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
| Metric | Quarter ended June 30, 2011 | Quarter 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.