Vistagen Therapeutics, Inc. quarterly report, Q1 FY2012

Vistagen Therapeutics, Inc. — Form 10-Q

Reporting period: Three months ended June 30, 2011 (the company’s fiscal first quarter of fiscal 2012). The filing describes VistaGen as a development-stage biotechnology company. On May 11, 2011, Excaliber Enterprises acquired VistaGen in a transaction accounted for as a reverse acquisition; Excaliber changed its name to VistaGen Therapeutics, Inc. and adopted VistaGen’s fiscal year-end.

Business context

VistaGen is developing stem-cell-based tools for drug rescue and cell therapy. Its CardioSafe 3D platform is intended to assess cardiac effects of drug candidates; it plans to develop a corresponding liver assay. Its lead drug candidate, AV-101, was in Phase 1 clinical development for neuropathic pain. The company reported no sustainable product revenue; reported revenue principally reflected grants.

Financial performance and liquidity

MetricQuarter ended June 30, 2011Quarter ended June 30, 2010
Revenue$554,616$733,921
Research and development$1,027,889$674,782
General and administrative$1,126,608$520,108
Operating loss$(1,599,881)$(460,969)
Net loss$(2,411,077)$(981,627)
Net loss per share, basic and diluted$(0.22)$(0.19)
Net cash used in operations$(1,086,525)$(325,320)

Revenue declined about 24%. Operating expenses rose about 80%, and net loss increased about 146%. Calculated operating and net loss margins were approximately (288%) and (435%), respectively, compared with approximately (63%) and (134%) a year earlier.

At June 30, 2011, cash was $942,075, total current assets were $1.58 million, and current liabilities were $5.54 million (an approximately 0.28 current ratio). Total liabilities were $8.75 million. The balance sheet reported $2.80 million of net current convertible notes and $3.15 million of notes payable and accrued interest, current and non-current combined; amounts and classifications reflect debt conversions and discounts. Stockholders’ deficit was $7.07 million. Financing activities provided $1.89 million net during the quarter, and cash increased by $802,732.

Management estimated cash expenditures of approximately $6 million over the next 12 months and stated that available cash would not fund operations for that period. The filing does not provide a clear gross-profit or EBITDA measure.

Material changes and unusual items

  • Grant revenue fell from $733,921 to $554,616, primarily due to rescheduling of NIH- and CIRM-funded work; collaboration and other revenue were zero for the quarter.
  • R&D expense increased, including $193,210 of AV-101 Phase 1b trial start-up costs and $175,000 in non-cash stock compensation associated with expanding VistaGen’s research relationship with University Health Network.
  • G&A increased with higher personnel, consulting, and professional costs related in part to becoming a public company.
  • Other expense increased, largely from interest expense, including amortization of the Platinum Note discount and note-cancellation premiums. The filing also records a $7,014 non-cash warrant fair-value expense.
  • In connection with the merger and related financing, holders converted approximately $6.17 million of convertible notes and all 2.88 million preferred shares into common equity. The May private placement included 2,216,106 units at $1.75 each, with warrants; the company also issued shares and warrants in other transactions.
  • The Platinum Note had $4 million principal, bore 10% interest, and was extended to June 30, 2012, with a lender option to extend another year. Its conversion terms include a 25% premium and multiple price formulas. Other financing included notes issued for accounts payable, some with payments linked to future equity financings.

Outlook, risks, and contingencies

Management anticipated funding operations through a combination of private securities offerings, strategic collaborations, and government grants. It cautioned that additional funding may not be available in sufficient amounts or on acceptable terms; without it, VistaGen could delay, scale back, or discontinue research and development and may be unable to continue as a going concern. The financial statements were prepared on a going-concern basis and include no adjustments for the outcome of that uncertainty.

Key risks include financing availability and potential dilution, research and clinical-development outcomes, regulatory requirements, competition, and the ability to commercialize the company’s technology. Management reported effective disclosure controls and no off-balance-sheet arrangements.

Important facts for investors to verify

  • Whether subsequent financing or collaborations provided enough capital to meet the stated approximately $6 million cash needs and sustain operations.
  • The Platinum Note’s conversion, maturity-extension, and repayment terms, and the resulting potential dilution alongside outstanding options and warrants.
  • Progress, funding, and results for AV-101 clinical development and the CardioSafe 3D, LiverSafe 3D, and cell-therapy programs.
  • Timing and collectability of grant-related receivables, and the effect of rescheduled grant-funded work on future revenue.
  • The post-merger share count and the full impact of shares, warrants, and equity-linked payments issued in the merger, private placement, and debt settlements.