Vistagen Therapeutics, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended December 31, 2013 (the company’s fiscal 2014 third quarter). The filing is unaudited. Comparative periods are the three and nine months ended December 31, 2012.
Business context
Vistagen is a development-stage biotechnology company focused on human pluripotent stem cell technology for drug safety testing, drug rescue, drug discovery and regenerative medicine. Its platform includes CardioSafe 3D and LiverSafe 3D. AV-101, an oral prodrug candidate for neuropathic pain and potentially other neurological conditions, had completed Phase 1 development; the company said it would explore strategic partners for further development.
Financial performance and liquidity
| Metric | Three months ended Dec. 31 | Nine months ended Dec. 31 |
|---|---|---|
| Revenue | $0 in 2013 and 2012 | $0 in 2013; $200,400 in 2012 |
| Research and development expense | $551,300 in 2013; $1,119,600 in 2012 | $1,916,100 in 2013; $3,092,200 in 2012 |
| General and administrative expense | $897,000 in 2013; $799,000 in 2012 | $2,047,500 in 2013; $2,430,200 in 2012 |
| Net income (loss) | $131,000 in 2013; $(5,335,000) in 2012 | $(1,143,100) in 2013; $(9,116,600) in 2012 |
| Operating cash flow | Not separately presented for the quarter | $(1,658,900) in 2013; $(2,493,200) in 2012 |
The quarter’s reported income was primarily affected by a $1.94 million non-cash gain from the decrease in fair value of warrant and related liabilities; it does not indicate operating profitability. With no current-period revenue, revenue-based margins are not meaningful.
At December 31, 2013, cash and cash equivalents were $20,700, down from $638,100 at March 31, 2013. Current assets were $91,300 versus current liabilities of $3,712,300, a working-capital deficit of approximately $3.62 million. Total assets were $328,900, total liabilities $11,999,200, and stockholders’ deficit $11,670,300. Note and convertible-note carrying amounts shown on the balance sheet totaled approximately $6.38 million; this includes current and non-current amounts and is net of applicable discounts.
For the nine months, investing cash use was $9,600 and financing provided $1,051,100. The company reported a cumulative development-stage deficit of $68.8 million.
Changes versus prior comparable periods
- Nine-month operating expenses declined to $3.96 million from $5.52 million, mainly as R&D spending fell following completion of AV-101 Phase 1b work and reduced research activity; G&A also declined.
- Nine-month net loss narrowed to $1.14 million from $9.12 million. The prior-year period included a $3.54 million debt-extinguishment loss and a $10.19 million deemed dividend; the current period benefited from a $3.82 million non-cash warrant-liability gain.
- Nine-month interest expense, net rose to $1.00 million from $612,000, reflecting debt interest and discount amortization. The NIH grant had expired in June 2012, leaving no grant revenue in the 2013 period.
Outlook, risks and unusual items
- Going concern and financing: Management said existing cash could not fund planned operations and disclosed expected cash expenditures of approximately $5 million over the next 12 months; elsewhere it estimated $4–$6 million following receipt of the anticipated Autilion proceeds. The company cautioned that financing may not be available and that it could need to reduce, defer or discontinue R&D or might not continue as a going concern.
- Autilion agreement: Autilion was committed to purchase 72 million restricted shares at $0.50 per share for $36 million. By December 31 only a $25,000 initial closing had occurred. As of the report date, February 14, 2014, no further closing had occurred; the filing said Autilion remained in default but had indicated it expected to cure the default and fund the full amount by mid-February. There was no assurance of payment. Completion could cause substantial dilution and, if funding exceeded $12 million and more than 24 million shares were issued, Autilion could control over 50% of the company.
- Interim funding: After December 31, the company reported $390,000 of proceeds through February 10 from additional unit sales, including convertible notes, shares and warrants. A later section describes $590,000 of unit sales for December 1 through February 10, apparently including units sold before year-end; the filing does not reconcile the periods in those figures.
- Debt and dilution: The company relied on debt and equity financing, including 10% convertible notes and warrants. Potential common shares excluded from diluted loss-per-share calculations totaled approximately 51.9 million at December 31, including preferred-stock exchange rights, options, warrants and convertible notes. The filing also reported repeated warrant and option repricings, producing compensation or warrant-modification expense and potential dilution.
- Management said limited cash constrained some scientific activities, and that it was discussing the next UHN sponsored-research budget. The filing reported no legal proceedings and no off-balance-sheet arrangements. Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether Autilion cured its default and whether any or all of the $36 million financing actually closed after the report date.
- The company’s current cash, cash burn, financing needs and ability to continue as a going concern.
- Actual terms and timing of post-period unit financings, including the filing’s $390,000 and $590,000 figures, and resulting dilution.
- Progress, funding and partnering plans for the stem-cell platform and AV-101, which had no current revenue.
- Debt maturities, payment obligations, conversion terms and the extent of potential dilution from outstanding warrants, options and preferred-stock rights.