21,800  $19,700 
Legal fees  3,400   3,400 
         
Interest receivable on note receivable from sale of common stock  2,800   1,600 
Technology license fees and all other  12,500   9,000 
         
  $40,500  $33,700 
 
6.  Property and Equipment

Property and equipment consists of the following:
  March 31, 
  2014  2013 
       
 Laboratory equipment $653,600  $649,500 
 Tenant improvements  27,000   - 
 Computers and network equipment  32,100   12,900 
 Office furniture and equipment  69,600   69,600 
   782,300   732,000 
         
 Accumulated depreciation and amortization  (606,000)  (551,300)
         
 Property and equipment, net $176,300  $180,700 
 
 
 March 31,
 
 
 
 2017
 
 
 2016
 
 
 
 
 
 
 
 
 Laboratory equipment
 $888,300 
 $659,000 
 Tenant improvements
  26,900 
  26,900 
 Computers and network equipment
  53,000 
  43,200 
 Office furniture and equipment
  79,700 
  69,500 
 
  1,047,900 
  798,600 
 
    
    
 Accumulated depreciation and amortization
  (761,400)
  (711,000)
 
    
    
 Property and equipment, net
 $286,500 
 $87,600 
 
In connection with the issuanceOther than certain leased office equipment, none of Senior Secured Convertible Promissory Notesour assets were subject to Platinum in July and August 2012,  and under the October 2012 Agreement with Platinum, the Company entered into a Security Agreement with Platinum under which the repayment of all amounts due under the terms of the various Senior Secured Convertible Promissory Notes is secured by the Company’s assets, including its tangible and intangible personal property, licenses, patent licenses, trademarks and trademark licenses (see Note 9, Convertible Promissory Notes and Other Notes Payable).

7.  AV-101 Acquisition

In November 2003, pursuant to an Agreement and Plan of Merger (the “Artemis Agreement”), the Company acquired Artemis Neurosciences (“Artemis”), a privately-held company also in the development stage, for the purpose of acquiring exclusive licenses to patents and other intellectual property related to the use and function of AV-101, a prodrug candidate then in nonclinical development, with the potential to treat neuropathic pain, depression, and other neurological diseases and disorders, epilepsy, Huntington’s disease and Parkinson’s disease. Pursuant to the Artemis Agreement, all shares of Artemis common stock were converted into shares of VistaGen California’s Series B-1 Preferred Stock, resulting in VistaGen California’s pre-merger issuance of 1,356,750 shares of its Series B-1 Preferred Stock, valued, pre-merger,third party security interests at $5.545 per share, resulting in the pre-merger purchase price of all outstanding shares of Artemis of $7,523,200. The total purchase price was allocated to AV-101 acquired in-process research and development and was expensed concurrent with the Artemis acquisition, since AV-101 required further research and development before the Company could commence clinical trials and did not have any proven alternative future uses.March 31, 2017 or 2016.
 
To date, the Company has received an aggregate of $8.8 million from the NIH for non-clinical and clinical development of AV-101. The Company successfully completed a Phase 1a clinical trial of AV-101 during the fiscal year ended March 31, 2012 and successfully completed a Phase 1b clinical trial of AV-101 in the fiscal year ended March 31, 2013.

8.7.  Accrued Expenses

Accrued expenses consist of:
  March 31, 
  2014  2013 
       
 Accrued professional services $135,700  $67,800 
 Accrued compensation  489,900   219,300 
 Accrued royalties and license fees  -   25,000 
 All other  -   30,800 
         
  $625,600  $342,900 

9.  Convertible Promissory Notes and Other Notes Payable
 
 
 March 31,
 
 
 
 2017
 
 
 2016
 
 
 
 
 
 
 
 
 Accrued professional services
 $37,000 
 $318,000 
 Accrued AV-101 development and related expenses
  402,400 
  186,000 
 Accrued compensation
  - 
  310,000 
 All other
  3,600 
  - 
 
    
    
 
 $443,000 
 $814,000 
 
8.  Notes Payable
The following table summarizes our notes payable:
 
 
March 31, 2017
 
 
March 31, 2016
 
 
 
Principal
 
 
Accrued
 
 
 
 
 
Principal
 
 
Accrued
 
 
 
 
 
 
Balance
 
 
Interest
 
 
Total
 
 
Balance
 
 
Interest
 
 
Total
 
 8.25% Note payable to insurance
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   premium financing company (current)
 $54,800 
 $- 
 $54,800 
 $- 
 $- 
 $- 
 
    
    
    
    
    
    
7.0% Note payable to Progressive Medical
 $- 
 $- 
 $- 
 $58,800 
 $12,000 
 $70,800 
   less: current portion
  - 
  - 
  - 
  (31,600)
  (12,000)
  (43,600)
7.0% Note payable - non-current portion
 $- 
 $- 
 $- 
 $27,200 
 $- 
 $27,200 
 
    
    
    
    
    
    
Total notes payable to unrelated parties
 $54,800 
 $- 
 $54,800 
 $58,800 
 $12,000 
 $70,800 
   less: current portion
  (54,800)
  - 
  (54,800)
  (31,600)
  (12,000)
  (43,600)
Net non-current portion
 $- 
 $- 
 $- 
 $27,200 
 $- 
 $27,200 
In June 2016, we paid in full the components$71,600 then-outstanding balance (principal and accrued but unpaid interest) of the Company’s convertible promissory notes and other notes payable:note we issued to Progressive Medical Research (PMR) in connection with our clinical development relationship with PMR.
 
  March 31, 2014  March 31, 2013 
  Principal  Accrued     Principal  Accrued    
  Balance  Interest  Total  Balance  Interest  Total 
Senior Secured 10% Convertible Promissory Notes issued to Platinum:
                  
Exchange Note issued on October 11, 2012 $1,272,600  $203,400  $1,476,000  $1,272,600  $61,700  $1,334,300 
Investment Note issued on October 11, 2012  500,000   79,900   579,900   500,000   24,200   524,200 
Investment Note issued on October 19, 2012  500,000   78,600   578,600   500,000   23,000   523,000 
Investment Note issued on February 22, 2013  250,000   29,400   279,400   250,000   2,600   252,600 
Investment Note issued on March 12, 2013  750,000   84,100   834,100   750,000   4,700   754,700 
   3,272,600   475,400   3,748,000   3,272,600   116,200   3,388,800 
                         
Convertible promissory note issued on July 26, 2013  250,000   17,700   267,700   -   -   - 
    Total Senior notes  3,522,600   493,100   4,015,700   3,272,600   116,200   3,388,800 
                         
Aggregate note discount  (2,085,900)  -   (2,085,900)  (1,963,100)  -   (1,963,100)
    Net Senior notes (non-current) $1,436,700  $493,100  $1,929,800  $1,309,500  $116,200  $1,425,700 
                         
                         
10% Convertible Promissory Notes (Unit Notes)                        
2013/2014 Unit Notes, due 7/31/14 $1,007,500  $35,700  $1,043,200  $-  $-  $- 
2014 Unit Note, due 3/31/15  50,000   200   50,200   -   -   - 
   1,057,500   35,900   1,093,400   -   -   - 
 Note discounts  (697,400)  -   (697,400)  -   -   - 
    Net convertible notes (all current) $360,100  $35,900  $396,000  $-  $-  $- 
                         
                         
Notes Payable to unrelated parties:                        
  7.5% Notes payable to service providers for                        
accounts payable converted to notes payable:                        
     Burr, Pilger, Mayer $90,400  $6,800  $97,200  $90,400  $-  $90,400 
     Desjardins  178,600   14,100   192,700   194,100   800   194,900 
     McCarthy Tetrault  360,900   24,800   385,700   403,100   1,700   404,800 
     August 2012 Morrison & Foerster Note A  918,200   87,900   1,006,100   937,400   -   937,400 
     August 2012 Morrison & Foerster Note B (1)
  1,379,400   195,200   1,574,600   1,379,400   60,100   1,439,500 
     University Health Network  (1)
  549,500   60,600   610,100   549,500   19,400   568,900 
   3,477,000   389,400   3,866,400   3,553,900   82,000   3,635,900 
        Note discount  (848,100)  -   (848,100)  (1,142,600)  -   (1,142,600)
   2,628,900   389,400   3,018,300   2,411,300   82,000   2,493,300 
 less: current portion  (1,130,100)  (133,600)  (1,263,700)  (450,300)  (2,500)  (452,800)
     non-current portion and discount $1,498,800  $255,800  $1,754,600  $1,961,000  $79,500  $2,040,500 
                         
   5.75%  and 10.25% Notes payable to insurance                        
premium financing company (current) $4,900  $-  $4,900  $4,200  $-  $4,200 
                         
  10% Notes payable to vendors for accounts                        
payable converted to notes payable $119,400  $34,700  $154,100  $128,800  $23,300  $152,100 
 less: current portion  (119,400)  (34,700)  (154,100)  (128,800)  (23,300)  (152,100)
     non-current portion $-  $-  $-  $-  $-  $- 
                         
  7.0% Note payable (August 2012) $58,800  $3,800  $62,600  $59,400  $-  $59,400 
 less: current portion  (15,800)  (3,800)  (19,600)  (8,100)  -   (8,100)
  7.0% Notes payable - non-current portion $43,000  $-  $43,000  $51,300  $-  $51,300 
                         
  Total notes payable to unrelated parties $3,660,100  $427,900  $4,088,000  $3,746,300  $105,300  $3,851,600 
 less: current portion  (1,270,200)  (172,100)  (1,442,300)  (591,400)  (25,800)  (617,200)
     non-current portion  2,389,900   255,800   2,645,700   3,154,900   79,500   3,234,400 
 less: discount  (848,100)  -   (848,100)  (1,142,600)  -   (1,142,600)
  $1,541,800  $255,800  $1,797,600  $2,012,300  $79,500  $2,091,800 
                         
                         
Notes payable to related parties:                        
  October 2012 7.5% Note to Cato Holding Co. $293,600  $30,800  $324,400  $293,600  $7,400  $301,000 
  October 2012 7.5% Note to Cato Research Ltd. (1)
  1,009,000   117,300   1,126,300   1,009,000   36,200   1,045,200 
   1,302,600   148,100   1,450,700   1,302,600   43,600   1,346,200 
            Note discount  (103,200)  -   (103,200)  (147,200)  -   (147,200)
     Total notes payable to related parties  1,199,400   148,100   1,347,500   1,155,400   43,600   1,199,000 
 less: current portion  (259,600)  (30,800)  (290,400)  (85,600)  (7,400)  (93,000)
    non-current portion and discount $939,800  $117,300  $1,057,100  $1,069,800  $36,200  $1,106,000 
____________                        
(1) Note and interest payable solely in restricted shares of the Company's common stock.
         
Senior Secured Convertible Promissory Notes issued to Platinum

On July 2, 2012 and on August 31, 2012, the Company issued to Platinum senior secured convertibleIn May 2016, we executed a promissory notes in the principal amount of $500,000 (the “July 2012 Platinum Note”) and $750,000 (the "August 2012 Platinum Note"), respectively.  The July 2012 Platinum Note and the August 2012 Platinum Note each accrued interest at the rate of 10% per annum and were due and payable on July 2, 2015.  The July 2012 Platinum Note and the August 2012 Platinum Note were each mandatorily convertible into securities that the Company might have issued in an equity, equity-based, or debt financing, or series of financings, subsequent to the issuance of the note resulting in gross proceeds to the Company of at least $3,000,000, excluding any additional investment by Platinum.

On October 11, 2012, the Company and Platinum entered into a Note Exchange and Purchase Agreement (the “October 2012 Agreement”) in which the July 2012 Platinum Note and the August 2012 Platinum Note (together, the “Existing Notes”), as well as the related accrued interest, were consolidated into and exchanged for a single senior secured convertible note in the amount of $1,272,577 (the “Exchange Note”) and Platinum agreed to purchase four additional 10% senior secured convertible promissory notes in the aggregate principal amount of $2.0 million (the “Investment Notes”), issuable over four separate $500,000 tranches between October 2012 and December 2012.  The first and second $500,000 Investment Notes, in the aggregate principal amount of $1.0 million, were purchased by Platinum on October 11, 2012 and October 19, 2012, respectively. The Company and Platinum also entered into an amended and restated Security Agreement to secure repayment of all obligations due and payable under the terms of the Investment Notes and Exchange Note.

On November 14, 2012 and January 31, 2013, the Company and Platinum entered into amendments to the October 2012 Agreement (the “NEPA Amendments”), pursuant to which the final two $500,000 tranches contemplated by the October 2012 Agreement were combined into a single Investment Note in the aggregate principal amount of $1.0 million (the “$1.0 Million Note”). Under the terms and conditions of the NEPA Amendment, Platinum agreed to purchase the $1.0 Million Note within five business days of the Company's notice to Platinum of the consummation of a debt or equity financing, or combination of financings, prior to February 15, 2013, resulting in gross proceeds to the Company of at least $1.0 million (the “Additional Financing Requirement”).  The Company satisfied the Additional Financing Requirement on February 12, 2013 (See Note 10, Capital Stock).  Effective February 22, 2013, the Company and Platinum entered into an additional amendment to the October 2012 Agreement pursuant to which Platinum agreed to purchase an Investment Note in the face amount of $250,000 on$117,500 in connection with certain insurance policy premiums. The note was payable in monthly installments of $12,100, including principal and interest, through March 2017. In February 22, 2013 and an additional Investment Note2017, we executed a promissory note in the face amount of $750,000 on or before March 12, 2013, which Investment Note was issued by the Company and purchased by Platinum on March 12, 2013.

The Exchange Note and each Investment Note (together, the “Notes”) accrue interest at a rate of 10% per annum and, subject to certain limitations and exceptions set forth in the Notes, unless converted earlier and voluntarily by Platinum, will be due and payable in restricted shares of the Company’s common stock on October 11, 2015, or three years from the date of issuance, as determined by the terms of the Investment Notes. Subject to certain terms and conditions, at maturity, all principal and accrued interest under the Notes will be paid by the Company through the issuance of restricted shares of common stock to Platinum.  Subject to certain potential adjustments set forth in the Notes, the number of restricted shares of common stock issuable as payment in full for each of the Notes at maturity will be calculated by dividing the outstanding Note balance plus accrued interest by $0.50 per share. Prior to maturity, the outstanding principal and any accrued interest on the Exchange Note and each of the Investment Notes is convertible, in whole or in part, at Platinum’s option into shares of the Company’s common stock at a conversion price of $0.50 per share, subject to certain adjustments. The conversion feature in each of the Notes constituted a beneficial conversion feature at the date of issuance.
As additional consideration for the purchase of the Investment Notes, the Company issued to Platinum warrants to purchase an aggregate of 2,000,000 shares of the Company’s common stock, issuable in separate tranches together with each Investment Note, of which a warrant to purchase 500,000 shares was issued to Platinum on October 11, 2012 and on October 19, 2012, a warrant to purchase 250,000 shares was issued to Platinum on February 22, 2013 and a warrant to purchase 750,000 shares was issued to Platinum on March 12, 2013 (each an “Investment Warrant”). In addition, the Company issued Platinum a warrant to purchase 1,272,577 shares of the Company’s common stock$60,700 in connection with the issuanceother insurance policy premiums. The note is payable in monthly installments of the Exchange Note (the “Exchange Warrant”). At issuance, the Platinum Exchange Warrant$6,300, including principal and each Investment Warrant had a terminterest, and has an outstanding balance of five years and an exercise price of $1.50 per share, subject to certain adjustments. Effective on May 24, 2013, the Company and Platinum entered into an Amendment and Waiver pursuant to which the Company agreed to reduce the exercise price of the Exchange Warrant and the Investment Warrants from $1.50 per share to $0.50 per share in consideration for Platinum’s agreement to waive its rights for any increase in the number of shares of common stock issuable under the adjustment provisions of the Exchange Warrant and the Investment Warrants that would otherwise occur from certain issuances and prospective issuances of Company securities, including issuances pursuant to the Autilion Financing and the 2012 Private Placement of Units (see Note 10, Capital Stock),$54,800 at a price of less than $1.50 per share.March 31, 2017.
 
 
Convertible and Promissory Notes and Other Indebtedness Converted into Series B Preferred
On July 26, 2013, the Company issued an additionalBetween May 2015 and September 2015, we extinguished outstanding indebtedness having a carrying value of approximately $15.9 million (principal plus unpaid accrued interest less unamortized debt discount), including all of our senior secured convertible promissory note in thenotes, all except $58,800 principal amount of $250,000 to Platinum (the “July 2013 Note”). The July 2013 Note matures on July 26, 2016our unsecured promissory notes, and accrues interest at a ratesubstantial portion of 10% per annum. Subject toother indebtedness, and certain termsadjustments thereto, that were either due and conditions, at maturity, all principalpayable or would have become due and accrued interest under the July 2013 Note will be paid by the Company through the issuance of restricted shares of common stock to Platinum. Subject to certain potential adjustments set forth in the July 2013 Note, the number of restricted shares of common stock issuable as payment in full for the July 2013 Note at maturity will be calculated by dividing the outstanding balance plus accrued interest of the July 2013 Note by $0.50 per share. In the same manner as the Exchange Note and the Investment Notes,payable prior to maturity, the outstanding principal and any accrued interest on the July 2013 Note is convertible, in whole or in part, at Platinum’s optionMarch 31, 2016, by converting all such indebtedness into shares of our Series B Preferred (as described more completely in Note 9,Capital Stock, under the Company’s restricted common stock at a conversion price of $0.50 per share, subject to certain adjustments. The conversion feature in the July 2013 Note constituted a beneficial conversion feature at the date of issuance. As additional consideration for the purchase of the July 2013 Note, the Company issued to Platinum a five-year warrant to purchase 250,000 shares of the Company’s common stock at an exercise price of $0.50 per share (the “captionJuly 2013 Warrant”)Series B Preferred Stock).

As a result of the beneficial conversion feature in the Exchange Note and the issuance of the Exchange Warrant, the Company Evaluating each note or debt class separately, wedetermined that the cancellationconversion of each of the Existing Notes and the issuance of the Exchange Notenotes or other debt instruments into Series B Preferred should be accounted for as an extinguishment of debt. The CompanyFurther, considering the direct exchangeability of the Series B Preferred shares into shares of our common stock, the 10% dividend applicable to the Series B Preferred prior to such exchange, and other factors, we determined that the fair value of a share of Series B Preferred issued pursuant to the Exchange Note, includingconversion of each of the beneficial conversion feature,notes or other debt instruments was $2,355,800 usingequal to the market value of a Monte Carlo simulation model and inception-date assumptions including market priceshare of our common stock of $0.75 per share; stock price volatility of 85%; risk-free interest rate of 0.67%;on the conversion price of $0.50 per share; note term of 3 years; 75% probability that conversion would occur at or immediately prior to maturity; and 25% probability that an event requiring eitherdate. Because the repayment of the Exchange Note or its conversion into common stock would occur prior to maturity.  The fair value of the Exchange Note at inception represented a substantial premium over its face value.  In accordance withSeries B Preferred into which the provisions of ASC 470-20, Debt with Conversion and Other Options, debt instruments were converted in all cases exceeded the Company recognized the premium in excesscarrying value of the face value, $1,083,200, as a non-cash charge todebt, we recorded an aggregate loss on early extinguishment of debt of $26,700,200, in the first and second quarters of the fiscal year ended March 31, 2016, as reflected in the accompanying Consolidated Statement of Operations and Comprehensive IncomeLoss for the year ended March 31, 2013that period. The carrying values and as a credit to additional paid-in capital and recorded the liability for the Exchange Note at its face value.

Subject to limited exceptions, which include issuances of common stock pursuant to the 2012 Private Placement of Units (see Note 10, Capital Stock), the Exchange Warrant, each of the Investment Warrants and the July 2013 Warrant include certain exercise price reset and anti-dilution protection features in the event that the Company issues other shares of common stock during the five-year term of the warrants at a price less than their initial $1.50 per share, or  $0.50 per share in the case of the July 2013 Warrant, exercise price. As a result of these provisions, the Exchange Warrant, the Investment Warrants and the July 2013 Warrant do not meet the criteria set forth in ASC 815, Derivatives and Hedging, to be treated as equity instruments. Consequently, the Company recorded the Exchange Warrant, each of the Investment Warrants and the July 2013 Warrant as liabilities at their fair value, which was estimated at the issuance date using a Monte Carlo simulation model and the following assumptions:
                 July 2013 
  Exchange  Investment Warrants Issued on:  Warrant 
  Warrant  10/11/2012  10/19/2012  2/22/2013  3/12/2013  7/26/2013 
                   
Market price of common stock $0.75  $0.75  $0.75  $0.60  $0.80  $0.75 
Exercise price $1.50  $1.50  $1.50  $1.50  $1.50  $0.50 
Risk-free interest rate  0.67%  0.67%  0.67%  0.84%  0.88%  1.36%
Volatility  85.0%  85.0%  85.0%  85.0%  85.0%  96.9%
Term (years)  5.0   5.0   5.0   5.0   5.0   5.0 
Dividend rate  0%  0%  0%  0%  0%  0%
                         
Fair value per share $0.53  $0.53  $0.53  $0.39  $0.52  $0.59 
Number of shares  1,272,577   500,000   500,000   250,000   750,000   250,000 
Fair value at date of issuance $672,000  $264,000  $264,000  $97,000  $393,000  $146,800 

The fair value of the Exchange Warrant at the date of issuance was recorded as a liability and as a corresponding charge to loss on early extinguishment of debt in the accompanying Consolidated Statement of Operations and Comprehensive Income for the year ended March 31, 2013.  The fair value of each Investment Warrant and the July 2013 Warrant at the date of issuance was recorded as a liability and as a corresponding discount to the related Investment Note or the July 2013 Note.  Subject to limitations of the absolute amount of discount attributable to each Investment Note and the July 2013 Note, the Company treated the issuance-date intrinsic value of the beneficial conversion feature embedded in each Investment Note and the July 2013 Note as an additional component of the discount attributable to each note and recorded a discount attributable to the beneficial conversion feature for each note.  The Company amortizes the aggregate discount attributable to each of the Investment Notes and the July 2013 Note using the interest method over the respective term of each note.  The table below summarizes the components of the discountloss on extinguishment of our notes and the effective interest rate at inception for the Exchange Note, each of the Investment Notes and the July 2013 Note.
  Inception Date Carrying Value of 
  Exchange  Investment Notes Issued on:  July 2013 
  Note  10/11/2012  10/19/2012  2/22/2013  3/12/2013  Note 
                   
Face value $1,272,600  $500,000  $500,000  $250,000  $750,000  $250,000 
Discount attributable to:                        
   Fair value of warrant  -   (264,000)  (264,000)  (97,000)  (393,000)  (146,800)
   Beneficial conversion feature  -   (231,000)  (231,000)  (147,000)  (349,500)  (100,700)
                         
Inception date carrying value $1,272,600  $5,000  $5,000  $6,000  $7,500  $2,500 
                         
Effective Interest Rate  10.00%  159.05%  159.05%  127.27%  159.05%  159.05%
The fair value of the Exchange Warrant, the Investment Warrants and the July 2013 Warrant was re-measured as of March 31, 2014 and 2013 at an aggregate of $915,300 and $1,988,000; respectively. The aggregate decrease in fair value since March 31, 2013, or inception in the case of the July 2013 Warrant, of $1,219,500 and the aggregate increase in fair value of $298,000 from inception through March 31, 2013 is reflected in the Change in Warrant Liability in the accompanying Consolidated Statement of Operations and Comprehensive Income for the years ended March 31, 2014 and 2013.

10% Convertible Notes Issued in Connection with 2013/2014 Unit Private Placement
As described more completely in the section entitled 2013/2014 Unit Private Placement in Note 10, Capital Stock, between August 2013 and March 2014, the Company issued to accredited investors 10% convertible promissory notes (the “2013/2014Unit Notes”) in an aggregate face amount of $1,007,500 in connection with its private placement of Units. The 2013/2014 Unit Notes mature on July 30, 2014 and each 2013 Unit Note and its related accrued interest is convertible into shares of the Company’s common stock at a fixed conversion price of $0.50 per share at or prior to maturity, at the option of the accredited investor.  The Company has the right to prepay the 2013 Unit Notes and accrued interest in cash prior to maturity without penalty.
The Company allocated the proceeds from the sale of the units to the 2013/2014 Unit Notes, the common stock and the warrants comprising the Units based on the relative fair value of the individual securities in each Unit on the dates of the Unit sales. Based on the short-duration of the 2013/2014 Unit Notes and their other terms, the Company determined that the fair value of the 2013/2014 Unit Notes at the date of issuance was equal to their face value. Accordingly, the Company recorded an initial discount attributable to each 2013/2014 Unit Note for an amount representing the difference between the face value of the 2013/2014 Unit Note and its relative value. Additionally, the 2013/2014 Unit Notes contain an embedded conversion feature, certain of which had an intrinsic value at the issuance date, which value the Company treated as an additional discount attributable to those 2013/2014 Unit Notes, subject to limitations on the absolute amount of discount attributable to each 2013/2014 Unit Note. The Company recorded a corresponding credit to additional paid-in capital, an equity account in the Consolidated Balance Sheet, attributable to the beneficial conversion feature. The Company amortizes the aggregate discount attributable to each of the 2013/2014 Unit Notes using the interest method over the respective term of each Unit Note.  Based on their respective discounts, the weighted average effective interest rate attributable to the 2013/2014 Unit Notes is 464.1%.

10% Convertible Note Issued in Connection with 2014 Unit Private Placement

As described more completely in the section entitled 2014 Unit Private Placement in Note 10, Capital Stock, during March 2014, the Company issued to an accredited investor a 10% convertible note (the “2014Unit Note”) in the face amount of $50,000 in connection with its private placement offering of Units. (See Note 17, Subsequent Events, for information regarding additional notes issued in connection with the 2014 Unit Private Placement.) The 2014 Unit Note matures on March 31, 2015 (“Maturity”) and the 2014 Unit Note and its related accrued interest (the “Outstanding Balance”) is convertible into shares of the Company’s common stock at a conversion price of $0.50 per share at or prior to maturity, at the option of the investor, or, upon the Company’s consummation of either (i) an equity or equity-based public offering registered with the U.S. Securities and Exchange Commission (“SEC”), or (ii) an equity or equity-based private financing, or series of such financing transactions, not registered with the SEC, in each case resulting in gross proceeds to the Company of at least $10.0 million prior to Maturity (a “Qualified Financing”), the Outstanding Balance of the 2014 Unit Note will automatically convert into the securities sold in the Qualified Financing, based on the following formula: (the Outstanding Balance as of the closing of the Qualified Financing) x 1.25 / (the per security price of the securities sold in the Qualified Financing). This automatic conversion feature results in a contingent beneficial conversion feature which will be recorded upon the consummation of a Qualified Financing.

The Company allocated the proceeds from the sale of the 2014 unit to the 2014 Unit Notes, the common stock and the warrants comprising the units based on the relative fair value of the individual securities in the unit on the date of the unit sale. Based on the short-duration of the 2014 Unit Note and its other terms, the Company determined that the fair value of the 2014 Unit Note at the date of issuance was equal to its face value. Accordingly, the Company recorded an initial discount attributable to the 2014 Unit Note for an amount representing the difference between the face value of the 2014 Unit Note and its relative value. Additionally, the 2014 Unit Note contains an embedded conversion feature which had an intrinsic value at the issuance date.  The Company treated the intrinsic value of the conversion feature as an additional discount to the 2014 Unit Note. The Company recorded a corresponding credit to additional paid-in capital, an equity account in the Consolidated Balance Sheet, attributable to the beneficial conversion feature. The Company amortizes the aggregate discount attributable to the 2014 Unit Note using the interest method over the term of the note.  Based on its aggregate discount, the effective interest rate attributable to the 2014 Unit Note is 123.8%.
2012 Convertible Promissory Notes

On February 28, 2012, the Company completed a private placement of convertible promissory notes to accredited investors in the aggregate principal amount of $500,000 (the "2012 Notes").  Each 2012 Note accrued interest at the rate of 12% per annum and was to mature on the earlier of (i) twenty-four months from the date of issuance, or (ii) the consummation of an equity, equity-based, or series of equity-based financings resulting in gross proceeds to the Company of at least $4.0 million (the “Qualified Financing Threshold”).  The holders of the 2012 Notes had the right to voluntarily convert the outstanding principal amount of the 2012 Notes and all accrued and unpaid interest (the “Outstanding Balance”) at any time prior to maturity into that number of restricted shares of the Company’s common stock equal to the Outstanding Balance, divided by $3.00 (the "Conversion Shares").  In addition, in the event the Company consummated a financing equal to or exceeding the Qualified Financing Threshold, and the price per unit of the securities sold, or price per share of common stock issuable in connection with such financing, was at least $2.00 (a “Qualified Financing”), the Outstanding Balance would have automaticallyindebtedness converted into such securities, including warrants, that were issued in the Qualified Financing, the amount of which would have been determined according to the following formula: (Outstanding Balance at the closing date of the Qualified Financing) x (1.25) / (the per security price of the securities sold in the Qualified Financing).
On November 15, 2012, the holders of the 2012 Notes entered into an Exchange Agreement with the Company (the "Exchange Agreement"). Under the terms of the Exchange Agreement, (i) the current amount due under the terms of the 2012 Notes, $678,600, which amount included all accrued interest as well as additional consideration for the conversion, was exchanged for a total of 1,357,281 restricted shares of the Company's common stock and five-year warrants to purchase 678,641 restricted shares of the Company's common stock at an exercise price of $1.50 per share (the "Note Exchange Securities"). Additionally, the Company issued a five-year warrant to purchase 72,000 restricted shares of the Company’s common stock at an exercise price of $1.50 per share as partial compensation to a placement agent that had placed certain of the 2012 Notes. The Company recorded the issuance of the warrants with a charge to interest expense of $28,200 and a corresponding credit to additional paid-in capital.

The Company determined that the exchange of the 2012 Notes into restricted shares of its common stock should be accounted for as an extinguishment of debt.  The Company recognized as consideration in the exchange the sum of (i) the fair value of the restricted common stock issued in the exchange at the quoted market price of $0.70 per share on the date of the exchange, or $950,100, and (ii) the fair value of the warrants, which was determined to be $0.39 per share, or $265,500, using the Black Scholes Option Pricing Model and the following assumptions: market price per share: $0.70; exercise price per share: $1.50; risk-free interest rate: 0.62%; contractual term: 5 years; volatility: 89.5%; expected dividend rate: 0%.  The aggregate consideration less the net carrying value of the 2012 Notes, including accrued interest, resulted in the recognition of $1,145,100 as a non-cash loss on early extinguishment of debt in the accompanying Consolidated Statements of Operations and Comprehensive Income for theSeries B Preferred during our fiscal year ended March 31, 2013.  The warrants issued to the placement agent were valued using the same assumptions as used for the warrants issued to the exchanging note holders.
Restructuring of Note Payable to Morrison & Foerster

On May 5, 2011, the Company and Morrison & Foerster LLP (“Morrison & Foerster”), then the Company’s general corporate and intellectual property counsel, amended a previously outstanding note (the “Original Note”) issued by the Company in payment of legal services (the “Amended Note”).  Under the Amended Note, the principal balance of the Original Note was increased to $2,200,000, interest accrued at the rate of 7.5% per annum, and the Company was required to make an additional payment of $100,000 within three business days of the date of the Amended Note. The Company made the required $100,000 payment2016 are summarized in a timely manner.

On August 31, 2012, the Company restructured the Amendedtable presented in Note (the “9,Restructuring AgreementCapital Stock,”).  Pursuant to the Restructuring Agreement, the Company issued to Morrison & Foerster two new unsecured promissory notes to replace the Amended Note, one in the principal amount of $1,000,000 ("Replacement Note A") and the other in the principal amount of $1,379,400 ("Replacement Note B") (together, the "Replacement Notes"); amended an outstanding warrant to purchase restricted shares of the Company’s common stock (the “Amended M&F Warrant”); and issued a new warrant to purchase restricted shares of the Company’s common stock (the “New M&F Warrant”).  Under the terms of the Restructuring Agreement, the Amended Note was cancelled and all of the Company's past due payment obligations under the Amended Note were satisfied.  The Company made a paymentcaptionConversion of $155,000 to Morrison & FoersterDebt Securities into Series B Preferred and Loss on August 31, 2012 pursuant to the termsExtinguishment of the Amended Note, and issued the Replacement Notes, each dated as of August 31, 2012.  Both Replacement Notes accrue interest at the rate of 7.5% per annum and are due and payable on March 31, 2016.  Replacement Note A required Debt.monthly payments of $15,000 per month through March 31, 2013, and requires $25,000 per month thereafter until maturity.  Payment of the principal and interest on Replacement Note B will be made solely in restricted shares of the Company’s common stock pursuant to Morrison & Foerster’s surrender from time to time of all or a portion of the principal and interest balance due on Replacement Note B in connection with its exercise of the New M&F Warrant, at an exercise price of $1.00 per share,and concurrent cancellation of indebtedness and surrender of Replacement Note B; provided, however, that Morrison & Foerster shall have the option to require payment of Replacement Note B in cash upon the occurrence of a change in control of the Company or an event of default, and only in such circumstances. 

The Company treated the aggregate of the incremental value of the Amended M&F Warrant and the fair value of the New M&F Warrant as a discount to the Replacement Notes.  Under the terms of the Amended M&F Warrant, the Company amended the warrant to purchase 425,000 restricted shares of its common stock originally issued to Morrison & Foerster on March 15, 2010 to extend the expiration date of the warrant from December 31, 2014 to September 15, 2017 and to provide for exercise by paying cash or by the cancellation in whole or in part of the Company’s indebtedness under either of the Replacement Notes.  The Company determined that the incremental value of the Amended M&F Warrant was $121,650 at the modification date using the Black-Scholes Option Pricing Model and the following assumptions:

Assumption: Pre-modification  Post-modification 
Market price per share
 
$
0.94
  
$
0.94
 
Exercise price per share
 
$
2.00
  
$
2.00
 
Risk-free interest rate
  
0.25%
   
0.60%
 
Expected term in years
  
2.33
   
5.04
 
Volatility
  
77.9%
   
88.8%
 
Dividend rate
  
0.0%
   
0.0%
 
         
Weighted Average Fair Value per share
 
$
0.24
  
$
0.52
 

The New M&F Warrant is exercisable for the number of restricted shares of the Company’s common stock equal to the principal and accrued interest due under the terms of Replacement Note B divided by the warrant exercise price of $1.00 per share.  At the August 31, 2012 date of grant, the New M&F Warrant was exercisable to purchase 1,379,376 restricted shares of the Company’s common stock.  The New M&F Warrant effectively permits exercise only by the cancellation in whole or in part of the Company’s indebtedness under either of the Replacement Notes. The New M&F Warrant expires on September 15, 2017. The Company determined the fair value of the New M&F Warrant to be $0.64 per share, or $876,800, at the date of grant using the Black Scholes Option Pricing Model and the following assumptions:  market price per share: $0.94; exercise price per share: $1.00; risk-free interest rate: 0.61%; contractual term: 5.04 years; volatility: 88.8%; expected dividend rate: 0%.  The note discounts totaling $1,197,900, including the $199,500 remaining unamortized discount recorded prior to the modification, will be amortized to interest expense using the effective interest method over the term of the Replacement Notes. The aggregate amount of the incremental fair value of the Amended M&F Warrant and the fair value of the New M&F Warrant, $998,450, was recognized as equity and was credited to additional paid-in capital in the accompanying Consolidated Balance Sheets. The effective interest rate on the Replacement Notes at the date of issuance was 32.3%, based on the stated interest rate, the amount of discount, and the term of the Replacement Notes. Through March 31, 2014, the Company has adjusted the New M&F Warrant to increase the number of restricted shares available for purchase by 195,191 shares, based on interest accrued on Replacement Note B through that date. The Company has recorded the fair value of the additional shares as a charge to interest expense and a corresponding credit to additional paid-in capital.

Restructuring of Accounts Payable to Cato Research Ltd.

On October 10, 2012, the Company issued to Cato Research Ltd ("CRL"), a contract research and development partner and a related party: (i) an unsecured promissory note in the initial principal amount of $1,009,000, which is payable solely in restricted shares of the Company’s common stock and which accrues interest at the rate of 7.5% per annum, compounded monthly (the “CRL Note”), as payment in full for all contract research and development services and regulatory advice (“CRO Services”) rendered by CRL to the Company and its affiliates through December 31, 2012 with respect to the non-clinical and clinical development of AV-101, and (ii) a five-year warrant to purchase, at a price of $1.00 per share, 1,009,000 restricted shares of the Company’s common stock, the amount equal to the sum of the principal amount of the CRL Note, plus all accrued interest thereon, divided by $1.00 per share (the “CRL Warrant”). The principal amount of the CRL Note may, at the Company’s option, be automatically increased as a result of future CRO Services rendered by CRL to the Company and its affiliates from January 1, 2013 to June 30, 2013.  The CRL Note is due and payable on March 31, 2016 and is payable solely by CRL's surrender from time to time of all or a portion of the principal and interest balance due on the CRL Note in connection with its concurrent exercise of the CRL Warrant, provided, however, that CRL will have the option to require payment of the CRL Note in cash upon the occurrence of a change in control of the Company or an event of default, and only in such circumstances.

The Company determined that the cancellation of the accounts payable to CRL for CRO Services and the related issuance of the CRL Note should be accounted for as an extinguishment of debt.  Accordingly, the Company recorded the CRL Note at its fair value of $857,900 based on the present value of its scheduled cash flows and assumptions regarding market interest rates for unsecured debt of similar quality. The Company determined the fair value of the CRL Warrant to be $0.48 per share, or $486,164, using the Black Scholes Option Pricing Model and the following assumptions: market price per share: $0.75; exercise price per share: $1.00; risk-free interest rate: 0.66%; contractual term: 5 years; volatility: 89.9%; expected dividend rate: 0%.  The Company recognized the difference between the sum of the fair values of the CRL Note and the CRL Warrant less the accounts payable balance due to CRL, $335,100, as a non-cash loss on early extinguishment of debt in the accompanying Consolidated Statements of Operations and Comprehensive Income for the year ended March 31, 2013.  The fair value of the warrant, $486,164, which is treated as an equity instrument, was credited to additional paid in capital at the issuance date. The difference between the face value of the CRL Note and its fair value, $151,100, has been treated as a discount to the note and is being amortized over the term of the note using the interest method, resulting in an effective interest rate of 12.1% on the CRL Note.  Through March 31, 2014, the Company has adjusted the CRL Warrant to increase the number of restricted shares available for purchase by 117,329 shares, based on interest accrued on the CRL Note through that date. The Company has recorded the fair value of the additional shares as a charge to interest expense and a corresponding credit to additional paid-in capital.

Issuance and Restructuring of Long-Term Promissory Note to Cato Holding Company

In April 2011, all amounts owed by the Company to Cato Holding Company ("CHC") and its affiliates, were consolidated into a single note, in the principal amount of $352,300 (the “2011 CHC Note”).  Concurrently, CHC released all of its security interests in certain of the Company’s personal property.  

On October 10, 2012, the Company and CHC restructured the 2011 CHC Note.  The 2011 CHC Note was cancelled and exchanged for a new unsecured promissory note in the principal amount of $310,400 (the “2012 CHC Note”) and a five-year warrant to purchase 250,000 restricted shares of the Company’s common stock at a price of $1.50 per share (the “CHC Warrant”).  The 2012 CHC Note accrues interest at a rate of 7.5% per annum and is due and payable in monthly installments of $10,000, beginning November 1, 2012 and continuing until the outstanding balance is paid in full.

The Company determined that the cancellation of the 2011 CHC Note and the issuance of the 2012 CHC Note should be accounted for as an extinguishment of debt.  Accordingly, the Company recorded the 2012 CHC Note at its fair value of $291,100 based on the present value of its scheduled cash flows and assumptions regarding market interest rates for unsecured debt of similar quality. The Company determined the fair value of the CHC Warrant to be $0.48 per share, or $120,500, using the Black Scholes Option Pricing Model and the following assumptions: market price per share: $0.75; exercise price per share: $1.50; risk-free interest rate: 0.66%; contractual term: 5 years; volatility: 89.9%; expected dividend rate: 0%. The Company recognized the difference between the sum of the fair values of the 2012 CHC Note and the CHC Warrant less the carrying value of the 2011 CHC Note, $119,100, as a non-cash loss on early extinguishment of debt in the accompanying Consolidated Statements of Operations and Comprehensive Income for the year ended March 31, 2013.  The fair value of the warrant, $120,500, which is treated as an equity instrument, was credited to additional paid in capital at the issuance date. The difference between the face value of the 2012 CHC Note and its fair value, $19,300, has been treated as a discount to the note and is being amortized over the term of the note using the interest method, resulting in an effective interest rate of 11.9% on the CHC 2012 Note.

Restructuring of Accounts Payable to University Health Network

On October 10, 2012, the Company issued to the University Health Network ("UHN"): (i) an unsecured promissory note in the principal amount of $549,500, which is payable solely in restricted shares of the Company’s common stock and which accrues interest at the rate of 7.5% per annum, as payment in full for all sponsored stem cell research and development activities by UHN and Gordon Keller, Ph.D. under the SCRA through September 30, 2012 (the “UHN Note”), and (ii) a five-year warrant to purchase, at a price of $1.00 per share, 549,500 restricted shares of the Company’s common stock, the amount equal to the sum of the principal amount of the UHN Note, plus all accrued interest thereon, divided by $1.00 per share (the “UHN Warrant”). The UHN Note is due and payable on March 31, 2016 and is payable solely by UHN's surrender from time to time of all or a portion of the principal and interest balance due on the UHN Note in connection with its concurrent exercise of the UHN Warrant, provided, however, that UHN will have the option to require payment of the UHN Note in cash upon the occurrence of a change in control of the Company or an event of default, and only in such circumstances.
 
F-26
The Company determined that the restructuring of the accounts payable to UHN under the SRCA, defined below, and the related issuance of the UHN Note should be accounted for as an extinguishment of debt.  Accordingly, the Company recorded the UHN Note at its fair value of $467,211 based on the present value of its scheduled cash flows and assumptions regarding market interest rates for unsecured debt of similar quality. The Company determined the fair value of the UHN Warrant to be $0.48 per share, or $264,775, using the Black Scholes Option Pricing Model and the following assumptions: market price per share: $0.75; exercise price per share: $1.00; risk-free interest rate: 0.66%; contractual term: 5 years; volatility: 89.9%; expected dividend rate: 0%. The Company recognized the difference between the sum of the fair values of the UHN Note and the UHN Warrant less the accounts payable balance due to UHN, $182,500, as a non-cash loss on early extinguishment of debt in the accompanying Consolidated Statements of Operations and Comprehensive Income for the year ended March 31, 2013. The fair value of the warrant, $264,775, which is treated as an equity instrument, was credited to additional paid in capital at the issuance date. The difference between the face value of the UHN Note and its fair value has been treated as a discount to the note and is being amortized over the term of the note using the interest method, resulting in an effective interest rate of 11.3% on the UHN Note.  Through March 31, 2014, the Company has adjusted the UHN Warrant to increase the number of restricted shares available for purchase by 60,633 shares, based on interest accrued on the UHN Note through that date. The Company has recorded the fair value of the additional shares as a charge to interest expense and a corresponding credit to additional paid-in capital.

Issuance of Long-Term Notes and Cancellation of Amounts Payable

On February 25, 2011, the Company issued to Burr, Pilger, and Mayer, LLC (“BPM”) an unsecured promissory note in the principal amount of $98,674 for amounts payable in connection with valuation services provided to the Company by BPM.  The BPM note bears interest at the rate of 7.5% per annum and has payment terms of $1,000 per month, beginning March 1, 2011 and continuing until all principal and interest are paid in full.  In addition, a payment of $25,000 shall be due upon the sale of the Company or upon the Company completing a financing transaction of at least $5.0 million during any three-month period, with the payment increasing to $50,000 (or the amount then owed under the note, if less) upon the Company completing a financing of over $10.0 million.
On April 29, 2011, the Company issued to Desjardins Securities, Inc. (“Desjardins”) an unsecured promissory note in the principal amount of CDN $236,000 for amounts payable for legal fees incurred by Desjardins in connection with investment banking services provided to the Company by Desjardins.  The Desjardins note bears interest at 7.5% and will be due, along with all accrued but unpaid interest on the earliest of (i) June 30, 2014, (ii) the consummation of a Change of Control, as defined in the Desjardins note, and (iii) any failure to pay principal or interest when due.  The Company was required to make payments of CDN $4,000 per month beginning May 31, 2011, increasing to CDN $6,000 per month on January 31, 2012. Beginning on January 1, 2012, the Company is also required to make payments equal to one-half of one percent (0.5%) of the net proceeds of all private or public equity financings closed during the term of the note. The note payable to Desjardins is due on June 30, 2014.
On May 5, 2011, the Company issued to McCarthy Tetrault LLP (“McCarthy”) an unsecured promissory note in the principal amount of CDN $502,797 for the amounts payable in connection with Canadian legal services provided to the Company.  The McCarthy note bears interest at 7.5% and will be due, along with all accrued but unpaid interest on the earliest of (i) June 30, 2014, (ii) the consummation of a Change of Control, as defined in the McCarthy note, and (iii) any failure to pay principal or interest when due.  The Company was required to make payments of CDN $10,000 per month beginning May 31, 2011, which payment amounts increased to CDN $15,000 per month on January 31, 2012. Beginning on January 1, 2012, the Company is also required to make payments equal to one percent (1%) of the net proceeds of all private or public equity financings closed during the term of the note.  The note payable to McCarthy is due on June 14, 2014.  However, see Note 17, Subsequent Events, regarding an amendment extending the maturity date of the McCarthy note and modifying other terms.
On August 30, 2012, the Company issued a promissory note in the principal amount of $60,000 and 15,000 restricted shares of its common stock valued at a market price of $0.94 per share to Progressive Medical Research in settlement of past due obligations for clinical research services in the amount of $79,900. Under the terms of the settlement, the Company also agreed to make monthly cash payments of $5,000 in August 2012 through December 2012. The promissory note bears interest at 7% per annum and requires payments of $1,000 per month beginning January 15, 2013 until all principal and interest is paid in full.  The note requires payment in full upon the sale of all or substantially all of the Company’s assets or upon the Company completing a financing transaction, or series of transactions, resulting in gross proceeds to the Company of at least $4.0 million in any three-month period, excluding proceeds from stock option or warrant exercises. The Company charged the loss on the settlement to interest expense.
On October 12, 2009, the Company issued a promissory note payable to the Regents of the University of California (“UC”) with a principal balance of $90,000 in exchange for the cancellation of certain amounts payable under a research collaboration agreement (the “UC Note 1”). UC Note 1 was payable in monthly principal installments of $15,000 through May 30, 2010. Interest on UC Note 1 at 10% per annum was payable on May 30, 2010. If the Company had completed an initial public offering of its stock prior to May 30, 2010, the remaining balance of UC Note 1 would have been payable within 10 business days after the initial public offering was consummated.  The Company made the first two monthly installments totaling an aggregate of $30,000.  On February 25, 2010, the Company issued a promissory note payable to UC having a principal balance of $170,000 in exchange for the cancellation of the remaining $60,000 principal balance of UC Note 1 and certain amounts payable under a research collaboration agreement (“UC Note 2”). UC Note 2 was payable in monthly principal installments of $15,000 through May 31, 2010, with the remaining $125,000 plus all accrued and unpaid interest due on or before June 30, 2010. If the Company had completed an initial public offering of its stock prior to June 30, 2010, the remaining balance of the Note would have been payable within 10 business days after the initial public offering was consummated.  On June 28, 2010, the Company amended UC Note 2 to extend the payment terms as follows: monthly installments of $15,000 payable through May 31, 2010, $10,000 due on June 30, 2010 and $115,000 plus all accrued and unpaid interest due and payable on or before August 30, 2010.  On August 25, 2010 and again on October 30, 2010, the Company amended UC Note 2 to extend the date of the final installment payment to be made under UC Note 2 to December 31, 2010 while adding a strategic premium to preserve license rights under the research collaboration agreement in exchange for an increase in the then-outstanding principal amount of UC Note 2 by $15,000 to $125,000. On December 22, 2010, the Company amended UC Note 2 a fourth time and decreased the monthly payment amount to $5,000 with payments continuing until the outstanding balance of principal and interest is paid in full. The provision requiring the payment of the outstanding balance within 10 business days following the closing of an initial public offering remains unchanged.
On March 1, 2010, the Company issued a 10% promissory note with a principal balance of $75,000 to National Jewish Health in exchange for the cancellation of certain amounts payable for accrued royalties.  The principal balance plus all accrued and unpaid interest was initially due on or before December 31, 2010 (“March 2010 Note”). If the Company had completed an initial public offering of its stock prior to any installment dates, $25,000 of the remaining balance of the March 2010 Note would have been due on June 30, 2010, and any remaining principal balance and all accrued and unpaid interest would have been payable within 90 business days after the initial public offering was consummated.  On December 28, 2010, the Company amended the March 2010 Note and extended its maturity date to the first to occur of April 30, 2011 or 30 days following the closing of a financing with gross proceeds of $5,000,000 or more.  The Company has been in extended discussions with the holder of the March 2010 Note and anticipates that the Note will be cancelled in favor of certain amounts payable to the Company equal to or greater than the outstanding balance of the Note.
On August 13, 2010, the Company issued a 10% promissory note with a principal balance of $40,962 to MicroConstants, Inc. in exchange for the cancellation of certain amounts payable for services rendered.  Under the terms of this note, the Company is to make payments of $1,000 per month with any unpaid principal or accrued interest due and payable upon the first to occur of (i) August 1, 2013, (ii) the issuance and sale of equity securities whereby the Company raises at least $5,000,000 or (iii) the sale or acquisition of all or substantially all of the Company’s stock or assets.

10.9.  Capital Stock

Series A Preferred Stock

In December 2011, the Company’sour Board of Directors authorized the creation of a series of up to 500,000 shares of Series A Preferred, Stock, par value $0.001 (“(Series A Preferred”).  Each restricted share of Series A Preferred was initially convertible at the option of the holder into tenone-half of one restricted sharesshare of the Company'sour common stock.  The Series A Preferred ranks prior to the common stock for purposes of liquidation preference.

The Series A Preferred has no separate dividend rights, however, whenever the Board of Directors declares a dividend on the common stock, each holder of record of a share of Series A Preferred shall be entitled to receive an amount equal to such dividend declared on one share of common stock multiplied by the number of shares of common stock into which such share of Series A Preferred could be converted on the Record Date.
 
F-28
Except with respect to transactions upon which the Series A Preferred shall be entitled to vote separately as a class, the Series A Preferred has no voting rights. The restricted common stock into which the Series A Preferred is convertible shall, upon issuance, have all of the same voting rights as other issued and outstanding shares of the Company’sour common stock.

In the event of the liquidation, dissolution or winding up of the affairs of the Company, after payment or provision for payment of theour debts and other liabilities, of the Company, the holders of Series A Preferred then outstanding shall be entitled to receive an amount per share of Series A Preferred calculated by taking the total amount available for distribution to holders of all the Company'sof our outstanding common stock before deduction of any preference payments for the Series A Preferred, divided by the total of (x), all of the then outstanding shares of the Company'sour common stock, plus (y) all of the shares of the Company'sour common stock into which all of the outstanding shares of the Series A Preferred can be converted before any payment shall be made or any assets distributed to the holders of the common stock or any other junior stock.

At March 31, 20142017 and 2013,2016, there were 500,000 restricted shares of Series A Preferred outstanding, convertible into 750,000 shares of our common stock at the option of the holder, all issuedheld by PLTG or its affiliates and a third party to Platinum. Platinumwhom PLTG transferred certain of the shares. PLTG initially acquired the Series A Preferred pursuant to thecertain transactions described below.  In October 2012, Platinum’s exchange rights with respect to the Series A Preferred were modified as described in the section entitled Modification of Series A Preferred Exchange Rightsus that occurred between December 2011 and Deemed Dividend, below.

·December 2011 Common Stock Exchange Agreement with Platinum

On December 22, 2011, the Company entered into a Common Stock Exchange Agreement (the "Exchange Agreement") with Platinum, pursuant to which Platinum converted 484,000 restricted shares of the Company’s common stock into 45,980 restricted shares of Series A Preferred (the "Exchange").  Each restricted share of Series A Preferred issued to Platinum was initially convertible into ten restricted shares of the Company’s common stock.  At the time of the Exchange, the Company determined the fair value of the common stock subject to the Exchange to be $1.55 per share and has reflected the 484,000 restricted common shares as treasury stock on that basis in the accompanying Consolidated Balance Sheet at March 31, 2014 and 2013.

·
December 2011 Note and Warrant Exchange Agreement with Platinum

On December 29, 2011, the Company and Platinum entered into a Note and Warrant Exchange Agreement pursuant to which a promissory note in the face amount of $4,000,000 plus accrued interest and all outstanding warrants issued to Platinum to purchase an aggregate of 1,599,858 restricted shares of the Company’s common stock were cancelled in exchange for 391,075 restricted shares of Series A Preferred.  Each share of Series A Preferred was initially convertible into ten shares of the Company’s common stock. The Company issued 231,090 restricted shares of Series A Preferred to Platinum in connection with the note cancellation based on the sum of the $4,000,000 principal balance of the note plus accrued but unpaid interest through May 11, 2011 adjusted for a 125% conversion premium, net of the $1,719,800 aggregate exercise price of the 1,599,858 outstanding warrants held by Platinum, and a contractual conversion basis of $1.75 per common share, all adjusted for the initial 1:10 Series A Preferred to common exchange ratio.  An additional 159,985 restricted shares of Series A Preferred were issued to Platinum in connection with the warrant exercise and exchange to acquire the common shares issued upon the warrant exercise.

·2012 Exchange Agreement with Platinum

On June 29, 2012, the Company and Platinum entered into an Exchange Agreement (the “2012 Platinum Exchange Agreement”) pursuant tolatter of which involved, among other considerations, the Company issued Platinum 62,945 restricted shares of Series A Preferred in exchange for 629,450 restricted shares of common stock then owned by Platinum, in considerationPLTG for Platinum’s agreement to purchase from the Company the July 2012 Platinum Note, as described in Note 9, Convertible Promissory Notes and Other Notes Payable. The Company estimated the fair valueshares of the Series A Preferred shares tendered to Platinum under the terms of the 2012 Platinum Exchange Agreement at $736,400 ($1.17 per share on a common share equivalent basis).Preferred. The common shares exchanged for shares of Series A Preferred are treated as treasury stock on that basis in the accompanying Consolidated Balance Sheets at March 31, 2017 and 2016
Series B Preferred Stock
In July 2014, our Board of Directors authorized the creation of a class of Series B Preferred Stock. In May 2015, we filed a Certificate of Designation of the Relative Rights and Preferences of the Series B 10% Preferred Stock of VistaGen Therapeutics, Inc. (Certificate of Designation) with the Nevada Secretary of State to designate 4.0 million shares of our authorized preferred stock as Series B Preferred.
Each share of Series B Preferred is convertible, at the option of the holder (Voluntary Conversion), into one (1) share of our Common Stock, subject to adjustment only for customary stock dividends, reclassifications, splits and similar transactions set forth in the Certificate of Designation. All outstanding shares of Series B Preferred are also convertible automatically on a one-to-one basis into shares of our Common Stock (Automatic Conversion) upon the closing or effective date of any of the following transactions or events: (i) a strategic transaction involving AV-101 with an initial up-front cash payment to us of at least $10.0 million; (ii) a registered public offering of our common stock with aggregate gross proceeds to us of at least $10.0 million; or (iii) for 20 consecutive trading days, our common stock trades at least 20,000 shares per day with a daily closing price of at least $12.00 per share; provided, however, that Automatic Conversion and Voluntary Conversion (collectively,Conversion) are subject to certain beneficial ownership blockers as set forth in the Certificate of Designation and/or securities purchase agreements.
Prior to Conversion, shares of Series B Preferred accrue in-kind dividends (payable only in unregistered shares of our common stock) at a rate of 10% per annum (Accrued Dividends).  The Accrued Dividends are payable on the date of either a Voluntary Conversion or Automatic Conversion solely in that number of shares of common stock equal to the Accrued Dividends. At March 31, 2017, we have recognized a liability in the amount of $1,577,800 for Accrued Dividends in the accompanying Consolidated Balance Sheet at March 31, 2017, based on the Series B Preferred issued and outstanding, net of conversions to common stock, through that date. We have recognized a deduction from net loss of $1,257,000 and $2,140,500 related to dividends on Series B Preferred in arriving at net loss attributable to common stockholders in the accompanying Consolidated Statement of Operations and Comprehensive Loss for the fiscal years ended March 31, 2017 and 2016, respectively. The liquidation value of the Series B Preferred at March 31, 2017 is approximately $9,699,500.
Following the completion of the May 2016 Public Offering, which occurred concurrently with and facilitated the listing of our common stock on the NASDAQ Capital Market, approximately 2.4 million shares of Series B Preferred were converted automatically into approximately 2.4 million shares of our common stock pursuant to the Automatic Conversion provision. At March 31, 2017, there were 1,160,240 shares of Series B Preferred outstanding, which shares are currently subject to beneficial ownership blockers and are exchangeable at the option of the respective holders by Voluntary Conversion, or pursuant to Automatic Conversion to the extent not otherwise subject to beneficial ownership blockers, into an aggregate of 1,160,240 shares of our common stock.
Series C Preferred Stock
In January 2016, our Board authorized the creation of and, accordingly, we filed a Certificate of Designation of the Relative Rights and Preferences of the Series C Convertible Preferred Stock of VistaGen Therapeutics, Inc. (theSeries C PreferredCertificate of Designation) with the Nevada Secretary of State to designate 3.0 million shares of our preferred stock, par value $0.001 per share, as Series C Convertible Preferred Stock (Series C Preferred). Upon liquidation, each share of Series C Preferred ranks pari-passu with our Series B Preferred and our Series A Preferred, and is convertible, at the option of the holder into one share of our common stock, subject to certain beneficial ownership limitations as set forth in the Series C Preferred Certificate of Designation. Shares of the Series C Preferred do not accrue dividends, and holders of the Series C Preferred have no voting rights. Each share of Series C Preferred is convertible into one (1) share of our common stock. At March 31, 2017, PLTG or its affiliates held all 2,318,012 outstanding shares of Series C Preferred.
2014 Unit Private Placement
Between late-March 2014 and 2013.May 14, 2015, we entered into securities purchase agreements with accredited investors for the self-placed 2014 Unit Private Placement pursuant to which we sold 2014 Units consisting of (i) promissory notes (2014 Unit Notes) in the aggregate face amount of $3,413,500 due between March 31, 2015 and May 15, 2015 or automatically convertible into securities issuable upon our consummation of a Qualified Financing, as defined in the note; (ii) an aggregate of 315,850 restricted shares of our common stock; and (iii) warrants exercisable through December 31, 2016 to purchase an aggregate of 307,100 restricted shares of our common stock at an exercise price of $10.00 per share. We received aggregate cash proceeds of $3,413,500 from the 2014 Unit Private Placement. We sold 2014 Units resulting in $280,000 of cash proceeds during our fiscal year ended March 31, 2016.
May 2015 Agreement with PLTG
In May 2015, we entered into an Agreement with PLTG (thePLTG Agreement) pursuant to which PLTG:
●
Converted into 641,335 shares of Series B Preferred all of the approximately $4.5 million outstanding balance (principal and accrued but unpaid interest) of the Senior Secured Notes we had previously issued to PLTG;
●
Released in their entirety its security interests in our assets and those of our subsidiaries by terminating the Amended and Restated Security Agreement, IP Security Agreement and Negative Covenant, each of which had been executed in October 2012;
●
Converted into 240,305 shares of Series B Preferred and five-year warrants to purchase 240,305 shares of our common stock at a fixed exercise price of $7.00 per share (Series BWarrants) all of the approximately $1.3 million outstanding balance (principal and accrued but unpaid interest) of the 2014 Unit Notes that we issued to PLTG;
●
Purchased approximately $1.5 million (including accrued but unpaid interest thereon) of outstanding 2014 Unit Notes we had previously issued to various accredited investors from the respective holders thereof (Acquired Unit Notes) and converted the entire approximately $1.5 million outstanding balance of the Acquired Unit Notes into 265,699 shares of Series B Preferred and Series B Warrants to purchase 265,699 shares of our common stock;
●
Entered into a Securities Purchase Agreement (SPA) to purchase from us, in our self-placed private placement, for $1.0 million, a total of 142,857 shares of Series B Preferred and a Series B Warrant to purchase 142,857 shares of our common stock, which purchase was consummated and the shares and warrants issued;
●
Amended the PLTG Warrants previously issued to PLTG in connection with the Senior Secured Notes and the Series A Exchange Warrant to (i) fix the exercise price thereof, (ii) eliminate the exercise price reset features; (iii) fix the number of shares of our common stock issuable thereunder, and (iv) eliminate the cashless exercise provisions from the PLTG Warrants, as described in Note 4.Fair Value Measurements; and
●
Agreed to refrain from the sale of any shares of our common stock held by PLTG or its affiliates until the earlier to occur of an effective registration statement under the Securities Act of 1933, as amended, relating to resale of certain shares of common stock issuable upon conversion of shares of Series B Preferred held by PLTG, or the closing price of our common stock is at least $15.00 per share.
 

Modification
As additional consideration under the PLTG Agreement, we issued to PLTG 400,000 shares of Series AB Preferred Exchange Right(Additional Consideration Shares) and Deemed Dividends

Series B Warrants (PursuantAdditional Consideration Warrants) to the October 2012 Agreement described more completely in Note 9, Convertible Promissory Notes and Other Notes Payable, Platinum’s exchange rights in the Series A Preferred were modified such that Platinum now has the right and option to exchange the 500,000 restrictedpurchase 1.2 million shares of the Company’s Series A Preferred that it holds for (i) a total of 15,000,000 restricted shares of the Company’sour common stock, and (ii) a five-year warrant to purchase 7,500,000 restrictedexchanged 30,000 shares of the Company’sour common stock at an initial exercise pricethen beneficially owned or controlled by PLTG for 30,000 shares of $1.50 per share (the “Series A Exchange WarrantB Preferred.”). See Considering the section entitled Modification of Platinum Warrants, later in this note, for a description of the subsequent modification of the exercise priceexchangeability of the Series AB Preferred Exchange Warrant. The modificationinto our common stock, the dividend applicable to the Series B Preferred prior to such exchange, and other factors, we determined that the fair value of a share of Series B Preferred issued to PLTG pursuant to the PLTG Agreement was equal to the market value of a share of our common stock on the effective date of the exchange ratio resultedPLTG Agreement. Based on the $10.00 per share fair value of the Series B Preferred at the effective date of the PLTG Agreement, we issued Additional Consideration Shares having an aggregate fair value of $4.0 million to PLTG. We valued the Additional Consideration Warrants at an aggregate of $8,270,900 using the Black Scholes option pricing model and the following assumptions: market price per share: $10.00; exercise price per share: $7.00; risk-free interest rate: 1.58%; contractual term: 5.00 years; volatility: 76.5%; expected dividend rate: 0%. We recognized the aggregate fair value of the Additional Consideration Shares and Additional Consideration Warrants, $12,270,900, as a component of loss on debt extinguishment in the second quarter of our fiscal year ended March 31, 2016.
Conversion of Debt Securities into Series B Preferred and Loss on Extinguishment of Debt
As described in Note 8,Notes Payable, during the first and second quarters of our fiscal year ended March 31, 2016, weextinguished a deemed dividendsubstantial portion of $7,125,000our outstanding indebtedness, including all of our senior secured promissory notes issued to PlatinumPLTG, all except $58,800 principal of our unsecured promissory notes, and a significant portion of outstanding accounts payable and accrued expenses, by converting such indebtedness into shares of our Series B Preferred. In most instances, the consideration given upon conversion was limited to shares of Series B Preferred. In certain instances, as in the case of the Additional Consideration Warrants noted previously, we agreed to issue new warrants or modify outstanding warrants as additional incentive provided to our counterparty to accept the equity for accounting purposes, which has beendebt settlement offer. Further, with respect to the 2014 Unit Notes, we determined that the Series B Preferred Unit Offering (described below) would be treated as a Qualified Financing with respect to such notes, entitling the 2014 Unit Note holders at the time of conversion to the 25% Qualified Financing conversion premium under the terms of the 2014 Unit Notes. Evaluating each note or debt class separately, wedetermined that the conversion of each of the notes or other debt instruments into Series B Preferred should be accounted for as an extinguishment of debt.Because, in each instance, the fair value of the consideration given exceeded the carrying value of the debt, we incurred a loss on extinguishment in the settlement of each debt instrument or agreement.Nearly all of the 2014 Unit Notes contained a beneficial conversion feature at the time they were originally issued. We accounted for the repurchase of the beneficial conversion feature at the time of the extinguishment and conversion of the 2014 Unit Notes, an aggregate of $2,237,200, as a reduction to the loss on extinguishment of debt, with a corresponding reduction to additional paid-in capital.
The following table summarizes the carrying value of the debt instruments at the date they were converted into Series B Preferred, the components of the consideration given and the resulting loss on debt extinguishment attributable to each settlement and the number of shares and warrants, if any, issued in the settlement for each debt instrument or class. We recorded the aggregate loss on debt extinguishment, $26,700,200, in the first and second quarters of our fiscal year ended March 31, 2016, as reflected in the accompanying Consolidated Statement of Operations and Comprehensive Loss for the fiscal year ended March 31, 2013.  The amount2016.
 
 
Carrying
 
 
Consideration Given
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Amount (Principal plus Accrued Interest less Discount)
 
 
Fair Value of Series B Preferred at Issuance
 
 
Fair Value of Warrants at Issuance
 
 
Incremental Fair Value of Warrant Modifications
 
 
Repurchase of Beneficial Conversion Feature
 
 
Loss on Extinguishment
of Debt
 
 
Series B Preferred Shares Issued
 
 
New Warrants Issued
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Senior Secured Convertible Notes (1)
 $4,489,300 
 $10,413,400 
 $8,270,800 
 $- 
 $- 
 $(14,194,900)
  1,041,335 
  1,200,000 
 
    
    
    
    
    
    
    
    
PLTG Unit Notes
  1,345,700 
  2,403,100 
  1,656,300 
  - 
  - 
  (2,713,700)
  240,305 
  240,305 
Acquired Unit Notes
  1,487,900 
  2,657,000 
  1,827,200 
  - 
  (514,900)
  (2,481,400)
  265,699 
  265,699 
Investor Unit Notes
  1,831,200 
  2,616,100 
  1,684,900 
  - 
  (1,722,300)
  (747,500)
  327,016 
  327,016 
University Health Network note
  628,900 
  937,800 
�� - 
  - 
  - 
  (308,900)
  93,775 
  - 
Cato Holding Company and Cato Research Ltd. notes and accounts payable
  1,708,300 
  3,285,700 
  - 
  222,700 
  - 
  (1,800,100)
  328,571 
  - 
Morrison & Foerster Note A
  1,191,700 
  2,359,700 
  - 
  - 
  - 
  (1,168,000)
  192,628 
  - 
Morrison & Foerster Note B and accounts payable
  1,510,000 
  2,571,400 
  - 
  244,200 
  - 
  (1,305,600)
  257,143 
  - 
McCarthy Tetrault note and accounts payable
  381,700 
  829,200 
  - 
  - 
  - 
  (447,500)
  59,230 
  - 
Burr Pilger & Mayer note and accounts payable
  123,100 
  353,600 
  - 
  - 
  - 
  (230,500)
  21,429 
  - 
Icahn School of Medicine at Mount Sinai note and accounts payable
  289,500 
  676,000 
  - 
  16,600 
  - 
  (403,100)
  43,000 
  - 
National Jewish Health note
  115,000 
  267,900 
  - 
  - 
  - 
  (152,900)
  17,857 
  - 
Desjardins Securities note
  187,400 
  450,000 
  - 
  - 
  - 
  (262,600)
  32,143 
  - 
MicroConstants note and accounts payable
  92,400 
  250,000 
  - 
  - 
  - 
  (157,600)
  17,857 
  - 
Other service provider accounts payable
  497,900 
  823,800 
  - 
  - 
  - 
  (325,900)
  80,929 
  - 
 
    
    
    
    
    
    
    
    
 
 $15,880,000 
 $30,894,700 
 $13,439,200 
 $483,500 
 $(2,237,200)
 $(26,700,200)
  3,018,917 
  2,033,020 
(1)
Includes 400,000 Series B Preferred shares with fair value of the deemed dividend in the accompanying Consolidated Statement$4,000,000 issued as Additional Consideration Shares and warrants to purchase 1,200,000 shares of Operations and Comprehensive Losscommon stock with fair value of $8,270,800 issued as Additional Consideration Warrants for the various agreements of PLTG pursuant to the PLTG Agreement in May 2015
Series B Preferred Unit Offering
Between May 2015 and May 2016, in self-placed private placement transactions, we sold to accredited investors an aggregate of $5,303,800 of units in our Series B Preferred Unit offering, which units consisted of Series B Preferred and Series B Warrants (togetherSeries B Preferred Units), including $2,650,000 to PLTG. We issued 757,692 shares of Series B Preferred and Series B Warrants to purchase 757,692 shares of our common stock.  During our fiscal year ended March 31, 2013 was determined as the sum of (i) the value of the 10 million incremental shares to which Platinum is entitled pursuant to the October 2012 Agreement valued at the $0.75 per share quoted market price for the Company’s common stock on the date of the agreement,2017, we received an aggregate of $7.5 million, adjusted for an expected 95% probability of exercise of the exchange rights by Platinum, or $7,125,000;$278,000 in cash proceeds from our self-placed private placement and (ii) .the fair valuesale of the Series A Exchange Warrant at the date of the October 2012 Agreement, determined to be $0.43 per share, or $3,228,700, on the date of the agreement using the Black Scholes Option Pricing Model and the following assumptions: market price per share: $0.75; exercise price per share: $1.50; risk-free interest rate: 0.67%; contractual term: 5 years; volatility: 89.9%; expected dividend rate: 0%; and adjusted for an expected 95% probability of exercise of the exchange rights by Platinum. The adjusted fair value of the warrant, $3,068,200 was recognized as a component of the Warrant Liability in the in the accompanying Consolidated Balance Sheet at March 31, 2013, with a corresponding charge to Additional paid-in capital.B Preferred Units.

The fair value of the Series A Exchange Warrant was re-measured as of March 31, 2013 at $4,406,000 and the $1,337,800 increase in fair value since the inception of the October 2012 Agreement is reflected as a component of the Change in Warrant Liability in the accompanying Consolidated Statement of Operations and Comprehensive Loss for the fiscal year ended March 31, 2013.  The fair value of the Series A Exchange Warrant was re-measured as of March 31, 2014 at $2,058,600 and the $2,347,400 decrease in fair value since March 31, 2013 is reflected as a component of the Change in Warrant Liability in the accompanying Consolidated Statement of Operations and Comprehensive Loss for the fiscal year ended March 31, 2014.
 
Conversion of Pre-Merger Preferred Stock

On May 11, 2011, concurrent with the Merger, all holders of VistaGen California's then-outstanding preferred stock converted all of their preferred shares into 2,884,655 restricted shares of VistaGen California common stock so that, at the completion of the Merger, VistaGen California had no preferred stock outstanding.  All shares of VistaGen California common stock were then acquired by the Company in connection with the Merger.

Common Stock

Autilion AG Securities Purchase Agreement

On April 8, 2013, the Company entered into a Securities Purchase Agreement (as amended, the “Securities Purchase Agreement”) with Autilion AG, a company organized and existing under the laws of Switzerland (“Autilion”).  On April 12, 2013, Autilion assigned the Securities Purchase Agreement to its affiliate, Bergamo Acquisition Corp. PTE LTD, a corporation organized and existing under the laws of Singapore (“Bergamo Singapore”). On April 30, 2013, the Company and Bergamo Singapore amended the Securities Purchase Agreement to modify the investment dates.  On June 27, 2013, the Company, Autilion and Bergamo Singapore further amended the Securities Purchase Agreement to vacate Autilion’s April 2013 assignment of the Securities Purchase Agreement to Bergamo Singapore, provide for an initial closing under the Securities Purchase Agreement, and amend certain of the investment dates under the Securities Purchase Agreement. Under the terms of the Securities Purchase Agreement, Autilion is contractually obligated to purchase an aggregate of 72.0 million restricted shares of the Company’s common stock at a purchase price of $0.50 per share for aggregate cash consideration of $36.0 million, in a series of closings scheduled to have occurred by September 30, 2013 (the “Autilion Financing”).  Through March 31, 2014, Autilion had completed only a nominal initial closing under the Securities Purchase Agreement, in the amount of $25,000, and the Company had issued 50,000 restricted shares of its common stock. As of the date of this report, Autilion has not completed a subsequent closing of the Autilion Financing.  Therefore, Autilion is in default under the Securities Purchase Agreement, and the Company can provide no assurance that Autilion will complete a material closing under the Securities Purchase Agreement.
Winter 2013/2014 Unit Private Placement
Between August 2013 and March 2014, the Company entered into securities purchase agreements with accredited investors pursuant to which it sold to such investors Units each consisting of (i) a 10% convertible promissory note in the face amount of $5,000 maturing on July 30, 2014 (the “2013/2014 Unit Note”); (ii) 10,000 restricted shares of the Company’s common stock (the “2013/2014 Unit Stock”); and (iii) a warrant exercisable through July 30, 2016 to purchase 10,000 restricted shares of the Company’s common stock at an exercise price of $1.00 per share (the “2013/2014 Unit Warrant”).  The Company issued 2013/2014 Unit Notes in the aggregate face amount of $1,007,500; an aggregate of 2,015,000 restricted shares of 2013/2014 Unit Stock, and warrants to purchase an aggregate of 2,015,000 restricted shares of the Company’s common stock pursuant to the 2013/2014 Unit Warrants, and received cash proceeds of $1,007,500, including $50,000 in lieu of repayment of previous advances to the Company made by one of its executive officers. The 2013/2014 Unit Notes and related accrued interest are convertible into restricted shares of the Company’s common stock at a conversion price of $0.50 per share at or prior to maturity, at the option of each investor.

The CompanyWe allocated the proceeds from the sale of the Series B Preferred Units to the various securities in each UnitSeries B Preferred and the Series B Warrants based on their relative fair valuevalues on the dates of the sales. As described in Note 8, Convertible PromissoryNotes and Other Notes Payable, based on the short-term nature of the 2013/2014 Unit Notes, the Company We determined that fair value of the 2013/2014 Unit Notes was equal to their face value. The Company determined the fair value of the 2013/2014 Unit Stock based ona share of Series B Preferred was equal to the quoted market pricevalue of itsa share of our common stock on the date of thea Series B Preferred Unit sale. The CompanyWe calculated the fair value of the 2013/2014 UnitSeries B Warrants using the Black Scholes Option Pricing Model and the weighted average assumptions indicated in the table below. The table below also presents the aggregate allocation of the Series B Preferred Unit sales proceeds based on the relative fair values of the 2013/2014 Unit Stock, 2013/2014 UnitSeries B Preferred and the Series B Warrants and 2013/2014 Unit Notes at theas of their respective Series B Preferred Unit sales date.dates. The difference between the relative fair value per share of the Series B Preferred, approximately $4.14 per share, and its Conversion Price (or stated value) of $7.00 per share represents a deemed dividend to the purchasers of the Series B Preferred Units. Accordingly, we have recognized a deemed dividend in the aggregate amount of $111,100 and $2,058,000 in arriving at net loss attributable to common stockholders in the accompanying Consolidated Statement of Operations and Comprehensive Loss for the fiscal years ended March 31, 2017 and 2016, respectively.
 
 
 
Unit Warrants 
 
 
 
 
 
 
 
 
  
 
 
Weighted Average Issuance Date Valuation Assumptions 
 
Per Share
 
 
Aggregate 
 
Aggregate 
 
Aggregate Allocation of Proceeds Based on Relative
Warrant 
 
 
 
 
 
 
 
 
Risk free
 
 
 
  
 
Fair
 
 
Fair Value 
 
  Proceeds
 
 
Fair Value of:
Shares 
 
Market
 
 
Exercise
 
Term
 
Interest
 
 
 
Dividend 
 
Value of
 
 
of Unit 
 
of Unit
 
 
Unit
 
 
Unit
Issued 
 
Price
 
 
Price
 
(Years)
 
Rate
 
Volatility
 
Rate 
 
Warrant
 
 
Warrants 
 
Sales
 
 
Stock
 
 
Warrant
  
 
 
 
 
 
 
 
 
 
 
 
 
  
 
 
 
 
  
 
 
 
 
 
 
 
 
 757,692 
$
  10.34
 
$
  7.00
 
 5.00
 
1.60%
 
77.36%
 
0.0% $  7.27
 
$5,512,100 $ 5,303,800
 
$3,134,800
 
$ 2,169,000
 2013/2014 Unit Warrants    
 Weighted Average Issuance Date Valuation Assumptions
 
Per Share
 
Aggregate
 
Aggregate
 
Aggregate Allocation of Proceeds
Warrant   Risk free  FairFair ValueProceedsBased on Relative Fair Value of:
SharesMarketExerciseTermInterest DividendValue ofof Unitof Unit Unit 
IssuedPricePrice(Years)RateVolatilityRateWarrantWarrantsSalesUnit StockWarrantUnit Note
             
     2,015,000 $     0.45 $     1.00        2.680.58%76.29%0.0% $          0.13 $  254,700 $   1,007,500 $    415,000 $    111,400 $      481,100
Registration Statement for Common Stock underlying Series B Preferred and Series B Warrants
The securities purchase agreements for the Series B Preferred and Series B Preferred Units executed with PLTG, the holders of the Investor Unit Notes, the holders of our promissory notes and other indebtedness converted into shares of Series B Preferred, initial investors in Series B Preferred Units, and certain others to whom we issued Series B Preferred, contained registration rights requiring that a Registration Statement on Form S-1 (Secondary Registration Statement) registering, under the Securities Act of 1933, as amended, (theSecurities Act), certain shares of common stock underlying the Series B Preferred and the Series B Warrants be declared effective on or before August 30, 2015. We filed the initial Secondary Registration Statement with the SEC on July 21, 2015, which we later amended on August 25, 2015, and which was declared effective by the SEC on August 28, 2015. The Secondary Registration Statement registered an aggregate of 3,992,479 shares of our common stock underlying outstanding Series B Preferred and Series B Warrants. Accordingly, we incurred no cash or in kind penalties under the securities purchase agreements.
Conversion of Series B Preferred into Common Stock
Between September 2015 and March 2016, holders of an aggregate of 228,818 shares of Series B Preferred voluntarily converted such shares into an equivalent number of registered shares of our common stock. In connection with these conversions, we issued an aggregate of 6,837 shares of our restricted common stock in payment of $50,900 in accrued dividends on the Series B Preferred that was converted.
During April 2016, holders of an aggregate of 7,500 shares of Series B Preferred voluntarily converted such shares into an equivalent number of registered shares of our common stock.  In connection with these conversions, we issued an aggregate of 510 shares of our unregistered common stock as payment in full of $4,000 in accrued dividends on the Series B Preferred that was voluntarily converted.
On May 19, 2016, following the consummation of the May 2016 Public Offering, an aggregate of 2,403,051 shares of Series B Preferred were automatically converted into an aggregate of 2,192,847 registered shares of our common stock and an aggregate of 210,204 shares of our unregistered common stock. Additionally, we issued an aggregate of 416,806 shares of our unregistered common stock as payment in full of $1,642,100 in accrued dividends on the Series B Preferred that was automatically converted on May 19, 2016, at the rate of one share of common stock for each $3.94 of Series B Preferred accrued dividends.  On June 15, 2016, pursuant to the underwriters’ exercise of their over-allotment option, an additional 44,500 shares of Series B Preferred were converted into 44,500 shares of our registered common stock.  We issued an additional 9,580 shares of our unregistered common stock as payment in full of $37,400 of accrued dividends on the Series B Preferred that was automatically converted on June 15, 2016, at the rate of one share of common stock for each $3.90 in accrued dividends.
In August 2016, one of the remaining holders of our Series B Preferred voluntarily converted 87,500 shares of Series B Preferred into an equivalent number of registered shares of our common stock.  In connection with this conversion, we issued 26,258 shares of our unregistered common stock as payment in full of $85,300 in accrued dividends on the Series B Preferred that was voluntarily converted, at the rate of one share of common stock for each $3.25 in accrued dividends.
F-31
our Common Stock on The NASDAQ Capital Market
 
2014 Unit Private Placement
During March 2014, the Company entered into aEffective on May 16, 2016, we consummated an underwritten public offering of our securities, purchase agreement with an accredited investor pursuant to which it sold to the investor Unitswe issued units consisting of (i) a 10% subordinated convertible promissory note in the aggregate face amount of $50,000 maturing on March 31, 2015 (the “Spring 2014 Unit Note”); (ii) an aggregate of 50,000 restricted2,570,040 registered shares of the Company’sour common stock (the “2014 Unit Stock”);at a public sales price of $4.24 per share and (iii) a warrantfive-year warrants exercisable through December 31, 2015at $5.30 per share to purchase an aggregate of 50,000 restricted2,705,883 shares of our common stock at a public sales price of $0.01 per warrant share, including shares and warrants issued in June 2016 pursuant to the Company’sexercise of the underwriters’ over-allotment option. We received gross proceeds of approximately $10.9 million and net proceeds of approximately $9.5 million from the May 2016 Public Offering, after deducting underwriters’ commissions and other offering expenses. The warrants issued in the May 2016 Public Offering have no anti-dilution or other exercise price or share reset features, except as is customary with respect to a change in our capital structure in the event of a stock split or dividend, and, accordingly, we have accounted for them as equity warrants.
The securities included in the May 2016 Public Offering were offered, issued and sold under a prospectus filed with the Commission pursuant to an effective registration statement (Primary Registration Statement) filed with the Commission on Form S-1 (File No. 333-210152) pursuant to the Securities Act. The Primary Registration Statement was first filed with the Commission on March 14, 2016, and was declared effective on May 10, 2016.
In connection with the completion of our May 2016 Public Offering, NASDAQ approved our common stock for listing on The NASDAQ Capital Market. Our common stock began trading on The NASDAQ Capital Market under the symbol “VTGN” on May 11, 2016.
Common Stock and Warrants Issued in Private Placement
In December 2016, in self-placed private transactions, we sold to two individual accredited investors units, at a purchase price of $3.70 per unit, consisting of an aggregate of 67,000 unregistered shares of our common stock and warrants, exercisable through November 30, 2019, to purchase an aggregate of 16,750 unregistered shares of our common stock at an exercise price of $0.50$6.00 per share (the “2014 Unit Warrant”).  (See Note 17, Subsequent Events, for information regarding additional Units issued in connectionshare. The purchasers of the units have no registration rights with respect to the 2014 Unit Private Placement.) The 2014 Unit Note and its related accrued interest (the “Outstanding Balance”) is convertible into restricted shares of the Company’s common stock, at a conversion pricewarrants or the shares of $0.50 per share at or prior to maturity, at the option of the investor, or, upon the Company’s consummation of either (i) an equity or equity-based public offering registered with the U.S. Securities and Exchange Commission (“SEC”), or (ii) an equity or equity-based private financing, or series of such financing transactions, not registered with the SEC, in each case resulting in gross proceeds to the Company of at least $10.0 million prior to Maturity (a “Qualified Financing”), the Outstanding Balance of the 2014 Unit Note will, subject to certain conditions, automatically convert into the securities sold in the Qualified Financing, based on the following formula: (the Outstanding Balance as of the closing of the Qualified Financing) x 1.25 / (the per security price of the securities sold in the Qualified Financing).
The Company allocated the proceeds from the sale of the 2014 unit to the 2014 Unit Notes, the common stock andissuable upon exercise of the warrants comprising the units based on the relative fair value of the individual securities in the unit on the date of the unit sale. Based on the short-duration of the 2014 Unit Note and its other terms, the Company determined that the fair value of the 2014 Unit Note at the date of issuance was equal to its face value. The Company determined the fair value of the 2014 Unit Stock based on the quoted market price of its stock on the date of the unit sale. The Company calculated the fair value of the 2014 Unit Warrant using the Black Scholes Option Pricing Model and the assumptions indicated in the table below. The table below also presents thesold. We received aggregate allocation of the Unit sale proceeds based on the relative fair values of the 2014 Unit Stock, 2014 Unit Warrants and 2014 Unit Notes at the unit sale date.
 2014 Unit Warrants     
  Weighted Average Issuance Date Valuation Assumptions 
 
Per Share
 
Aggregate
 
 
Aggregate
 
Aggregate Allocation of Proceeds
Warrant    Risk free   FairFair Value ProceedsBased on Relative Fair Value of:
Shares MarketExerciseTermInterest Dividend Value ofof Unit of Unit Unit 
Issued PricePrice(Years)RateVolatilityRate WarrantWarrants SalesUnit StockWarrantUnit Note
                
          50,000  $     0.46 $     0.50        2.800.66%74.94%0.0%  $          0.21 $    10,400  $        50,000 $      13,800 $        6,200 $        30,000
2012/2013 Unit Private Placement

Between September 2012 and March 2013, the Company sold 2,366,330 Units in a private placement to accredited investors and received cash proceeds of $1,133,200 and settled outstanding amounts payable for legal fees$247,900 in lieu of cash payment for services inconnection with this private placement, the entire amount of $50,000. The Units werewhich was credited to stockholders’ equity.
In March 2017, in a self-placed private transaction, we sold for $0.50to an accredited investor units, at a purchase price of $2.00 per Unit and each Unit consistedunit, consisting of one restricted sharean aggregate of the Company’s57,250 unregistered shares of our common stock and a five year warrantwarrants, exercisable through April 2021, to purchase one half (1/2)an aggregate of one restricted share28,625 unregistered shares of the Company’sour common stock at an exercise price of $1.50 per share.  In addition, in November 2012, pursuant to an Exchange Agreement, the holders of the 2012 Notes exchanged the aggregate amount of $678,600 due under the terms of such notes for Units consisting of 1,357,281 restricted shares of the Company's common stock and five-year warrants to purchase 678,641 restricted shares of the Company's common stock at an exercise price of $1.50$4.00 per share. The grosspurchaser of the units has no registration rights with respect to the shares of common stock, warrants or the shares of common stock issuable upon exercise of the warrants comprising the units sold. We received aggregate cash proceeds fromof $114,500 in connection with this private placement, the entire amount of Units satisfied the Additional Financing Requirement under the October 2012 Agreement with Platinum, as amended, described inwhich was credited to stockholders’ equity. See Note 9,16, Convertible Promissory Notes and Other Notes PayableSubsequent Events, entitlingfor disclosure of additional sales of our securities in private placement offerings.
Issuance of Common Stock, Series B Preferred Stock and Warrants to Professional Services Providers
During our fiscal years ended March 31, 2017 and 2016, we issued the Company to sellfollowing securities in private placement transactions as compensation for various professional services. Unless otherwise noted, we recorded the related non-cash expense as a component of general and requiring Platinum to purchase senior secured convertible promissory notesadministrative expense in the Consolidated Statement of Operations and Comprehensive Loss for the fiscal years ended March 31, 2017 and 2016, as appropriate.
●
During the quarter ended June 30, 2015, we issued an aggregate face amount of $1.0 million in February and March 2013.  In connection with the settlement25,000 unregistered shares of legal fees payable by issuing Units, the Company recordedour Series B Preferred having a loss on extinguishmentfair value of debt of $30,800 based$250,000 on the fair marketdate of issuance as compensation for legal services related to our debt restructuring and other corporate finance matters.
●
During the quarter ended June 30, 2015, we issued an aggregate of 90,000 unregistered shares of our Series B Preferred having an aggregate value on the date of issuance of $1,350,000 as compensation for financial advisory and corporate development service contracts with two independent contractors for services to be performed through June 2016. The value of the common shares andSeries B Preferred grants was recorded as a prepaid expense at the warrant comprising the Unit on the effective date of the settlement.grant and was expensed ratably over the twelve months ending June 2016, with $337,500 and $1,012,500 expensed during the fiscal years ended March 31, 2017 and 2016, respectively.
●
During the quarter ended June 30, 2015, we also issued an aggregate of 50,000 shares of our unregistered common stock having an aggregate fair value on the date of issuance of $500,000, as compensation under two corporate development service contracts.
F-32
●
During the quarter ended September 30, 2015 we issued to two providers of intellectual property-related legal services an aggregate of 10,000 unregistered shares of our Series B Preferred having an aggregate fair value on the date of issuance of $120,000.
●
During the quarter ended December 31, 2015 we issued 15,750 unregistered shares of our common stock having a fair value on the date of issuance of $106,300 as partial compensation for investment banking services.
●
During the quarter ended March 31, 2016, we issued an aggregate of 26,625 shares of our unregistered common stock having an aggregate fair value on the dates of issuance of $223,000 in connection with legal ($140,000) and investor relations ($83,000) services.
●
TableDuring the quarter ended September 30, 2016, we issued an aggregate of Contents170,000 shares of our unregistered common stock having an aggregate fair value on the date of issuance of $737,800 as compensation to various professional services providers. Of that amount, we issued 120,000 shares having a fair value of $520,800 on the date of issuance for services to be rendered from October 2016 to December 2016.
 
Common
●
During the quarter ended December 31, 2016, we issued an aggregate of 135,000 shares of our unregistered common stock having an aggregate fair value on the respective dates of issuance of $479,800 as compensation to various professional services providers.
●
During the quarter ended March 31, 2017, we issued an aggregate of 200,000 unregistered shares of our common stock, of which 150,000 unregistered shares were issued from our 2016 Stock GrantsPlan (defined below), having an aggregate fair value of $422,500 on the dates of issuance to various professional services providers.

In April 2012,During the Company entered into a contract for investor relations consulting services pursuant to which it granted three-yearquarter ended December 31, 2015, we issued warrants to purchase 50,000 restrictedan aggregate of 45,000 shares of the Company’sour unregistered common stock to four parties as compensation under certain investment banking agreements. In connection with one of the warrant grants, we also issued 15,750 shares of unregistered common stock valued at $106,300 and, in connection with another warrant grant, we made a cash payment of $20,000. In March 2016, we issued warrants to purchase an exercise priceaggregate of $2.80 per share.  The Company230,000 shares of our common stock to eleven professional service providers in connection with investment banking, strategic planning and financing, tax, legal and research and development consulting services. We recognized $1,042,400 of general and administrative expense and $127,100 of research and development expense attributable to the March 2016 grants. We valued the warrant at $69,200warrants granted on the dates indicated using the Black Scholes Option Pricing Model and the following assumptions:  market price per share: $2.74; exercise price per share: $2.80; risk-free interest rate: 0.50%; contractual term: 3 years; volatility: 79.09%; expected dividend rate: 0%.  The
Assumption:
 
November 2015
 
 
December 2015
 
 
 March 2016  
 
Market price per share
 $6.75 
 $5.00 
  8.00 
Exercise price per share
 $7.00 
 $7.00 
  8.00 
Risk-free interest rate
  1.70%
  1.16%
  1.39%
Contractual term in years
  5.0 
  3.0 
  5.0 
Volatility
  77.95%
  77.88%
  78.96%
Dividend rate
  0.0%
  0.0%
  0.0%
 
    
    
    
Fair Value per share
 $4.22 
 $2.12 
 $5.08 
Warrant shares granted
  7,500 
  37,500 
  230,000 
Expense recognized
 $31,700 
 $79,600 
 $1,169,500 
Warrant Exchanges into Series C Preferred and Common Stock
In January 2016, we entered into an Exchange Agreement (theExchange Agreement) with PLTG and Montsant Partners, LLC, an organization affiliated with PLTG (Montsantand, together with PLTG, theHolders), pursuant to which (i) 200,000 shares of our common stock held by the Holders were exchanged for 200,000 shares of Series C Preferred; and (ii) the Holders canceled outstanding warrants to purchase an aggregate of 2,368,658 shares of our unregistered common stock (theOutstanding PLTG Warrants) in exchange for a total of 1,776,494 shares of Series C Preferred. In addition, PLTG terminated its right under the October 2012 Note Exchange and Purchase Agreement, as amended (theNEPA), to receive the Series A Exchange Warrant to purchase a total of 455,358 shares of our common stock upon conversion of all of its shares of our Series A Preferred, and, as consideration, we issued to PLTG 341,518 shares of Series C Preferred. Upon execution of the Exchange Agreement and the termination of PLTG’s right to receive Series A Exchange Warrants under the NEPA, we issued a Series A Exchange Warrant to purchase a total of 80,357 shares of our common stock to the current holder of shares of Series A Preferred previously held, but subsequently assigned, by PLTG.
During the quarter ended March 31, 2016, we entered into Warrant Exchange Agreements with certain holders of other outstanding warrants (Other Warrants) to purchase an aggregate of 1,086,610 shares of our common stock pursuant to which the holders agreed to the cancellation of such warrants in exchange for our issuance to them of an aggregate of 814,989 shares of our unregistered common stock. In connection with these exchanges, we extended the expiration date of certain warrants by three months.
We accounted for the exchange of the Outstanding PLTG Warrants, the Series A Preferred Exchange Warrant, and the Other Warrants as warrant modifications, determining the fair value of the warrant was initially recordedOutstanding PLTG Warrants and the Other Warrants, and the Series A Preferred Exchange Warrant as a prepaid expense and was to be expensed over one year in accordance withif issued on the termsExchange Agreement date, as of the contract.  The contractrespective exchange agreement dates, and related warrant were cancelled in October 2012 and the remaining amount attributablecomparing that to the fair value of the warrant was expensed.

In June 2012,Series C Preferred or common stock issued. Considering the Company entereddirect exchangeability of the Series C Preferred shares into shares of our common stock, we determined that the fair value of a contract for investor relations and public company support services through December 31, 2012share of Series C Preferred issued pursuant to which it granted 280,000 restricted sharesthe Exchange Agreement with PLTG was equal to the market value of itsa share of our common stock valued at $238,000 based on the grant date quoted market price of $0.85 per share andthe Exchange Agreement. We calculated the weighted average fair value of the warrants prior to purchase 100,000 restricted shares of its common stock at an exercise price of $3.00 per share through December 31, 2015.  The Company valued the warrant at $25,800respective exchanges using the Black Scholes Option Pricing Model and the following assumptions:weighted average assumptions indicated in the table below. We determined the post-modification fair value based on the quoted market price per share: $0.85; exercise price per share: $3.00; risk-free interest rate: 0.46%; contractual term: 3.53 years; volatility: 84.279%; expected dividend rate: 0%.  Theof our common stock on the effective date of each exchange and the number of unregistered shares issued in each exchange, as also indicated in the table below. We recognized the amount of the incremental fair value of the stock and the warrant was recorded as a prepaid expense and is being expensed over the approximately six-month term of the contract.

In June 2012, the Company entered into a contract for investor relations consulting services pursuant to which it granted 120,000 restricted shares of itsunregistered Series C Preferred or common stock valued at $102,000 based on the grant date quoted market priceissued in excess of $0.85 per share.  The fair value of the stock was recorded as a prepaid expense and is being expensed over the approximately six-month term of the contract.

In August 2012, the Company modified an existing warrant and issued a new warrant to Morrison & Foerster as additional consideration for the Restructuring Agreement, as disclosed in Note 8, Convertible Promissory Notes and Other Notes Payable.  As described in Note 8, the Company has treated the aggregate of the incremental value of the Amended M&F Warrant and the fair value of the New M&F Warrantwarrants cancelled, $5,608,300, as a discount to the Replacement Notes,component of warrant modification expense, which discount is being amortized to interest expense using the effective interest rate method over the term of the Replacement Notes.

During August 2012, the Company issued 88,235 restricted shares of its common stock valued at a market price of $1.01 per share in settlement of a past-due obligation for business development consulting services in the amount of $25,000.  The Company charged the loss on the settlement to interest expense. As disclosed in Note 8, Convertible Promissory Notes and Other Notes Payable, in August 2012, the Company issued a promissory note in the principal amount of $60,000 and 15,000 restricted shares of its common stock valued at $0.94 per share in settlement of its past due obligation for AV-101 clinical development services.

In February 2013, the Company entered into a contract for various strategic consulting services pursuant to which it granted a five-year warrant to purchase 25,000 shares of the Company’s common stock at an exercise price of $1.50 per share.  The Company valued the warrant at $11,200 using the Black Scholes Option Pricing Model and the following assumptions:  market price per share: $0.79; exercise price per share: $1.50; risk-free interest rate: 0.84%; contractual term: 5 years; volatility: 87.14%; expected dividend rate: 0%, and expensed the fair value of the warrant during the fourth quarter of the fiscal year ended March 31, 2013.
Warrants to Purchase Common Stock

Warrant Grants and Exercises
On March 19, 2014, the Company granted five -year warrants to purchase an aggregate of 415,000 restricted shares of the Company’s unregistered common stock at an exercise price of $0.50 per share to the independent members of its Board of Directors and certain of its officers.  The warrants become exercisable for 50% of the shares on April 1, 2014, 25% of the shares on April 1, 2015 and 25% of the shares on April 1, 2016, provided that the warrant will become fully vested upon a change in control of the Company, as defined, or the consummation by the Company and a third party of a license or sale transaction involving at least one new drug rescue variant.  The Company valued the warrants at $120,800 using the Black Scholes Option Pricing Model and the following assumptions:  market price per share: $0.46; exercise price per share: $0.50; risk-free interest rate: 1.75%; contractual term: 5 years; volatility: 80.57%; expected dividend rate: 0%.  The Company recognized stock compensation expense of $60,400 related to the grants in the fourth quarter of the fiscal year ended March 31, 2014.

In October 2013, the Company issued new warrants to purchase an aggregate of 237,500 shares of its restricted common stock to certain former warrant holders whose warrants to purchase an equivalent number of shares of the Company’s restricted common stock at an exercise price of $1.50 per share had recently expired.  The Company calculated the fair value of the new warrants as $0.03 per share, using the Black-Scholes Option Pricing Model and the following assumptions. market price per share: $0.50; exercise price per share: $1.50; risk-free interest rate: 0.20%; contractual term: 1.32 years; volatility: 73.5%; and expected dividend rate: 0%.  The Company recorded the aggregate fair value of $7,400 for the new warrantsincluded in general and administrative expenseexpenses in theour accompanying Consolidated StatementsStatement of Operations and Comprehensive Loss for the fiscal year ended March 31, 2014,2016.
 
  Warrant Exchanges - FY 2016     
 
 
 
January 2016
 
 
January - March 2016
 
 
 
PLTG
Outstanding Warrants
 
 
PLTG Series A
Exchange Warrant
 
 
Other
outstanding warrants
 
 
 
Pre-
 
 
Post-
 
 
Pre-
 
 
Post-
 
 
Pre-
 
 
Post-
 
 
 
modification
 
 
modification
 
 
modification
 
 
modification
 
 
modification
 
 
modification
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Market Price per share
 $8.25 
 $8.25 
 $8.25 
 $8.25 
 $8.00 
 $7.97 
Exercise price per share
 $7.13 
    
 $7.00 
    
 $8.47 
    
Risk-free interest rate
  1.27%
    
  1.47%
    
  0.88%
    
Contractual term (years)
  3.99 
    
  5.00 
    
  3.04 
    
Volatility
  79.5%
    
  77.9%
    
  81.0%
    
Dividend Rate
  0%
    
  0%
    
  0%
    
 
    
    
    
    
    
    
Weighted average fair value per share
 $4.98 
    
 $5.45 
    
 $3.76 
    
 
    
    
    
    
    
    
Warrant shares cancelled and exchanged
  2,368,658 
    
  455,358 
    
  1,986,610 
    
 
    
    
    
    
    
    
Common (Series C Preferred for PLTG Warrants) shares issued in exchange
    
  1,776,494 
    
  341,518 
    
  814,989 
 
    
    
    
    
    
    
Fair Value
 $11,797,400 
 $14,656,100 
 $2,481,300 
 $2,817,500 
 $4,081,600 
 $6,495,000 
 
    
    
    
    
    
    
Incremental fair value recognized as warrant modification expense
    
 $2,858,700 
    
 $336,200 
    
 $2,413,400 
During our fiscal year ended March 31, 2017, we entered into additional Warrant Exchange Agreements with a corresponding credit to additional paid-in capital, an equity account.

On March 3, 2013, the Company granted ten-yearcertain other holders of outstanding warrants to purchase an aggregate of 3,000,000 restricted224,693 shares of our common stock pursuant to which the Company’sholders agreed to cancel such warrants in exchange for the issuance of an aggregate of 156,246 unregistered shares of common stock.
We also accounted for the exchanges of these warrants as warrant modifications, comparing the fair value of the warrants immediately prior to the exchanges with the fair value of the unregistered common stock at an exercise priceissued, using the same procedures as described previously. We calculated the weighted average fair value of $0.64 per sharethe warrants prior to the independent members of its Board of Directors and certain of its officers.  The warrants become exercisable for 50% of the shares on April 1, 2013, 25% of the shares on April 1, 2014 and 25% of the shares on April 1, 2015, provided that the warrant will become fully vested upon a change in control of the Company, as defined, or the consummation by the Company and a third party of a license or sale transaction involving at least one new drug rescue variant.  The Company valued the warrants at $1,604,800respective exchanges using the Black Scholes Option Pricing Model and the following assumptions:weighted average assumptions indicated in the table below. We determined the post-modification fair value based on the quoted market price per share: $0.64; exercise price per share: $0.64; risk-free interest rate: 1.86%; contractual term: 10 years; volatility: 84.73%; expected dividend rate: 0%.  The Company recognizedof our common stock compensation expenseon the effective date of $802,400 related toeach exchange and the grantsnumber of unregistered shares issued in the fourth quarterexchange, as also indicated in the table below. We recognized the incremental fair value of the unregistered common stock issued in excess of the fair value of the warrants cancelled, $350,700, as a component of warrant modification expense which is included in general and administrative expenses in our accompanying Consolidated Statement of Operations and Comprehensive Loss for the fiscal year ended March 31, 2013.2017.

 
Warrant Exchanges - FY 2017
 
 
 
April - May 2016
 
 
August 2016
 
 
October 2016
 
 
December 2016
 
 
 
Pre-
 
 
Post-
 
 
Pre-
 
 
Post-
 
 
Pre-
 
 
Post-
 
 
Pre-
 
 
Post-
 
 
 
modification
 
 
modification
 
 
modification
 
 
modification
 
 
modification
 
 
modification
 
 
modification
 
 
modification
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Market Price per share
 $8.44 
 $8.45 
 $3.33 
 $3.33 
 $4.05 
 $4.05 
 $3.73 
 $3.73 
Exercise price per share
 $7.37 
    
 $8.00 
    
 $8.15 
    
 $10.00 
    
Risk-free interest rate
  1.23%
    
  1.10%
    
  0.77%
    
  0.44%
    
Contractual term (years)
  4.77 
    
  4.58 
    
  2.40
    
  0.003 
    
Volatility
  79.0%
    
  87.0%
    
  93.0%
    
  100.3%
    
Dividend Rate
  0%
    
  0%
    
  0%
    
  0%
    
 
    
    
    
    
    
    
    
    
Weighted average fair value per share
 $5.37 
    
 $1.64 
    
 $1.27 
    
 $- 
    
 
    
    
    
    
    
    
    
    
Warrant shares cancelled and exchanged
  41,649 
    
  20,000 
    
  113,944 
    
  49,100 
    
 
    
    
    
    
    
    
    
    
Common shares issued in exchange
    
  31,238 
    
  15,000 
    
  85,458 
    
  24,550 
 
    
    
    
    
    
    
    
    
Fair Value
 $223,700 
 $264,000 
 $32,900 
 $50,000 
 $144,400 
 $346,100 
 $- 
 $91,600 
 
    
    
    
    
    
    
    
    
Incremental fair value recognized as warrant modification expense
    
 $40,300 
    
 $17,100 
    
 $201,700 
    
 $91,600 
Additional Warrant Modifications
In June 2013addition to warrants modified in connection with conversions of certain of our outstanding promissory notes into Series B Preferred during the first and October 2013,second quarters of our fiscal year ended March 31, 2016, as described earlier in this note, the Company’s Chief Executive Officer partially exercised an outstanding warrant to purchase 50,000 and 10,000 restricted sharesincremental fair value of which modifications was included in the Company’s common stock at an exercise pricedetermination of $0.64 per share, respectively, loss on extinguishment of debt, and the Company received cash proceeds of $32,000 and $10,000, respectively, from the exercises.

Modification of Warrants Held by Platinum

Effective on May 24, 2013, the Company and Platinum entered into an Amendment and Waiver Agreement (the “Amendment and Waiver”) pursuant to which the Company agreed to reduce the exercise price of the Exchange Warrant and the Investment Warrants issued to Platinum in October 2012 and February 2013 and March 2013 (collectively, the “Warrants”) from $1.50 per share to $0.50 per share in consideration for Platinum’s agreement to waive its rights for any increase in the number of shares of common stock issuable under the adjustment provisions of the Exchange Warrant and the Investment Warrants that would otherwise occur from (i) the Company’s sale of shares of its common stock at a price of $0.50 per sharewarrants modified in connection with the Autilion Financing; (ii) the March 2013 grant of warrants to certain of the Company’s officers and independent directors to purchase an aggregate of 3.0 million restricted shares of common stock at an exercise price of $0.64 per share; and (iii) the Company’s issuance of restricted shares of its common stock resulting in gross proceeds not to exceed $1.5 million in connection with the exercise byvarious warrant holders, by no later than June 30, 2013, subsequently extended to July 30, 2013, of previouslyexchange transactions described immediately above, we modified other outstanding warrants for which the Company may reduce the exercise price to not less than $0.50 per share. (See “Other Warrant Modificationsduring our fiscal years ended March 31, 2017 and Exercises2016.” below.)
 
F-34
As described in Note 4, Fair Value MeasurementsIn and in Note 9, Convertible Promissory Notes and Other Notes Payable, the Company re-measures the fair value of the Exchange Warrant, the Investment Warrants and the July 2013 Warrant at the end of each quarterly reporting period.  The fair value re-measurement at June 30, 2013 incorporated the modification of the exercise price resulting from the Amendment and Waiver and the corresponding adjustment was reflected as a component of the Warrant Liability at that date.  The Company also re-measures at the end of each reporting period the fair value of the Series A Exchange Warrant which is contingently issuable to Platinum upon the exchange of its shares of the Company’s Series A Preferred Stock into shares of the Company’s restricted common stock.  At March 31, 2014 and 2013, the Company determined the fair values of the Exchange Warrant, the Investment Warrants, the July 2013 Warrant (2014 only) and the Series A Preferred Exchange Warrant to be a weighted average of $0.27 and $0.59 per share, respectively, or an aggregate of $2,973,900 and $6,394,000, which amounts are reflected as Warrant Liability in the accompanying Consolidated Balance Sheets at March 31, 2014 and 2013, respectively.  The Company determined the fair value of the warrants at March 31, 2014 using a Monte Carlo simulation model assuming the exercise price of the warrants to be the lower of (i) $0.50 per share or (ii) the projected market price of the Company’s common stock as determined by the simulation model and the other assumptions indicated in the table below.  The Company determined the fair value of the warrants at March 31, 2013 using the Black Scholes Option Pricing Model and the assumptions indicated in the table below.
  March 31, 
  2014  2013 
Market price of common stock $0.46  $0.83 
Exercise price per share $0.49 to $0.50  $0.50 
Risk-free interest rate  1.73%  0.77%
Volatility  75%  85%
Term (years) 3.5 to 5.0  4.5 to 5.0 
Dividend rate  0%  0%
Probability of Series A Preferred exchange  95%  95%
Fair value per share $0.26 to $0.29  $0.59 to $0.62 
Other Warrant Modifications and Exercises
During the months of June and July 2013, the Company offered2015, we modified certain long-term warrant holders the opportunity to exercise warrants having an exercise price of $1.50 per share to purchase shares of the Company’s restricted common stock at a reduced exercise price of $0.50 per share through July 30, 2013.  Warrant holders exercisedoutstanding warrants to purchase an aggregate of 528,370 restricted54,576 shares of the Company’sour common stock and the Company received cash proceeds of $264,200.  In addition, certain warrant holders exercised modified warrants to purchase 16,646 restricted shares of the Company’s common stock in lieu of payment by the Company in satisfaction of amounts due for professional services in the aggregate amount of $8,300. The Company reduce their exercise price. We calculated the fair value of the warrants exercised immediately before and after the modifications and determined that the fair value of the warrants exercised decreased.                                                    .

In October 2013 the Company modified certain outstanding warrants held by its long-term investors and consultants to purchase an aggregate of 1,292,778 restricted shares of the Company’s common stock to reduce the exercise price of the warrants to $0.50 per share and, for warrants scheduled to expire on December 31, 2013, extend the exercise term of the warrants until January 31, 2015, generally without modifying the exercise price.  The Company calculated the fair value of the warrants immediately before and after the modifications and determined that the fair value of the warrants increased by $77,800,an aggregate of $122,300, which we recognized as a component of warrant modification expense which is reflectedincluded in general and administrative expense in the accompanying Consolidated StatementsStatement of Operations and Comprehensive Loss for the fiscal year ended March 31, 2014.  The warrants subject to the exercise price modifications and term extensions were valued using the Black-Scholes Option Pricing Model and the following assumptions:
Assumption: Pre-modification  Post-modification 
Market price per share at modification date
 
$
0.50
  
$
0.50
 
Exercise price per share (weighted average)
 
$
1.50
  
$
1.23
 
Risk-free interest rate (weighted average)
  
0.33%
   
0.44%
 
Contractual term in years (weighted average)
  
1.40
   
2.10
 
Volatility (weighted average)
  
74.4%
   
75.8%
 
Dividend rate
  
0.0%
   
0.0%
 
         
Weighted Average Fair Value per share
 
$
0.05
  
$
0.11
 
In December 2013, the Company modified additional outstanding warrants held by certain of its long-term investors, consultants, and members of management and its Board of Directors to purchase an aggregate of 1,260,251 restricted shares of its common stock to reduce the exercise price of the warrants to $0.50 per share and, in limited cases, extend the exercise term of the warrants.  The Company calculated the fair value of the warrants immediately before and after the modifications and determined that the fair value of the warrants increased by $344,000, which is reflected in general and administrative expense in the accompanying Consolidated Statements of Operations and Comprehensive Loss for the fiscal year ended March 31, 2014.  The warrants subject to the exercise price modifications and term extensions were valued using the Black-Scholes Option Pricing Model and the following assumptions:

Assumption: Pre-modification  Post-modification 
Market price per share at modification date
 
$
0.40
  
$
0.40
 
Exercise price per share (weighted average)
 
$
1.67
  
$
0.50
 
Risk-free interest rate (weighted average)
  
0.51%
   
0.57%
 
Contractual term in years (weighted average)
  
2.06
   
2.34
 
Volatility (weighted average)
  
73.6%
   
74.4%
 
Dividend rate
  
0.0%
   
0.0%
 
         
Weighted Average Fair Value per share
 
$
0.05
  
$
0.14
 

In February 2014, the Company modified additional outstanding warrants held by certain of its long-term investors to purchase an aggregate of 574,432 restricted shares of its common stock primarily to extend the exercise term of the warrants, and, in limited cases, to reduce the exercise price from $1.50 per share to $0.50 per share. The Company calculated the fair value of the warrants immediately before and after the modifications and determined that the fair value of the warrants increased by $29,800, which is reflected in general and administrative expense in the accompanying Consolidated Statements of Operations and Comprehensive Loss for the fiscal year ended March 31, 2014.  The warrants subject to the exercise price modifications and term extensions were valued using the Black-Scholes Option Pricing Model and the following assumptions:

Assumption: Pre-modification  Post-modification 
Market price per share at modification date
 
$
0.46
  
$
0.46
 
Exercise price per share (weighted average)
 
$
1.41
  
$
1.19
 
Risk-free interest rate (weighted average)
  
0.07%
   
0.18%
 
Contractual term in years (weighted average)
  
0.40
   
1.34
 
Volatility (weighted average)
  
68.7%
   
69.9%
 
Dividend rate
  
0.0%
   
0.0%
 
         
Weighted Average Fair Value per share
 
$
0.01
  
$
0.06
 

In February 2013, the Company modified certain outstanding warrants to purchase an aggregate of 1,706,709 restricted shares of the Company’s common stock at exercise prices in excess of $1.50 per share to reduce the exercise price to $1.50 per share.  The Company determined that the increase in the fair value of the warrants exercised was $67,500, which is reflected in general and administrative expense in the accompanying Consolidated Statements of Operations and Comprehensive Loss for the year ended March 31, 2013.  The warrants subject to the exercise price modification were valued using the Black-Scholes Option Pricing Model and the following assumptions:

Assumption: Pre-modification  Post-modification 
Market price per share (weighted average)
 
$
0.60
  
$
0.60
 
Exercise price per share (weighted average)
 
$
2.51
  
$
1.50
 
Risk-free interest rate (weighted average)
  
0.21%
   
0.21%
 
Expected term in years (weighted average)
  
1.38
   
1.38
 
Volatility (weighted average)
  
80.8%
   
80.8%
 
Dividend rate
  
0.0%
   
0.0%
 
         
Weighted Average Fair Value per share
 
$
0.03
  
$
0.07
 
Between May and June 30, 2012, the Company offered certain warrant holders the opportunity to exercise their warrants to purchase restricted shares of the Company’s common stock at reduced exercise prices.  The Company subsequently extended the offer through August 2012. Warrant holders exercised warrants to purchase an aggregate of 524,056 restricted shares of the Company’s common stock and the Company received cash proceeds of $262,000.  In addition, certain warrant holders exercised warrants to purchase 25,000 restricted shares of the Company’s common stock in lieu of payment by the Company in satisfaction of amounts due for services in the aggregate amount of $12,500.  For every three discounted warrant shares exercised by the warrant holders, the Company granted a three-year warrant to purchase one restricted share of its common stock at an exercise price of $3.00 per share.
The Company calculated the fair value of the warrants exercised immediately before and after the May 18, 2012 Board of Directors approval of the modification offer, and on the exercise date for the exercises occurring after June 30, 2012, and determined that the increase in the fair value of the warrants exercised was $440,700, which is reflected in general and administrative expense in the accompanying Consolidated Statements of Operations and Comprehensive Loss for the year ended March 31, 2013.2016. The warrants subject to the exercise price modifications were valued using the Black-Scholes Option Pricing Model and the following assumptions:

Assumption: Pre-modification Post-modification 
 
Pre-modification
 
 
Post-modification
 
Market price per share (weighted average)
 
$
1.95
 
$
1.95
 
Market price per share
 $10.00 
Exercise price per share (weighted average)
 
$
2.75
 
$
0.50
 
 $30.23 
 $11.92 
Risk-free interest rate (weighted average)
 
0.29%
 
0.06%
 
  0.83%
Expected term in years (weighted average)
 
1.93
 
0.12
 
Remaining contractual term in years (weighted average)
  2.26 
Volatility (weighted average)
 
78.0%
 
85.7%
 
  73.7%
Dividend rate
 
0.0%
 
0.0%
 
  0.0%
     
    
Weighted Average Fair Value per share
 
$
0.64
 
$
1.45
 
Fair Value per share (weighted average)
 $1.55 
 $3.79 

In connection withNovember 2015, our Board of Directors (the Board) authorized the foregoing exercises, the Company issued three-yearmodification of outstanding warrants to purchase 183,025 restrictedan aggregate of 1,123,533 shares of the Company’sour common stock, atincluding warrants to purchase an aggregate of 600,000 shares granted in September 2015 to company officers, independent members of the Board and a key scientific advisor to reduce the exercise prices thereof to $7.00 per share and to extend through March 19, 2019 the expiration date of such warrants to purchase an aggregate of 10,803 shares of our unregistered common stock otherwise scheduled to expire during calendar 2016. We calculated the fair value of the modified warrants immediately before and after the modifications and determined that the fair value of the warrants increased by an aggregate of $492,600. We recognized $357,500 of such increase as a component of general and administrative expense in the accompanying Consolidated Statement of Operations and Comprehensive Loss for the fiscal year ended March 31, 2016, and the remaining $135,100 as a component of research and development expense in the same period. The warrants subject to the exercise price modifications were valued using the Black-Scholes Option Pricing Model and the following assumptions:
Assumption:
 
Pre-modification
 
 
Post-modification
 
Market price per share
 $6.50 
 $6.50 
Exercise price per share (weighted average)
 $9.97 
 $7.00 
Risk-free interest rate (weighted average)
  1.74%
  1.75%
Remaining contractual term in years (weighted average)
  5.13 
  5.16 
Volatility (weighted average)
  78.8%
  78.7%
Dividend rate
  0.0%
  0.0%
 
    
    
Fair Value per share (weighted average)
 $3.65 
 $4.08 
As noted with respect to the exchange of $3.00 per share.the Other Warrants into shares of our common stock, in January 2016, we extended the term of certain warrants to purchase an aggregate of 91,230 unregistered shares of our common stock otherwise due to expire between January 31, 2016 and June 11, 2016 by three months. We calculated the fair value of the extended warrants immediately before and after the extension and determined that the fair value of the warrants increased by an aggregate of $45,700, which we treated as an additional component of warrant modification expense for the fiscal year ended March 31, 2016 in the accompanying Consolidated Statement of Operations and Comprehensive Loss. The Companywarrants subject to the term extension were valued theseusing the Black-Scholes Option Pricing Model and the following weighted average assumptions:
Assumption:
 
Pre-modification
 
 
Post-modification
 
Market price per share
 $8.25 
 $8.25 
Exercise price per share
 $12.99 
 $12.99 
Risk-free interest rate
  0.28%
  0.36%
Remaining contractual term in years
  0.15 
  0.40 
Volatility
  91.2%
  91.2%
Dividend rate
  0.0%
  0.0%
 
    
    
Fair Value per share
 $0.30 
 $0.80 
For warrants at $35,900which were extended and subsequently exchanged, the pre-modification fair value used in the warrant exchange calculation was the post-modification term extension fair value, since those warrants were treated as having been modified twice in a twelve-month period.
In December 2016, the Board authorized the modification of an outstanding warrant to both alter the exercise terms and increase the number of shares for which the warrant was exercisable. We calculated the fair value of the warrant immediately before and after the modification using the Black Scholes Option Pricing Model and the following assumptions:  weighted average market price per share: $0.89; exercise price per share: $3.00; risk-free interest rate: 0.42%; contractual term: 3.0 years; volatility: 78.04%; expected dividend rate: 0%.  Theassumptions indicated in the table below. We recognized the additional fair value, of the warrants was charged to interest expense.

In making its fair value determinations for both$76,900, as warrant modifications and new grants using the Black Scholes Option Pricing Model, the Company utilizes the following principles in selecting its input assumptions. The market price per share is based on the quoted market price of the Company’s common stock on the Over-the-Counter Bulletin Board on the date of the modification or grant.  Because of its short historyexpense, included as a public company, the Company estimates stock price volatility based on the historical volatilitiescomponent of a peer groupgeneral and administrative expenses, in our Consolidated Statement of public companies over the contractual or remaining contractual term of the warrant.  The contractual term of the warrant is determined based on the grant or modification dateOperations and the latest date on which the warrant can be exercised under its terms or under the terms of the discounted exercise price offer. The risk-free rate of interest is based on the quoted constant maturity rate for U.S Treasury Bills on the date of the grant or modificationComprehensive Loss for the term corresponding with the contractual term or remaining term of the warrant.  The dividend rate is zero as the Company has not paid and does not expect to pay dividends in the near future.fiscal year ended March 31, 2017.
 
F-37
Assumption:
 
Pre-modification
 
 
Post-modification
 
Market price per share
 $3.51 
 $3.51 
Exercise price per share
 $8.00 
 $3.51 
Risk-free interest rate
  1.88%
  2.07%
Remaining contractual term in years
  4.26 
  5.03 
Volatility
  87.1%
  85.8%
Dividend rate
  0.0%
  0.0%
 
    
    
Number of warrant shares
  25,000 
  50,000 
Weighted average fair value per share
 $1.71 
 $2.39 
 
Warrants Outstanding

The following table summarizes outstanding warrants to purchase restricted shares of the Company’sour common stock as of March 31, 2014.2017.  The weighted average exercise price of outstanding warrants at March 31, 20142017 was $0.87$6.29 per share.
       Shares Subject to 
Exercise   Weighted Average  Purchase at 
Price Expiration Years to  March 31, 
per Share Date Expiration  2014 
         
$0.50 12/31/2014 to 3/19/2019  3.34   5,856,983 
$0.64 3/3/2023  8.92   2,940,000 
$0.88 5/31/2015  1.17   15,428 
$1.00 7/30/2016 to 9/30/2017  3.05   5,326,029 
$1.25 12/31/2014 to 5/31/2015  0.8   50,280 
$1.50 11/4/2014 to 3/4/2018  2.45   2,353,052 
$2.00 9/15/2017  3.46   425,000 
$2.50 5/31/2015  1.17   42,443 
$2.625 1/31/2015  0.84   61,418 
$3.00 2/13/2016  1.87   25,000 
            
      4.07   17,095,633 

Note Receivable from Sale of Company Securities

In May 2011, the Company accepted a $500,000 short-term note from an investor in payment for shares of the Company’s common stock sold to the investor in a private placement transaction.  In October 2011, the Company restructured the note to extend the repayment term through September 1, 2012 and to increase the interest rate to 5% per annum. On November 8, 2012 the Company and the investor again amended the note to require payment of the outstanding balance of $256,000, reflecting unpaid principal and accrued interest, in twenty-four monthly payments of $11,000 beginning in December 2012 and continuing through November 2014, with a final payment of the remaining unpaid principal and interest due in December 2014.  The outstanding principal balance of the note receivable at March 31, 2014 and 2013 was $198,100 and $209,100, respectively.

 
 
 
 
 
 
Weighted
 
 
Shares Subject
 
 
Exercise
 
 
 
Average
 
 
to Purchase at
 
 
Price
 
Expiration
 
Remaining
 
 
March 31,
 
 
per Share
 
Date
 
Term (Years)
 
 
2017
 
 
 
 
 
 
 
 
 
 
 
 $3.51 
12/31/2021
  4.75 
  50,000 
 $4.00 
4/30/2021
  4.08 
  28,625 
 $4.50 
9/26/2019
  2.49 
  25,000 
 $5.30 
5/16/2021
  4.13 
  2,705,883 
 $6.00 
9/26/2019 to 11/30/2019
  2.52 
  97,750 
 $7.00 
12/11/2018 to 3/3/2023
  3.41 
  1,346,931 
 $8.00 
3/25/2021
  3.98 
  185,000 
 $10.00 
11/15/2017 to 1/11/2020
  2.39 
  24,394 
 $20.00 
9/15/2019
  2.46 
  110,448 
 $30.00 
11/20/2017
  0.64 
  3,600 
 
    
    
 
  3.82 
  4,577,631 
F-38

Reserved Shares

At March 31, 2014, the Company has2017, we have reserved shares of itsour common stock for future issuance as follows:
 
Upon exchange of all shares of Series A Preferred Stock currently issued and outstanding (1)
15,000,000
750,000
 
Warrant shares issuable to Platinum upon exercise of common stock warrant upon
Upon exchange of all shares of Series A preferred stock under the terms of the October 11, 2012 Note PurchaseB Preferred Stock currently issued and Exchange Agreementoutstanding(2)
7,500,000
1,823,700
 
110%Upon exchange of all shares issuable upon conversion of 10% convertible Exchange NoteSeries C Preferred Stock currently issued and Investment Notes issued to Platinum in October 2012, February 2013 and March 2013, including interest accrued through maturityoutstanding
  (2)2,318,012
11,227,423
 
Pursuant to warrants to purchase common stock:
    Subject to outstanding warrants17,095,633
Issuable pursuant to accrued interest through maturity on outstanding promissory notes
        issued to Morrison & Foerster, Cato Research Ltd., and University Health Network938,971
4,577,631
 18,034,604
Pursuant to stock incentive plans:
    Subject to outstanding options under the 2008Amended and Restated 2016 and 1999 Stock Incentive Plans4,249,271
1,659,324
    Available for future grants under the Amended and Restated 2016 Stock Incentive Plan735,200
1,134,911
 4,984,471
Upon conversion of notes and accrued interest issued pursuant to the Winter 2013/2014 Private Placement of Units2,470,000
Upon further sales of Units in the Spring 2014 Private Placement of Units14,900,000
Upon further sale of shares to Autilion under the amended Securities Purchase Agreement71,950,000
2,794,235
 
 
Total146,066,498
12,263,578
____________
(1)
(1)
assumes exchange under the terms of the October 11, 2012 Note Exchange and Purchase Agreement with PLTG
  Assumes exchange under the terms of the October 11, 2012  Note Exchange and Purchase Agreement with Platinum
(2)  Assumes conversion under the terms of the October 11, 2012  Note Exchange and Purchase Agreement with Platinum and the terms of the individual notes

11.
(2)
includes 663,460 common shares issuable in payment of an estimated $1,658,600 in accrued dividends through April 30, 2017 at $2.50 per share
10.  Research and Development Expenses

The CompanyWe recorded research and development expenses of approximately $2.5$5.2 million and $3.4$3.9 million in the fiscal years ended March 31, 20142017 and 2013,2016, respectively. Research and development expense is composed primarily of employee compensation expenses, including stock–based compensation, and direct project expenses, particularly in Fiscal 2017 related to our preparations for our AV-101 MDD Phase 2 Adjunctive Treatment Study, and costs to maintain and prosecute our intellectual property suite, including costs incurred by third-party research collaborators, some of which may be reimbursed under the terms of grant or collaboration agreements.new patent applications for AV-101 for various indications.

12.11.  Income Taxes

The provision for income taxes for the periods presented in the consolidated statementsConsolidated Statements of operationsOperations and Comprehensive Loss represents minimum California franchise taxes. Income tax expense differed from the amounts computed by applying the U.S. federal income tax rate of 34% to pretax losses as a result of the following:
 
 Fiscal Years Ended March 31, 
 
Fiscal Years Ended March 31,
 
 2014  2013 
 
2017
 
 
2016
 
      
 
 
 
Computed expected tax benefit  -34.0%  -34.0%
  (34.00)%
Tax effect of loss on debt extinguishment
  -%
  19.22%
Tax effect of warrant modifications
  1.42%
  4.38%
Tax effect of Warrant Liability mark to market  41.5%  -4.3%
  -%
  1.36%
Other losses not benefitted  -7.5%  38.2%
  32.58%
  9.04%
Other  0.1%  0.1%
  0.02%
  0.01%
        
    
Income tax expense  0.1%  0.0%
  0.02%
  0.01%
 
F-39
Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’sour deferred tax assets are as follows (in thousands):
 March 31, 
 
March 31,
 
 2014  2013 
 
2017
 
 
2016
 
Deferred tax assets:      
 
 
 
Net operating loss carryovers $19,733  $19,010 
 $30,184 
 $26,606 
Basis differences in fixed assets  37   9 
  (4)
  - 
Stock based compensation
  3,674 
  3,681 
Accruals and reserves  17   8 
  928 
        
    
Total deferred tax assets  19,787   19,027 
  34,782 
  31,215 
        
    
Valuation allowance  (19,787)  (19,027)
  (34,782)
  (31,215)
        
    
Net deferred tax assets $-  $- 
 $- 
 
Realization of deferred tax assets is dependent upon future earnings, if any, the timing and amount of which are uncertain. Accordingly, the deferred tax assets have been fully offset by a valuation allowance. The valuation allowance increased by $760,000$3,567,000 and $2,814,000$5,443,000 during the fiscal years ended March 31, 20142017 and 2013,2016, respectively. When realized, deferred tax assets related to employee stock options will be credited to additional paid-in capital.

As of March 31, 2014, the Company2017, we had U.S. federal net operating loss carryforwards of $50.3approximately $77.1 million, which will expire in fiscal years 20192020 through 2034.2037.  As of March 31, 2014, the Company2017, we had state net operating loss carryforwards of $44.7approximately $67.6 million, which will expire in fiscal years 20142018 through 2034.2037.

U.S. federal and state tax laws include substantial restrictions on the utilization of net operating loss carryforwards in the event of an ownership change of a corporation. The Company hasWe have not performed a change in ownership analysis since itsour inception in 1998 and accordingly some or all of itsour net operating loss carryforwards may not be available to offset future taxable income, if any. Even if the loss carryforwards are available they may be subject to substantial annual limitations resulting from past ownership changes, and ownership changes occurring after March 31, 2014, that could result in the expiration of the loss carryforwards before they are utilized.

The Company filesWe file income tax returns in the U.S. federal and Canadian jurisdictions and California and Maryland state jurisdictions. The Company isWe are subject to U.S. federal and state income tax examinations by tax authorities for tax years 19992000 through 20142017 due to net operating losses that are being carried forward for tax purposes.purposes, but we are not currently under examination by tax authorities in any jurisdiction.

The Company does not have any uncertain tax positions orUncertain Tax Positions
Our unrecognized tax benefits at March 31, 20142017 and 2013.2016 relate entirely to research and development tax credits. The Company’stotal amount of unrecognized tax benefits at March 31, 2017 and 2016 is $290,500 and $142,400, respectively. If recognized, none of the unrecognized tax benefits would impact our effective tax rate. The following table summarizes the activity related to our unrecognized tax benefits.
 
 
Fiscal Years Ended March 31,
 
 
 
2017
 
 
2016
 
 
 
 
 
 
 
 
Unrecognized benefit - beginning of period
 $142,400 
 $48,200 
Current period tax position increases
  77,700 
  35,300 
Prior period tax position increases
  70,400 
  58,900 
 
    
    
Unrecognized benefit - end of period
 $290,500 
 $142,400 
Our policy is to recognize interest and penalties related to income taxes as components of interest expense and other expense, respectively. We incurred no interest or penalties related to unrecognized tax benefits in the years ended March 31, 2017 or 2016. We do not anticipate any significant changes of our uncertain tax positions within twelve months of this reporting date.

13.
12.  Licensing, Sublicensing and Collaborative Agreements

BlueRock Therapeutics Sublicense Agreement
In December 2016, we entered into an Exclusive License and Sublicense Agreement (BlueRock Therapeutics Agreement) with BlueRock Therapeutics, LP, a next generation regenerative medicine company established in December 2016 by Bayer AG and Versant Ventures (BlueRock Therapeutics), pursuant to which BlueRock received exclusive rights to utilize certain technologies exclusively licensed by us from University Health Network (UHN) for the production of cardiac stem cells for the treatment of heart disease. We retained rights to cardiac stem cell technology licensed from UHN related to small molecule, protein and antibody drug discovery, drug rescue and drug development, including small molecules with cardiac regenerative potential, as well as small molecule, protein and antibody testing involving cardiac cells.
Under the BlueRock Therapeutics Agreement, we received an upfront payment of $1.25 million and we have the potential to receive additional milestone payments and royalties in the future, in the event certain performance-based milestones and commercial sales are achieved. At December 31, 2016, we had no further obligations under the BlueRock Therapeutics Agreement and, accordingly, we recorded a receivable for the $1.25 million upfront payment with a corresponding recognition of the sublicense revenue. We received the $1.25 million cash payment due under the BlueRock Therapeutics Agreement in January 2017 and have recognized $1.25 million in sublicense revenue in the accompanying Consolidated Statement of Operations and Comprehensive Loss for the fiscal year ended March 31, 2017.
U.S. National Institutes of Health
During fiscal years 2006 through 2008, the NIH awarded a $4.2 million grant to the Company to support preclinical development of AV-101 for pain. In June 2009, the NIH further awarded the Company a $4.2 million grant to support the Phase I clinical development of AV-101, which amount was subsequently increased to a total of $4.6 million in July 2010.  The grant expired in the ordinary course on June 30, 2012 and all funds had been expended.  AV-101, our orally available prodrug candidate is currently in Phase 2 development, initially for the adjunctive treatment of MDD in patients with an inadequate response to standard antidepressants. In February 2015, we entered into the CRADA with the NIMH to collaborate on an NIH-sponsored Phase 2 clinical study of the efficacy and safety of AV-101 in subjects with MDD. The first patient in the NIMH AV-101 MDD Phase 2 Monotherapy Study was dosed in November 2015 and we currently anticipate that the NIMH will complete the study in 2017, with top line results in the first half of 2018. We believe AV-101 may also have broad therapeutic utility with multiple near term central nervous system pipeline expansion opportunities, including chronic neuropathic pain, epilepsy, Huntington’s disease and Parkinson’s disease.
Cato Research Ltd.
We have built a strategic development relationship with Cato Research Ltd. (CRL), a global contract research and development organization, or CRO, and an affiliate of one of our largest institutional stockholders.  CRL has provided us with access to essential CRO services and regulatory expertise supporting our AV-101 preclinical and clinical development programs and other projects.  We recorded research and development expenses for CRO services provided by CRL in the amounts of $254,600 and $52,600 for the fiscal years ended March 31, 2017 and 2016, respectively.  
University Health Network
 
OnIn September 17, 2007, the Company and UHNwe entered into a Sponsored Research Collaboration Agreement (“(SRCA”) with University Health Network to develop certain stem cell technologies for drug discovery, development and rescue technologies. The SRCA was amended on April 19, 2010 to extend the term to five years and give the Company various options to extend the term for an additional three years. On December 15, 2010, the Company and UHN entered into a second amendment to expand the scope of work to include induced pluripotent stem cell technology and to further expand the scope of research and term extension options. On April 25, 2011, the Company and UHN amended the SRCA a third time to expand the scope to include therapeutic and stem cell therapy applications of induced pluripotent cells and to extend the date during which the Company may elect to fund additional projects to April 30, 2012.  On October 24, 2011, the Company and UHN amended the SRCA a fourth time to identify five key programs that will further support the Company’s core drug rescue initiatives and potential cell therapy applications.  Under the terms of the fourth amendment, the Company committedSRCA, we have acquired exclusive worldwide rights to making monthly payments of $50,000 per month from October 2011 through September 2012 to fund these programs.  As disclosed in Note 9, Convertible Notes and Other Notes Payable, in October 2012, the Company issued a promissory notepatent applications in the principal amountU.S. and foreign countries on multiple inventions arising from studies we have sponsored, under pre-negotiated license terms. Those license terms provide for royalty payments based on product sales that incorporate the licensed technology and milestone payments based on the achievement of $549,500certain events. Any drug rescue new chemical entity that we develop will not incorporate the licensed technology and, therefore, will not require any royalty payments. To the extent we incur royalty payment obligations from other business activities, the royalty payments will be subject to anti-stacking provisions, which reduce our payments by a warrantpercentage of any royalty payments paid to third parties who have licensed necessary intellectual property to us. These licenses will remain in force for so long as we have an obligation to make royalty or milestone payments to UHN, but may be terminated earlier upon mutual consent, by us at any time, or by UHN for our breach of any material provision of the license agreement that is not cured within 90 days. The SRCA with UHN, as paymentamended, had a term of ten years, ending in fullSeptember 2017, but was terminated in December 2016, as described below.
In December 2016, we entered into a series of agreements with UHN pursuant to which we (i) executed two new exclusive patent license agreements related to certain cardiac stem cell technologies discovered by Dr. Gordon Keller, Director of UHN's McEwen Centre for services renderedRegenerative Medicine, under the fourth amendment. Additionally, the CompanySRCA; (ii) amended two exclusive cardiac stem cell technology patent license agreements previously entered into between us and UHN entered into Amendment No. 5under the SRCA; (iii) terminated the SRCA to facilitate the BlueRock Therapeutics Agreement, described above; and (iv) agreed to make a sublicense consideration payment to UHN with respect to the SRCA establishing the sponsored research projects and the sponsored research budgetsupfront payment we received under the SRCA from October 1, 2012BlueRock Therapeutics Agreement. All financial obligations related to September 30, 2013, as well as a schedulethese agreements with UHN, aggregating $233,400, are reflected in research and development expense in the accompanying Consolidated Statement of Operations and Comprehensive Loss for the Company’s sponsored research payments for such period totaling $309,000.fiscal year ended March 31, 2017.
 
 
Concurrent with the execution of the fourth amendment to the SRCA, the Company and UHN entered into a License Agreement under the terms of which UHN granted the Company exclusive rights to the use of a novel molecule that can be employed in the identification and isolation of mature and immature human cardiomyocytes from pluripotent stem cells, as well as methods for the production of cardiomyocytes from pluripotent stem cells that express this marker.  In consideration for the grant of the license, the Company has agreed to make payments to UHN totaling $3.9 million, if, and when, it achieves certain commercial milestones set forth in the License Agreement, and to pay UHN royalties based on the receipt of revenue by the Company attributable to the licensed patents.

U.S. National Institutes of Health

During fiscal years 2006 through 2008, the U.S. National Institutes of Health ("NIH") awarded the Company a $4.2 million grant to support preclinical development of AV-101, the Company’s lead drug candidate for treatment of neuropathic pain and other neurodegenerative diseases such as Huntington’s and Parkinson’s diseases.  In June 2009, the NIH awarded the Company a $4.2 million grant to support the Phase I clinical development of AV-101, which amount was subsequently increased to a total of $4.6 million in July 2010.  The Company recognized NIH grant revenue related to AV-101 in the amount of $187,000 in the quarter ended June 30, 2012. The grant expired in the ordinary course on June 30, 2012.

Cato Research Ltd.

The Company has built a strategic development relationship with Cato Research Ltd. (“CRL”), a global contract research and development organization, or CRO, and an affiliate of one of the Company’s largest institutional stockholders.  CRL has provided the Company with access to essential CRO services and regulatory expertise supporting its AV-101 preclinical and clinical development programs and other projects.  The Company recorded research and development expenses for CRO services provided by CRL in the amounts of $52,500 and $703,800 for the fiscal years ended March 31, 2014 and 2013, respectively.  As described in Note 9, Convertible Promissory Notes and Other Notes Payable, in October 2012, the Company issued an unsecured promissory note in the principal amount of $1,009,000, and a warrant exercisable for 1,009,000 shares of the Company’s common stock, as payment in full of all amounts owed to CRL for CRO services rendered to the Company through December 31, 2012.
14.13.  Stock Option Plans and 401(k) Plan

The Company hasWe have the following share-based compensation plans.

2008Amended and Restated 2016 Stock Incentive Plan

TheOur Board unanimously approved the Company’s Amended and Restated 2016 Equity Incentive Plan (“2016 Plan”), formerly titled the 2008 Equity Incentive Plan, on July 26, 2016. Our stockholders approved the 2016 Plan on September 26, 2016. The2008 Stock Incentive Plan (the “2008 Plan”) was adopted by the shareholders of VistaGen California onin December 19, 20082018 and we assumed by the Companyit in connection with the Merger. Theour going-public transaction. The maximum number of shares of the Company’s common stock that may be granted pursuant toissuable under the 20082016 Plan is 5,000,000 shares. The maximum number of3.0 million shares, that may be granted under the 2008 Plan is subject to adjustments for stock splits, stock dividends or other similar changes in theour common stock or our capital structure.

Board-approved amendments to the 2016 Plan included increasing the number of shares of our common stock authorized for issuance from 1.0 million to 3.0 million, increasing the maximum number of shares of common stock that may be granted to a Grantee (as such term is defined in the 2016 Plan) in any calendar year from 125,000 to 300,000 shares (350,000 shares if the grant is issued in connection with the commencement of service to the Company), extending the expiration date of the 2016 Plan to July 26, 2026, and removing certain provisions that only pertained to the Company or the plan before the Company became a publicly traded entity. The 2016 Plan delegates the authority to administer the plan to the Board’s Compensation Committee (theCommittee).
1999 Stock Incentive Plan

The Company’sOur 1999 Stock Incentive Plan (the “1999 Plan”) was adopted by the shareholders of VistaGen CaliforniaVistaStem on December 6, 1999 and we assumed by the Companyit in connection with the Merger. The Companyour going-public transaction. We initially reserved 900,00045,000 shares for the issuance of awards under the 1999 Plan. The 1999 Plan has terminated under its own terms and, as a result, no awards may currently be granted under the 1999 Plan. However, theThe unexpired options and awards that have already been granted pursuant to the 1999 Plan remain operative.

Description of the 20082016 Plan

UnderThe 2016 Plan provides for the termsgrant of the 2008 Plan, the Compensation Committee of the Company’s Board of Directors may grant shares, options or similar rights having either a fixed or variable price related to the fair market value of the shares and with an exercise or conversion privilege related to the passage of time, the occurrence of one or more events, or the satisfaction of performance criteria or other conditions, or any other security with the value derived from the value of the shares. Such awards include stock options, restricted shares of common stock, restricted stock units, stock appreciation rights and dividend equivalent rights. 
F-41
the Company or any parent or subsidiary of the Company. Awards other than incentive stock options may be granted to employees, directors and consultants.
 
The Compensation Committee may grant nonstatutoryadministers the 2016 Plan, including selecting the Award recipients, determining the number of shares to be subject to each Award, the exercise or purchase price of each Award and the vesting and exercise periods of each Award.
The exercise price of all incentive stock options granted under the 20082016 Plan must be at a price of not less thanleast equal to 100% of the fair market value of the Company’s common stock on the date the option is granted. Incentive stock options under the 2008 Plan may be granted at a price of not less than 100% of the fair market value of the Company’s common stock on the date the option is granted. Incentive stock options granted to employees who,shares on the date of grant, owngrant. If, however, incentive stock representingoptions are granted to an employee who owns stock possessing more than 10% of the voting power of all of the Company’s classes of our stock are granted at anor the stock of any of our subsidiaries, the exercise price of any incentive stock option granted may not be less than 110% of the fair market value ofon the Company’s common stock.grant date. The maximum term of these incentive stock options granted to employees who own stock possessing more than 10% of the voting power of all classes of our stock or the Company’s stock of any of our subsidiaries may not exceed five years. The maximum term of an incentive stock option granted to any other participant may not exceed ten10 years. The Compensation Committee determines the term and exercise or purchase price of all other awardsAwards granted under the 20082016 Plan.
Under the 2016 Plan, incentive stock options may not be sold, pledged, assigned, hypothecated, transferred or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the participant, only by the participant. Other Awards shall be transferable:
●
by will and by the laws of descent and distribution; and
●
during the lifetime of the participant, to the extent and in the manner authorized by the Committee by gift or pursuant to a domestic relations order to members of the participant’s Immediate Family (as defined in the 2016 Plan).
The Compensation Committee also determinesmaximum number of shares with respect to which options, restricted stock, restricted shares of common stock or stock appreciation rights may be granted to any participant in any calendar year will be 300,000 shares of common stock. In connection with a participant’s commencement of service with the Company, a participant may be granted options, restricted stock or stock appreciation rights for up to an additional 50,000 shares that will not count against the foregoing limitation. In addition, for Awards of restricted stock and restricted shares of common stock that are intended to be “performance-based compensation” (within the meaning of Section 162(m) of the Code), the maximum number of shares with respect to which such Awards may be granted to any participant in any calendar year will be 300,000 shares of common stock. The limits described in this paragraph are subject to adjustment in the event of any change in our capital structure as described below.
The terms and conditions of awards,Awards are determined by the Committee, including the vesting schedule and any forfeiture provisions. Awards under the 20082016 Plan may vest upon the passage of time or upon the attainment of certain performance criteria. Although we do not currently have any Awards outstanding that vest upon the attainment of performance criteria, establishedthe Committee may establish criteria based on any one of, or combination of, a number of financial measurements.
Effective upon the consummation of a Corporate Transaction (as defined below), all outstanding Awards under the 2016 Plan will terminate unless the acquirer assumes or replaces such Awards. The Committee has the authority, exercisable either in advance of any actual or anticipated Corporate Transaction or Change in Control (as defined below) or at the time of an actual Corporate Transaction or Change in Control and exercisable at the time of the grant of an Award under the 2016 Plan or any time while an Award remains outstanding, to provide for the full or partial automatic vesting and exercisability of one or more outstanding unvested Awards under the 2016 Plan and the release from restrictions on transfer and repurchase or forfeiture rights of such Awards in connection with a Corporate Transaction or Change in Control, on such terms and conditions as the Committee may specify. The Committee also has the authority to condition any such Award’s vesting and exercisability or release from such limitations upon the subsequent termination of the service of the grantee within a specified period following the effective date of the Corporate Transaction or Change in Control. The Committee may provide that any Awards so vested or released from such limitations in connection with a Change in Control, shall remain fully exercisable until the expiration or sooner termination of the Award.
Under the 2016 Plan, a Corporate Transaction is generally defined as:
●
an acquisition of securities possessing more than fifty percent (50%) of the total combined voting power of our outstanding securities but excluding any such transaction or series of related transactions that the Committee determines shall not be a Corporate Transaction;
●
a reverse merger in which we remain the surviving entity but: (i) the shares of common stock outstanding immediately prior to such merger are converted or exchanged by virtue of the Compensation Committee.merger into other property, whether in the form of securities, cash or otherwise; or (ii) in which securities possessing more than fifty percent (50%) of the total combined voting power of our outstanding securities are transferred to a person or persons different from those who held such securities immediately prior to such merger;

●
a sale, transfer or other disposition of all or substantially all of the assets of the Company;
●
a merger or consolidation in which the Company is not the surviving entity; or
●
a complete liquidation or dissolution.
Under the 2016 Plan, a Change in Control is generally defined as: (i) the acquisition of more than 50% of the total combined voting power of our stock by any individual or entity which a majority of our Board of Directors (who have served on our board for at least 12 months) do not recommend our stockholders accept; (ii) or a change in the composition of our Board of Directors over a period of 12 months or less.
Unless terminated sooner, the 20082016 Plan will automatically terminate in 2017. The2026. Our Board of Directors may at any time amend, suspend or terminate the Company’s 20082016 Plan. To the extent necessary to comply with applicable provisions of U.S. federal securities laws, state corporate and securities laws, the Code, the rules of any applicable stock exchange or national market system, and the rules of any non-U.S. jurisdiction applicable to Awards granted to residents therein, we will obtain stockholder approval of any such amendment to the 2016 Plan in such a manner and to such a degree as required.

During our fiscal year ended March 31, 2017, we granted from the third quarter of fiscal 2013, when the quoted market price of the Company’s common stock was $0.71 per share, the Company cancelled outstanding 2016 Plan:
●
options to purchase an aggregate of 870,550655,000 shares of itsour common stock at an exercise prices between $1.13price of $3.49 per share to the independent members of our Board and $2.58to our officers, including one newly-employed officer, in June 2016;
●
options to purchase 125,000 shares of our common stock at an exercise price of $4.27 per share held by certain employees, excluding the Company’s Chief Executive Officer and President and Chief Scientific Officer, and by certain consultants and granted those persons new to a newly-employed officer in September 2016
●
options to purchase an aggregate of 920,550560,000 shares of our common stock at an exercise price of $0.75$3.80 per share. Such optionsshare to the independent members of our Board, officers, non-officer employees and a consultant in November 2016; and
●
an aggregate of 150,000 unregistered shares of our common stock pursuant to four consulting agreements in March 2017.
During our fiscal year ended March 31, 2016, we granted during fiscal 2013 have a contractual term of 10 years with from the 2008 Plan:
●
options to purchase 604,699an aggregate of 90,000 shares granted as immediately vested, and the remaining option shares vesting over a period of two years.  The cancellation and reissuance was accounted for as a modification of the options and resulted in a charge of $133,000.  During the third quarter of fiscal 2014, when the quoted market price of the Company’sour common stock was $0.40 per share, the Company reduced theat an exercise price of $9.25 per share to our non-officer employees and certain strategic consultants in September 2015;
●
options to purchase an aggregate of 3,924,245 outstanding 30,000 shares of our common stock at an exercise price of $8.00 per share to two parties in connection with an investor relations agreement in February 2016; and
●
options to purchase 25,000 shares of itsour common stock at an exercise prices between $0.75price of $8.00 per share and $2.99 per share held by certain employees, including the Company’s officers and directors, and by certain consultants to $0.40 per share or $0.50 per share. These reductionsa new independent member of our Board of Directors in exercise price were accounted for as a modificationMarch 2016.
The following table summarizes share-based compensation expense, including share-based expense related to the March 2014 and March 2013 grants of warrants in prior years to certain of the Company’sour officers, and to its independent directors, as described in Note 10, Capital Stock, consultants and service providers, included in the accompanying Consolidated Statement of Operations and Comprehensive Loss for the years ended March 31, 20142017 and 2013.

  Fiscal Years Ended 
  March 31, 
  2014  2013 
       
 Research and development expense:      
 Stock option grants, including expense related to modifications $296,900  $242,300 
 Warrants granted to officer in March 2014  22,800   - 
 Warrants granted to officer in March 2013  133,700   267,500 
         
   453,400   509,800 
         
 General and administrative expense:        
 Stock option grants, including expense related to modifications  385,100   196,600 
 Warrants granted to officer and directors in March 2014  31,300   - 
 Warrants granted to officers and directors in March 2013  267,500   534,900 
         
   683,900   731,500 
         
 Total stock-based compensation expense $1,137,300  $1,241,300 
2016.
 
 
 
 Fiscal Years Ended March 31,
 
 
 
 2017
 
 
 2016
 
 Research and development expense:
 
 
 
 
 
 
 
 
 
 
 
 
 
 Stock option grants
 $375,100 
 $227,700 
 Warrants granted to officer in March 2014
  - 
  11,400 
 Fully-vested warrants granted to officer in September 2015
  - 
  852,200 
 
    
    
 
  375,100 
  1,091,300 
 General and administrative expense:
    
    
 
    
    
 Stock option grants
  476,200 
  93,800 
 Warrants granted to officers and directors in March 2014
  - 
  15,600 
 Fully-vested warrants granted to officers, directors and consultants in September 2015
  - 
  2,840,700 
 
  476,200 
  2,950,100 
 
    
    
 Total stock-based compensation expense
 $851,300 
 $4,041,400 
 
F-42
TableIn September 2015, when the market price of Contentsour common stock was $9.11 per share, our Board of Directors (Board
) authorized the grant of fully-vested five-year warrants to purchase an aggregate of 650,000 restricted shares of our common stock at an exercise price of $9.25 per share, including an aggregate of 600,000 of such shares to company officers and independent members of the Board. We valued the new warrant grants at $5.68 per share, or an aggregate of $3,692,900, using the Black Scholes Option Pricing Model and the following assumptions: market price per share: $9.11; exercise price per share: $9.25; risk-free interest rate: 1.52%; contractual term: 5.0 years; volatility: 77.2%; expected dividend rate: 0%.  As indicated in the table above, we recognized non-cash research and development and general and administrative stock compensation expense in the amounts of $852,200 and $2,840,700, respectively, in the accompanying Consolidated Statement of Operations and Comprehensive Loss for the fiscal year ended March 31, 2016.
 
The Companyfair value of the 150,000 unregistered shares of common stock granted from the 2016 Plan in March 2017, an aggregate of $442,500, is reflected as an additional component of general and administrative expense in the accompanying Consolidated Statement of Operations and Comprehensive Loss for the year ended March 31, 2017.
We used the Black-Scholes option valuationOption Pricing model with the following weighted average assumptions to determine share-based compensation expense related to option grants during the fiscal years ended March 31, 20142017 and 2013:

 Fiscal Years Ended March 31,
  2014  2013 
     
Exercise price$0.40 to $0.82 $0.51 and $0.75 
Market price on date of grant$0.40 to $0.82 $0.51 and $0.71 
Risk-free interest rate1.08% to 2.53% 0.90% to 1.74% 
Expected term (years)6.25 to 10.0 6.25 to 10.0 
Volatility87.9% to 103.2% 82.9% to 85.4% 
Expected dividend yield0% 0% 
     
Fair value per share at grant date$0.32 to $0.68 $0.36 to $0.59 
2016:
 
 
 
Fiscal Years Ended March 31,
 
 
 
 2017
 
 
 2016
 
 
 
(weighted average)
 
 
(weighted average)
 
Exercise price
 $3.69 
 $8.78 
Market price on date of grant
 $3.69 
 $8.69 
Risk-free interest rate
  1.51%
  1.99%
Expected term (years)
  6.68 
  8.45 
Volatility
  82.96%
  93.27%
Expected dividend yield
  0.00%
  0.00%
 
    
    
Fair value per share at grant date
 $2.68 
 $7.09 
The expected term of options represents the period that the Company’sour share-based compensation awards are expected to be outstanding. The Company hasWe have calculated the weighted-average expected term of the options using the simplified method as prescribed by Securities and Exchange Commission Staff Accounting Bulletins No. 107 and No. 110 (“(SAB No. 107 and 110”110). The utilization of SAB No. 107 and 110 wasis based on the lack of relevant historical data due to the Company’sboth our limited historical experience as a publicly traded company as well as the historical lack of liquidity resulting from the limited number of freely-tradable shares of itsour common stock. Limited historical experience and lack of liquidity in its stockThose factors also resulted in the Company’sour decision to utilize the historical volatilities of a peer group of public companies’ stock over the expected term of the option in determining itsour expected volatility assumptions.  The risk-free interest rate for periods related to the expected life of the options is based on the U.S. Treasury yield curve in effect at the time of grant. The expected dividend yield is zero, as the Company haswe have not paid any dividends and doesdo not anticipate paying dividends in the near future. The CompanyWe calculated the forfeiture rate based on an analysis of historical data, as it reasonably approximates the currently anticipated rate of forfeitures for granted and outstanding options that have not vested. 
 
The following table summarizes activity for the fiscal years ended March 31, 20142017 and 20132016 under the Company’sour stock option plans:
 
  Fiscal Years Ended March 31, 
  2014  2013 
             
     Weighted     Weighted 
     Average     Average 
  Number of  Exercise  Number of  Exercise 
  Shares  Price  Shares  Price 
             
 Options outstanding at beginning of period  4,912,604  $1.32   4,805,771  $1.53 
 Options granted  381,000  $0.54   1,075,550  $0.72 
 Options exercised  -  $-   -  $- 
 Options cancelled     $-   (870,550) $1.72 
 Options forfeited  (79,080) $1.75   (29,167) $1.75 
 Options expired  (965,253) $1.20   (69,000) $1.34 
                 
 Options outstanding at end of period  4,249,271  $0.50   4,912,604  $1.32 
 Options exercisable at end of period  3,655,061  $0.50   4,227,436  $1.35 
                 
 Weighted average grant-date fair value of options granted during the period  $0.42      $0.52 

F-43
 
 
 Fiscal Years Ended March 31,
 
 
 
  2017
 
 
 2016
 
 
 
 
 
 
 Weighted
 
 
 
 
 
 Weighted
 
 
 
 
 
 
 Average
 
 
 
 
 
 Average
 
 
 
 Number of
 
 
 Exercise
 
 
 Number of
 
 
 Exercise
 
 
 
 Shares
 
 
 Price
 
 
 Shares
 
 
 Price
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Options outstanding at beginning of period
  336,987 
 $9.56 
  207,638 
 $10.09 
 Options granted
  1,340,000 
 $3.69 
  145,000 
 $8.78 
 Options exercised
  - 
 $- 
  - 
 $- 
 Options forfeited
  - 
 $- 
  (10,359)
 $9.26 
 Options expired
  (17,663)
 $15.52 
  (5,292)
 $9.42 
 
 
 
    
    
    
 Options outstanding at end of period
  1,659,324 
 $4.76 
  336,987 
 $9.56 
 Options exercisable at end of period
  351,532 
 $8.27 
  201,779 
 $10.11 
 
 
 
    
    
    
 Weighted average grant-date fair value of
    
    
    
    
 options granted during the period
    
 $2.69 
    
 $7.09 
 
The following table summarizes information on stock options outstanding and exercisable under the Company’sour stock option plans as of March 31, 2014:2017:
 
   Options Outstanding  Options Exercisable 
      Weighted          
      Average  Weighted     Weighted 
      Remaining  Average     Average 
Exercise  Number  Years until  Exercise  Number  Exercise 
Price  Outstanding  Expiration  Price  Exercisable  Price 
                 
$0.40   1,041,550   8.53  $0.40   810,560  $0.40 
$0.50   2,988,695   5.90  $0.50   2,657,665  $0.50 
$0.72 - $ 1.80   219,026   5.46  $1.06   186,836  $1.00 
                       
     4,249,271   6.52  $0.50   3,655,061  $0.50 
 
 
 
 
Options Outstanding
 
 
Options Exercisable
 
 
 
 
 
 
 
 
 Weighted
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Average
 
 
 Weighted
 
 
 
 
 
 Weighted
 
 
 
 
 
 
 
 
 Remaining
 
 
 Average
 
 
 
 
 
 Average
 
 
 Exercise
 
 
 Number
 
 
 Years until
 
 
 Exercise
 
 
 Number
 
 
 Exercise
 
 
 Price
 
 
 Outstanding
 
 
 Expiration
 
 
 Price
 
 
 Exercisable
 
 
 Price
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 $3.49 
  655,000 
  9.22 
 $3.49 
  - 
 $3.49 
 $3.80 
  560,000 
  9.61 
 $3.80 
  62,215 
 $3.80 
 $4.27 
  125,000 
  9.50 
 $4.27 
  - 
 $4.27 
 $8.00 
  98,335 
  7.47 
 $8.00 
  98,335 
 $8.00 
 $9.25 
  80,000 
  8.42 
 $9.25 
  49,993 
 $9.25 
 $10.00 
  138,488 
  3.00 
 $10.00 
  138,488 
 $10.00 
  
$14.40 to $15.00
 
  2,501 
  1.22 
 $14.52 
  2,501 
 $14.52 
 
    
    
    
    
    
 
  1,659,324 
  8.70 
 $4.76 
  351,532 
 $8.27 
 
At March 31, 2014,2017, there were 735,2001,184,911 shares of the Company’sour common stock remaining available for grant under the 20082016 Plan.  There were no option exercises during the yearyears ended March 31, 2014.2017 or 2016.

Aggregate intrinsic value is the sum of the amountsamount by which the fair value of the underlying common stock exceededexceeds the aggregate exercise price (“of the outstanding options (in-the-money-options”). Based on the $1.96 per share quoted market price of the Company’sour common stock of $0.46 per share on March 31, 2014, the aggregate2017, there was no intrinsic value in any of our outstanding options at that date was $62,500, of which $48,600 related to exercisable options.date.

As of March 31, 2014,2017, there was approximately $394,300$3,004,900 of unrecognized compensation cost related to non-vested share-based compensation awards from the 20082016 Plan, which is expected to be recognized through May 2016.  Additionally, at March 31, 2014 there was approximately $455,300 of unrecognized compensation cost related to unvested warrant grants to independent directors and officers, which is expected to be recognized through March 2016 absent any conditions which would accelerate the vesting of the awards and corresponding expense recognition.September 2020.  

401(k) Plan

The Company, throughThrough a third-party agent, maintainswe maintain a retirement and deferred savings plan for itsour employees. This plan is intended to qualify as a tax-qualified plan under Section 401(k) of the Internal Revenue Code. The retirement and deferred savings plan provides that each participant may contribute a portion of his or her pre-tax compensation, subject to statutory limits. Under the plan, each employee is fully vested in his or her deferred salary contributions. Employee contributions are held and invested by the plan’s trustee. The retirement and deferred savings plan also permits the Companyus to make discretionary contributions, subject to established limits and a vesting schedule. To date, the Company haswe have not made any discretionary contributions to the retirement and deferred savings plan on behalf of participating employees.

15.
14.  Related Party Transactions

Cato Holding Company (“(CHC”), doing business as Cato BioVentures ("(CBV"), is the parent of CRL. CRL is onea contract research, development and regulatory services organization (CRO) engaged by us for certain aspects of the Company’sdevelopment and regulatory affairs associated with AV-101. CBV is among our largest institutional stockholders at March 31, 2014,2017, holding common stock and warrants to purchaseapproximately 6.9% of our outstanding common stock. Prior to the May 11, 2011 conversion ofIn October 2012, we issued certain of VistaGen California’s outstandingunsecured promissory notes andin the exchangeaggregate face amount of its preferred stock into shares of common stock in connection with the Merger, CBV held various promissory notes and a majority of VistaGen California’s Series B-1 Preferred Stock.  Shawn Singh, the Company’s Chief Executive Officer and member of its Board of Directors, served as Managing Principal ofapproximately $1.3 million to CBV and as an officer of CRL until August 2009. As described in Note 9,(the Convertible PromissoryCato Notes and Other Notes Payable, in April 2011, CBV loaned the Company $352,300 under the terms of the 2011 CHC Note.  On October 10, 2012, the Company and CHC cancelled the 2011 CHC Note and exchanged it for a new unsecured promissory note in the principal amount of $310,443 (the “2012 CHC Note”) and a five-year warrant to purchase 250,000 restricted shares of the Company’s common stock at a price of $1.50 per share (the “CHC Warrant”).  Additionally, on October 10, 2012, the Company issued to CRL: (i) an unsecured promissory note in the initial principal amount of $1,009,000, which is payable solely in restricted shares of the Company’s common stock and which accrues interest at the rate of 7.5% per annum, compounded monthly (the “CRL Note”), as payment in full for all contract research and development services and regulatory advice previously rendered to us by CRL. As described in Note 9,Capital Stock, the Cato Notes and additional amounts payable to CRL to the Company and its affiliates through December 31, 2012 with respect to the preclinical and clinical developmentfor CRO services were extinguished in June 2015 in exchange for our issuance of AV-101, and (ii) a five-year warrant to purchase, at a pricean aggregate of $1.00 per share, 1,009,000 restricted328,571 shares of Series B Preferred to CBV, which shares of Series B Preferred were automatically converted into an equal number of registered shares of our common stock in connection with the Company’s common stock.May 2016 Public Offering.

 
During fiscal year 2007,Under the Company entered into aterms of our contract research organization arrangement with CRL related to the development of AV-101, under which the Companywe incurred expenses of $52,500$254,600 and $703,800$52,600 for the fiscal years ended March 31, 20142017 and 2013, respectively, with a portion of the fiscal 2013 expenses reimbursed under the NIH grant.2016, respectively.  Total interest expense on notes payable to CHC and CRLthe Cato Notes was $167,900 and $101,700$28,200 for the fiscal yearsyear ended March 31, 2014 and 2013, respectively.2016.

Upon the approval of the Board of Directors, in December 2006, VistaGen California accepted a full-recourse promissory note in the amount of $103,400 from Mr. Singh in payment of the exercise price for options and warrants to purchase an aggregate of 126,389 restricted shares of VistaGen California’s common stock. The note accrued interest at a rate of 4.90% per annum and was due and payable no later than the earlier of (i) December 1, 2016 or (ii) ten days prior to the Company becoming subject to the requirements of the Securities Exchange Act of 1934, as amended (“Exchange Act”).  On May 11, 2011, in connection with the Merger, the $128,200 outstanding balance of principal and accrued interest on this note was cancelled in accordance with Mr. Singh's employment agreement and recorded as additional compensation. In accordance with his employment agreement, Mr. Singh is also entitled to receive an income tax gross-up on the compensation related to the note cancellation.  At March 31, 2014 and 2013, the Company had accrued $101,900 as an estimate of the gross-up amount, but the Company had not yet paid that amount to Mr. Singh.

16.15.  Commitments, Contingencies, Guarantees and Indemnifications

From time to time, the Companywe may become involved in claims and other legal matters arising in the ordinary course of business. Management is not currently aware of any claims made or other legal matters that will have a material adverse effect on the Company’sour consolidated financial position, results of operations or its cash flows.

The Company indemnifies itsWe indemnify our officers and directors for certain events or occurrences while the officer or director is or was serving at the Company’sour request in such capacity. The term of the indemnification period is for the officer’s or director’s lifetime. The CompanyWe will indemnify the officers or directors against any and all expenses incurred by the officers or directors because of their status as one of the Company’sour directors or executive officers to the fullest extent permitted by CaliforniaNevada law. The Company hasWe have never incurred costs to defend lawsuits or settle claims related to these indemnification agreements.  The Company hasWe have a director and officer insurance policy which limits the Company'sour exposure and may enable itus to recover a portion of any future amounts paid.  The Company believesWe believe the fair value of these indemnification agreements is minimal. Accordingly, there are no liabilities recorded for these agreements at March 31, 20142017 or 2013.2016.
 
In the normal course of business, the Company provideswe provide indemnifications of varying scopes under agreements with other companies, typically clinical research organizations, investigators, clinical sites, suppliers and others.  Pursuant to these agreements, the Companywe generally indemnifies, holdsindemnify, hold harmless, and agreesagree to reimburse the indemnified parties for losses suffered or incurred by the indemnified parties in connection with the use or testing of the Company'sour product candidates or with any U.S. patents or any copyright or other intellectual property infringement claims by any third party with respect to the Company'sour product candidates.  The terms of these indemnification agreements are generally perpetual.  The potential future payments the Companywe could be required to make under these indemnification agreements is unlimited.  The Company maintainsWe maintain liability insurance coverage that limits itsour exposure.  The Company believesWe believe the fair value of these indemnification agreements is minimal.  Accordingly, the Company haswe have not recorded any liabilities for these agreements as of March 31, 20142017 or 2013.2016.

Leases

As of March 31, 20142017 and 2013,2016, the following assets are undersubject to capital lease obligations and included in property and equipment:
 
  March 31, 
  2014  2013 
       
Laboratory equipment $19,000  $19,000 
Office equipment  4,500   4,500 
   23,500   23,500 
Accumulated depreciation  (11,100)  (6,400)
         
Net book value $12,400  $17,100 
F-45
 
 
March 31,
 
 
 
2017
 
 
2016
 
 
 
 
 
 
 
 
Office equipment
  14,600 
  4,500 
Accumulated depreciation
  (600)
  (3,400)
 
    
    
Net book value
 $14,000 
 $1,100 
 
Amortization expense for assets recorded under capital leases is included in depreciation expense.  Future minimum payments, by year and in the aggregate, required under capital leases are as follows:
 
 Equipment 
 Capital 
 
Capital
 
Fiscal Years Ending March 31, Leases 
 
Leases
 
   
2015 $4,300 
2016  1,200 
2017  1,200 
2018  100 
 $3,800 
2019
  3,800 
2020
  3,800 
2021
  3,800 
2022
  3,300 
Future minimum lease payments  6,800 
  18,500 
    
    
Less imputed interest included in minimum lease payments  (800)
  (4,200)
    
    
Present value of minimum lease payments  6,000 
  14,300 
    
    
Less current portion  (3,900)
  (2,400)
    
    
Non-current capital lease obligation $2,100 
 $11,900 

At March 31, 2014,2017, future minimum payments under operating leases relate to the Company’sour facility lease in South San Francisco, California through July 31, 20172022 and are as follows:

Fiscal Years Ending March 31, Amount 
2015 $250,900 
2016  264,000 
2017  277,100 
2018  93,800 
  $885,800 
Fiscal Years Ending March 31,
 
Amount
 
2018
 $388,400 
2019
  602,800 
2020
  623,900 
2021
  645,800 
2022
  668,400 
2023
  225,300 
 
 $3,154,600 

       Total
We incurred total facility rent expense incurred by the Company for the fiscal years ended March 31, 20142017 and 2013 was $284,1002016 of $482,100 and $179,000,$337,200, respectively.
 
Long-Term Debt Repayment
 
At March 31, 2014, assuming that all outstanding convertible notes are converted into shares of common stock in accordance with their respective conversion provisions and that Replacement Note B issued to Morrison & Foerster, the CRL Note and the UHN Note, each as described further in Note 9, Convertible Promissory Notes and Other Notes Payable, are repaid through the issuance of restricted common stock upon the exercise of the warrants associated with such notes,2017, future minimum principal payments on outstanding notes related only to long-term debt were as follows:
our insurance premium financing arrangement in the principal amount of $54,800, which will be repaid in monthly principal and interest installments of $6,300 through December 2017.
 
Fiscal Years Ending March 31, Amount 
2015 $1,562,500 
2016  461,300 
2017  10,000 
2018  10,700 
Thereafter through June 2019  13,000 
  $2,057,500 

17.16.  Subsequent Events
 
The Company hasWe have evaluated subsequent events through the date of this report and hashave identified the following material events and transactions that occurred after March 31, 2014.

 
2014 Unit Private Placement Common Stock and Warrants

FromBetween April 1 2014 throughand June 19, 2014, the Company entered into securities purchase agreements with27, 2017, in self-placed private placement transactions, we sold to accredited investors including Platinum, pursuant to which it sold to such accredited investors Units, for aggregate cash proceeds of $1,465,000,units consisting of (i) 10% convertible 2014 Unit Notes in the aggregate face amount of $1,465,000 due on March 31, 2015 or automatically convertible into securities the Company may issue upon the consummation of a Qualified Financing, as defined in the 2014 Unit Note, prior to March 31, 2015; (ii) an aggregate of 1,465,000 restricted437,751 shares of the Company’sour unregistered common stock;stock and (iii) 2014 Unit Warrants exercisable through December 31, 2016(ii) warrants to purchase an aggregate of 1,465,000 restricted218,875 shares of the Company’sour common stock at an exercise price of $0.50$4.00 per share. We received cash proceeds of $873,300 from these sales of our securities, bringing total proceeds from the Spring 2017 Private Placement to approximately $1.0 million.

SatisfactionOption Grants
On April 27, 2017, when the quoted market price of Technology License and Maintenance Fees and Patent Expenses

In April 2014,our common stock was $1.96 per share, the Company issued (i) a promissory note in the face amountBoard granted options to purchase an aggregate of $300,000 due on the earlier of December 31, 2014, or the completion of a qualified financing, as defined, (ii) 300,000 restricted880,000 shares of its common stock and (iii) a warrant exercisable through March 31, 2019 to purchase 300,000 restricted shares of itsour common stock at an exercise price of $0.50$1.96 per share to Icahn Schoolall officers, employees and independent members of Medicine at Mount Sinai in satisfaction of $288,400 of stem cell technology license maintenance fees and reimbursable patent prosecution costs.the Board pursuant to the 2016 Plan.

Amendment of Notes and Warrants issued in 2013/2014 Unit Private Placement

Effective May 31, 2014, the Company entered into note and warrant amendment agreements with certain holders of 2013/2014 Unit Notes and 2013/2014 Unit Warrants to (i) modify certain terms of the 2013/2014 Unit Notes, including the maturity date and the conversion features, to conform to the corresponding terms of the 2014 Unit Notes and (ii) to modify certain terms of the 2013/2014 Unit Warrants, including the exercise price and expiration date, to conform to the corresponding terms of the 2014 Unit Warrants.  Holders of 2013/2014 Unit Notes having an aggregate initial face amount of $845,000 agreed to the amendments.  The maturity date of the $75,000 of initial face amount of 2013/2014 Unit Notes payable to holders who did not agree to amend their 2013/2014 Unit Note and 2013/2014 Unit Warrant remains July 30, 2014 and the exercise price and expiration date of the 2013/2014 Unit Warrants held by such holders remains unchanged.  Since March 31, 2014 and through the date of this report, the Company has repaid 2013/2014 Unit Notes having an initial face value of $65,200.

Extension of McCarthy Note Maturity Date
On June 11, 2014, the Company and McCarthy agreed to extend the maturity date of the Company’s promissory note payable to McCarthy from June 14, 2014 to the earlier of (i) September 30, 2014, (ii) consummation of a financing in which the Company receives gross cash proceeds of at least $15.0 million, or (iii) consummation of a change of control of the Company, as defined in the McCarthy note.  McCarthy also agreed to forbear with respect to the requirement that the Company make monthly payments on the note from the date of the agreement until maturity and granted the Company a waiver with respect to previously missed monthly payments.
18.17. Supplemental Financial Information (Unaudited)
 
Quarterly Results of Operations (Unaudited)

The following table presents the unaudited statements of operations data for each of the eight quarters in the period ended March 31, 2014.2017. The information has been presented on the same basis as the audited financial statements and all necessary adjustments, consisting only of normal recurring adjustments, have been included in the amounts below to present fairly the unaudited quarterly results when read in conjunction with the audited financial statements and related notes. The operating results for any quarter should not be relied upon as necessarily indicative of results for any future period.
 
 
Unaudited Quarterly Results of Operations (Unaudited)
(in (in thousands, except share and per share amounts)

  Three Months Ended  Total 
  June 30, 2013  September 30, 2013  December 31, 2013  March 31, 2014  Fiscal Year 2014 
                
Revenues:               
 Grant revenue $-  $-  $-  $-  $- 
  Total revenues  -   -   -   -   - 
                     
Operating expenses:                    
 Research and development  695   669   551   566   2,481 
 General and administrative  605   546   897   500   2,548 
  Total operating expenses  1,300   1,215   1,448   1,066   5,029 
Loss from operations  (1,300)  (1,215)  (1,448)  (1,066)  (5,029)
                     
Other expenses, net:                    
 Interest expense, net  (316)  (323)  (361)  (503)  (1,503)
 Change in warrant liabilities  1,805   79   1,940   (257)  3,567 
                     
Income (loss) before income taxes  189   (1,459)  131   (1,826)  (2,965)
Income taxes  (3)  -   -   -   (3)
Net income (loss) $186  $(1,459) $131  $(1,826) $(2,968)
                     
                     
Basic net income (loss) per common share $0.01  $(0.07) $0.01  $(0.08) $(0.14)
                     
Diluted net loss per common share $(0.02) $(0.07) $(0.02) $(0.08) $(0.19)
                     
Weighted average shares used in computing:                    
 Basic net income (loss) per common share  20,839,941   21,630,587   22,210,573   23,251,044   21,973,149 
                     
 Diluted net loss per common share  21,229,190   21,630,587   22,210,573   23,251,044   21,973,149 
 
 
Three Months Ended
 
 
Total
 
 
 
June 30,
2016
 
 
September 30,
2016
 
 
December 31,
2016
 
 
March 31,
2017
 
 
Fiscal Year
2017
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Sublicense revenue
 $- 
 $- 
 $1,250 
 $- 
 $1,250 
Total revenue
  - 
  - 
  1,250 
  - 
  1,250 
 
    
    
    
    
    
Operating expenses:
    
    
    
    
    
 Research and development
  826 
  1,606 
  1,611 
  1,161 
  5,204 
 General and administrative
  1,138 
  1,494 
  2,276 
  1,387 
  6,295 
  Total operating expenses
 ��1,964 
  3,100 
  3,887 
  2,548 
  11,499 
Loss from operations
  (1,964)
  (3,100)
  (2,637)
  (2,548)
  (10,249)
 
    
    
    
    
    
Other expenses, net:
    
    
    
    
    
 Interest expense, net
  (2)
  (1)
  (1)
  (1)
  (5)
 
    
    
    
    
    
Loss before income taxes
  (1,966)
  (3,101)
  (2,638)
  (2,549)
  (10,254)
Income taxes
  (2)
  - 
  - 
  - 
  (2)
Net loss
  (1,968)
  (3,101)
  (2,638)
  (2,549)
  (10,256)
 
    
    
    
    
    
     Accrued dividend on Series B Preferred stock
  (540)
  (241)
  (238)
  (238)
  (1,257)
     Deemed dividend on Series B Preferred stock
  (111)
  - 
  - 
  - 
  (111)
 
    
    
    
    
    
     Net loss attributable to common stockholders
 $(2,619)
 $(3,342)
 $(2,876)
 $(2,787)
 $(11,624)
 
    
    
    
    
    
Basic and diluted net loss per common share
    
    
    
    
    
    attributable to common stockholders
 $(0.51)
 $(0.42)
 $(0.34)
 $(0.32)
 $(1.54)
 
    
    
    
    
    
Weighted average shares used in computing:
    
    
    
    
    
 Basic and diluted net loss per common share
    
    
    
    
    
       attributable to common stockholders
  5,097,832 
  8,047,619 
  8,381,824 
  8,602,107 
  7,531,642 
 
 
 
Three Months Ended
 
 
Total
 
 
 
June 30,
2015
 
 
September 30,
2015
 
 
December 31,
2015
 
 
March 31,
2016
 
 
Fiscal Year
2016
 
Operating expenses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Research and development
 $373 
 $1,656 
 $806 
 $1,097 
 $3,932 
 General and administrative
  1,448 
  3,731 
  1,336 
  7,404 
  13,919 
  Total operating expenses
  1,821 
  5,387 
  2,142 
  8,501 
  17,851 
Loss from operations
  (1,821)
  (5,387)
  (2,142)
  (8,501)
  (17,851)
 
    
    
    
    
    
Other expenses, net:
    
    
    
    
    
 Interest expense, net
  (755)
  (12)
  (3)
  (1)
  (771)
 Change in warrant liabilities
  (1,895)
  - 
  - 
  - 
  (1,895)
 Loss on extinguishment of debt
  (25,051)
  (1,649)
  - 
  - 
  (26,700)
 Other expense, net
  - 
  - 
  (2)
  - 
  (2)
 
    
    
    
    
    
Loss before income taxes
  (29,522)
  (7,048)
  (2,147)
  (8,502)
  (47,219)
Income taxes
  (2)
  - 
  - 
  - 
  (2)
Net loss
  (29,524)
  (7,048)
  (2,147)
  (8,502)
  (47,221)
 
    
    
    
    
    
     Accrued dividend on Series B Preferred stock
  (213)
  (615)
  (631)
  (681)
  (2,140)
     Deemed dividend on Series B Preferred stock
  (256)
  (887)
  (669)
  (246)
  (2,058)
 
    
    
    
    
    
     Net loss attributable to common stockholders
 $(29,993)
 $(8,550)
 $(3,447)
 $(9,429)
 $(51,419)
 
    
    
    
    
    
Basic and diluted net loss per common share
 $(19.23)
 $(5.26)
 $(1.95)
 $(4.44)
 $(29.08)
 
    
    
    
    
    
Weighted average shares used in computing:
    
    
    
    
    
 Basic and diluted net loss per common share
  1,559,483 
  1,624,371 
  1,765,641 
  2,123,936 
  1,767,957 

  Three Months Ended  Total 
  June 30, 2012  September 30, 2012  December 31, 2012  March 31, 2013  Fiscal Year 2013 
                
Revenues:               
 Grant revenue $200  $-  $-  $-  $200 
  Total revenues  200   -   -   -   200 
                     
Operating expenses:                    
 Research and development  866   1,106   1,120   339   3,431 
 General and administrative  1,055   576   799   1,132   3,562 
  Total operating expenses  1,921   1,682   1,919   1,471   6,993 
Loss from operations  (1,721)  (1,682)  (1,919)  (1,471)  (6,793)
                     
Other expenses, net:                    
 Interest expense, net  (103)  (274)  (235)  (309)  (921)
 Change in warrant liabilities  -   -   358   (1,994)  (1,636)
 Loss on early extinguishment of debt  -   -   (3,537)  (31)  (3,568)
 Other income  -   -   -   35   35 
                     
Loss before income taxes  (1,824)  (1,956)  (5,333)  (3,770)  (12,883)
Income taxes  (2)  -   (2)  -   (4)
Net loss  (1,826) $(1,956) $(5,335) $(3,770) $(12,887)
  Deemed dividend on Series A Preferred Stock  -   -   (10,193)  -   (10,193)
                     
Net income (loss) attributable to common stockholders $(1,826) $(1,956) $(15,528) $(3,770) $(23,080)
                     
Basic and diluted net loss attributable to common stockholders per common share
 $(0.11) $(0.11) $(0.85) $(0.19) $(1.27)
                     
Weighted average shares used in computing basic and diluted net loss attributable to common stockholders per common share
  16,842,655   17,094,833   18,292,301   20,236,491   18,108,444 

 
ItemItem 9.  Changes in and DisagreementsDisagreements With Accountants on Accounting and Financial Disclosure

None.

ItemItem 9A.  Controls and ProceduresProc
edures
Disclosure Controls and Procedures.
 
EvaluationAs required by Rule 13a-15(b) under the Securities Exchange Act of Disclosure Controls1934, as amended, (the Exchange Act) our Chief Executive Officer (CEO) and Proceduresour Chief Financial Officer (CFO
Based on their) conducted an evaluation as of the end of the period covered by this report, our Chief Executive Officer and Chief Financial Officer have concluded thatAnnual Report on Form 10-K, of the effectiveness of our disclosure controls and procedures (asas defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) wereAct. Based on that evaluation, our CEO and our CFO each concluded that our disclosure controls and procedures are effective as of the end of the period covered by this report to ensureprovide reasonable assurance that information required to be disclosed in the reports that we are required to disclose in reports that management filesfile or submitssubmit under the Exchange Act, (i) is recorded, processed, summarized and reported within the time periods specified in SECthe Securities and Exchange Commission's rules and forms.forms and (ii) is accumulated and communicated to our management, including our CEO and our CFO, as appropriate to allow timely decisions regarding required disclosure.
 
Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives, and our chief executive officer and acting chief financial officer have concluded that these controls and procedures are effective at the “reasonable assurance” level. We believe that a control system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the control system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

Management’s AnnualManagement's Report on Internal Control Over Financial ReportingReporting.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. A company’sreporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Our internal control over financial reportingsystem is a process designed to provide reasonable assurance to our management and Board of Directors regarding the reliability of financial reporting and the preparation and fair presentation of financial statements for external purposes in accordance with U.S. GAAP.generally accepted accounting principles.
 
There areBecause of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance of achieving their control objectives. Smaller reporting companies may face additional limitations in achieving control objectives. Smaller reporting companies typically employ fewer individuals who are often tasked with a wide range of responsibilities, making it difficult to segregate duties. Often, one or two individuals control many, or all, aspects of the effectiveness ofsmaller reporting company’s general and financial operations, placing such individual(s) in a position to override any system of internal control, includingcontrol. Additionally, projections of an evaluation of current effectiveness to future periods are subject to the possibility of human error and the circumvention or overriding of controls. Accordingly, even effective internalrisk that controls can provide only reasonable assurances with respect to financial statement preparation. Further,may become inadequate because of changes in conditions, or that the effectivenessdegree of internal controlcompliance with the controls may vary over time.deteriorate.
 
Our managementManagement has assessed the effectiveness of our internal control over financial reporting as offor our fiscal year ended March 31, 2014. In making this2017. Management's assessment management used thewas based on criteria set forth in Internal Control - Integrated Framework (2013), issued by the Committee of Sponsoring Organizations (COSO) of the Treadway Commission in Internal Control—Integrated Framework (1992)(COSO). Based on itsupon this assessment, using the COSO criteria, management concluded that, as of March 31, 2017, our internal control over financial reporting was not effective, based upon those criteria, as a result of March 31, 2014.the material weaknesses identified below.
A material weakness is a deficiency or combination of deficiencies in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.
Specifically, management identified the following control weaknesses: (i) the size and capabilities of the Company’s staff does not permit appropriate segregation of duties to prevent one individual from overriding the internal control system by initiating, authorizing and completing all transactions; and (ii) the Company utilizes accounting software that does not prevent erroneous or unauthorized changes to previous reporting periods and/or can be adjusted so as to not provide an adequate audit trail of entries made in the accounting software. The Company does not believe that these control weaknesses have resulted in deficient financial reporting because each of our CEO and CFO is aware of his responsibilities under the SEC's reporting requirements and personally certifies our financial reports. Further, the Company has implemented a series of manual checks and balances to verify that no previous reporting period has been improperly modified and that no unauthorized entries have been made in the current reporting period.
Accordingly, while the Company has identified certain material weaknesses in its system of internal control over financial reporting, it believes that it has taken reasonable and sufficient steps to ascertain that the financial information contained in this Annual Report is in accordance with U.S. generally accepted accounting principles. Management has determined that current resources would be more appropriately applied elsewhere and when resources permit, they will alleviate the material weaknesses through various steps, which may include the addition of qualified financial personnel and/or the acquisition and implementation of alternative accounting software.
 
As a result of the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, and the resulting amendment of Section 404 of the Sarbanes-Oxley Act of 2002, as a non-accelerated filer,smaller reporting company, we are not required to provide an attestation report by our independent registered public accounting firm regarding internal control over financial reporting for the fiscal year ended March 31, 20142017 or thereafter, until such time as we are no longer eligible for the exemption for smaller issuers set forth within the Sarbanes-Oxley Act.
 
Changes in Internal Control Over Financial ReportingItem 9B.  Other Information
 
There were no changes in our internal control over financial reporting that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.None.

Item 9B.  Other Information

None.
 

PARTART III

Item 10.10.  Directors Officers and CorporateCorporate Governance.

Our senior management is composed of individuals with significant management experience.  Our directors and executive officers as of June 19, 201427, 2017 are as follows:
 
Name Age Position
Shawn K. Singh J.D. 5154 Chief Executive Officer and Director
H. Ralph Snodgrass, Ph.D. 6467 Founder, President, Chief Scientific Officer and Director
Mark A. Smith, M.D., Ph.D.61Chief Medical Officer
Jerrold D. Dotson 6063 Vice President, Chief Financial Officer and Secretary
Jon S. Saxe (1) 7780 Director
Brian J. Underdown, PhD. (2) 76Director
Jerry B. Gin, Ph.D., MBA (3) 73 Director

(1)  Chairman of the audit committee and member of the compensation committee and corporate governance and nominating committeecommittee.
(2)  MemberChairman of the auditcompensation committee and chairmanmember of the compensationaudit committee and corporate governance and nominating committee.
(3)Chairman of the corporate governance and nominating committee and member of the audit committee and compensation committee.

Executive officersOfficers

Shawn K. Singh J.D. has served as our Chief Executive Officer since August 2009; he2009, first as the Chief Executive Officer of VistaGen Therapeutics, Inc., a California corporation (VistaGen California), then as Chief Executive Officer of the Company after the merger by and between VistaGen California and the Company on May 11, 2011 (theMerger), at which time VistaGen California became a wholly-owned subsidiary of the Company. Mr. Singh first joined ourthe Board of Directors of VistaGen California in 2000 and served on ourthe VistaGen California management team (part-time) from late-2003, following ourVistaGen California’s acquisition of Artemis Neuroscience, of which he was President, to August 2009. In connection with the Merger, Mr. Singh was appointed as a member of our Board in 2011. Mr. Singh has over 2025 years of experience working with biotechnology, medical device and pharmaceutical companies, both private and public. From February 2001 to August 2009, Mr. Singh served as Managing Principal of Cato BioVentures, a life science venture capital firm, and as Chief Business Officer and General Counsel of Cato Research Ltd, a profitable global contract research organization (CRO) affiliated with Cato BioVentures. Mr. Singh served as President (part-time) of Echo Therapeutics (NASDAQ: ECTE), a medical device company developing a non-invasive, wireless continuous glucose monitoring(CGM) system, from September 2007 to June 2009, and as a member of its Board of Directors from September 2007 through December 2011. He also served as Chief Executive Officer (part-time) of Hemodynamic Therapeutics, a private biopharmaceutical company affiliated with Cato BioVentures, from November 2004 to August 2009. From late-2000 to February 2001, Mr. Singh served as Managing Director of Start-Up Law, a management consulting firm serving biotechnology companies. Mr. Singh also served as Chief Business Officer of SciClone Pharmaceuticals (NASDAQ: SCLN), a US-based, China-focusedrevenue-generating, specialty pharmaceutical company with a substantial revenue-generating and profitable commercial business in China and a marketed product portfolio of differentiated therapies forspanning major therapeutics markets, including oncology, infectious diseases and cardiovascular disorders, from late-1993 to late-2000, and as a corporate finance associate of Morrison & Foerster LLP, an international law firm, from 1991 to late-1993. Mr. Singh currently serves as a member of the Board of Directors of Armour Therapeutics, a private biotechnology company focused on prostate cancer. Mr. Singh earned a B.A. degree, with honors, from the University of California, Berkeley, and a J.D.Juris Doctor degree from the University of Maryland School of Law. Mr. Singh is a member of the State Bar of California.

We selected Mr. Singh to serve on our Board of Directors due to his substantial practical experience and expertise in senior leadership roles with multiple private and public biotechnology, pharmaceutical and medical device companies, and his extensive experience in corporate finance, venture capital, corporate governance and strategic partnering.
 
-72-
H. Ralph Snodgrass, Ph.D.co-founded VistaGen California with Dr. Gordon Keller in 1998 and served as ourthe Chief Executive Officer of VistaGen California until August 2009. Dr. Snodgrass has served as ourthe President and Chief Scientific Officer since August 2009.of VistaGen California from inception to the present, and in the same positions with the Company following the completion of the Merger. He has served as a member of ourthe Board of Directors since 1998.of VistaGen California from 1998 to 2011, and was appointed to serve on our Board after the completion of the Merger. Prior to founding VistaGen California, Dr. Snodgrass served as a key member of the executive management team which leadthat led Progenitor, Inc., a biotechnology company focused on developmental biology, through its initial public offering, and was its Chief Scientific Officer from June 1994 to May 1998, and its Executive Director from July 1993 to May 1994. He received his Ph.D. in immunology from the University of Pennsylvania, and has 2024 years of experience in senior biotechnology management and over 10 yearsyear’s research experience as aan assistant professor at the Lineberger Comprehensive Cancer Center, University of North Carolina Chapel Hill School of Medicine, and as a member of the Institute for Immunology, Basel, Switzerland. Dr. Snodgrass is a past Board Member of the Emerging Company Section of the Biotechnology Industry Organization (BIO)(BIO), and past member of the International Society Stem Cell Research Industry Committee. Dr. Snodgrass has published more than 50 scientific papers, is the inventor on more than 17 patents and a number of patent applications, is, or has been, the principal investigatorPrincipal Investigator on U.S. federal and private foundation sponsored research grants with budgets totaling more than $14.5 million and is recognized as an expert in stem cell biology with more than 2031 years’ experience in the uses of stem cells as biological tools for research, drug discovery and development.

We selected Dr. Snodgrass to serve on our boardBoard of directorsDirectors due to his expertise in biotechnology focused on developmental biology, including stem cell biology, his extensive senior management experience leading biotechnology companies at all stages of development, as well as his reputation and standing in the fields of biotechnology and stem cell research, allow him to bring to us and the Board of Directors a unique understanding of the challenges and opportunities associated with pluripotent stem cell biology, as well as credibility in the markets in which we operate.

Mark A. Smith, M.D., Ph.D.joined VistaGen as our Chief Medical Officer effective June 18, 2016.  Dr. Smith served as the Clinical Lead for Neuropsychiatry at Teva Pharmaceuticals from November 2013 through June 2016.  He served as Senior Director of Experimental Medicine, Global Clinical Development and Innovation at Shire Pharmaceuticals from September 2012 to October 2013 and at AstraZeneca Pharmaceutical Company as Executive Director of Clinical Development and in other senior positions from June 2000 through September 2012. He served as a Senior Investigator and Principal Research Scientist in CNS Diseases Research at DuPont Pharmaceutical Company from 1996 to 2000 and in the Biological Psychiatry and Clinical Neuroendocrinology Branches of the National Institute of Mental Health from 1987 through 1996.  Dr. Smith has significant expertise in drug discovery and development and clinical trial design and execution, having directed approximately fifty clinical trials from Phase 0 through Phase II B and served as project leader in both the discovery and development of approximately twenty investigational new drugs aimed at depression, anxiety, schizophrenia and other disorders.  Dr. Smith received his Bachelor of Science and Master of Science degrees in Molecular Biophysics and Biochemistry from Yale University; his M.D and Ph.D. in Physiology and Pharmacology from the University of California, San Diego and completed his residency at Duke University Medical Center.
Jerrold D. Dotson, CPA has served as our Chief Financial Officer since September 2011, as our Corporate Secretary since October 2013 and as a Vice President since February 2014. Mr. Dotson served as Corporate Controller for Discovery Foods Company, a privately held Asian frozen foods company from January 2009 to September 2011.  From February 2007 through September 2008, Mr. Dotson served as Vice President, Finance and Administration (principal financial and accounting officer) for Calypte Biomedical Corporation (OTCBB: CBMC), a publicly held biotechnology company.  Mr. Dotson served as Calypte’s Corporate Secretary from 2001 through September 2008.  He also served as Calypte’s Director of Finance from January 2000 through July 2005 and was a financial consultant to Calypte from August 2005 through January 2007.  Prior to joining Calypte, from 1988 through 1999, Mr. Dotson worked in various financial management positions, including Chief Financial Officer, for California & Hawaiian Sugar Company, a privately held company.  Mr. Dotson is licensed as a CPA in California and received his BSB.S. degree in Business Administration with a concentration in accounting from Abilene Christian College.

Directors

Jon S. Saxe, J.D., LL.M.has served as Chairman of our Board since 2000, first as Chairman of the Board of Directors since 2000.of VistaGen California, then as Chairman of our Board after completion of the Merger. He also serves as the Chairman of our Audit Committee.  Mr. Saxe is the retired President and was a director of PDL BioPharma.BioPharma from 1989 to 2008. From 1989 to 1993, he was President, Chief Executive Officer and a director of Synergen, Inc. (acquired by Amgen). Mr. Saxe served as Vice President, Licensing & Corporate Development for Hoffmann-Roche from 1984 through 1989, and Head of Patent Law for Hoffmann-Roche from 1978 through 1989. Mr. Saxe currently is a director of SciClone Pharmaceuticals, Inc. (Nasdaq:(NASDAQ: SCLN) and Durect Corporation (Nasdaq:(NASDAQ: DRRX), and twosix private biotechnologylife science companies, Arbor Vita Corporation, and Arcuo Medical, LLC.LLC, Armetheon, Inc., Cancer Prevention Pharmaceuticals, Inc., Lumos Pharma, Inc. and Trellis Bioscience, Inc. Mr. Saxe also has served as a director of other biotechnology and pharmaceutical companies, including ID Biomedical (acquired by GlaxoSmithKline), Sciele Pharmaceuticals, Inc. (acquired by Shionogi), Amalyte (acquired by Kemin Industries), Cell Pathways (acquired by OSI Pharmaceuticals), and other companies, both public and private. Mr. Saxe has a B.S.Ch.E. from Carnegie-Mellon University, a J.D. degree from George Washington University and an LL.M. degree from New York University.

We selected Mr. Saxe to serve as Chairman of our Board of Directors due to his numerous years of experience as a senior executive with major biopharmaceutical and biotechnology companies, including Protein Design Labs, Inc., Synergen, Inc. and Hoffmann-Roche, Inc., as well as his extensive experience serving as a director of numerous private and public biotechnology and pharmaceutical companies, serving as Chairman, and Chair and member of audit, compensation and governance committees of both private and public companies.  Mr. Saxe provides us and our Board of Directors with highly valuable insight and perspective into the biotechnology and pharmaceutical industries, as well as the strategic opportunities and challenges that we face.
 
-73-
Brian J. Underdown, Ph.D.has served as a member of our Board of Directors since November 2009.2009, first as a director of VistaGen California, then as a member of our Board after the completion of the Merger. Dr. Underdown has served as Managing Director ofis currently a Venture Partner with Lumira Capital Corp. sincehaving served as a Managing Director with Lumira from September 1997 having started in the venture capital industry in 1997 with MDS Capital Corporation (MDSCC).through December 2015. His investment focus has been on therapeutics in both new and established companies in both Canada and the United States. Prior to joining MDSCC,Lumira and its antecedent company MDS Capital Corp., Dr. Underdown held a number of senior management positions in the biopharmaceutical industry and at universities. Dr. Underdown’s past and current board positions include the following private companies: enGene Inc. Kisoji Biotechnology Inc., Naegis Pharmaceuticals, Inc. and Osteo QC. Some of Dr. Underdown’s previous board roles include: Argos Therapeutics (ARGS-Q), ID Biomedical Trillium Therapeutics, Cytochroma Inc.(acquired by GlaxoSmithKline), Argos Therapeutics, Nysa Membrane Technologies, Ception Therapeutics and Transmolecular Therapeutics.(acquired by Cephalon).  He has served on a number of Boards and advisory bodies of government sponsoredgovernment-sponsored research organizations including CANVAC, the Canadian National Centre of Excellence in Vaccines, Ontario Genomics Institute (Chair), Allergen Plc., the Canadian National Centre of Excellence in Allergy and Asthma. Dr. Underdown obtained his Ph.D. in immunology from McGill University and undertook post-doctoral studies at Washington University School of Medicine.

We selected Dr. Underdown to serve on our Board of Directors due to his extensive background working in the biotechnology and pharmaceutical industries, as a director of numerous private and public companies, as well as his venture capital experience funding and advising start-up and established companies focused on therapeutics.

Jerry B. Gin, Ph.D., M.B.Awas appointed to serve on our Board of Directors on March 29, 2016. Dr. Gin is currently the co-founder and CEO of Nuvora, Inc., a private company founded in 2006 with a drug delivery platform for the sustained release of ingredients through the mouth for such indications as dry mouth, biofilm reduction and sore throat/cough relief. Dr. Gin is also co-founder and Chairman of Livionex, a private platform technology company founded in 2009 and focused on oral care, ophthalmology and wound care. Previously, Dr. Gin co-founded Oculex Pharmaceuticals in 1993, which developed technology for controlled release delivery of drugs to the interior of the eye, specifically to treat macular edema, and served as President and CEO until it was acquired by Allergan in 2003. Prior to forming Oculex, Dr. Gin co-founded and took public ChemTrak, which developed a home cholesterol test commonly available in drug stores today. Prior to ChemTrak, Dr. Gin was Director of New Business Development and Strategic Planning for Syva, the diagnostic arm of Syntex Pharmaceuticals, Director for Pharmaceutical and Diagnostic businesses for Dow Chemical, and Director of BioScience Labs (now Quest Laboratories), the clinical laboratories of Dow Chemical.  Dr. Gin received his Bachelor’s degree in Chemistry from the University of Arizona, his Ph.D. in Biochemistry from the University of California, Berkeley, his M.B.A. from Loyola College, and conducted his post-doctoral research at the National Institutes of Health.
We selected Dr. Gin to serve on our Board of Directors due to his extensive experience in the healthcare industry, focusing on founding and developing pharmaceutical, diagnostic and biotechnology companies and his expertise in propelling healthcare companies to their next platforms of growth.
Election of Executive Officers

Our executive officers are elected by, and serve at the discretion of, our boardBoard of directors.Directors.  Each of our executive officers devotes his full time to our affairs.  There are no family relationships among any of our directors or executive officers.

Board Composition

Our amended and restated bylaws provide that the authorized number of directors of the Company shall be not less than one nor more than seven, with the exact number of directors currently fixed at seven. The exact number may be amended only by the vote or written consent of a majority of the outstanding shares of our voting stock.  Our boardBoard of directorsDirectors currently consists of fourfive members.  Accordingly, there are currently threetwo vacancies on our boardBoard of directors.Directors.  Our boardBoard of directorsDirectors anticipates filling each of such vacancies as soon as practicable.  All actions of the boardBoard of directorsDirectors require the approval of a majority of the directors in attendance at a meeting at which a quorum is present.

Board Committees

Our boardBoard of directorsDirectors has established an audit committee,Audit Committee, a compensation committeeCompensation Committee and a corporate governanceCorporate Governance and nominating committee.Nominating Committee. The composition and responsibilities of each committee are described below.  Members serve on these committees until their resignation or until otherwise determined by our boardBoard of directors. OurDirectors. Effective on April 1, 2017, our independent directors, Mr. Saxe, Dr. Underdown and Dr. Underdown, are each members of the audit committee. Mr. Saxe and Dr. Underdown also currentlyGin, serve as members of the compensation committee and the corporate governance and nominating committee.each of these committees.

Audit Committee

Our audit committeeAudit Committee is comprised of Mr. Saxe, who serves as the committee chairman, Dr. Underdown and Dr. Underdown.Gin. Mr. Saxe is the chairman ofalso our audit committee and is our audit committeeAudit Committee financial expert, as that term is defined under SEC rules implementing Section 407 of the Sarbanes Oxley Act of 2002, and possesses the requisite financial sophistication, as defined under applicable rules. The audit committeeAudit Committee operates under a written charter. Our audit committeeAudit Committee charter is available on our website. Under its charter, our audit committeeAudit Committee is primarily responsible for, among other things,

·overseeing our accounting and financial reporting process;
·selecting, retaining and replacing our independent auditors and evaluating their qualifications, independence and performance;
·reviewing and approving scope of the annual audit and audit fees;
·monitoring rotation of partners of independent auditors on engagement team as required by law;
things:
 
●
overseeing our accounting and financial reporting process;
-74-
●
selecting, retaining and replacing our independent auditors and evaluating their qualifications, independence and performance;
●
reviewing and approving scope of the annual audit and audit fees;
●
monitoring rotation of partners of independent auditors on engagement team as required by law;
●
discussing with management and independent auditors the results of annual audit and review of quarterly financial statements;
●
reviewing adequacy and effectiveness of internal control policies and procedures;
●
approving retention of independent auditors to perform any proposed permissible non-audit services;
●
overseeing internal audit functions and annually reviewing audit committee charter and committee performance; and
●
preparing the audit committee report that the SEC requires in our annual proxy statement.

 
·discussing with management and independent auditors the results of annual audit and review of quarterly financial statements;
·reviewing adequacy and effectiveness of internal control policies and procedures;
·approving retention of independent auditors to perform any proposed permissible non-audit services;
·overseeing internal audit functions and annually reviewing audit committee charter and committee performance; and
·preparing the audit committee report that the SEC requires in our annual proxy statement.
 
Compensation Committee
 
Our compensation committeeCompensation Committee is comprised of Mr. Saxe and Dr. Underdown, who serves as the committee chairman..chairman, Mr. Saxe, and Dr. Gin. Our compensation committeeCompensation Committee charter is available on our website. Under its charter, the compensation committeeCompensation Committee is primarily responsible for, among other things,things:
 
·Reviewing and approving our compensation programs and arrangements applicable to our executive officers (as defined in Rule I 6a-I (f) of the Exchange Act), including all employment-related agreements or arrangements under which compensatory benefits are awarded or paid to, or earned or received by, our executive officers, including, without limitation, employment, severance, change of control and similar agreements or arrangements;
●
reviewing and approving our compensation programs and arrangements applicable to our executive officers (as defined in Rule I 6a-I (f) of the Exchange Act), including all employment-related agreements or arrangements under which compensatory benefits are awarded or paid to, or earned or received by, our executive officers, including, without limitation, employment, severance, change of control and similar agreements or arrangements;
 
·Determining the objectives of our executive officer compensation programs;
●
determining the objectives of our executive officer compensation programs;
 
·Ensuring corporate performance measures and goals regarding executive officer compensation are set and determining the extent to which they are achieved and any related compensation earned;
●
ensuring corporate performance measures and goals regarding executive officer compensation are set and determining the extent to which they are achieved and any related compensation earned;
 
·Establishing goals and objectives relevant to CEO compensation, evaluating CEO performance in light  of  such  goals  and  objectives,  and determining CEO compensation based on the evaluation; and
●
establishing goals and objectives relevant to CEO compensation, evaluating CEO performance in light of such goals and objectives, and determining CEO compensation based on the evaluation;
 
·Endeavoring to ensure that our executive compensation programs are effective in attracting and retaining key employees and reinforcing business strategies and objectives for enhancing stockholder value; monitoring the administration of incentive-compensation plans and equity-based incentive plans as in effect and as adopted from time to time by the board.
●
endeavoring to ensure that our executive compensation programs are effective in attracting and retaining key employees and reinforcing business strategies and objectives for enhancing stockholder value, monitoring the administration of incentive-compensation plans and equity-based incentive plans as in effect and as adopted from time to time by the board;
 
·Reviewing and approving any new equity compensation plan or any material change to an existing plan.
●
reviewing and approving any new equity compensation plan or any material change to an existing plan; and
 
·Reviewing and approving any stock option award or any other type of award as may be required for complying with any tax, securities, or other regulatory requirement, or otherwise determined to be appropriate or desirable by the committee or board.
●
reviewing and approving any stock option award or any other type of award as may be required for complying with any tax, securities, or other regulatory requirement, or otherwise determined to be appropriate or desirable by the committee or board.
 
Corporate Governance and Nominating Committee
 
Our corporate governanceCorporate Governance and nominating committeeNominating Committee is comprised of Mr. Saxe and Dr. Underdown,Gin, who serves as the committee chairman.chairman, Mr. Saxe and Dr. Underdown.  Our corporate governanceCorporate Governance and nominating committeeNominating Committee charter is available on our website. Under its charter, the corporate governanceCorporate Governance and nominating committeeNominating Committee is primarily responsible for, among other things:
 
·Monitoring the size and composition of the board;
●
monitoring the size and composition of the board;
·Making recommendations to the board with respect to the nominations or elections of our directors;
·Reviewing the adequacy of our corporate governance policies and procedures and our Code of Business Conduct and Ethics, and recommending any proposed changes to the board for approval; and
·Considering any requests for waivers from our Code of Business Conduct and Ethics and ensure that we disclose such waivers as may be required by the exchange on which we are listed, if any, and rules and regulations of the SEC.
 
●
-75-
 
All potential candidates for director nominees, including candidates recommended by our stockholders, are reviewed in
●
reviewing the context of the current composition of the Board, our operating requirements and the long-term interestsadequacy of our stockholders. In conducting this assessment,corporate governance policies and procedures and our Code of Business Conduct and Ethics, and recommending any proposed changes to the Committee considersboard for approval; and
●
considering any requests for waivers from our Code of Business Conduct and Ethics and ensure that we disclose such factorswaivers as it deems appropriate given our current needsmay be required by the exchange on which we are listed, if any, and those of our Board, to maintain a balance of expertise, experience and capability. The Corporate Governance and Nominating Committee reviews directors’ overall service during their term, including the number of meetings attended, their level of participation and quality of performance. The Committee also determines whether the nominee would be independent, which determination is based upon applicable Nasdaq or other exchange listing standards, applicable SEC rules and regulations and the advice of counsel, if necessary.
The Corporate Governance and Nominating Committee will consider director candidates recommended by stockholders in the same manner as it considers recommendations from current directors or other sources. Stockholders who wish to recommend individuals for consideration by the Corporate Governance and Nominating Committee to become nominees for election to the Board may do so by delivering a written recommendation to the Company Secretary at the following address: 343 Allerton Avenue, South San Francisco, CA 94080 at least 60 days prior, but no more than 90 days prior, to the anniversary date of the last annual meeting of stockholders. Submissions should include the full name, address and age of the proposed nominee, a description of the proposed nominee’s business experience for at least the previous five years, complete biographical information, a description of the proposed nominee’s qualifications as a director, and the number of shares of our stock beneficially owned by the proposed nominee.  The nominating stockholder must also provide his or her name and address of record and the number of shares of our stock that he or she owns beneficially or of record.
The Corporate Governance and Nominating Committee has not established specific minimum qualifications for recommended nominees or specific qualities or skills for one or more of our directors to possess, other than as are necessary to meet any requirements under rules and regulations (including any stock exchange rules) applicable to the Company. The Corporate Governance and Nominating Committee uses a subjective process for identifying and evaluating nominees for director, based on the information available to, and the subjective judgments of, the members of the Committee and our then current needs for the Board as a whole.  Although it does not have a formal policy regarding the consideration of diversity, the Corporate Governance and Nominating Committee considers the needs for the Board as a whole when identifying and evaluating nominees and, among other things, considers diversity in background, age, experience, qualifications, attributes and skills in identifying nominees.

The Corporate Governance and Nominating Committee’s process for identification and evaluation of director candidates is generally as follows:

(a) In the event of a vacancy or the establishment of a new directorship on the Board, candidate(s) for director nominee(s) shall be presented to the full Board for consideration and approval upon the recommendation of no less than a majority of the independent members of the Board (as independence is defined under any stock exchange rules that may be applicable to the Company at such time).

(b) We believe that the continuing service of qualified incumbents promotes stability and continuity in the boardroom, contributing to the Board's ability to work as a collective body, while giving us the benefit of the familiarity and insight into our affairs that our directors have accumulated during their tenure. Accordingly, the process for identifying nominees reflects our practice of re-nominating incumbent directors who continue to satisfy the criteria for membership on the Board, whom the independent members of the Board believe continue to make important contributions to the Board and who consent to continue their service on the Board. Consistent with this policy, in considering candidates for election at annual meetings of stockholders, the independent members of the Board will first determine the incumbent directors whose terms expire at the upcoming meeting and who wish to continue their service on the Board.

(c) The independent members of the Board will evaluate the qualifications and performance of the incumbent directors that desire to continue their service. In particular, as to each such incumbent director, the independent members of the Board will (i) consider if the director continues to satisfy the minimum qualifications for director candidates adopted by the independent members of the Board, (ii) review any assessments of the performance of the director during the preceding term made by the Board, and (iii) determine whether there exist any special, countervailing considerations against re-nomination of the director.
 
(d) If the independent members of the Board determine that an incumbent director consenting to re-nomination continues to be qualified and has satisfactorily performed his or her duties as director during the preceding term, and there exist no reasons, including considerations relating to the composition and functional needs of the Board as a whole, why in the view of the independent members of the Board the incumbent should not be re-nominated, the independent members of the Board will, absent special circumstances, propose the incumbent director for reelection.

(e) The process by the independent members of the Board for identifying and evaluating nominees for director, including nominees recommended by a stockholder, involves (with or without the assistance of a retained search firm):
·compiling names of potentially eligible candidates;
·conducting background and reference checks;
·conducting interviews with candidates and/or others;
·meeting to consider and approve final candidates; and, as appropriate,
·preparing and presenting to the full Board an analysis with regard to particular recommended candidates.

During the search process, the independent directors shall endeavor to identify director nominees who have the highest personal and professional integrity, have demonstrated exceptional ability and judgment, and, together with other director nominees and current Board members, shall effectively serve the long-term interests of our stockholders and contribute to our overall corporate goals.

(f) In considering potential new directors, the independent members of the Board will review individuals from various disciplines and backgrounds. Among the qualifications to be considered in the selection of candidates are:
·personal and professional integrity;
·broad experience in business, finance or administration;
·familiarity with our industry; and
·prominence and reputation.

Code of Business Conduct and Ethics
 
We have adopted a Code of Business Conduct and Ethics applicable to our employees, officers and directors.  Our Code of Business Conduct and Ethics is available on our website at www.vistagen.com.  We intend to disclose any future amendments to certain provisions of our Code of Business Conduct and Ethics, or waivers of these provisions, on our website or in filings with the SEC under the Exchange Act.
 
Board Attendance at Board of Directors, Committee and Stockholder Meetings
 
Our Board of Directors met threefour times and acted by unanimous written consent tensix times during theour fiscal year ended March 31, 2014.2017.  Our Audit Committee met four times and ourtimes. Our Compensation Committee requested action by the entire Board of Directors for grants of optionsvarious equity securities and warrantsfor amendments of employment agreements.  Our Nominating and Corporate Governance Committee requested action by the modificationentire Board of certain optionsDirectors with respect to resolutions to be presented to our stockholders at the annual meeting of stockholders and warrants duringBoard committee assignments. With the same period.  Eachexception of Dr. Underdown, who was unable to attend one Board meeting due to international travel, each director serving during fiscal 2014Fiscal 2017 attended all of the meetings of the Board and the committees of the Board upon which such director served.served that were held during the term of his service.
 
We do not have a formal policy regarding attendance by members of the Board at our annual meeting of stockholders, but directors are encouraged to attend. We did not hold anMr. Saxe and Dr. Gin attended our annual meeting of stockholders during our fiscal year ended March 31, 2014.held on September 26, 2016. Dr. Underdown was unavailable to participate due to international travel.

Compensation Committee Interlocks and Insider Participation

Our Compensation Committee consists of Dr. Underdown, and Mr. Saxe and Dr. Gin, each of whom is a non-employee director. Neither memberNone of the members of the Compensation Committee has a relationship that would constitute an interlocking relationship with executive officers or directors of another entity.

 
Section 16 Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires our officers, directors and persons who beneficially own more than ten percent of our common stock (collectively, Reporting Persons) to file reports of ownership on Form 3 and changes in ownership on Form 4 or Form 5 with the Commission.SEC.  The Reporting Persons are also required by SEC rules to furnish us with copies of all reports that they file pursuant to Section 16(a). Except as described below, weWe believe that during our fiscal year ended March 31, 2014,2017, all of the Reporting Persons, other than PLTG and/or its affiliate, Montsant Partners LLC, and Cato Holding Company complied with all applicable reporting requirements.

On December 20, 2013, certain of Mr. Saxe’s options and warrants were modified to reduce their exercise price.  Mr Saxe did not report these derivative security transactions on a Form 4 until December 26, 2013.

ItemItem 11.  ExecutiveExecutive Compensation

Our Compensation Objectives
 
Our compensation practices are designed to attract key employees and to retain, motivate and reward our executive officers for their performance and contribution to our long-term success. Our Board of Directors, through the Compensation Committee,compensation committee, seeks to compensate our executive officers by combining short and long-term cash and equity incentives. It also seeks to reward the achievement of corporate and individual performance objectives, and to align executive officers’ incentives with shareholderstockholder value creation. The Compensation CommitteeWhen possible, the compensation committee seeks to tie individual goals to the area of the executive officer’s primary responsibility. These goals may include the achievement of specific financial or business development goals. The Compensation CommitteeAlso, when possible and appropriate taking into account the Company’s financial condition and other related facts and circumstances, the compensation committee seeks to set performance goals that reach across all business areas and include achievements in finance/business development and corporate development.

The Compensation Committee makes decisions regarding salaries, annual bonuses, if any, and equity incentive compensation for our executive officers, approves corporate goals and objectives relevant to the compensation of the Chief Executive Officer and our other executive officers. The Compensation Committee solicits input from our Chief Executive Officer regarding the performance of our other executive officers. Finally, the Compensation Committee also administers our incentive compensation and benefit plans.

Although we have no formal policy for a specific allocation between current and long-term compensation, or cash and non-cash compensation, when possible and appropriate taking into account the Company’s financial condition and other related facts and circumstances, we have establishedseek to implement a pay mix for our officers with a relatively equal balance of both, providing a competitive salary with a significant portion of compensation awarded on both corporate and personal performance.

Compensation Components
 
OurAs a general rule, and when possible and appropriate taking into account the Company’s financial condition and other related facts and circumstances, our compensation consists primarily of three elements: base salary, annual bonus and long-term equity incentives. We describe each element of compensation in more detail below.

Base Salary
 
Base salaries for our executive officers are established based on the scope of their responsibilities and their prior relevant experience, taking into account competitive market compensation paid by other companies in our industry for similar positions and the overall market demand for such executives, both initially at the time of hire.hire and thereafter, to ensure that we retain our executive management team.. An executive officer’s base salary is also determined by reviewing the executive officer’s other compensation to ensure that the executive officer’s total compensation is in line with our overall compensation philosophy.

Base salaries are reviewed annuallyperiodically as deemed necessary by the Compensation Committee and increased for merit reasons, based on the executive officers’ success in meeting or exceeding individual objectives. Additionally, we may adjust base salaries as warranted throughout the year for promotions or other changes in the scope or breadth of an executive officer’s role or responsibilities.

 
Annual Bonus
 
The Compensation Committee assesses the level of the executive officer’s achievement of meeting individual goals, as well as that executive officer’s contribution towards our corporate-wide goals. The amount of the cash bonus depends on the level of achievement of the individual performance goals, with a target bonus generally set as a percentage of base salary and based on the achievement of pre-determined milestones.  To conserve our cash resources, our management team didvoluntarily decided to not seek and, in accordance with our management team’s election, our Compensation Committee did not award cash bonuses in any fiscal year from Fiscal 2012 through Fiscal 2015. The Compensation Committee authorized cash bonuses to executive officers who served during fiscal 2013 or 2014.Fiscal 2016, which bonuses were paid in July 2016.

Long-Term Equity Incentives
 
The Compensation Committee believes that to attract and retain management, key employees and non-management directors the compensation paid to these persons should include, in addition to base salary and potential annual cash incentives, equity based compensation that is competitive with peer companies.  The Compensation Committee determines the amount and terms of equity basedequity-based compensation granted under our stock option plans.plans or pursuant to other awards made to our executives and key employees.

Summary Compensation Table
 
The following table shows information regarding the compensation of our Named Executive Officers (NEO’s) for services performed in the fiscal years ended March 31, 20142017 and 2013.2016:
 
Name and Principal Position
  
Fiscal
Year
 
Salary
($)
  
Bonus
($)
  
Option and Warrant
Awards (7)
($)
  
All Other Compensation
($)
  
Total
($)
 
Fiscal
Year
 
Salary
($)
 
 
Bonus
($)
 
 
Option and Warrant
Awards (5)
($)
 
 
 
 
 
All Other Compensation
($)
 
 
Total
($)
 
                  
 
 
 
 
 
 
 
 
 
Shawn K. Singh, J.D. (1)
 2014  250,000 (4)  -   159,802 (8)  -   409,802 
Shawn K. Singh (1)
2017
  385,107 
  173,750 
  752,210 
(6)
  - 
  1,316,067 
Chief Executive Officer 2013  201,646   -   802,411 (9)(10)  -   1,004,057 2016
  347,500 
  - 
  1,629,574 
(7)
  - 
  1,977,074 
                      
    
    
    
H. Ralph Snodgrass, Ph.D. (2)
 2014  250,000 (5)  -   102,353 (8)  -   352.353 2017
  340,625 
  152,500 
  520,946 
(6)
  - 
  1,014,071 
President, Chief Scientific Officer 2013  203,086   -   534,941 (10)  -   738,027 2016
  305,000 
  - 
  985,025 
(7)
  - 
  1,290,025 
                      
    
    
    
Jerrold D. Dotson (3)
 2014  200,000 (6)  -   36,846 (8)  -   236,846 
Mark A. Smith, M.D., Ph.D. (3)
2017
  275,737 
  - 
  654,238 
(6)
  - 
  929,975 
Chief Medical Officer2016
  - 
    
  - 
    
    
    
Jerrold D. Dotson (4)
2017
  289,583 
  100,000 
  318,018 
(6)
  - 
  707,601 
Vice President, Chief Financial Officer, Secretary  
2013
  97,269   -   134,316 (11)  62,333 (12)  293,918 2016
  250,000 
  - 
  635,297 
(7)
  - 
  885,297 
 
(1)
Mr. Singh became VistaGen California’s Chief Executive Officer on August 20, 2009 and our Chief Executive Officer in May 2011, in connection with the Merger.  In our fiscal years ended March 31, 2014 and 2013, Mr. Singh’s annual base cash salary, excluding potential cash bonus amounts, pursuant to his January 2010 employment agreement was contractually set at $347,500. However, to conserve cash for our operations during our fiscal years ended March 31, 2014 and 2013, Mr. Singh voluntarily reduced his base cash salary in each of such fiscal years to the amounts indicated.  In addition, pursuant to his employment agreement, Mr. Singh is eligible to receive an annual incentive bonus of up to fifty percent (50%) of his base cash salary. However to conserve cash for our operations during our fiscal years ended March 31, 2014 and 2013, Mr. Singh voluntarily refrained from receiving any cash bonus from us.
(2)Through August 20, 2009, Dr. Snodgrass served as VistaGen California’s President and Chief Executive Officer, at which time he became its President and Chief Scientific Officer.  He became our President and Chief Scientific Officer in May 2011, in connection with the Merger.  In our fiscal years ended March 31, 2014 and 2013, Dr. Snodgrass’ annual base cash salary, excluding potential cash bonus amounts, pursuant to his January 2010 employment agreement was contractually set at $305,000.  However, to conserve cash for our operations during our fiscal years ended March 31, 2014 and 2013, Dr. Snodgrass voluntarily reduced his base cash salary in each of such fiscal years to the amounts indicated.  In addition, pursuant to his employment agreement, Dr. Snodgrass is eligible to receive an annual incentive bonus of up to fifty percent (50%) of his base cash salary.  However to conserve cash for our operations during our fiscal years ended March 31, 2014 and 2012, Dr. Snodgrass voluntarily refrained from receiving any cash bonus from us.
Mr. Singh became Chief Executive Officer of VistaGen Therapeutics, Inc. (a California corporation) (VistaGen California) on August 20, 2009 and our Chief Executive Officer in May 2011, in connection with the Merger. In our fiscal years ended March 31, 2017 and 2016, Mr. Singh’s annual base cash salary, pursuant to his January 2010 employment agreement, as amended in June 2016, was contractually set at $395,000 and $347,500, respectively. Pursuant to his employment agreement, Mr. Singh is eligible to receive an annual cash incentive bonus of up to fifty percent (50%) of his base cash salary. To conserve cash for our operations during our fiscal year ended March 31, 2016, Mr. Singh voluntarily refrained from receiving any cash bonus.

(2)
-79-
 
(3)
Mr. Dotson served as Chief Financial Officer on a part-time contract basis from September 19, 2011 through August 2012, at which time he became our employee.
(4)
Mr. Singh received only $125,000 in cash in our fiscal year ended March 31, 2014 and the remaining balance has been accrued for future payment.
(5)
Dr. Snodgrass received only $149,606 in cash in our fiscal year ended March 31, 2014 and the remaining balance has been accrued for future payment.
(6)
Mr. Dotson received only $143,333 in cash in our fiscal year ended March 31, 2014 and the remaining balance has been accrued for future payment.
(7)
The amounts in the Option and Warrant Awards column represent the aggregate grant date fair value of options or warrants to purchase restricted shares of our common stock awarded to Mr. Singh, Dr. Snodgrass and Mr. Dotson, or the effect of modifications to prior grants of options or warrants occurring during the fiscal year presented, computed in accordance with the Financial Accounting Standards Board’s Accounting Standards Codification Topic 718, Compensation – Stock Compensation ("ASC 718”). The amounts in this column do not represent any cash payments actually received by Mr. Singh, Dr. Snodgrass or Mr. Dotson with respect to any of such options or warrants to purchase restricted shares of our common stock awarded to them or modified during the periods presented. Except as indicated in note (9) below, to date, Mr. Singh, Dr. Snodgrass and Mr. Dotson have not exercised such options or warrants to purchase common stock, and there can be no assurance that any of them will ever realize any of the ASC 718 grant date fair value amounts presented in the Option and Warrant Awards column.
(8)The table below provides information regarding the option and warrant awards and modifications we granted to Mr. Singh, Dr. Snodgrass and Mr. Dotson during fiscal 2014 and the assumptions used in the Black Scholes Option Pricing Model to determine the grant date fair values of the respective awards and modifications.
  Option Warrant         Option/Warrant  
  Grant Grant Option Modification Warrant Modification  Exchange (a) 
  10/27/2013 3/19/2014 12/20/2013 12/20/2013 3/19/2014 Total
                   
Singh $              - $              -   $ 134,436   $ 25,366   $ - $ 159,802
Snodgrass - 14,560   56,835   -   30,958 102,353
Dotson 6,380 29,120   1,346   -   - 36,846
                   
  $      6,380 $    43,680   $ 192,617   $ 25,366   $ 30,958 $ 299,001
                   
      Before After Before After Before After  
                   
Market price per share$        0.40 $       0.46 $ 0.40 $ 0.40 $ 0.40 $ 0.40 $ 0.46 $ 0.46  
Exercise price per share$        0.40 $       0.50 
$ 0.75 to
$2.10
$ 0.50 
$ 0.50
to $1.75
$ 0.50 $ 0.50 $ 0.50  
Risk-free interest rate1.675% 1.750% 
0.7% to
2.68%
0.12% to
2.68%
0.07% to
1.18%
0.75% to
1.18%
0.106% 1.750%  
Volatility 99.53% 80.57% 
68.8% to
97.6%
68.8% to
97.6%
68.76% to
78.21%
76.51% to
78.21%
68.96% 80.57%  
Expected term (years)6.25 5.00 
0.25 to
8.86
 
0.87 to
8.86
 
0.03 to
3.96
 
3.03 to
3.96
 0.63 5.00  
Dividend rate 0% 0% 0% 0% 0% 0% 0% 0%  
                   
Fair value per share$        0.32   $       0.29 
$ 0.00 to
$0.32
$ 0.07 to
$0.34
$ 0.00 to
$0.11
$0.18 to
$0.21
$ 0.08 $ 0.29  
                   
Aggregate shares20,000 150,000 2,322,500 2,322,500 166,052 166,052 150,000 150,000  
(3)
(a)  On March 19, 2014, the Board and Dr. Snodgrass agreed to cancel a fully-vested option to purchase 150,000 shares of our restricted common stock at a price of $0.50 per share and expiring on November 4, 2014 in exchange for the grant of a five-year warrant to purchase 150,000 shares of our restricted common stock at a price of $0.50 per share. Shares subject to the cancelled option grant were returned to the 2008 Stock Incentive Plan for potential future grants. The cancellation of the option and grant of the warrant was accounted for as a modification of an award under ASC 718 and, accordingly, the difference in the fair value of the two instruments at the modification date was recorded in stock compensation expense and is the amount reported in the table above.
-80-
Table of ContentsDr. Smith became our Chief Medical Officer upon his employment effective June 18, 2016. During our fiscal year ended March 31, 2017, Dr. Smith’s annual base cash salary was $350,000.
 
(9)In June and October 2013, Mr. Singh exercised warrants granted to him in March 2013, described in Note 10, below, to purchase an aggregate of 60,000 shares of our restricted common stock at $0.64 per share. Mr. Singh continues to hold the shares of our restricted common stock issued upon his exercise of the warrants.
(4)
Mr. Dotson served as Chief Financial Officer on a part-time contract basis from September 19, 2011 through August 2012, at which time he became our full-time employee. In our fiscal years ended March 31, 2017 and 2016, Mr. Dotson’s annual base cash salary was $300,000 and $250,000, respectively.  To conserve cash for our operations, Mr. Dotson did not receive a cash bonus in our fiscal year ended March 31, 2016.
(10)We used the Black Scholes Option Pricing Model and the following assumptions for determining the grant date fair value of the warrants to purchase shares of our common stock granted in March 2013.
Market price per share$0.64
Exercise price per share$0.64
Risk-free interest rate1.86%
Expected Term (years)10.0
Volatility84.73%
Dividend rate0.0%
Grant date fair value per share$0.53
Mr. Singh, Dr. Snodgrass and Mr. Dotson were granted warrants to purchase 1,500,000, 1,000,000 and 200,000 restricted shares of our common stock, respectively.
 
(5)
The amounts in the Option and Warrant Awards column represent the aggregate grant date fair value of options and/or warrants to purchase restricted shares of our common stock awarded to Mr. Singh, Dr. Snodgrass, Dr. Smith and Mr. Dotson, and, in Fiscal 2016, the effect of modifications to prior grants of warrants, occurring during the fiscal year presented, computed in accordance with the Financial Accounting Standards Board’s Accounting Standards Codification Topic 718, Compensation – Stock Compensation (ASC 718). The amounts in this column do not represent any cash payments actually received by Mr. Singh, Dr. Snodgrass, Dr. Smith or Mr. Dotson with respect to any of such options or warrants to purchase restricted shares of our common stock awarded to them or modified during the periods presented. To date, Mr. Singh, Dr. Snodgrass, Dr. Smith and Mr. Dotson have not exercised any of such options or warrants to purchase common stock, and there can be no assurance that any of them will ever realize any of the ASC 718 grant date fair value amounts presented in the Option and Warrant Awards column.
(11)
In October 2012, we modified the stock option award granted to Mr. Dotson in September 2011 to reduce the exercise price of the option from $2.58 per share to $0.75 per share and granted him a new stock option to purchase an additional 50,000 restricted shares of our common stock. We used the Black Scholes Option Pricing Model and the following assumptions to determine incremental fair value of the modified option and the grant date fair value of $0.51 per share for the new option: market price per share: $0.71; exercise price per share: $0.75; risk-free interest rate: 1.00%; expected term: 6.25 years; volatility 85.35%; dividend rate: 0%. The figure reported includes (i) the grant date fair value of the warrant granted to Mr. Dotson, determined in accordance with the assumptions described in note 5 above, $106,988; (ii) the fair value of the new option, $25,385; and (iii) the incremental fair value resulting from the modification of the September 2011 stock option grant, $1,943.
(12)Amount shown represent cash compensation paid to Mr. Dotson under the terms of the consulting agreement between us and Mr. Dotson for the period April 2012 through August 2012.

 
(6)
The table below provides information regarding the option awards we granted to Mr. Singh, Dr. Snodgrass, Dr. Smith and Mr. Dotson during Fiscal 2017 and the assumptions used in the Black Scholes Option Pricing Model to determine the grant date fair values of the respective awards and modifications
 
 
Option Grant
 
 
Option Grant
 
 
 
 
 
 
6/19/2016
 
 
11/9/2016
 
 
Total
 
Singh
 $484,700 
 $272,510 
 $757,210 
Snodgrass
  302,938 
  218,008 
  520,946 
Smith
  436,230 
  218,008 
  654,238 
Dotson
  181,763 
  136,255 
  318,018 
 
 $1,405,631 
 $844,781 
 $2,250,412 
 
    
    
    
Market price per share
 $3.49 
 $3.80 
    
Exercise price per share
 $3.49 
 $3.80 
    
Risk-free interest rate
  1.31%
  1.71%
    
Volatility
  79.82%
  83.17%
    
Expected term (years)
  6.25 
  6.25 
    
Dividend rate
  0%
  0%
    
 
    
    
    
Fair value per share
 $2.42 
 $2.73 
    
Aggregate shares
  580,000 
  310,000 
    
(7)
The table below provides information regarding the warrant awards and modifications we granted to Mr. Singh, Dr. Snodgrass and Mr. Dotson during fiscal 2016 and the assumptions used in the Black Scholes Option Pricing Model to determine the grant date fair values of the respective awards and modifications
 
 
Warrant Grant
 
 
Warrant Modification  
 
 
 
 
 
 
9/2/2015
 
 
11/11/2015  
 
 
Total
 
Singh
 $1,420,332 
 $209,242 
 $1,629,574 
Snodgrass
  852,199 
  132,826 
  985,025 
Dotson
  568,133 
  67,164 
  635,297 
 
 $2,840,664 
 $409,232 
 $3,249,896 
 
    
    
    
    
 
    
 
Weighted Average  
 
    
 
    
 
(except shares)  
 
    
 
    
 
Before
 
 
After
 
    
Market price per share
 $9.11 
 $6.50
 $6.50
    
Exercise price per share
 $9.25 
 $9.99 
 $7.00
    
Risk-free interest rate
  1.15%
  1.75%
  1.76 
    
Volatility
  77.19%
  78.8%
  78.75%
    
Expected term (years)
  5 
  5.17 
  5.19 
    
Dividend rate
  0%
  0%
  0%
    
 
    
    
    
    
Fair value per share
 $5.68 
 $3.67 
 $4.09 
    
Aggregate shares
  500,000 
  952,803 
  952,803 
    
Mr. Singh, Dr. Snodgrass and Mr. Dotson were granted warrants to purchase 250,000, 150,000 and 100,000 restricted shares of our common stock, respectively. We modified warrants to purchase an aggregate of 477,803 shares, 310,000 shares and 165,000 shares held by Mr. Singh, Dr. Snodgrass and Mr. Dotson, respectively.
None of the NEOs is entitled to perquisites or other personal benefits which,that, in the aggregate, are worth over $50,000 or over 10% of their base salary.

Benefit Plans
 
401(k) Plan
 
We maintain, through a registered agent, a retirement and deferred savings plan for our officers and employees. This plan is intended to qualify as a tax-qualified plan under Section 401(k) of the Internal Revenue Code of 1986, as amended. The retirement and deferred savings plan provides that each participant may contribute a portion of his or her pre-tax compensation, subject to statutory limits. Under the plan, each employee is fully vested in his or her deferred salary contributions. Employee contributions are held and invested by the plan’s trustee. The retirement and deferred savings plan also permits us to make discretionary contributions subject to established limits and a vesting schedule.  To date, we have not made any discretionary contributions to the retirement and deferred savings plan on behalf of participating employees.

 
Options and Warrants Granted to NEOs
 
The following table provides information regarding each unexercised stock option and warrant to purchase restricted shares of our common stock held by each of the named executive officers as of March 31, 2014.2017:
 
 Stock Options
 
Stock Options and Warrants
 
 
Name 
Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
  
Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
  
Option
Exercise
Price
($)
  
Option
Expiration
Date
 
Number of Securities Underlying Unexercised Options
(#) Exercisable
 
 
 
 
 
Number of Securities
Underlying Unexercised Options
(#) Unexercisable
 
 
 
 
 
Option
Exercise
Price
($)
 
 
Option
Expiration
Date
          
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Shawn K. Singh, J.D.   20,000   -   0.80 12/21/2016
Shawn K. Singh
  2,000 
 
 
 
  - 
 
 
 
  14.40 
5/17/2017
  1,000 
 
 
 
  - 
 
 
 
  10.00 
1/17/2018
  40,000   -   0.72 5/17/2017
  1,000 
 
 
 
  - 
 
 
 
  10.00 
1/17/2018
  20,000   -   0.50 1/17/2018
  3,000 
 
 
 
  - 
 
 
 
  10.00 
3/24/2019
  20,000   -   0.50 1/17/2018
  1,125 
 
 
 
  - 
 
 
 
  10.00 
6/17/2019
  60,000   -   0.50 3/24/2019
  50,000 
 
 
 
  - 
 
 
 
  10.00 
11/4/2019
  22,500   -   0.50 6/17/2019
  21,250 
 
 
 
  - 
 
 
 
  10.00 
12/30/2019
  1,000,000   -   0.50 11/4/2019
  5,000 
 
 
 
  - 
 
 
 
  10.00 
4/26/2021
  425,000   -   0.50 12/30/2019
  4,017 
 
 
 
  - 
 
 
 
  7.00 
3/19/2019
  72,916   27,084   0.50 4/25/2021
  1,786 
 
 
 
  - 
 
 
 
  7.00 
3/19/2019
  80,338   -   0.50 12/31/2016
  72,000 
 
 
 
  - 
 
 
 
  7.00 
3/3/2023
  35,714   -   0.50 12/31/2016
  150,000 
 
 
 
  - 
 
 
 
  7.00 
1/11/2020
  50,000   -   0.50 12/6/2017
  250,000 
 
 
 
  - 
 
 
 
  7.00 
9/2/2020
  100,000   - �� 1.00 7/30/2016
  - 
 
 
 
  200,000 
(1)
  3.49 
6/19/2026
  690,000   750,000 (1)  0.64 3/3/2023
  11,111 
(2)
  88,889 
(2)
  3.80 
11/9/2026
Total:  2,636,468   777,084      
  673,289 
 
  288,889 
 
    
 
             
    
 
    
 
    
 
H. Ralph Snodgrass, Ph.D.   50,000   -   0.50 3/24/2019
  2,500 
 
  - 
 
  10.00 
3/24/2019
  25,000   -   0.50 6/17/2014
  1,250 
 
  - 
 
  10.00 
6/17/2019
  6,362   -   0.88 12/20/2016
  12,500 
 
  - 
 
  10.00 
12/30/2019
  250,000   -   0.50 12/30/2019
  50,000 
 
  - 
 
  7.00 
3/3/2023
  72,916   27,084   0.50 4/25/2021
  2,500 
 
  - 
 
  7.00 
3/19/2024
  500,000   500,000 (1)  0.64 3/3/2023
  7,500 
 
  - 
 
  7.00 
3/19/2024
  -   50,000 (2)  0.50 3/19/2024
  100,000 
 
  - 
 
  7.00 
1/11/2020
  -   150,000 (2)  0.50 3/19/2024
  150,000 
 
  - 
 
  7.00 
9/20/2020
  - 
 
  125,000 
(1)
  3.49 
6/19/2026
  8,888 
(2)
  71,112 
(2)
  3.80 
11/9/2026
Total:
  335,138 
 
  196,112 
 
    
 
    
 
    
 
    
 
Mark A. Smith, M.D. Ph.D.
  - 
 
  180,000 
(1)
  3.49 
6/19/2026
  8,888 
(2)
  71,112 
(2)
  3.80 
11/9/2026
Total:  904,278   727,084      
  8,888 
 
  251,112 
 
    
 
             
    
 
    
 
    
 
Jerrold D. Dotson  74,782   25,218   0.50 10/30/2022
  5,001 
 
  - 
 
  10.00 
10/30/2022
  4,166   15,834   0.40 10/27/2023
  1,000 
 
  - 
 
  8.00 
10/27/2023
  100,000   100,000 (1)  0.64 3/3/2023
  10,000 
 
  - 
 
  7.00 
3/3/2023
  -   100,000 (2)  0.50 3/19/2024
  5,000 
 
  - 
 
  7.00 
3/19/2024
  50,000 
 
  - 
 
  7.00 
1/11/2020
  - 
 
  75,000 
(1)
  3.49 
6/19/2026
  5,555 
(2)
  44,445 
(2)
  3.80 
11/9/2026
Total:  178,948   241,052      
  76,556 
     
  119,445 
     
    
 

(1)
Represents warrantan option to purchase restricted shares of our common stock granted on March 3, 2013 at the market price of our common stock on the grant date. The warrant becomes exercisable for 50% of the shares on April 1, 2013, 25% of the shares on April 1, 2014 and 25% of the shares on April 1, 2015, provided that the warrant will become fully vested upon a change in control of the Company, as defined, or upon the consummation by the Company and a third party of a license or sale transaction involving at least one new drug rescue variant.
(2)Represents warrant to purchase restricted shares of our common stock granted on MarchJune 19, 20142016 when the market price of our common stock was $0.46$3.49 per share.  The warrant becomesoption will become exercisable for 50% of the shares on April 1, 2014, 25% of the shares granted on April 1, 2015 and 25% June 19, 2017 with the remaining shares becoming exercisable ratably monthly through June 19, 2020, when all shares granted will be fully exercisable.
(2)
Represents an option to purchase shares of our common stock granted on November 9, 2016 when the market price of our common stock was $3.80 per share.  The option becomes exercisable for 1/36thof the shares on April 1,granted each month beginning December 9, 2016 provided that the warrantthrough November 9, 2019, when all shares granted will becomebe fully vested upon a change in control of the Company, as defined, or upon the consummation by the Company and a third party of a license or sale transaction involving at least one new drug rescue variant.exercisable.
 
 
Employment or Severance Agreements
 
We currently have employment agreements with Mr. Singh and Dr. Snodgrass.

Singh Agreement
 
We entered into an employment agreement with Mr. Singh on April 28, 2010. Under the agreement, as amended on May 9, 2011,June 22, 2016, Mr. Singh’s base salary iswas increased from $347,500 per year.  However, Mr. Singh has not received his full base salary in any fiscal year since he entered into his agreement in 2010.  In each of our fiscal years ended March 31, 2014, 2013, 2012 and 2011, Mr. Singh voluntarily reduced his base salary to $250,000, $201,646, 292,268 and $168,274, respectively, to conserve cash for our operations.$395,000 per year, effective June 16, 2016. Although under his agreement, Mr. Singh is eligible to receive an annual incentive cash bonus of up to 50% of his base salary, he has voluntarily foregone any such cash bonus payment to conserve cash for our operations.operations during our fiscal years 2012 through 2015. Mr. Singh received a cash bonus in the amount of $173,750 in July 2016, for his service during fiscal 2016. Payment of his annual incentive bonus is at the discretion of our boardBoard of directors.Directors. In the event we terminate Mr. Singh’s employment without cause, he is entitled to receive severance in an amount equal to:
 
●twelve months of his then-current base salary payable in the form of salary continuation;
●
twelve months of his then-current base salary payable in the form of salary continuation;
 
●a pro-rated portion of the incentive cash bonus that the board of directors determines in good faith that Mr. Singh earned prior to his termination; and
●
a pro-rated portion of the incentive cash bonus that the Board of Directors determines in good faith that Mr. Singh earned prior to his termination; and
 
●
●
such amounts required to reimburse him for Consolidated Omnibus Budget Reconciliation Act (COBRA) payments for continuation of his medical health benefits for such twelve-month period.
 
In addition, in the event Mr. Singh terminates his employment with good reason following a change of control, he is entitled to twelve months of his then-current base salary payable in the form of salary continuation.
 
In December 2006, we accepted a full-recourse promissory note in the amount of $103,411 from Mr. Singh in payment of the exercise price for options and warrants to purchase an aggregate of 126,389 shares of our common stock. On May 11, 2011, in connection with the Merger, the $128,168 outstanding balance of the principal and accrued interest on this note was cancelled in accordance with Mr. Singh's employment agreement and was treated as additional compensation. In accordance with his employment agreement, Mr. Singh is entitled to an income tax gross-up payment on the compensation related to the note cancellation. At March 31, 2014 and 2013, we had accrued $101,936 as an estimate of the gross-up amount.  However, at Mr. Singh’s suggestion, we have not yet paid such amount to Mr. Singh to conserve capital for our operations.  See Notes 10 and 15 to our audited consolidated financial statements which are included elsewhere in this Annual Report on Form 10-K.

Snodgrass Agreement
 
We entered into an employment agreement with Dr. Snodgrass on April 28, 2010.  AsUnder the agreement, as amended on May 9, 2011, under the agreement,June 22, 2016, Dr. Snodgrass’s base salary iswas increased from $305,000 per year.  However, in our fiscal years ended March 31, 2014, 2013, 2012 and 2011, Dr. Snodgrass voluntarily reducedyear to $350,000 per year, effective June 16, 2016. Although under his annual salary to $250,000, $203,086, $249,266 and $141,486, respectively, to conserve cash for our operations. agreement, Dr. Snodgrass is eligible to receive an annual incentive cash bonus of up to 50% of his base salary.salary, he has foregone any such cash bonus payment to conserve cash for our operations during our fiscal years 2012 through 2015. Dr. Snodgrass received a cash bonus in the amount of $152,500 in July 2016, for his service during fiscal 2016.. Payment of his annual incentive bonus is at the discretion of the boardBoard of directors.Directors. In the event we terminate Dr. Snodgrass’s employment without cause, he is entitled to receive severance in an amount equal to

●twelve months of his then-current base salary payable in the form of salary continuation;
●a pro-rated portion of the incentive bonus that the board of directors determines in good faith that Dr. Snodgrass earned prior to his termination; and
●such amounts required to reimburse him for COBRA payments for continuation of his medical health benefits for such twelve-month period.
to:
 
●
twelve months of his then-current base salary payable in the form of salary continuation;
-83-
●
a pro-rated portion of the incentive bonus that the Board of Directors determines in good faith that Dr. Snodgrass earned prior to his termination; and
Table
●
such amounts required to reimburse him for COBRA payments for continuation of Contentshis medical health benefits for such twelve-month period.
 
In addition, in the event Dr. Snodgrass terminates his employment with good reason, he is entitled to twelve months of his then-current base salary payable in the form of salary continuation.
 
Change of Control Provisions
 
Pursuant to each of their respective employment agreements, Dr. Snodgrass is entitled to severance if he terminates his employment at any time for “good reason” (as defined below), while Mr. Singh is entitled to severance if he terminates his employment for good reason after a change of control. Under their respective agreements, “good reason” means any of the following events, if the event is effectedaffected by us without the executive’s consent (subject to our right to cure):
 
●
a material reduction in the executive’s responsibility; or

a material reduction in the executive’s responsibility; or
●a material reduction in the executive’s base salary following the Merger except for reductions that are comparable to reductions generally applicable to similarly situated executives of VistaGen.
● 
a material reduction in the executive’s base salary except for reductions that are comparable to reductions generally applicable to similarly situated executives of VistaGen.
 
Furthermore, pursuant to their respective employment agreements and their stock option award agreements, as amended, in the event we terminate the executive without cause within twelve months of a change of control, the executive’s remaining unvested option shares become fully vested and exercisable. Upon a change of control in which the successor corporation does not assume the executive’s stock options, the stock options granted to the executive become fully vested and exercisable.

Pursuant to their respective employment agreements, a change of control occurs when: (i) any “person” as such term is used in Sections 13(d) and 14(d) of the Exchange Act (other than VistaGen, a subsidiary, an affiliate, or a VistaGen employee benefit plan, including any trustee of such plan acting as trustee) becoming the “beneficial owner” (as defined in Rule 13d-3 under the Exchange), directly or indirectly, of securities of VistaGen representing 50% or more of the combined voting power of VistaGen’s then outstanding securities; (ii) a sale of substantially all of VistaGen’s assets; or (iii) any merger or reorganization of VistaGen whether or not another entity is the survivor, pursuant to which the holders of all the shares of capital stock of VistaGen outstanding prior to the transaction hold, as a group, fewer than 50% of the shares of capital stock of VistaGen outstanding after the transaction.
In the event that, following termination of employment, amounts are payable to an executive pursuant to his employment agreement, the executive’s eligibility for severance is conditioned on executive having first signed a release agreement.

Pursuant to their respective employment agreements, the estimated amount that could be paid by us assuming that a change of control occurred on the last business day of our current fiscal year, is $347,500$395,000 for Mr. Singh and $305,000$350,000 for Dr. Snodgrass, excluding the imputed value of accelerated vesting of incentive stock options, if any.
 
DIRECTOR COMPENSATION

We do not have a formal compensation plan for our non-employee directors.  Our informal plan prescribes that the Chairman of our board of directors, who is an independent director, has, since October 1, 2011, earned $2,500 per quarter.  Our other independent directors have earned $2,000 per quarter since that date.  Beginning in July 2011, the Chairman of our Audit Committee and each independent director who serves as a member of our Audit Committee have also earned $1,000 quarterly.  In addition, from time to time, our independent directors may receive non-qualified stock option, warrants or other equity-based awards.  We did not pay our independent directors cash compensation during our fiscal year ended March 31, 2014.
The following table sets forth a summary of the compensation earned by our non-employee directors in our fiscal year ended March 31, 2014.
  
Fees Earned or
Paid in Cash (1)
 
Option and Warrant
Awards (2)
 
Other
Compensation
 Total
Name ($) ($) ($) ($)
  
Jon S. Saxe (3)
  14,000   40,683
 (5)
  -   54,683 
Brian J. Underdown, Ph.D. (4)
  12,000   32,267
 (5)
  -   44,267 
(1)The amounts shown represent fees earned for service on our Board of Directors and Audit Committee during the fiscal year which we have accrued but have not paid to the director at March 31, 2014.
(2)
The amounts in this column represent the aggregate grant date fair value of warrants to purchase restricted shares of our common stock awarded to Mr. Saxe and Dr. Underdown or the effect of modifications to prior grants of options or warrants occurring during the fiscal year ended March 31, 2014, computed in accordance with the Financial Accounting Standards Board’s Accounting Standards Codification Topic 718, Compensation – Stock Compensation ("ASC 718”). The amounts in this column do not represent any cash payment actually received by Mr. Saxe or Dr. Underdown with respect to any of such options or warrants to purchase restricted shares of our common stock awarded to them or modified during the fiscal year ended March 31, 2014.  To date, Mr. Saxe and Dr. Underdown have not exercised such options or warrants to purchase common stock, and there can be no assurance that either of them will ever realize any of the ASC 718 grant date fair value amounts presented in the Option and Warrant Awards column.
(3)Mr. Saxe has served as the Chairman of our Board of Directors and the Chairman of our Audit Committee throughout our fiscal year ended March 31, 2014.  At March 31, 2014, Mr. Saxe holds: (i) 37,492 restricted shares of our common stock; (ii) options to purchase 264,750 restricted shares of our common stock, of which options to purchase 251,208 restricted shares are vested; and (iii) warrants to purchase 265,000 restricted shares of our common stock, of which 125,000 are exercisable.
(4)Dr. Underdown has served as a member of our Board of Directors and a member of our Audit Committee throughout our fiscal year ended March 31, 2014.  At March 31, 2014, Dr. Underdown holds: (i) options to purchase 185,000 restricted shares of our common stock, of which options to purchase 171,458 restricted shares are vested; and (ii) warrants to purchase 250,000 restricted shares of our common stock, of which 125,000 are exercisable.
(5)
The table below provides information regarding the warrant awards and option and warrant modifications we granted to Mr. Saxe and Dr. Underdown during fiscal 2014 and the assumptions used in the Black Scholes Option Pricing Model to determine the grant date fair values of the respective awards and modifications.

  Warrant                
  Grant  Option Modification  Warrant Modification    
  3/19/2014  12/20/2013  12/20/2013  Total 
                   
Saxe $18,928     $15,291     $6,464  $40,683 
Underdown  14,560      11,243      6,464   32,267 
  $33,488     $26,534     $12,928  $72,950 
                       
      Before  After  Before  After     
                       
Market price per share $0.46  $0.40  $0.40  $0.40  $0.40     
Exercise price per share $0.50  $1.13 to $2.10  $0.50  $3.00  $0.50     
Risk-free interest rate  1.750% 1.24% to 2.40%  1.24% to 2.40%   4.25%  4.25%    
Volatility  80.57% 78.9% to 97.62%  78.9% to 97.62%   76.10%  76.10%    
Expected term (years)  5.00  4.08 to 7.35  4.08 to 7.35   2.15   2.15     
Dividend rate  0%  0%  0%  0%  0%    
                         
Fair value per share $0.29  $0.10 to $0.27  $0.21 to $0.32  $0.02  $0.14     
                         
Aggregate shares  115,000   422,500   422,500   100,000   100,000     
Changes to Director Compensation for Fiscal Year Ending March 31, 2015
We have adopted a new director compensation policy for our independent directors, as independence is defined by the NasdaqNASDAQ Stock Market, which became effective for our fiscal year beginning April 1, 2014. Under the new independent director compensation policy, our independent directors willare entitled to receive a $25,000 annual retainer, payable in cash retainer.or shares of common stock. For service on a committee of the board, an independent director willis entitled to receive an additional annual cash retainer as follows: $7,500 for audit and compensation committee members and $5,000 for nominating and governance committee members. In lieu of the annual cash retainer for committee participation, each independent director serving as a chair of a board committee shall receive the following annual cash retainer: $15,000 for audit and compensation committee chairs and $10,000 for the nominating and governance committee chairs. EachWe paid our independent directors cash compensation consistent with the policy noted above during our fiscal year ended March 31, 2017. To conserve cash for our operations, we had accrued, but had not paid, our independent directors any cash compensation during the period January 1, 2012 through March 31, 2016. We paid all such unpaid amounts, aggregating $278,500, during Fiscal 2017.
Under our director compensation policy, as updated in March 2016, each independent director will also receive an annual grant of an option or warrant to purchase 25,000a minimum of 12,000 shares of our common stock, which will vest monthly over a one-year period from the date of grant. The first grantIn June 2016, we granted options to purchase 25,000 shares of our common stock at $3.49 per share to each of our three independent directors. In November 2016, we granted options under this policy will be made effective as soon as practicable following April 1, 2014. Futureto purchase an additional 25,000 shares of our common stock at $3.80 to each of the three independent directors. We expect to make future grants are expected to be made on the same date as our annual meeting.meeting, or as soon thereafter as reasonably practicable. Prorated option grants will be made for partial years of service.
The following table sets forth a summary of the compensation earned by our non-employee directors in our fiscal year ended March 31, 2017.
 
 
Fees Earned or
Paid in Cash (1)
 
 
Option
Awards (2)
 
 
 
 
 
Other
Compensation
 
 
Total
 
Name
 
($)
 
 
($)
 
 
 
 
 
($)
 
 
($)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Jon S. Saxe (3)
 $52,500 
 $159,196 
(6)
 $- 
 $211,696 
Brian J. Underdown, Ph.D. (4)
 $57,500 
 $159,196 
(6)
 $- 
 $216,696 
Jerry B. Gin, Ph.D., M.B.A (5)
 $32,500 
 $159,196 
(6)
 $- 
 $191,696 
(1)The amounts shown represent fees earned for service on our Board of Directors, and Audit Committee, Compensation Committee and Corporate Governance and Nominating Committee during the fiscal year ended March 31, 2017, which amounts were paid in full during the fiscal year then ended. Fees paid during Fiscal 2017 for prior years’ Board and committee service, $136,500 to Mr. Saxe, and $142,000 to Dr. Underdown, are excluded from the amounts shown as they had been reported, as appropriate, in the year in which they were accrued.
(2)
The amounts in the Option Awards column represent the aggregate grant date fair value of options to purchase shares of our common stock awarded to Mr. Saxe, Dr. Underdown and Dr. Gin during our fiscal year ended March 31, 2017, computed in accordance with the Financial Accounting Standards Board’s Accounting Standards Codification Topic 718, Compensation – Stock Compensation (ASC 718). The amounts in this column do not represent any cash payments actually received by Mr. Saxe, Dr. Underdown or Dr. Gin with respect to any of such warrants or options to purchase shares of our common stock awarded to them during the fiscal year ended March 31, 2017.  To date, Mr. Saxe, Dr. Underdown and Dr. Gin have not exercised such warrants or options to purchase common stock, and there can be no assurance that any of them will ever realize any of the ASC 718 grant date fair value amounts presented in the Option and Warrant Awards column.
(3)Mr. Saxe has served as the Chairman of our Board of Directors, the Chairman of our Audit Committee and a member of our Compensation Committee and Corporate Governance and Nominating Committee throughout our fiscal year ended March 31, 2017.  At March 31, 2017, Mr. Saxe holds: (i) 1,875 restricted shares of our common stock; (ii) options to purchase 61,875 registered shares of our common stock, of which options to purchase 14,652 shares are exercisable; and (iii) warrants to purchase 83,250 restricted shares of our common stock, all of which are exercisable.
(4)Dr. Underdown has served as a member of our Board of Directors, as the Chairman of our Compensation Committee and Corporate Governance and Nominating Committee and as a member of our Audit Committee throughout our fiscal year ended March 31, 2017.  At March 31, 2017, Dr. Underdown holds: (i) options to purchase 59,250 registered shares of our common stock, of which options to purchase 12,027 shares are exercisable; and (ii) warrants to purchase 82,500 restricted shares of our common stock, all of which are exercisable.
(5)
Dr. Gin was appointed to our Board of Directors and as a member of our Audit Committee on March 29, 2016 and served in those capacities throughout our fiscal year ended March 31, 2017. Effective on April 1, 2017, Dr. Gin was also appointed as a member of the Compensation Committee and assumed chairmanship of the Corporate Governance and Nominating Committee.  At March 31, 2017, Dr. Gin holds options to purchase 75,000 registered shares of our common stock of which 27,777 are exercisable.
 
(6)
The table below provides information regarding the option awards we granted to Mr. Saxe, Dr. Underdown and Dr. Gin during Fiscal 2017 and the assumptions used in the Black Scholes Option Pricing Model to determine the grant date fair values of the respective awards and modifications.
 
 
Option Grant
 
 
Option Grant
 
 
 
 
 
 
6/19/2016
 
 
11/9/2016
 
 
Total
 
Saxe
 $76,803 
 $82,393 
 $159,196 
Underdown
  76,803 
  82,393 
  159,196 
Gin
  76,803 
  82,393 
  159,196 
 
 $230,409 
 $247,179 
 $477,588 
 
    
    
    
Market price per share
 $3.49 
 $3.80 
    
Exercise price per share
 $3.49 
 $3.80 
    
Risk-free interest rate
  1.62%
  2.07%
    
Volatility
  96.16%
  91.65%
    
Expected term (years)
  10.00 
  10.00 
    
Dividend rate
  0%
  0%
    
 
    
    
    
Fair value per share
 $3.07 
 $3.30 
    
Aggregate shares
  75,000 
  75,000 
    
Mr. Saxe, Dr. Underdown and Dr. Gin were each granted options to purchase 25,000 shares of our common stock on both of the dates indicated.
Director Independence
 
Our securities are not currently listed on a national securities exchange or on any inter-dealer quotation systemThe NASDAQ Capital Market, which has a requirement that directors be independent, or that a majority of our directors be independent.  However,Accordingly, we evaluate independence by the standards for director independence established by applicable laws, rules, and listing standards, including, without limitation, the standards for independent directors established by the SEC the New York Stock Exchange, Inc. and the Nasdaq NationalNASDAQ Stock Market.
  
Subject to some exceptions, these standards generally provide that a director will not be independent if (a) the director is, or in the past three years has been, an employee of ours; (b) a member of the director’s immediate family is, or in the past three years has been, an executive officer of ours; (c) the director or a member of the director’s immediate family has received more than $120,000 per year in direct compensation from us other than for service as a director (or for a family member, as a non-executive employee); (d) the director or a member of the director’s immediate family is, or in the past three years has been, employed in a professional capacity by our independent public accountants, or has worked for such firm in any capacity on our audit; (e) the director or a member of the director’s immediate family is, or in the past three years has been, employed as an executive officer of a company where one of our executive officers serves on the compensation committee; or (f) the director or a member of the director’s immediate family is an executive officer of a company that makes payments to, or receives payments from, us in an amount which, in any twelve-month period during the past three years, exceeds the greater of $1,000,000 or two percent of that other company’s consolidated gross revenues.
 
Our boardBoard of directorsDirectors has undertaken a review of its composition, the composition of its committees and the independence of each director.  Based upon information requested from and provided by each director concerning his background, employment and affiliations, including family relationships, our boardBoard of directorsDirectors has determined that Mr. Saxe, Dr. Underdown and Dr. UnderdownGin are “independent” as that term is defined under the applicable rules and regulations of the SEC. Our boardBoard of directorsDirectors has also determined that Mr. Saxe, Dr. Underdown and Dr. Underdown,Gin, who together comprise our audit committee, compensation committee, and corporate governance and nominating committee, satisfy the independence standards for those committees established by applicable SEC rules. In making these determinations, our boardBoard of directorsDirectors considered the current and prior relationships that each non-employee director has with our companythe Company and all other facts and circumstances that our boardBoard of directorsDirectors deemed relevant.

Item 12.12.  Security Ownership of CertainCertain Beneficial Owners and Management and Related Stockholder Matters.

The following table sets forth certain information with respect to the beneficial ownership of our common stock as of June 19, 2014 for27, 2017 for:
 
·each stockholder known by us to be the beneficial owner of more than 5% of our common stock;
●
·each of our directors;
each stockholder known by us to be the beneficial owner of more than 5% of our common stock;
·each of our named executive officers; and
·all of our directors and executive officers as a group.  

-86-
●
each of our directors;
Table
●
each of Contentsour named executive officers; and
●
We have determined beneficial ownership in accordance with the rules of the SEC. Except as indicated by the footnotes below, we believe, based on the information furnished to us, that the persons and entities named in the table below have sole voting and investment power with respect to all of the capital stock that they beneficially own, subject to applicable community property laws.our directors and executive officers as a group.  
 
Applicable percentage ownership is based on 25,451,8779,301,472 shares of capitalcommon stock outstanding at June 19, 2014.27, 2017. In computing the number of shares of common stock beneficially owned by a person, we deemed to be outstanding all shares of common stock subject to options or warrants and all shares of preferred stock held by that person or entity that are currently exercisable or exchangeable or that will become exercisable or exchangeable within 60 days of June 19, 2014 and all shares of common stock issuable pursuant to promissory notes and related accrued interest convertible into shares of common stock at June 19, 2014.27, 2017.  In computing the percentage of shares beneficially owned, we deemed to be outstanding all shares of common stock subject to options or warrants and all shares of preferred stock held by that person or entity that are currently exercisable or exchangeable or that will become exercisable or exchangeable within 60 days of June 19, 2014 and all shares of common stock issuable pursuant to promissory notes and related accrued interest convertible into shares of common stock at June 19, 2014.27, 2017.  Unless otherwise noted below, the address of each beneficial owner listed in the table is c/o VistaGen Therapeutics, Inc., 343 Allerton Avenue, South San Francisco, California 94080.
 
Name and address of beneficial owner Number of shares beneficially owned Percent of shares beneficially owned 
Executive officers and directors      
Shawn K. Singh, JD (1)
  3,476,575 12.19%
H. Ralph Snodgrass, PhD (2)
  2,467,079 9.23%
Jerrold D. Dotson (3)
  309,410 1.20%
Jon S. Saxe (4)
  473,116 1.83%
Brian J. Underdown, PhD (5)
  363,124 1.41%
       
5% Stockholders      
Cato BioVentures (6)
  4,687,165 17.47%
Platinum Long Term Growth Fund VII (7)
  1,540,000 6.05%
Morrison & Foerster LLP (8)
  2,199,567 8.01%
David Young (9)
  2,100,498 7.88%
University Health Network (10)
  1,748,188 6.71%
All executive officers and directors as a group (5 persons) (11)
  7,089,304 23.95%
Name and address of beneficial owner
 
Number of shares beneficially owned
 
 
Percent
of shares beneficially
owned (1)
 
Executive officers and directors:
 
 
 
 
 
 
Shawn K. Singh (2)
  669,745 
  6.73%
H. Ralph Snodgrass, Ph.D (3)
  442,932 
  4.57%
Mark A. Smith, M.D., Ph.D. (4)
  72,499 
  * 
Jerrold D. Dotson (5)
  206,151 
 2.17%
Jon S. Saxe (6)
  110,542 
  1.17%
Brian J. Underdown, Ph.D (7)
  105,291 
  1.12%
Jerry B. Gin, Ph.D, MBA (8)
  138,541 
  1.48%
 
    
    
5% Stockholders:
    
    
Platinum Long Term Growth Fund VII/Montsant Partners, LLC (9)
  4,819,101 
  35.99%
Empery Asset Management, LP (10)
  717,667 
  7.72%
Cato BioVentures (11)
  607,294 
  6.53%
Sphera Global Healthcare Master Fund (12)
  544,100 
  5.85%
 
    
    
All executive officers and directors as a group (7 persons) (13)
  1,745,601 
  16.08%
­­­­­­­­­­­­­­­­
____________
*    less than 1%
(1)Based on 9,301,472 shares of common stock issued and outstanding as of June 27, 2017.
(2)   Includes options to purchase 1,688,749165,708 registered shares of common stock exercisable within 60 days of June 27, 2017 and warrants to purchase 477,803 restricted shares of common stock exercisable within 60 days of June 19, 2014;27, 2017.
(3)
Includes options to purchase 72,708 registered shares of common stock exercisable within 60 days of June 27, 2017 and warrants to purchase 1,331,052310,000 restricted shares of common stock exercisable within 60 days of June 16, 2014, and 44,600 restricted shares of common stock upon conversion of a currently convertible promissory note and accrued interest.27, 2017. 
(2)   (4)
Includes options to purchase 412,611 restricted72,499 registered shares of common stock exercisable within 60 days of June 19, 2014 and warrants27, 2017.
(5)Includes options to purchase 850,000 restricted41,051 registered shares of common stock exercisable within 60 days of June 19, 2014.
(3)   Includes options to purchase 109,410 restricted shares of common stock exercisable within 60 days of June 19, 2014,27, 2017, including options to purchase 12,718676 shares of common stock held by Mr. Dotson’s wife, and warrants to purchase 200,00015,000 restricted shares of common stock exercisable within 60 days of June 19, 2014.27, 2017.
  
(4)(6)   Includes options to purchase 240,62425,416 registered shares of common stock exercisable within 60 days of June 27, 2017 and warrants to purchase 83,250 restricted shares of common stock exercisable within 60 days of June 19, 201427, 2017.
(7)   Includes options to purchase 22,791 registered shares of common stock exercisable within 60 days of June 27, 2017 and warrants to purchase 195,00082,500 restricted shares of common stock exercisable within 60 days of June 19, 2014.27, 2017.

(5)   
(8)Includes 50,000 restricted shares of common stock held by Dr. Gin’s wife and options to purchase 175,624 restricted38,541 registered shares of common stock exercisable within 60 days of June 19, 2014 and warrants to purchase 187,500 restricted shares of common stock exercisable within 60 days of June 19, 2014.27, 2017.
(6)   Based upon information contained in Form 4 filed on January 9, 2012.  Includes currently exercisable warrants to purchase 1,376,329 shares of restricted common stock.  Dr. Allen E. Cato, Ph.D., M.D. is deemed to have voting and investment authority over the shares held by Cato Holding Company.  The primary business address of Cato BioVentures is 4364 South Alston Avenue, Durham, North Carolina 27713.
(7)(9)   
Based upon information contained in Schedule 13G/A filed on February 14, 2014, we believe that18, 2015 by Platinum has transferred or assigned 15% of its holdings of our common stockLong Term Growth Fund VII (PLTG) and other securities as of December 31, 2013adjusted to another party.  The figures reported ingive effect to the table abovetransactions consummated between PLTG, Montsant Partners, LLC (Montsant), a PLTG affiliate, and in this note reflect the impact of Platinum’s transfer or assignmentPlatinum Partners Value Arbitrage Fund, L.P. (In Official Liquidation) (PPVA), and are adjusted for securities sold to Platinum in transactions on April 1, 2014, May 14, 2014 andus through June 18, 2014, including an aggregate of 750,000 restricted shares of our common stock, currently exercisable warrants to purchase 750,000 shares of our restricted common stock (subject to beneficial ownership restrictions noted below); and three currently convertible promissory notes (subject to beneficial ownership restrictions noted below). 27, 2017.
The number of beneficially owned shares reported at June 19, 2014 includes 1,540,000 restricted shares of common stock owned by Platinum.
The reported number of shares beneficially owned excludes 12,750,000 restricted shares of common stock and a warrant to purchase 6,375,000637,500 restricted shares of common stock that may currently be acquired by PlatinumMontsant upon fixed exchange of 425,000 restricted shares of our Series A Preferred Stock.Stock (“Series A Preferred”).  Pursuant to the October 11, 2012 Note Exchange and Purchase Agreement by and between us and Platinum, therePLTG. There is, however, a limitation on exchange such that the number of shares of our common stock that may be acquired by PlatinumPLTG or its affiliates upon exchange of the Series A Preferred Stock is limited to the extent necessary to ensure that, following such exchange, the total number of shares of our common stock then beneficially owned by PlatinumPLTG or its affiliates does not exceed 9.99% of the total number of our then issued and outstanding shares of common stock without providing us with 61 days’ prior notice thereof.
 
Further, the reported number of shares beneficially owned by Montsant also excludes an aggregateincludes 1,131,669 shares of 10,942,464 restrictedcommon stock pursuant to its ownership of 1,131,669 shares of our CommonSeries B 10% Convertible Preferred Stock that may be acquired by Platinum upon (i) conversion(“Series B Preferred”), immediately convertible into a like number of various Senior Secured Convertible Promissory Notes in the aggregate face amount of $3,522,577 and a Subordinate Convertible Promissory Note in the face amount of $250,000 (together, the “Convertible Notes”) plus accrued but unpaid interest or (ii) exercise of various common stock purchase warrants to purchase an aggregate of 3,494,190 restricted shares of our common stock.  Pursuant to the terms of the respectiveCertificate of Designation of the Relative Rights and Preferences of the Series B 10% Convertible Notes and common stock purchase warrant agreements,Preferred Stock, there is, however, a limitation on conversion of the Convertible Notes and exercise of the warrantsSeries B Preferred such that the number of shares of common stock that PlatinumMontsant may beneficially acquire upon such conversion or exercise is limited to the extent necessary to ensure that, following such conversion, the total number of shares of common stock then beneficially owned by PLTG or Montsant does not exceed 9.99% of the total number of then issued and outstanding shares of our common stock without providing us with 61 days’ prior notice thereof.

Further, the reported number of shares beneficially owned by Montsant also includes 2,318,012 shares of common stock pursuant to its ownership of 2,318,012 shares of our Series C Convertible Preferred Stock (“Series C Preferred”), immediately convertible on a fixed 1:1 conversion basis into a like number of shares of our restricted common stock.  Pursuant to the terms of the Certificate of Designation of the Relative Rights and Preferences of the Series C Convertible Preferred Stock, there is, however, a limitation on conversion of the Series C Preferred such that the number of shares of common stock that Montsant may beneficially acquire upon such conversion is limited to the extent necessary to ensure that, following such conversion, the total number of shares of common stock then beneficially owned by PLTG or Montsant does not exceed 9.99% of the total number of then issued and outstanding shares of our common stock without providing us with 61 days’ prior notice thereof. Excluding the shares otherwise subject to the beneficial ownership restrictions noted above, PLTG, Montsant and PPVA may be deemed to be the beneficial owner of 731,920 shares or 7.87% of our common stock. 
In addition to the beneficial ownership blockers described above, on April 24, 2017, PPVA, Montsant and BAM Administrative Services LLC, as administrative and collateral agent for certain lenders to PPVA and Montsant (BAM), executed a Lock-Up Agreement, pursuant to which PPVA, Montsant and BAM agreed to not enter into any transaction involving the Company's securities during the term of the agreement, which ends on October 24, 2017.
Matthew Wright, Operating Manager of RHSW (Cayman) Ltd., and/or Moshe Feuer, Chief Executive Officer and authorized signatory of BAM may, subject to certain restrictions, be deemed to have voting and investment control over the shares held by PPVA, PLTG and/or Montsant. The address for PLTG, PPVA and Montsant is c/o BAM Administrative Services LLC, 105 Madison Avenue, 19thFloor, New York, NY 10016.
(10)
Based upon information contained in Form 13G/A filed on January 27, 2017.  The number of shares reported excludes immediately exercisable warrants to purchase 761,267 registered shares of our common stock, which warrants are subject to a limitation on exercise such that the number of shares of common stock that Empery Asset Management, LP and its affiliates, Empery Asset Master, Ltd.; Empery Tax Efficient, LP; and Empery Tax Efficient II, LP (together,Empery) may beneficially acquire upon such exercise is limited to the extent necessary to ensure that, following such exercise, the total number of shares of common stock then beneficially owned by PlatinumEmpery does not exceed 4.99% or 9.99% of the total number of issued and outstanding shares of our common stock without providing us with 61 days’ prior notice thereof.
Including the shares otherwise excluded due to the beneficial ownership restrictions noted above, Platinum beneficially owns 31,857,464 shares or 57.12% of our common stock.  The primary business address of Platinum Long Term Growth Fund VIIEmpery Asset Management, LP and its affiliates is 152 West 57th Street, 54th Floor,1 Rockefeller Plaza, Suite 1205, New York, New York 10019. Mark Nordlicht has10020.  Messrs. Ryan M. Lane and Martin D. Hoe have voting and investment control over the shares held by Empery. Platinum.
(11)
Based upon information contained in Form 4 filed on January 9, 2012, as updated to give effect to transactions through June 27, 2017 as recorded on our books. Lynda Sutton has voting and investment authority over the shares held by Cato Holding Company, dba Cato BioVentures.  The primary business address of Cato BioVentures is 4364 South Alston Avenue, Durham, North Carolina 27713. 
  
(8)(12)Includes currently
Based upon information contained in Form 13F filed on May 11, 2017. The number of shares reported excludes immediately exercisable warrants to purchase 1,999,567 restricted294,100 registered shares of our common stock, which warrants are subject to a limitation on exercise such that the number of shares of common stock.stock that Sphera Global Healthcare Master Fund and HFR HE Sphera Global Healthcare Mater Trust (together,Sphera) may beneficially acquire upon such exercise is limited to the extent necessary to ensure that, following such exercise, the total number of shares of common stock then beneficially owned by Sphera does not exceed 4.99% of the total number of issued and outstanding shares of our common stock without providing us with 61 days’ prior notice thereof.  The primary business address of Morrison & FoersterSphera Global Healthcare Master Fund and its affiliates is 555 Marketc/o Sphera Funds Management Ltd., 21 Ha’arba’ah Street, San Francisco, California 94105.Tel Aviv 64739, Israel. Moshe Arkin and Sphera Funds Management Ltd. have joint voting and investment control over the shares held by Sphera.
  
(9)(13)Includes currently exercisable warrants to purchase 658,728 restricted shares of common stock and 537,556 restricted shares of common stock upon conversion of currently convertible promissory notes and accrued interest.  Mr. Young’s primary business address is c/o Coldwell Banker Residential Brokerage, 580 El Camino Real, San Carlos, California 94070.
(10)   Includes currently exercisable warrants to purchase 610,133 restricted shares of common stock.  The primary business address of University Health Network is 101 College Street, Suite 150, Toronto, Ontario Canada M5G 1L7.

(11)   Includes options to purchase an aggregate of 2,627,018438,714 shares of common stock exercisable within 60 days of June 27, 2017 and warrants to purchase an aggregate of 1,118,553 restricted shares of common stock exercisable within 60 days of June 19, 2014,    warrants to purchase an aggregate of 2,763,552 restricted shares of common stock exercisable within 60 days of June 19, 2014 and 44,600 restricted shares of common stock upon conversion of a currently convertible promissory note and accrued interest.27, 2017.
  
Securities Authorized for Issuance Under Equity Compensation Plans

Equity Grants
 
As of March 31, 2014,2017, options to purchase a total of 4,249,271 restricted1,659,324 registered shares of our common stock arewere outstanding at a weighted average exercise price of $0.50$4.76 per share, of which 3,655,061351,532 options arewere vested and exercisable at a weighted average exercise price of $0.50$8.27 per share and 593,867 are1,307,792 were unvested and not exercisable at a weighted average exercise price of $0.51$3.81 per share. These options were issued under our 20082016 Plan and our 1999 Plan, each as described below. At March 31, 2014,2017, an additional 735,2001,184,911 shares remainremained available for future equity grants under our 20082016 Plan.

 
 
Plan category
 
Number of securities
to be issued upon
exercise of
outstanding options,
warrants and rights
(a)
  
Weighted-average
exercise
price of
outstanding
options, warrants
and rights
(b)
  
Number of securities
remaining available for future issuance under equity compensation plans (excluding securities
reflected in column (a))
(c)
 
Equity compensation plans approved by security holders  3,964,800  $0.50   735,200 
Equity compensation plans not approved by security holders     284,471   0.59               -- 
Total  4,249,271  $0.50   735,200 
 
2008
Plan category
 Number of securities too be issued upon exercise of outstanding options, warrants and rights (a) 
 Weighted-average exercise price of outstanding options, warrants and rights (b) 
 Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) 
Equity compensation plans approved by security holders
  1,650,089 
 $4.72 
  1,184,911 
Equity compensation plans not approved by security holders
  9,235 
 $10.95 
  -- 
Total
  1,659,324 
 $4.76 
  1,184,911 
Amended and Restated 2016 Stock Incentive Plan
 
ShareholdersOur Board unanimously approved the Company’s Amended and Restated 2016 Equity Incentive Plan (2016 Plan), formerly titled the 2008 Equity Incentive Plan, on July 26, 2016. Our stockholders approved the 2016 Plan on September 26, 2016. Stockholders of VistaGen California adopted ourthe 2008 Plan on December 19, 2008 and we assumed the plan in connection with the Merger (as defined in Item 7 below).  TheMerger.  
In August 2015, our stockholders approved an amendment to the 2008 Plan to increase the number of shares of our common stock authorized for issuance to thereunder from 250,000 to 1.0 million shares. Board- and stockholder-approved amendments to the 2016 Plan included increasing the number of shares of our common stock authorized for issuance from 1.0 million to 3.0 million, increasing the maximum number of shares of common stock that may be granted pursuantto a Grantee (as such term is defined in the 2016 Plan) in any calendar year from 125,000 to 300,000 shares (350,000 shares if the grant is issued in connection with the commencement of service to the 2008Company), and extending the expiration date of the 2016 Plan is 5,000,000.to July 26, 2026. The 2016 amendments also removed certain provisions that only pertained to the plan before the Company became a publicly traded entity. In all cases, the maximum number of shares of common stock issuable under the 20082016 Plan will be subject to adjustments for stock splits, stock dividends or other similar changes in our common stock or our capital structure. Notwithstanding the foregoing, the maximum number of shares of common stock available for grant of options intended to qualify as “incentive stock options” under the provisions of Section 422 of the Internal Revenue Code of 1986, as amended, (the “Code”), is 5,000,000.3.0 million.

Our 2008Below is a summary of the terms and conditions of the 2016 Plan. Unless otherwise indicated, all capitalized terms have the same meaning as defined in the 2016 Plan. This summary does not purport to be complete, and is qualified, in its entirety, by the specific language of the Amended and Restated 2016 Equity Incentive Plan.
Description of the 2016 Plan
The 2016 Plan provides for the grant of stock options, restricted shares of common stock, stock appreciation rights and dividend equivalent rights, collectively referred to as “awards”“Awards”. Stock options granted under the 20082016 Plan may be either incentive stock options under the provisions of Section 422 of the Code, or non-qualified stock options. We may grant incentive stock options only to employees of VistaGenthe Company or any parent or subsidiary of VistaGen.the Company. Awards other than incentive stock options may be granted to employees, directors and consultants.

Our Board of Directors or theThe Compensation Committee of the Board of Directors, referred to as the “Administrator”“Committee”, administers our 2008the 2016 Plan, including selecting the awardAward recipients, determining the number of shares to be subject to each award,Award, the exercise or purchase price of each awardAward and the vesting and exercise periods of each award.Award.

The exercise price of all incentive stock options granted under our 2008the 2016 Plan must be at least equal to 100% of the fair market value of the shares on the date of grant. If, however, incentive stock options are granted to an employee who owns stock possessing more than 10% of the voting power of all classes of our stock or the stock of any of our subsidiaries, the exercise price of any incentive stock option granted may not be less than 110% of the fair market value on the grant date. The maximum term of incentive stock options granted to employees who own stock possessing more than 10% of the voting power of all classes of our stock or the stock of any of our subsidiaries may not exceed five years. The maximum term of an incentive stock option granted to any other participant may not exceed ten10 years. The AdministratorCommittee determines the term and exercise or purchase price of all other awardsAwards granted under our 2008the 2016 Plan.
 
-89-
Under the 20082016 Plan, incentive stock options may not be sold, pledged, assigned, hypothecated, transferred or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the participant, only by the participant. Other awardsAwards shall be transferable:
 
●
by will and by the laws of descent and distribution; and

●
during the lifetime of the participant, to the extent and in the manner authorized by the AdministratorCommittee by gift or pursuant to a domestic relations order to members of the participant’s immediate family.Immediate Family (as defined in the 2016 Plan).
 
The 20082016 Plan permits the designation of beneficiaries by holders of awards,Awards, including incentive stock options.

In the event of termination of a participant’s service for any reason other than disability or death, such participant may, but only during the period specified in the awardAward agreement of not less than 30 days (generally 90 days) commencing on the date of termination (but in no event later than the expiration date of the term of such awardAward as set forth in the award agreement)Award Agreement), exercise the portion of the participant’s awardGrantee’s Award that was vested at the date of such termination or such other portion of the participant’s awardGrantee’s Award as may be determined by the Administrator.Committee. The participant’s award agreementGrantee’s Award Agreement may provide that upon the termination of the participant’s service for cause, the participant’s right to exercise the awardAward shall terminate concurrently with the termination of the participant’s service. In the event of a participant’s change of status from employee to consultant, an employee’s incentive stock option shall convert automatically into a non-qualified stock option on the day three months and one day following such change in status. To the extent that the participant’s awardGrantee’s Award was unvested at the date of termination, or if the participant does not exercise the vested portion of the participant’s awardGrantee’s Award within the period specified in the award agreementAward Agreement of not less than 30 days commencing on the date of termination, the awardAward shall terminate. If termination was caused by death or disability, any options whichthat have become exercisable prior to the time of termination, will remain exercisable for twelve months from the date of termination (unless a shorter or longer period of time is determined by the Administrator)Committee).
 
Following the date that the exemption from application
-113-
The maximum number of shares with respect to which options and stock appreciation rights may be granted to any participant in any calendar year will be 2,500,000300,000 shares of common stock. In connection with a participant’s commencement of service with us,the Company, a participant may be granted options and stock appreciation rights for up to an additional 500,00050,000 shares that will not count against the foregoing limitation. In addition, following the date that the exemption from application of Section 162(m) of the Code ceases to apply to awards, for awardsAwards of restricted stock and restricted shares of common stock that are intended to be “performance-based compensation” (within the meaning of Section 162(m)) of the Code), the maximum number of shares with respect to which such awardsAwards may be granted to any participant in any calendar year will be 2,500,000300,000 shares of common stock. The limits described in this paragraph are subject to adjustment in the event of any change in our capital structure as described below.

The terms and conditions of awardsAwards are determined by the Administrator,Committee, including the vesting schedule and any forfeiture provisions. Awards under the plan2016 Plan may vest upon the passage of time or upon the attainment of certain performance criteria. Although we do not currently have any awardsAwards outstanding that vest upon the attainment of performance criteria, the AdministratorCommittee may establish criteria based on any one of, or combination of, the following:
 
●
increase in share price;
●
earnings per share;
●
total shareholderstockholder return;
●
operating margin;
●
gross margin;
●
return on equity;
●
return on assets;
●
return on investment;
●
operating income;
●
net operating income;
●
pre-tax profit;
●
cash flow;
●
revenue;
●
expenses;
●
earnings before interest, taxes and depreciation;
●
economic value added; and
●
market share.

-90-

Subject to any required action by our stockholders, the number of shares of common stock covered by outstanding awards,Awards, the number of shares of common stock that have been authorized for issuance under the 20082016 Plan, the exercise or purchase price of each outstanding award,Award, the maximum number of shares of common stock that may be granted subject to awardsAwards to any participant in a calendar year, and the like, shall be proportionally adjusted by the AdministratorCommittee in the event of any increase or decrease in the number of issued shares of common stock resulting from certain changes in our capital structure as described in the 20082016 Plan.

Effective upon the consummation of a Corporate Transaction (as defined below), all outstanding awardsAwards under the 20082016 Plan will terminate unless the acquirer assumes or replaces such awards.Awards. The AdministratorCommittee has the authority, exercisable either in advance of any actual or anticipated Corporate Transaction or Change in Control (as defined below) or at the time of an actual Corporate Transaction or Change in Control and exercisable at the time of the grant of an awardAward under the 20082016 Plan or any time while an awardAward remains outstanding, to provide for the full or partial automatic vesting and exercisability of one or more outstanding unvested awardsAwards under the 20082016 Plan and the release from restrictions on transfer and repurchase or forfeiture rights of such awardsAwards in connection with a Corporate Transaction or Change in Control, on such terms and conditions as the AdministratorCommittee may specify. The AdministratorCommittee also has the authority to condition any such awardAward vesting and exercisability or release from such limitations upon the subsequent termination of the service of the grantee within a specified period following the effective date of the Corporate Transaction or Change in Control. The AdministratorCommittee may provide that any awardsAwards so vested or released from such limitations in connection with a Change in Control, shall remain fully exercisable until the expiration or sooner termination of the award.Award.

Under our 2008the 2016 Plan, a Corporate Transaction is generally defined as:
 
●
an acquisition of securities possessing more than fifty percent (50%) of the total combined voting power of our outstanding securities but excluding any such transaction or series of related transactions that the AdministratorCommittee determines shall not be a Corporate Transaction;
 
●
a reverse merger in which we remain the surviving entity but: (i) the shares of common stock outstanding immediately prior to such merger are converted or exchanged by virtue of the merger into other property, whether in the form of securities, cash or otherwise; or (ii) in which securities possessing more than fifty percent (50%) of the total combined voting power of our outstanding securities are transferred to a person or persons different from those who held such securities immediately prior to such merger;

●
a sale, transfer or other disposition of all or substantially all of the assets of our Corporation;the Company;

●
a merger or consolidation in which our Corporationthe Company is not the surviving entity; or

●
a complete liquidation or dissolution.

Under our 2008the 2016 Plan, a Change in Control is generally defined as: (i) the acquisition of more than 50% of the total combined voting power of our stock by any individual or entity which a majority of our Board of Directors (who have served on our board for at least 12 months) do not recommend our shareholdersstockholders accept; (ii) or a change in the composition of our Board of Directors over a period of 12 months or less.

Unless terminated sooner, our 2008the 2016 Plan will automatically terminate in 2017.2026. Our Board of Directors may at any time amend, suspend or terminate our 2008the 2016 Plan. To the extent necessary to comply with applicable provisions of U.S. federal securities laws, state corporate and securities laws, the Internal Revenue Code, the rules of any applicable stock exchange or national market system, and the rules of any non-U.S. jurisdiction applicable to awardsAwards granted to residents therein, we shallwill obtain shareholderstockholder approval of any such amendment to the 2008 Stock2016 Plan in such a manner and to such a degree as required.

In April 2017, the Committee approved the grant of stock options from the 2016 Plan to all officers, employees and independent members of the Board of Directors to purchase an aggregate of 880,000 shares of our common stock. As of March 31, 2014,June 27, 2017, we have options to purchase an aggregate of 3,964,800 restricted2,517,935 shares of our common stock outstanding under our 2008the 2016 Plan and 317,065 shares available for future grants under the 2016 Plan.

-91-

1999 Stock Incentive Plan
 
VistaGen California’s Board of Directors adopted the 1999 Plan on December 6, 1999.  The 1999 Plan terminated under its own terms in December 2009, and as a result, no awards may currently be granted under the 1999 Plan. However, the options and awards that have been granted pursuant to the 1999 Plan prior to its expiration remain operative.

The 1999 Plan permitted VistaGen California to make grants of incentive stock options, non-qualified stock options and restricted stock awards. VistaGen California initially reserved 450,00022,500 restricted shares of its common stock for the issuance of awards under the 1999 Plan, which number was subject to adjustment in the event of a stock split, stock dividend or other change in capitalization. Prior to the 1999 Plan’s expiration, shares that were forfeited or cancelled from awards under the 1999 Plan were generally available for future awards.

The 1999 Plan could be administered by either VistaGen California’s Board of Directors or a committee designated by its Board of Directors. VistaGen California’s Board of Directors designated its Compensation Committee as the committee with full power and authority to select the participants to whom awards were granted, to make any combination of awards to participants, to accelerate the exercisability or vesting of any award and to determine the specific terms and conditions of each award, subject to the provisions of the 1999 Plan. All directors, executive officers, and certain other key persons (including employees, consultants and advisors) of VistaGen California were eligible to participate in the 1999 Plan.  

The exercise price of incentive stock options awarded under the 1999 Plan could not be less than the fair market value of the common stock on the date of the option grant and could not be less than 110% of the fair market value of the common stock to persons owning stock representing more than 10% of the voting power of all classes of our stock. The exercise price of non-qualified stock options could not be less than 85% of the fair market value of the common stock. The term of each option granted under the 1999 Plan could not exceed ten years (or five years, in the case of an incentive stock option granted to a 10% shareholder)stockholder) from the date of grant. VistaGen California’s Compensation Committee determined at what time or times each option might be exercised (provided that in no event could it exceed ten years from the date of grant) and, subject to the provisions of the 1999 Plan, the period of time, if any, after retirement, death, disability or other termination of employment during which options could be exercised.

The 1999 Plan also permitted the issuance of restricted stock awards.  Restricted stock awards issued by VistaGen California were shares of common stock that vest in accordance with terms and conditions established by VistaGen California’s Compensation Committee. The Compensation Committee could impose conditions to vesting that it determined to be appropriate. Shares of restricted stock that did not vest were subject to our right of repurchase or forfeiture. VistaGen California’s Compensation Committee determined the number of shares of restricted stock granted to any employee. Our 1999 Plan also gave VistaGen California’s Compensation Committee discretion to grant stock awards free of any restrictions.

Unless the Compensation Committee provided otherwise, the 1999 Plan did not generally allow for the transfer of incentive stock options and other awards and only the recipient of an award could exercise an award during his or her lifetime. Non-qualified stock options were transferable only to the extent provided in the award agreement, in a manner consistent with the applicable law, and by will and by the laws of descent and distribution. In the event of a change in control of the Company, as defined in the 1999 Plan, the outstanding options will automatically vest unless our Board of Directors and the Board of Directors of the surviving or acquiring entity make appropriate provisions for the continuation or assumption of any outstanding awards under the 1999 Plan.

As of March 31, 2014,June 27, 2017, we have options outstanding under the 1999 Plan to purchase an aggregate of 284,471 restricted4,658 shares of our common stock.

-92-
stock, the last of which, if not exercised before, expire in March 2018.
 
Item 13.  CertainCertain Relationships and Related Transactions, and Director IndependenceIndependence.

Sales of Securities to Cato Holding Company

Cato Holding Company (CHC), doing business as Cato BioVentures (CBV), the parent of Cato Research Ltd. (CRLCRL)), iswas one of our largest institutional common stockholders at March 31, 2014,2017, holding common stock and warrants to purchaseapproximately 7% of our outstanding common stock. Prior to the May 11, 2011 conversion of certain of VistaGen California’s outstanding promissory notes and the exchange of its preferred stock into shares of common stock in connection with the Merger, CBV held various promissory notes and a majority of VistaGen California’s Series B-1 Preferred Stock. Shawn Singh, our Chief Executive Officer and member of our Board of Directors, served as Managing Principal of CBV and as an officer of CRL from February 2001 until August 2009. In April 2011, CBV loaned us $352,300 under the terms of a Promissory Note (2011 CHC Note).  On October 10, 2012, we agreed withissued to CHC to cancel the 2011 CHC Note and exchange it for a newan unsecured promissory note in the principal amount of $310,400 ($310,443 (the2012 CHC Note) and a five-year warrant to purchase 250,00012,500 restricted shares of ourthe Company’s common stock at a price of $1.50$30.00 per share ((theCHC Warrant).  Additionally, on
Also in October 10, 2012, we issued to CRL: (i) an unsecured promissory note in the initial principal amount of $1,009,000, which iswas payable solely in restricted shares of our common stock and which accruesaccrued interest at the rate of 7.5% per annum, compounded monthly ((theCRL Note), as payment in full for all contract research and development services and regulatory advice rendered to us by CRL to us through December 31, 2012 with respect to the preclinical and clinical development of AV-101, and (ii) a five-year warrant to purchase, at a price of $1.00$20.00 per share, 1,009,00050,450 restricted shares of our common stock.  Total interest expensestock (CRL Warrant). Each of the CRL Note and 2012 CHC Note were scheduled to mature on notes payable to CHC and CRL was $167,900 and $101,700 for the fiscal years ended March 31, 20142016.  In June 2015, the outstanding balance of the 2012 CHC Note, the CRL Note and 2013.all other outstanding amounts owed to CRL for CRO services were converted into 328,571 shares of our Series B Preferred, and the exercise prices of the CHC Warrant and the CRL Warrant were each reduced to $7.00 per share.CHC participated in the February 2016 warrant exchange for common stock, exchanging the CHC Warrant and the CRL Warrant, as adjusted to reflect accrued interest, for an aggregate of 54,894 shares of our unregistered common stock. In May 2016, subsequent to our consummation of the May 2016 Public Offering, all of the shares of Series B Preferred held by CHC were automatically converted into shares of our registered common stock.

Contract Research and Development Agreement with Cato Research Ltd.

During fiscal year 2007, we entered into a contract research organization arrangement with CRL related to the development of AV-101, under which we incurred expenses of $52,500$254,600 and $703,800$52,600 for the fiscal years ended March 31, 20142017 and 2013, respectively, with a substantial portion of the fiscal year 2013 expense reimbursed under the NIH grant.

Note Receivable from Shawn K. Singh, JD and Advances to us by Mr. Singh

Upon the approval of the Board of Directors, in December 2006, VistaGen California accepted a full-recourse promissory note in the amount of $103,400 from Mr. Singh in payment of the exercise price for options and warrants to purchase an aggregate of 126,389 restricted shares of VistaGen California’s common stock. The note accrued interest at a rate of 4.90% per annum and was due and payable no later than the earlier of (i) December 1, 2016, or (ii) ten days prior to our becoming subject to the requirements of the Exchange Act.  On May 11, 2011, in connection with the Merger, the $128,200 outstanding balance of principal and accrued interest on this note was cancelled in accordance with Mr. Singh's employment agreement and recorded as additional compensation. In accordance with his employment agreement, Mr. Singh is also entitled to receive an income tax gross-up on the compensation related to the note cancellation.  At March 31, 2014 and 2013, we had accrued $101,900 as an estimate of the gross-up amount payable to Mr. Singh, but we had not yet paid it to Mr. Singh.
Between September and December 2013, Mr. Singh provided short-term cash advances aggregating $64,000 to meet our short-term working capital requirements. In lieu of cash repayment of the advances, in December 2013, Mr. Singh elected to invest $50,000 of the balance due him in the 2013 Unit Private Placement.  At March 31, 2014, we have partially repaid Mr. Singh the remaining balance of the advances.respectively.
 
Item 14.  PrincipalPrincipal Accounting Fees and Services.
 
Fees and Services
 
OUM & Co. LLP (OUM) served as our independent registered public accounting firm for the fiscal years ended March 31, 20142017 and March 31, 2013.2016.  Information provided below includes fees for professional services provided to us by OUM for the fiscal years ended March 31, 20142017 and 2013.2016.
 
 
 
Fiscal Years Ended
March 31,
 
 
 
2017
 
 
2016
 
 
 
 
 
 
 
 
Audit fees
 $204,250 
 $197,180 
Audit-related fees
  69,250 
  23,016 
Tax fees
  16,000 
  15,925 
All other fees
  - 
  - 
Total fees
 $289,500 
 $236,121 
  Fiscal Years Ended March 31, 
  2014  2013 
       
Audit fees $172,500  $167,500 
Audit-related fees  4,600   - 
Tax fees  12,643   18,747 
All other fees  -   - 
Total fees $189,743  $186,247 

Audit Fees:

Audit fees include fees billed for the annual audit of the Company’s financial statements and quarterly reviews for the fiscal years ended March 31, 20142017 and 2013,2016, and for services normally provided by OUM in connection with routine statutory and regulatory filings or engagements.

 
Audit-Related Fees:

Audit- relatedAudit-related fees includes fees billed for assurance and related services that are reasonably related to the performance of the annual audit or reviews of the Company’s financial statements and are not reported under “Audit Fees.”  During the fiscal yearsyear ended March 31, 2014 or 2013, no such fees were2017 and 2016, OUM billed by OUM.the Company for services related to consents for the use of its audit opinion in the Company’s filings of Registration Statements on Form S-3 and Form S-1 that included the Company’s audited financial statements for the fiscal year ended March 31, 2016 and 2015.  

Tax Fees:

Tax fees include fees for professional services for tax compliance, tax advice and tax planning for the tax years ended March 31, 20142017 and 2013.2016.

All Other Fees:

All other fees include fees for products and services other than those described above.  During the fiscal years ended March 31, 20142017 and 2013,2016, no such fees were billed by OUM.
 
Pre-Approval of Audit and Non-Audit Services
 
All auditing services and non-audit services provided to us by our independent registered public accounting firm are required to be pre-approved by the Audit Committee.  OUM did not provide any audit-relatednon-audit-related or other services in fiscal 2014Fiscal 2017 and 2013.2016. The pre-approval of non-audit services to be provided by OUM includes making a determination that the provision of the services is compatible with maintaining theOUM’s independence of OUM as an independent registered public accounting firm and would be approved in accordance with SEC rules for maintaining auditor independence. None of the fees outlined above were approved using the “de minimis exception” under SEC rules.

Report of the Audit Committee of the Board of Directors

The Audit Committee has reviewed and discussed with management and OUM & Co. LLP (OUM), our independent registered public accounting firm, the audited consolidated financial statements in the VistaGen Therapeutics, Inc. Annual Report on Form 10-K for the year ended March 31, 2014.2017. The Audit Committee has also discussed with OUM those matters required to be discussed by Public Company Accounting Oversight Board Auditing Standard No. 16.

OUM also provided the Audit Committee with the written disclosures and the letter required by the applicable requirements of the PCAOB regarding the independent auditor’s communication with the Audit Committee concerning independence. The Audit Committee has discussed with the registered public accounting firm their independence from our company.

Based on its discussions with management and the registered public accounting firm, and its review of the representations and information provided by management and the registered public accounting firm, including as set forth above, the Audit Committee recommended to our boardBoard of directorsDirectors that the audited financial statements be included in our Annual Report on Form 10-K for the year ended March 31, 2014.2017.

Respectfully Submitted by:

MEMBERS OF THE AUDIT COMMITTEE
Jon S. Saxe, Audit Committee Chairman
Brian J. Underdown
Jerry B. Gin
Dated: June 23, 201422, 2017
 
The information contained above under the caption “Report of the Audit Committee of the Board of Directors” shall not be deemed to be soliciting material or to be filed with the SEC, nor shall such information be incorporated by reference into any future filing under the Securities Act or the Exchange Act, except to the extent that we specifically incorporate it by reference into such filing.
 
 
PPAART RT IV

Item 15.  Exhibits, Financial Statement Schedules
 
(a)(1) Financial Statements
 
See Index to Financial Statements under Item 8 on page 67.66.
 
(a)(2) Consolidated Financial Statement Schedules
 
Consolidated financial statement schedules are omitted because they are not applicable or are not required or the information required to be set forth therein is included in the Consolidated Financial Statements or notes thereto.
 
(a)(3) Exhibits
 
The exhibits listed in the Exhibit Index below are filed or incorporated by reference as part of this report.

 E Exxhibithibit Index

Exhibit No.Description*Description
2.1 *Agreement and Plan of Merger by and among Excaliber Enterprises, Ltd., VistaGen Therapeutics, Inc. and Excaliber Merger Subsidiary, Inc.
3.1 *Articles of Incorporation, dated October 6, 2005.
3.2Certificate of Amendment filed with the Nevada Secretary of State on December 6, 2011, incorporated by reference from Exhibit 3.3 to the Company'sCompany’s Annual Report on Form 10-K, filed July 2, 2012.
3.3Amended and Restated Bylaws as of February 5, 2014, incorporated by reference from the Company’s Report on Form 8-K filed on February 7, 2014.
3.4Bylaws in effect.as of May 11, 2011, incorporated by reference from the document filed as Exhibit 3.2 in the Company’s Current Report on Form 8-K filed on May 16, 2011.
3.5Articles of Merger filed with the Nevada Secretary of State on May 24, 2011, incorporated by reference from Exhibit 3.1 to the Company'sCompany’s Current Report on Form 8-K filed on May 31, 2011.
3.63.5Certificate of Designations Series A Preferred, incorporated by reference from Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on December 23, 2011.
3.6 Certificate of Change filed with the Nevada Secretary of State on August 11, 2014 incorporated by reference from Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on August 14, 2014.
3.7Certificate of Designation of the Relative Rights and Preferences of the Series B 10% Convertible Preferred Stock of VistaGen Therapeutics, Inc., filed with the Nevada Secretary of State on May 7, 2015, incorporated by reference from Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on May 13, 2015.
3.8Certificate of Amendment to the Articles of Incorporation of VistaGen Therapeutics, Inc., dated August 24, 2015, incorporated by reference from Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on August 25, 2015.
3.9Certificate of Designation of the Relative Rights and Preferences of the Series C Convertible Preferred Stock of VistaGen Therapeutics, Inc., dated January 25, 2016, incorporated by reference from Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on January 29, 2016.
3.10Restated Articles of Incorporation of VistaGen Therapeutics, Inc., dated August 16, 2016, incorporated by reference from Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed on August 16, 2016.
3.11Second Amended and Restated Bylaws of VistaGen Therapeutics, Inc., dated August 16, 2016, incorporated by reference from Exhibit 3.2 to the Company’s Current Report on Form 8-K, filed on August 16, 2016.
10.1 *VistaGen’s 1999 Stock Incentive Plan.
10.2 *Form of Option Agreement under VistaGen’s 1999 Stock Incentive Plan.
10.5 *VistaGen’s 2008 Stock Incentive Plan.
10.6 *Form of Option Agreement under VistaGen’s 2008 Stock Incentive Plan.
10.20 *Strategic Development Services Agreement, dated February 26, 2007, by and between VistaGen and Cato Research Ltd.
10.21 *License Agreement by and between National Jewish Medical and Research Center and VistaGen, dated July 12, 1999, as amended by that certain Amendment to License Agreement dated January 25, 2001, as amended by that certain Second Amendment to License Agreement dated November 6, 2002, as amended by that certain Third Amendment to License Agreement dated March 1, 2003, and as amended by that certain Fourth Amendment to License Agreement dated April 15, 2010.
10.22 *License Agreement by and between Mount Sinai School of Medicine of New York University and the Company, dated October 1, 2004.
10.23 *Non-Exclusive License Agreement, dated December 5, 2008, by and between VistaGen and Wisconsin Alumni Research Foundation, as amended by that certain Wisconsin Materials Addendum, dated February 2, 2009.
10.24 *Sponsored Research Collaboration Agreement, dated September 18, 2007, between VistaGen and University Health Network, as amended by that certain Amendment No. 1 and Amendment No. 2, dated April 19, 2010 and December 15, 2010, respectively.
10.26 *License Agreement, dated October 24, 2001, by and between the University of Maryland, Baltimore, Cornell Research Foundation and Artemis Neuroscience, Inc.
10.27 *Non-exclusive License Agreement, dated September 1, 2010, by and between VistaGen and TET Systems GmbH & Co. KG.
10.31 *Unsecured Promissory Note dated April 28, 2011 issued by VistaGen to Desjardins Securities.
10.32 *Unsecured Promissory Note dated April 28, 2011 issued by VistaGen to McCarthy Tetrault LLP.
10.34 *Promissory Note dated February 25, 2010 issued by VistaGen to The Regents of the University of California.
 
 
10.40 *Employment Agreement, by and between, VistaGen and Shawn K. Singh, dated April 28, 2010, as amended May 9, 2011.
10.41 *Employment Agreement, by and between, VistaGen and H. Ralph Snodgrass, PhD, dated April 28, 2010, as amended May 9, 2011.
10.46Notice of Award by National Institutes of Health, Small Business Innovation Research Program, to VistaGen Therapeutics, Inc. for project, Clinical Development of 4-CI-KYN to Treat Pain dated June 22, 2009, with revisions dated July 19, 2010 and August 9, 2011, incorporated by reference from Exhibit 10.46 to the Company’s Current Report on Form 8-K/A filed on December 20, 2011.
10.47Notice of Grant Award by California Institute of Regenerative Medicine and VistaGen Therapeutics, Inc.  for Project:  Development of an hES Cell-Based Assay System for Hepatocyte Differentiation Studies and Predictive Toxicology Drug Screening, dated April 1, 2009, incorporated by reference from Exhibit 10.47 to the Company’s Current Report on Form 8-K/A filed on December 20, 2011.
10.48Amendment No. 4, dated October 24, 2011, to Sponsored Research Collaboration Agreement between VistaGen and University Health Network, incorporated by reference from Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on November 30, 2011.
10.49
License Agreement No. 1, dated as of October 24, 2011 between University Health Network and VistaGen Therapeutics, Inc., incorporated by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on November 30, 2011.
10.50
Strategic Medicinal Chemistry Services Agreement, dated as of December 6, 2011, between Synterys, Inc. and VistaGen Therapeutics, Inc., incorporated by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on December 7, 2011.
10.51
Common Stock Exchange Agreement, dated as of December 22, 2011 between Platinum Long Term Growth VII, LLC and VistaGen Therapeutics, Inc., incorporated by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on December 23, 2011.
10.52
Note and Warrant Exchange Agreement, dated as of December 28, 2011 between Platinum Long Term Growth VII, LLC and VistaGen Therapeutics, Inc., incorporated by reference from Exhibit 10.1 to the Current Report on Form 8-K filed on January 4, 2012.
10.55
Form of Warrant to Purchase Common Stock, dated as of February 28, 2012, incorporated by reference from Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on March 2, 2012.
10.57
License Agreement No. 2, dated as of March 19, 2012 between University Health Network and VistaGen Therapeutics, Inc., incorporated by reference from Exhibit 10.57 to the Company’s Annual Report on Form 10-K filed on July 2, 2012.
10.58
Exchange Agreement dated as of June 29, 2012 between Platinum Long Term Growth VII, LLC and VistaGen Therapeutics. Inc., incorporated by reference from Exhibit 10.58 to the Company’s Annual Report on Form 10-K filed on July 2, 2012.
10.63
Unsecured Promissory Note in the face amount of $1,000,000 issued to Morrison & Foerster LLP on August 31, 2012 (Replacement Note A), incorporated by reference from Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on September 6, 2012.
10.64
Unsecured Promissory Note in the face amount of $1,379,376 issued to Morrison & Foerster LLP on August 31, 2012 (Replacement Note B), incorporated by reference from Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on September 6, 2012.
10.65
Stock Purchase Warrant issued to Morrison & Foerster LLP on August 31, 2012 to purchase 1,379,376 shares of the Company’s common stock (New Morrison & Foerster Warrant), incorporated by reference from Exhibit 10.5 to the Company’s Current Report on Form 8-K filed on September 6, 2012.
10.66
Warrant to Purchase Common Stock issued to Morrison & Foerster LLP on August 31, 2012 to purchase 425,000 shares of the Company’s common stock (Amended Morrison & Foerster Warrant), incorporated by reference from Exhibit 10.6 to the Company’s Current Report on Form 8-K filed on September 6, 2012.
10.67
Note Exchange and Purchase Agreement dated as of October 11, 2012 by and between VistaGen Therapeutics, Inc. and Platinum Long Term Growth VII, LLP, incorporated by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on October 16, 2012.
10.68
Form of Senior Secured Convertible Promissory Note issued to Platinum Long Term Growth VII, LLP under the Note Exchange and Purchase Agreement, incorporated by reference from Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on October 16, 2012.
10.69
Form of Warrant to Purchase Shares of Common Stock issued to Platinum Long Term Growth VII, LLP under the Note Exchange and Purchase Agreement, incorporated by reference from Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on October 16, 2012.
10.70 
10.70Amended and Restated Security Agreement as of October 11, 2012 between VistaGen Therapeutics, Inc. and Platinum Long Term Growth VII, LLP, incorporated by reference from Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on October 16, 2012.
10.71Intellectual Property Security and Stock Pledge Agreement as of October 11, 2012 between VistaGen California and Platinum Long Term Growth VII, LLP, incorporated by reference from Exhibit 10.5 to the Company’s Current Report on Form 8-K filed on October 16, 2012.
10.72Negative Covenant Agreement dated October 11, 2012 between VistaGen California, Artemis Neuroscience, Inc. and Platinum Long Term Growth VII, LLP, incorporated by reference from Exhibit 10.6 to the Company’s Current Report on Form 8-K filed on October 16, 2012.
10.73Amendment to Note Exchange and Purchase Agreement as of November 14, 2012 between VistaGen Therapeutics Inc. and Platinum Long Term Growth VII, LLP, incorporated by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on November 20, 2012.
10.75Amendment No. 2 to Note Exchange and Purchase Agreement as of January 31, 2013 between VistaGen Therapeutics Inc. and Platinum Long Term Growth VII, LLP, incorporated by reference from Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed on February 14, 2013.
10.76Amendment No. 3 to Note Exchange and Purchase Agreement as of February 22, 2013 between VistaGen Therapeutics Inc. and Platinum Long Term Growth VII, LLP, incorporated by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on February 28, 2013.
10.77Form of Warrant to Purchase Common Stock issued to independent members of the Company’s Board of Directors and its executive officers on March 3, 2013, incorporated by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on March 6, 2013.
10.78Securities Purchase Agreement between VistaGen Therapeutics, Inc., and Autilion AG dated April 8, 2013, incorporated by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on April 10, 2013.
10.79Voting Agreement between VistaGen Therapeutics, Inc., and Autilion AG dated April 8, 2013, incorporated by reference from Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on April 10, 2013.
10.80Note Conversion Agreement as of April 4, 2013 between VistaGen Therapeutics Inc. and Platinum Long Term Growth VII, LLP, incorporated by reference from Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on April 10, 2013.
10.81
Assignment and Assumption Agreement between Autilion AG and Bergamo Acquisition Corp. PTE LTD dated April 12, 2013, incorporated by reference from Exhibit 10.81 to the Company’s Annual Report on Form 10-K filed July 18, 2013.
10.82Amendment No. 1 to Securities Purchase Agreement dated April 30, 2013 between VistaGen Therapeutics, Inc. and Bergamo Acquisition Corp. PTE LTD, incorporated by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on May 1, 2013.
10.83
Lease between Bayside Area Development, LLC and VistaGen Therapeutics, Inc. (California) dated April 24, 2013, incorporated by reference from Exhibit 10.83 to the Company’s Annual Report on Form 10-K filed July 18, 2013.
10.84Indemnification Agreement effective May 20, 2013 between the Company and Jon S. Saxe, incorporated by reference from Exhibit 10.84 to the Company'sCompany’s Annual Report on Form 10-K filed on July 18, 2013.
10.85
Indemnification Agreement effective May 20, 2013 between the Company and Shawn K. Singh, incorporated by reference from Exhibit 10.85 to the Company’s Annual Report on Form 10-K filed on July 18, 2013.
10.86
Indemnification Agreement effective May 20, 2013 between the Company and H. Ralph Snodgrass, incorporated by reference from Exhibit 10.86 to the Company’s Annual Report on Form 10-K filed on July 18, 2013.2013.
10.87
Indemnification Agreement effective May 20, 2013 between the Company and Brian J. Underdown, incorporated by reference from Exhibit 10.87 to the Company’s Annual Report on Form 10-K filed on July 18, 2013.2013.
10.88
Indemnification Agreement effective May 20, 2013 between the Company and Jerrold D. Dotson, incorporated by reference from Exhibit 10.88 to the Company’s Annual Report on Form 10-K filed on July 18, 2013.2013.
10.89
Amendment and Waiver effective May 24, 2013 between the Company and Platinum Long Term Growth VII, LLC, incorporated by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on June 3, 2013.
10.90
Amendment No 2 to Securities Purchase Agreement dated June 27, 2013 between the Company, Autilion AG and Bergamo Acquisition Corp. PTE LTD, incorporated by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on June 28, 2013.
10.91
Senior Secured Convertible Promissory Note, dated July 26, 2013 issued to Platinum Long Term Growth VII, LLP, incorporated by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on August 2, 2013.
10.92
Common Stock Warrant, dated July 26, 2013 issued to Platinum Long Term Growth VII, LLP, incorporated by reference from Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on August 2, 2013.
10.93Form of Subscription Agreement between the Company and investors in the Fall 2013 Unit Private Placement.Placement, incorporated by reference from Exhibit 10.93 to the Company’s Annual Report on Form 10-K filed on June 24, 2014.
10.94Form of Convertible Promissory Note between the Company and investors in the Fall 2013 Unit Private Placement.Placement, incorporated by reference from Exhibit 10.94 to the Company’s Annual Report on Form 10-K filed on June 24, 2014.
10.95Form of Common Stock Purchase Warrant between the Company and investors in the Fall 2013 Unit Private Placement.Placement, incorporated by reference from Exhibit 10.95 to the Company’s Annual Report on Form 10-K filed on June 24, 2014.
10.96Form of Amendment to Convertible Promissory Note and Warrant between the Company and investors in the Fall 2013 Unit Private Placement, effective May 31, 2014, incorporated by reference from Exhibit 10.96 to the Company’s Annual Report on Form 10-K filed on June 24, 2014.
10.97
Form of Unit Subscription Agreement between the Company and investors in the Spring 2014 Unit Private Placement dated April 1, 2014, incorporated by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on April 8, 2014.
10.98
Form of Subordinate Convertible Promissory Note between the Company and investors in the Spring 2014 Unit Private Placement dated April 1, 2014, incorporated by reference from Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on April 8, 2014.
10.99
Form of Common Stock Purchase Warrant between the Company and investors in the Spring 2014 Unit Private Placement dated April 1, 2014, incorporated by reference from Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on April 8, 2014.
10.100
Common Stock Purchase Warrant between the Company and Platinum Long Term Growth Fund VII dated May 14, 2014, incorporated by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on May 19, 2014.
10.101
Subordinate Convertible Promissory Note between the Company and Platinum Long Term Growth Fund VII dated May 14, 2014, incorporated by reference from Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on May 19, 2014.
10.102Form of Promissory Note and Form of Warrant issued by the Company to Icahn School of Business at Mount Sinai effective April 10, 2014 in satisfaction of technology license maintenance fees and reimbursable patent costs.costs, incorporated by reference from Exhibit 10.102 to the Company’s Annual Report on Form 10-K filed on June 24, 2014.
10.103Amendment No. 3 to Sponsored Research Collaboration Agreement, dated April 25, 2011, by and between VistaGen and University Health Network.Network, incorporated by reference from Exhibit 10.103 to the Company’s Annual Report on Form 10-K filed on June 24, 2014.
10.104Amendment No. 5 to Sponsored Research Collaboration Agreement, dated October 10, 2012, by and between VistaGen and University Health Network.Network, incorporated by reference from Exhibit 10.104 to the Company’s Annual Report on Form 10-K filed on June 24, 2014.
10.105
Amended and Restated Note Conversion Agreement and Warrant Amendment, by and between VistaGen Therapeutics, Inc. and Platinum Long Term Growth VII, LLC, dated July 18, 2014, incorporated by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on July 22, 2014.
10.106Amendment No. 1 to Amended and Restated Note Conversion Agreement and Warrant Amendment, by and between VistaGen Therapeutics, Inc. and Platinum Long Term Growth VII, LLC, dated September 2, 2014, incorporated by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on September 4, 2014.
10.107
Amendment No. 2 to Amended and Restated Note Conversion Agreement and Warrant Amendment, by and between VistaGen Therapeutics, Inc. and Platinum Long Term Growth VII, LLC, dated September 30, 2014, incorporated by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on October 3, 2014.
10.108Agreement, by and between VistaGen Therapeutics, Inc. and Platinum Long Term Growth VII, LLC, dated May 5, 2015, incorporated by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on May 13, 2015.
10.109
Acknowledgement and Agreement, by and between VistaGen Therapeutics, Inc. and Platinum Long Term Growth VII, LLC, dated May 12, 2015, incorporated by reference from Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on May 13, 2015.
10.110Form of Securities Purchase Agreement by and between VistaGen Therapeutics, Inc. and Platinum Long Term Growth VII, LLC, dated May 12, 2015, incorporated by reference from Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on May 13, 2015.
10.111
Exchange Agreement, by and between VistaGen Therapeutics, Inc., and Platinum Long Term Growth VII, LLC and Montsant Partners, LLC, dated January 25, 2016, incorporated by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on January 29, 2016.
10.112Indemnification Agreement effective April 8, 2016 between the Company and Jerry B. Gin, incorporated by reference from Exhibit 10.112 to the Company’s Annual Report on Form 10-K filed on June 24, 2016.
10.113
Underwriting Agreement, by and between Chardan Capital Markets, LLC and WallachBeth Capital, LLC, as representatives of the several underwriters, and VistaGen Therapeutics, Inc., dated May 10, 2016, incorporated by reference from Exhibit 1.1 to the Company’s Current Report on Form 8-K filed on May 16, 2016.
10.114Warrant Agency Agreement, by and between Computershare, Inc. and VistaGen Therapeutics, Inc., dated May 16, 2016, incorporated by reference from Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on May 16, 2016.
10.115Form of Warrant; incorporated by reference from Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on May 16, 2016.
10.116
Second Amendment to Employment Agreement by and between VistaGen Therapeutics, Inc. and Shawn K. Singh, dated June 22, 2016, incorporated by reference from Exhibit 10.116 to the Company’s Annual Report on Form 10-K filed on June 24, 2016.
10.117Second Amendment to Employment Agreement by and between VistaGen Therapeutics, Inc. and H. Ralph Snodgrass, Ph.D., dated June 22, 2016, incorporated by reference from Exhibit 10.117 to the Company’s Annual Report on Form 10-K filed on June 24, 2016.
10.118Second Amendment to Lease between Bayside Area Development and the Company, effective November 10, 2016, incorporated by reference from Exhibit 10.1 to the Company’s Quarterly report on Form 10-Q filed on November 15, 2016.
10.119Indemnification Agreement effective November 10, 2016 between the Company and Mark A. Smith, incorporated by reference from Exhibit 10.2 to the Company’s Quarterly report on Form 10-Q filed on November 15, 2016.
10.120 +Exclusive License and Sublicense Agreement by and between VistaGen Therapeutics, Inc. and Apollo Biologics LP, effective December 9, 2016, incorporated by reference from Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed on May 11, 2017.
10.121 +Patent License Amendment Agreement between VistaGen Therapeutics Inc. and University Health Network effective December 9, 2016, incorporated by reference from Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q/A filed on May 1, 2017.
10.122Amended and Restated 2016 Stock Incentive Plan, filed herewith.
21.1*List of Subsidiaries.
24.123.1PowerConsent of AttorneyIndependent Registered Public Accounting Firm, filed herewith.
31.1Certification of the Company’s Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2Certification of the Company’s Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1Certification of the Company’s Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INSXBRL Instance Document
101.SCHXBRL Taxonomy Schema
101.CALXBRL Taxonomy Extension Calculation Linkbase
101.DEFXBRL Taxonomy Extension Definition Linkbase
101.LABXBRL Taxonomy Extension Label Linkbase
101.PREXBRL Taxonomy Extension Presentation Linkbase
­­­­­­­­­­­­­­­­
­­­­­­­­­­­­­­­­
*  Incorporated by reference from the like-numbered exhibit filed with our Current Report on Form 8-K on May 16, 2011.

+ Confidential treatment has been granted for certain confidential portions of this agreement.
 
SIGNSIGATURESNATURES
 
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of South San Francisco, State of California, on the 24th28th day of June, 2014.2017
 
 
VistaGen Therapeutics, Inc.
   
Date: June 28, 2017
By:
/s/   Shawn K. Singh
  
Shawn K. Singh, J.D.
Chief Executive Officer
 
POWER OF ATTORNEY
 
KNOW ALL PERSONS BY THESE PRESENTSI, that each person whose signature appears below constitutes and appoints each of Shawn K. Singh, J.D. and Jerrold D. Dotson his true and lawful attorney-in-fact and agent, with full power of substitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this annual report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith,n accordance with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his substitutes or substitute, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, each of the undersigned has executed this Power of Attorney as of the date indicated opposite his name.
Pursuant to the requirements of the Securities Exchange Act, of 1934, this report has been signed below by the following persons on behalf of the Registrantregistrant and in the capacities and on the dates indicated.
 
Signature  TitleDate
   
/s/    Shawn K. Singh 
Signature
Shawn K. Singh, JD		  
Chief Executive Officer, and Director
Title
(Principal Executive Officer)
Date
June 28, 2017
   
/s/    Shawn K. Singh Jerrold D. Dotson
Jerrold D. Dotson
  
Vice President and Chief ExecutiveFinancial Officer and Director
June 24, 2014
Shawn K. Singh, JD
(Principal ExecutiveFinancial and Accounting Officer)
June 28, 2017
   
/s/    Jerrold D. Dotson
Vice President and Chief Financial OfficerJune 24, 2014
Jerrold D. Dotson(Principal Financial and Accounting Officer)
/s/    H. Ralph Snodgrass
H. Ralph Snodgrass, Ph.D
  President, Chief Scientific Officer and Director
June 24, 2014
H. Ralph Snodgrass, Ph.D28, 2017
   
/s/    Jon S. Saxe
Jon S. Saxe
  Chairman of the Board of Directors
June 24, 2014
Jon S. Saxe28, 2017
   
/s/    Brian J. Underdown
Brian J. Underdown, Ph. D
  Director
June 24, 201428, 2017
Brian J. Underdown, Ph. D    
/s/    Jerry B. Gin, Ph.D
Jerry B. Gin, Ph.D.
Director
June 28, 2017
-123-