SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

	☑
☑		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	☐
☐		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-37761

Nevada		20-5093315

~~Nevada~~		~~20-5093315~~
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	~~[ ]~~ ☐	Accelerated filer	~~[ ]~~☐
Non-Accelerated filer	~~[ ]~~☐	Smaller reporting company	~~[X]~~ ☒
		Emerging growth company	~~[ ]~~☐

~~(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. ~~[ ]~~

As of ~~February 9, 2018, 22,902,615~~August 10, 2022, 206,836,345 shares of the registrant’s common stock, $0.001 par value, were issued and outstanding.

VistaGen Th~~erapeutics,~~Therapeutics, Inc.

Quarterly Report on Form 10-Q

June 30, 2022

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION

Item1. Condensed Consolidated Financial Statements ~~(Unaudited)~~

VISTAGEN TH~~ERAPEUTICS,~~THERAPEUTICS, INC.

~~Condensed Consolidated Balance Sheets~~

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in Dollars, except share amounts)

	June 30,			March 31,
	2022			2022
	(unaudited)			(Note 2)
ASSETS
Current assets:
Cash and cash equivalents	$	51,986,400		$	68,135,300
Prepaid expenses and other current assets		2,890,300			2,745,800
Deferred contract acquisition costs - current portion		116,900			116,900
Total current assets		54,993,600			70,998,000
Property and equipment, net		567,600			414,300
Right-of-use asset - operating lease		2,565,000			2,662,000
Deferred offering costs		381,200			321,800
Deferred contract acquisition costs - non-current portion		117,300			146,400
Security deposits		100,900			100,900
Total assets	$	58,725,600		$	74,643,400

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	5,473,000		$	2,758,600
Accrued expenses		727,300			1,329,200
Notes payable		1,037,800			0
Deferred revenue - current portion		1,244,000			1,244,000
Operating lease obligation - current portion		442,600			433,300
Financing lease obligation - current portion		1,500			0
Total current liabilities		8,926,200			5,765,100

Non-current liabilities:
Deferred revenue - non-current portion		1,247,500			1,557,600
Operating lease obligation - non-current portion		2,491,200			2,605,400
Financing lease obligation - non-current portion		8,700			0
Total non-current liabilities		3,747,400			4,163,000
Total liabilities		12,673,600			9,928,100

Commitments and contingencies (Note 10)

Stockholders’ equity:
Preferred stock, $0.001 par value; 10,000,000 shares authorized at June 30, 2022 and March 31, 2022: no shares outstanding at June 30, 2022 and March 31, 2022		0			0
Common stock, $0.001 par value; 325,000,000 shares authorized at June 30, 2022 and March 31, 2022; 206,851,620 and 206,676,620 shares issued at June 30, 2022 and March 31, 2022, respectively		206,900			206,700
Additional paid-in capital		337,193,500			336,080,700
Treasury stock, at cost, 135,665 shares of common stock held at June 30, 2022 and March 31, 2022		(3,968,100	)		(3,968,100	)
Accumulated deficit		(287,380,300	)		(267,604,000	)
Total stockholders’ equity		46,052,000			64,715,300
Total liabilities and stockholders’ equity	$	58,725,600		$	74,643,400

December 31,

March 31,

2017

2017

(Unaudited)

ASSETS

Current assets:

Cash and cash equivalents
$13,031,800
$2,921,300
Prepaid expenses and other current assets
  940,400
  456,600
Total current assets
  13,972,200
  3,377,900
Property and equipment, net
  222,800
  286,500
Security deposits and other assets
  47,800
  47,800
Total assets
$14,242,800
$3,712,200



LIABILITIES AND STOCKHOLDERS’ EQUITY


Current liabilities:


Accounts payable
$509,300
$867,300
Accrued expenses
  770,900
  443,000
Current notes payable
  43,700
  54,800
Capital lease obligations
  2,600
  2,400
Total current liabilities
  1,326,500
  1,367,500



Non-current liabilities:


Accrued dividends on Series B Preferred Stock
  2,344,400
  1,577,800
Deferred rent liability
  299,100
  139,200
Capital lease obligations
  10,000
  11,900
Total non-current liabilities
  2,653,500
  1,728,900
Total liabilities
  3,980,000
  3,096,400



Commitments and contingencies





Stockholders’ equity:


Preferred stock, $0.001 par value; 10,000,000 shares authorized at December 31, 2017 and March 31, 2017:
Series A Preferred, 500,000 shares authorized, issued and outstanding at December 31, 2017
and March 31, 2017
  500

  500

Series B Preferred; 4,000,000 shares authorized at December 31, 2017 and March 31, 2017;
1,160,240 shares issued and outstanding at December 31, 2017 and March 31, 2017
  1,200
  1,200
Series C Preferred; 3,000,000 shares authorized at December 31, 2017 and March 31, 2017;


2,318,012 shares issued and outstanding at December 31, 2017 and March 31, 2017
  2,300
  2,300
Common stock, $0.001 par value; 100,000,000 and 30,000,000 shares authorized at December 31, 2017
    and March 31, 2017, respectively; 22,723,504 and 8,974,386 shares issued and outstanding at


December 31, 2017 and March 31, 2017, respectively
  22,700
  9,000
Additional paid-in capital
  166,669,200
  146,569,600
Treasury stock, at cost, 135,665 shares of common stock held at December 31, 2017 and March 31, 2017
  (3,968,100)
  (3,968,100)
Accumulated deficit
  (152,465,000)
  (141,998,700)
Total stockholders’ equity
  10,262,800
  615,800
Total liabilities and stockholders’ equity
$14,242,800
$3,712,200

See accompanying notes to Condensed Consolidated Financial Statements.

~~-1-~~1

Table of Contents

VISTAGEN ~~THER~~A~~PEUTICS,~~THERAPEUTICS, INC.

~~STATEMENT~~

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE LOSS

(Unaudited)

(Amounts in Dollars, except share ~~amounts~~amounts)

	Three Months Ended June 30,
	2022			2021
Revenues:
Sublicense revenue	$	310,100		$	354,100
Total revenues		310,100			354,100
Operating expenses:
Research and development		15,291,400			5,457,200
General and administrative		4,791,800			2,643,100
Total operating expenses		20,083,200			8,100,300
Loss from operations		(19,773,100	)		(7,746,200	)
Other income, net:
Interest income, net		2,300			5,100
Loss before income taxes		(19,770,800	)		(7,741,100	)
Income taxes		(5,500	)		(3,400	)
Net loss and comprehensive loss		(19,776,300	)		(7,744,500	)

Accrued dividend on Series B Preferred stock		0			(361,800	)

Net loss attributable to common stockholders	$	(19,776,300	)	$	(8,106,300	)

Basic and diluted net loss attributable to common stockholders per common share	$	(0.10	)	$	(0.04	)
Weighted average shares used in computing basic and diluted net loss attributable to common stockholders per common share		206,596,724			189,924,158

~~UNAUDITED~~

Three Months Ended December 31,

Nine Months Ended December 31,

2017

2016

2017

2016

Revenues:

Sublicense revenue
$-
$1,250,000
$-
$1,250,000
Total revenues
  -
  1,250,000
  -
  1,250,000
Operating expenses:




Research and development
  1,601,800
  1,611,000
  5,124,600
  4,042,800
General and administrative
  1,266,000
  2,276,600
  4,997,400
  4,907,800
Total operating expenses
  2,867,800
  3,887,600
  10,122,000
  8,950,600
Loss from operations
  (2,867,800)
  (2,637,600)
  (10,122,000)
  (7,700,600)
Other expenses, net:




Interest expense, net
  (2,000)
  (900)
  (7,700)
  (3,700)
Loss on extinguishment of accounts payable
  (135,000)
  -
  (135,000)
  -





Loss before income taxes
  (3,004,800)
  (2,638,500)
  (10,264,700)
  (7,704,300)
Income taxes
  -
  -
  (2,400)
  (2,400)
Net loss and comprehensive loss
  (3,004,800)
  (2,638,500)
  (10,267,100)
  (7,706,700)





Accrued dividend on Series B Preferred stock
  (263,000)
  (237,700)
  (766,600)
  (1,018,500)
Deemed dividend from trigger of down round




provision feature
  (199,200)
  -
  (199,200)
  -
Deemed dividend on Series B Preferred Units
  -
  -
  -
  (111,100)





Net loss attributable to common stockholders
$(3,467,000)
$(2,876,200)
$(11,232,900)
$(8,836,300)





Basic and diluted net loss attributable to common




stockholders per common share
$(0.25)
$(0.34)
$(1.03)
$(1.23)





Weighted average shares used in computing basic




and diluted net loss attributable to common




stockholders per common share
  13,895,642
  8,381,824
  10,947,556
  7,181,307

See accompanying notes to Condensed Consolidated Financial Statements.

VISTAGEN THERAPEUTICS, INC.

~~STATEMENT~~

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Amounts in ~~Dollars~~Dollars)

~~UNAUDITED~~

	Three Months Ended June 30,
	2022			2021
Cash flows from operating activities:
Net loss	$	(19,776,300	)	$	(7,744,500	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		32,300			34,500
Stock-based compensation		956,900			590,400
Amortization of operating lease right of use asset		97,000			94,300
Expense related to write-off of deferred offering costs		0			232,100
Changes in operating assets and liabilities:
Prepaid expenses and other current assets		1,100,800			(1,039,700	)
Operating lease liability		(104,900	)		(84,500	)
Deferred sublicense revenue, net of deferred contract acquisition costs		(281,000	)		(320,800	)
Accounts payable and accrued expenses		2,006,900			2,065,300
Net cash used in operating activities		(15,968,300	)		(6,172,900	)

Cash flows from property and investing activities:
Purchases of laboratory and other equipment		(175,100	)		(149,900	)
Net cash used in investing activities		(175,100	)		(149,900	)

Cash flows from financing activities:
Net proceeds from issuance of common stock and warrants, including option exercises		156,100			44,500
Net proceeds from exercise of warrants		0			1,109,700
Expenses related to At the Market (ATM) facility treated as deferred offering costs		(59,400	)		(161,900	)
Repayment of capital lease obligations		(300	)		(900	)
Repayment of note payable		(101,900	)		0
Net cash (used in) provided by financing activities		(5,500	)		991,400
Net decrease in cash and cash equivalents		(16,148,900	)		(5,331,400	)
Cash and cash equivalents at beginning of period		68,135,300			103,108,300
Cash and cash equivalents at end of period	$	51,986,400		$	97,776,900

Supplemental disclosure of noncash activities:
Insurance premiums settled by issuing note payable	$	1,139,700		$	0
Accrued dividends on Series B Preferred	$	0		$	361,800

Nine Months Ended December 31,

2017

2016

Cash flows from operating activities:

Net loss
$(10,267,100)
$(7,706,700)

Adjustments to reconcile net loss to net cash used in operating activities:


   Depreciation and amortization
  65,300
  37,600
   Stock-based compensation
  1,386,900
  573,900

Expense related to modification of warrants, including exchange of warrants


    for common stock
  292,700
  427,500
   Amortization of deferred rent
  159,900
  20,400
   Fair value of common stock granted for services
  1,554,800
  1,217,500
   Fair value of Series B Preferred stock granted for services
  -
  375,000
   Fair value of warrants granted for services
  -
  240,300
   Loss on extinguishment of accounts payable
  135,000
  -
   Changes in operating assets and liabilities:


    Sublicense fee receivable
  -
  (1,250,000)
    Prepaid expenses and other current assets
  259,600
  22,000
    Accounts payable and accrued expenses, including accrued interest
  (41,800)
  74,200
     Net cash used in operating activities
  (6,454,700)
  (5,968,300)



Cash flows from property and investing activities:


  Purchases of equipment
  (1,600)
  (9,900)
     Net cash used in investing activities
  (1,600)
  (9,900)



Cash flows from financing activities:


  Net proceeds from issuance of common stock and warrants, including Units
  16,721,900
  9,785,000
  Net proceeds from issuance of Series B Preferred Units
  -
  278,000
  Repayment of capital lease obligations
  (1,700)
  (800)
  Repayment of notes payable
  (153,400)
  (140,500)
     Net cash provided by financing activities
  16,566,800
  9,921,700
Net increase in cash and cash equivalents
  10,110,500
  3,943,500
Cash and cash equivalents at beginning of period
  2,921,300
  428,500
Cash and cash equivalents at end of period
$13,031,800
$4,372,000



Supplemental disclosure of noncash activities:


    Insurance premiums settled by issuing note payable
$142,400
$117,500
    Accrued dividends on Series B Preferred
$766,600
$780,800

Accrued dividends on Series B Preferred settled upon conversion by issuance


        of common stock
$-
$1,768,800
   Deemed dividend from trigger of down round provision feature
$199,200
$-

See accompanying notes to Condensed Consolidated Financial Statements.

VISTAGEN ~~THERAP~~E~~UTICS,~~THERAPEUTICS, INC.

CONDENSED CONSOLIDATED ~~STATEMENT~~STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE ~~NINE~~THREE MONTHS ENDED ~~DECEMBER 31, 2017~~

~~AMOUNTS IN DOLLARS,~~JUNE 30, 2022 AND 2021

(Unaudited)

(Amounts in Dollars, except ~~shares~~share amounts)

	Series A Preferred Stock				Series B Preferred Stock				Series C Preferred Stock				Series D Preferred Stock						Common Stock				Additional Paid-in			Treasury			Accumulated			Total Stockholders’
	Shares		Amount		Shares		Amount		Shares		Amount		Shares			Amount			Shares		Amount		Capital			Stock			Deficit			Equity

Balances at March 31, 2021		500,000	$	500		1,131,669	$	1,100		2,318,012	$	2,300		402,149		$	400			180,751,234	$	180,800	$	315,603,100		$	(3,968,100	)	$	(219,841,700	)	$	91,978,500
Accrued dividends on Series B Preferred		-		0		-		0		-		0		-			0			-		0		(361,800	)		0			0			(361,800	)
Stock-based compensation expense (including ESPP)		-		0		-		0		-		0		-			0			-		0		590,400			0			0			590,400
Proceeds from exercise of warrants		0		0		0		0		0		0		0			0			1,516,768		1,500		1,108,200			0			0			1,109,700
Conversion of Series D Preferred stock into common stock		0		0		0		0		0		0		(402,149	)		(400	)		9,249,427		9,200		(8,800	)		0			0			0
Sale of common stock pursuant to 2019 Employee Stock Purchase Plan		0		0		0		0		0		0		0			0			16,251		0		31,600			0			0			31,600
Issuance of common stock upon cashless exercise of options		0		0		0		0		0		0		0			0			82,504		100		0			0			0			100
Issuance of common stock upon exercise of options for cash		0		0		0		0		0		0		0			0			15,824		0		12,900			0			0			12,900
Net loss for quarter ended June 30, 2021		-		0		-		0		-		0		-			0			-		0		0			0			(7,744,500	)		(7,744,500	)
Balances at June 30, 2021		500,000	$	500		1,131,669	$	1,100		2,318,012	$	2,300		0		$	0			191,632,008	$	191,600	$	316,975,600		$	(3,968,100	)	$	(227,586,200	)	$	85,616,900

																																	-
Balances at March 31, 2022		0	$	0		0	$	0		0	$	0		0		$	0			206,676,620	$	206,700	$	336,080,700		$	(3,968,100	)	$	(267,604,000	)	$	64,715,300

Stock-based compensation expense		-		0		-		0		-		0		-			0			-		0		956,900			0			0			956,900
Issuance of common stock upon exercise of options for cash		0		0		0		0		0		0		0			0			100,000		100		99,900			0			0			100,000
Sale of common stock pursuant to 2019 Employee Stock Purchase Plan		0		0		0		0		0		0		0			0			75,000		100		56,000			0			0			56,100
Net loss for quarter ended June 30, 2022		-		0		-		0		-		0		-			0			-		0		0			0			(19,776,300	)		(19,776,300	)

Balances at June 30, 2022		0	$	0		0	$	0		0	$	0		0		$	0			206,851,620	$	206,900	$	337,193,500		$	(3,968,100	)	$	(287,380,300	)	$	46,052,000

Additional

Total

Series A Preferred Stock

Series B Preferred Stock

Series C Preferred Stock

Common Stock

Paid-in

Treasury

Accumulated

Stockholders’

Shares

Amount

Shares

Amount

Shares

Amount

Shares

Amount

Capital

Stock

Deficit

Equity

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
Proceeds from sale of common stock and warrants for cash in September












2017 Public Offering, net of underwriting discount and expenses
  -
  -
  -
  -
  -
  -
  1,371,430
  1,300
  2,023,200
  -
  -
  2,024,500
Proceeds from sale of common stock and warrants for cash in December












2017 Public Offering, net of underwriting discount and expenses
  -
  -
  -
  -
  -
  -
  10,000,000
  10,000
  13,614,000
  -
  -
  13,624,000
Proceeds from sale of common stock and warrants for cash in












private placement offerings
  -
  -
  -
  -
  -
  -
  616,323
  600
  1,072,600
  -
  -
  1,073,200
Accrued dividends on Series B Preferred stock
  -
  -
  -
  -
  -
  -
  -
  -
  (766,600)
  -
  -
  (766,600)
Stock-based compensation expense
  -
  -
  -
  -
  -
  -
  -
  -
  1,386,900
  -
  -
  1,386,900
Fair value of common stock granted for services
  -
  -
  -
  -
  -
  -
  1,072,500
  1,100
  1,693,100
  -
  -
  1,694,200
Fair value of common stock granted in settlement of accounts payable
  -
  -
  -
  -
  -
  -
  500,000
  500
  584,500
  -
  -
  585,000
Increase in fair value attributable to warrant modifications
  -
  -
  -
  -
  -
  -
  -
  -
  292,700
  -
  -
  292,700
Deemed dividend from trigger of down round provision feature
  -
  -
  -
  -
  -
  -
  -
  -
  199,200
  -
  (199,200)
  -
Proceeds from exercise of warrants
  -
  -
  -
  -
  -
  -
  188,865
  200
  -
  -
  -
  200
Net loss for the nine months ended December 31, 2017
  -
  -
  -
  -
  -
  -
  -
  -
  -
  -
  (10,267,100)
  (10,267,100)













Balances at December 31, 2017
  500,000
$500
  1,160,240
$1,200
  2,318,012
$2,300
  22,723,504
$22,700
$166,669,200
$(3,968,100)
$(152,465,000)
$10,262,800

See accompanying notes to Condensed Consolidated Financial Statements.

~~-4-~~4

Table of Contents

VISTAGEN THERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1.Description of Business

VistaGen Therapeutics, Inc. ~~(NASDAQ: VTGN)~~, a Nevada corporation (which may be referred to as VistaGen, the Company, we, our, or us), is a clinical-stage, biopharmaceutical company ~~focused on developing new generation medicines~~striving to transform the treatment landscape for individuals living with anxiety, depression and other central nervous system (CNS) disorders.

~~AV-101 is our oral CNS product candidate in Phase 2 clinical development in~~ We are focused on developing and commercializing innovative therapeutics with the ~~United States, initially as a new generation adjunctive treatment for Major Depressive Disorder (MDD) in patients~~potential to be faster-acting, and with ~~an inadequate response to standard antidepressants~~fewer side effects and safety concerns, than products that are currently approved by the U.S. Food and Drug Administration (FDA). ~~AV-101’s~~Each of our drug candidates has a differentiated potential mechanism of action (MOA) ~~involves both NMDA (N-methyl-D-aspartate)~~, has been well-tolerated in all clinical studies to date, and ~~AMPA (alpha-amino-3-hydroxy-5-methyl-4-isoxazolepropionic acid)~~may have therapeutic potential in multiple CNS indications. Our goal is to become a biopharmaceutical company that develops and commercializes innovative CNS therapies for highly prevalent neuropsychiatric and neurological indications where current treatment options are inadequate to meet the needs of millions of patients in the U.S. and worldwide.

Our clinical-stage candidates belong primarily to a new class of neuroactive steroids known as pherines, which are odorless, tasteless and active on chemosensory neurons in the nasal passages. They have the potential to treat multiple anxiety and depression disorders without systemic uptake and without direct activation of GABA-A receptors or other CNS neurons in the brain, ~~responsible~~in distinct contrast to the mechanism of action of benzodiazepines, for ~~fast excitatory synaptic activity throughout~~example, which typically are taken orally, require systemic uptake and directly modulate GABA-A receptors.

Our current product candidates include the ~~CNS. AV-101’s MOA is fundamentally different~~following:

PH94B, a rapid-onset synthetic investigational pherine nasal spray that regulates the olfactory-amygdala neural circuits of fear and anxiety and attenuates the tone of the sympathetic autonomic nervous system. We are currently evaluating PH94B for the potential treatment of multiple anxiety disorders, including for adults with social anxiety disorder (SAD) in our PALISADE Phase 3 program, and for adults experiencing Adjustment Disorder with Anxiety (AjDA) in an exploratory Phase 2A clinical program. Please see below for additional information regarding our PALISADE Phase 3 program.

ii.

PH10, a synthetic investigational pherine nasal spray with a potential rapid-onset MOA that is fundamentally differentiated from the MOA of all currently approved treatments for depression disorders. We are preparing to launch a Phase 1 clinical program for PH10 that is designed to evaluate its potential as a fast-acting stand-alone treatment for major depressive disorder (MDD), and we believe that we may also have potential opportunities to develop PH10 for other depression-related disorders.

iii.

AV-101, an oral prodrug of 7-chloro-kynurenic acid (7-Cl-KYNA), which is a potent and selective antagonist of the glycine co-agonist site of the NMDAR that inhibits the function of the NMDAR, that, in combination with FDA-approved oral probenecid, has the potential to become a new oral treatment alternative for certain CNS indications involving the abnormal function of the NMDAR. We are presently conducting an exploratory Phase 1B drug-drug interaction clinical study of AV-101 in combination with probenecid.

On July 22, 2022, we announced that PALISADE-1, our single administration assessment Phase 3 clinical study of PH94B for the acute treatment of anxiety in adults with SAD did not achieve its primary efficacy endpoint. PH94B’s safety profile in the study was favorable and consistent with all ~~standard FDA-approved antidepressants, as well as all atypical antipsychotics, such as aripiprazole, often used adjunctively with standard antidepressants. We believe AV-101 also has potential~~prior clinical studies to ~~treat several additional CNS indicationswhere modulation~~date. As of the ~~NMDA receptors, activation~~date of ~~AMPA pathways and/or key active metabolites of AV-101 may achieve therapeutic benefit, including, among others, as a non-opioid alternative for neuropathic pain and for Parkinson’s disease levodopa -induced dyskinesia (PD LID~~).

~~Clinical studies conducted at the U.S. National Institute of Mental Health (NIMH), part~~this Report, we have paused enrollment in PALISADE-2, our replicate Phase 3 clinical trial in SAD, while an independent third-party biostatistician conducts an interim data analysis of the ~~U.S. National Institutes of Health (NIH), by Dr. Carlos Zarate, Jr., Chief of~~study based on subjects randomized to date. When the ~~NIMH’s Experimental Therapeutics & Pathophysiology Branch~~interim analysis is complete, we will assess the results and ~~its Section on Neurobiology~~determine next steps with respect to the study. In addition, in August 2022 we opted to end recruitment and ~~Treatment of Mood and Anxiety Disorders, have focused on the antidepressant effects of ketamine hydrochloride injection (ketamine~~), an ion-channel blocking NMDA receptor antagonist approved by the FDA as an anesthetic, in MDD patients with inadequate responses to multiple standard antidepressants. These NIMH studies, as well as clinical research at Yale University and other academic institutionsenrollment in the ~~U.S.~~PALISADE Open-Label Safety Study (PALISADEOLS), ~~have demonstrated ketamine’s robust antidepressant effects in treatment-resistant MDD patients within twenty-four hours of~~ a ~~single sub-anesthetic dose administered by intravenous (~~IV~~) injection.~~

We believe orally administered AV-101 may have potential to deliver ketamine-like antidepressant effects, without ketamine’s psychological side effects and other safety concerns, and without the need for IV administration. 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 glycine binding (~~GlyB) site of the NMDA receptor and activating the AMPA receptor pathway in the brain.~~

~~In October 2017, we received FDA authorization to launch our 180-patient Phase 2 multi-center, multi-dose, double blind, placebo-controlled efficacy and~~multiple-use, multiple-assessment long-term safety study of ~~AV-101 as a new generation adjunctive~~PH94B for the treatment ~~for MDD patients with~~of SAD. Preliminary data from the PALISADE OLS appears to support functional improvement and reduction of severity of SAD after use of PH94B on an ~~inadequate therapeutic response~~as-needed basis over an extended exposure period when measured using the Liebowitz Social Anxiety Scale (LSAS).

We remain steadfast in our commitment to ~~standard, FDA-approved antidepressants (the~~ ~~AV-101 MDD Phase 2 Adjunctive Treatment Study~~,changing the trajectory of mental health care and in ~~December 2017~~the potential of our drug candidates to achieve our mission. As to PH94B in SAD, we believe the combination of the overall safety profile of PH94B in studies to date, data from two Phase 2 clinical studies of PH94B in SAD, and emerging preliminary LSAS data from our PALISADE OLS study indicate a potential for SAD patients to achieve cumulative functional improvement with longer uses of PH94B, while still being used acutely, as-needed. Accordingly, in parallel with the conduct of the independent third-party interim analysis of PALISADE 2, we are preparing to meet with the FDA ~~granted Fast Track Designation~~ to ~~AV-101~~discuss potential next steps for late-stage clinical development of PH94B as a potential ~~adjunctive~~ treatment for ~~MDD.~~ ~~We intend~~SAD, including assessing PH94B’s therapeutic potential to launch the AV-101 MDD Phase 2 Adjunctive Treatment Study in the first quarter of 2018 with Dr. Maurizio Fava, Professor of Psychiatry at Harvard Medical School and Director, Division of Clinical Research, Massachusetts General Hospitalachieve cumulative functional improvement over multiple uses during an extended exposure period.

Subsidiaries

VistaGen Therapeutics, Inc., a California corporation d/b/a VistaStem (~~MGH~~VistaStem) Research Institute, as the Principal Investigator. 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 theJournal of the American Medical Association~~(~~JAMA~~). We expect top line results of the AV-101 MDD Phase 2 Adjunctive Treatment Study to be available in the first half of 2019. In addition, pursuant to our Cooperative Research and Development Agreement (~~CRADA~~) with the NIMH, the NIMH is currently funding, and Dr. Zarate, as Principal Investigator, and his team are currently conducting, a small Phase 2 clinical study of AV-101 as a monotherapy in subjects with treatment-resistant MDD (the ~~NIMH AV-101 MDD Phase 2 Monotherapy Study~~).

~~VistaStem Therapeutics (VistaStem~~), is our wholly owned ~~subsidiary focused on applying human pluripotent stem cell (hPSC) technology 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 utilize~~ ~~CardioSafe 3D~~,subsidiary. For the relevant periods, our customized cardiac bioassay system, to develop small molecule NCEs for our pipeline. To advance potential RM applications of our cardiac stem cell technology, in December 2016, we exclusively sublicensed to BlueRock Therapeutics LP, a next generation RM company established by Bayer AG and Versant Ventures (~~BlueRock Therapeutics), rights to certain proprietary technologies relating to the production of cardiac stem cells for the treatment of heart disease (the~~ ~~BlueRock Agreement~~). In a manner similar to our exclusive sublicense agreement with BlueRock Therapeutics, we may pursue additional RM collaborations or out-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.

~~As noted above, VistaStem is our wholly-owned subsidiary. Our Condensed~~ Consolidated Financial Statements in this Quarterly Report on Form ~~10-Q~~10-Q (Report) also include the accounts of VistaStem’s ~~two wholly-owned~~2 wholly owned inactive subsidiaries, Artemis Neuroscience, Inc., a Maryland corporation (Artemis), which was dissolved in April 2022, and VistaStem Canada, Inc., a corporation organized under the laws of Ontario, ~~Canada.~~Canada (VistaStem Canada), which was dissolved in June 2022.

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Note 2.Basis of Presentation

The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP) for interim financial information and with the instructions to Form ~~10-Q~~10-Q and Rule ~~8-03~~8-03 of Regulation ~~S-X.~~S-X. Accordingly, they do not contain all of the information and footnotes required for complete consolidated financial statements. In the opinion of management, the accompanying unaudited Condensed Consolidated Financial Statements reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly our interim financial information. The accompanying Condensed Consolidated Balance Sheet at March 31, ~~2017~~ 2022 has been derived from our audited consolidated financial statements at that date but does not include all disclosures required by U.S. GAAP. The operating results for the three ~~and nine~~ months ended ~~December 31, 2017~~ June 30, 2022 are not necessarily indicative of the operating results to be expected for our fiscal year ending March 31, ~~2018,~~ 2023, or for any other future interim or other period.

The accompanying unaudited Condensed Consolidated Financial Statements and notes to the Condensed Consolidated Financial Statements contained in this Report should be read in conjunction with our audited Consolidated Financial Statements for our fiscal year ended March 31, ~~2017~~ 2022 contained in our Annual Report on Form ~~10-K,~~10-K, as filed with the Securities and Exchange Commission (SEC) on June ~~29, 2017.~~

23, 2022 (Form 10-K).

The accompanying unaudited Condensed Consolidated Financial Statements have been prepared assuming we will continue as a going concern. As a clinical-stage biopharmaceutical company having not yet developed commercial products or achieved sustainable revenues, we have experienced recurring losses and negative cash flows from operations resulting in a deficit of ~~$152.5~~approximately $287.4 million accumulated from inception ~~(May~~( May 1998) through ~~December 31, 2017.~~ June 30, 2022. We expect losses and negative cash flows from operations to continue for the foreseeable future as we engage in further development of ~~AV-101, initially as an adjunctive treatment for MDD,~~PH94B,PH10 and ~~subsequently as a potential new treatment alternative for other CNS-related conditions, as well as exploring and potentially executing drug rescue and development opportunities usingCardioSafe3D.~~

~~From~~AV-101.

Since our inception in May 1998 through ~~December 31, 2017,~~ June 30, 2022, we have financed our operations and technology acquisitions primarily through the issuance and sale of our equity and debt securities for cash proceeds of approximately ~~$61.4~~$208.7 million, as well as from an aggregate of approximately ~~$17.6~~$22.7 million of government research grant awards (excluding the fair market value of government sponsored and funded clinical trials), strategic collaboration payments and intellectual property ~~sublicensing~~licensing, and other revenues. WeAdditionally, we have ~~also~~ issued equity securities with an approximate value at issuance of ~~$33.6~~$38.2 million in ~~non-cash~~noncash acquisitions of product licenses and in settlements of certain liabilities, including liabilities for professional services rendered to us or as compensation for such services. ~~Additionally,~~

Liquidity, Capital Resources and Going Concern

During our fiscal year ended March 31, 2022 (Fiscal 2022), holders of outstanding warrants to purchase an aggregate of approximately 7.3 million shares of our common stock exercised such warrants, and we received cash proceeds of approximately $6.2 million. In May 2021, we entered into an Open Market Sale Agreement^SM (the Sales Agreement) with respect to an at-the-market offering program (the ATM) under which we may offer and sell, from time to time, shares of our common stock having an aggregate offering price of up to $75.0 million through our sales agent. During Fiscal 2022, we sold an aggregate of 1,517,798 shares of our common stock and received net cash proceeds of approximately $4.3 million under the ATM. We have not sold any additional shares of our common stock under the Sales Agreement from October 2, 2021 through the date of this Report. During our fiscal year ended March 31, 2021 (Fiscal 2021), we received approximately $119 million in net cash proceeds, primarily from public offerings conducted in August 2020 and December 2020, the exercise of approximately 6.6 million outstanding warrants and the upfront license payment pursuant to our ~~February 2015 CRADA with~~sublicense and collaboration agreement for PH94B (the AffaMed Agreement), which is described more completely in Note 11,Sublicensing and Collaboration Agreements. The financings and other transactions consummated during Fiscal 2022 and Fiscal 2021 have been the ~~NIH, substantial ongoing Phase 2 clinical development activities relating to~~primary sources of our liquidity during Fiscal 2022 and in our current fiscal year. During the ~~NIMH AV-101 MDD Phase 2 Monotherapy Study are being sponsored~~quarter ended June 30, 2022, we received approximately $156,100 in ~~full, at no cost to us other than supplying clinical trial material, by~~proceeds from the ~~NIMH~~exercise of outstanding stock options and sales under ~~the direction of Dr. Carlos Zarate Jr. as Principal Investigator.~~

~~At December 31, 2017, we~~our 2019 Employee Stock Ownership Program (the ESPP).

We had a cash and cash equivalents ~~balance~~ of ~~$13.0 million. We~~approximately $52.0 million at June 30, 2022, which we believe ~~this amount~~ is sufficient ~~to enable us~~ to fund our planned operations for at least 12the twelve months following the issuance of ~~the~~these financial statements, ~~included~~and indicating our ability to continue as a going concern. We are continuing to evaluate our cash resources given the results of PALISADE-1 and our decisions to (i) pause recruitment and enrollment in ~~this Report.~~

~~In December 2017,~~PALISADE-2 pending our assessment of an independent third-party interim analysis of current data from subjects randomized in PALISADE-2 to date, and (ii) ending enrollment in the PALISADE OLS study of PH94B. We are also evaluating the resulting implications for the conduct and timing of other clinical trials and the development, regulatory and potential commercialization initiatives for PH94B and our other product candidates. At a minimum, certain of these activities will be deferred or cancelled in the near term, which is expected to reduce the cash required to fund our operations. Moreover, as we ~~completed an underwritten public offering of shares~~have not yet developed products that generate recurring revenue and, in the event we successfully complete future clinical and/or nonclinical programs, we will need to invest substantial additional capital resources to commercialize any of our ~~common stock~~drug candidates.

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When necessary and ~~warrants~~advantageous, we will seek additional financial resources to ~~purchase shares~~fund our planned operations through (i) sales of our ~~common stock at a combined~~equity and/or debt securities in one or more public ~~offering price~~offerings and/or private placements, (ii) the exercises of ~~$1.50 per share~~some or all of the currently outstanding warrants prior to their expiration, (iii) strategic licensing and ~~related warrant under~~development collaborations, and/or (iv) government grants and research awards. Subject to certain restrictions, our Registration Statement on Form ~~S-1 (Registration No. 333-221009), resulting in gross proceeds of $15.0 million~~S-3 (the~~December 2017 Public Offering~~). In September 2017, we completed an underwritten public offering pursuant to which we offered and sold shares of our common stock and warrants resulting in gross proceeds of approximately $2.4 million (the~~September 2017 Public Offering) under our~~S-3 Shelf Registration Statement ~~on Form S-3 (Registration No. 333-215671) (the~~~~S-3 Registration Statement~~)~~. (See Note 7,Capital Stock,for additional information regarding the December 2017 Public Offering and the September 2017 Public Offering.) Subject to certain restrictions, the S-3 Registration Statement~~ remains available for future sales of our equity securities in one or more public offerings from time to time. While we may make additional sales of our equity securities under the ~~S-3~~S-3 Shelf Registration Statement, we do not have an obligation to do so. ~~As we have been in~~

In addition to the ~~past, we expect that, if necessary, we will be successful in raising additional capital from the~~potential sale of our equity ~~securities either in one~~ and/or ~~more public offerings or in one or more private placement transactions with individual accredited investors or institutions.~~

~~In addition to the sale of our equity~~debt securities, we may also seek to enter ~~additional~~ research, ~~and~~ development and/or commercialization collaborations ~~that could generate revenue or~~similar to the AffaMed Agreement, which applies to development of PH94B in certain Pacific-Asian territories, to provide ~~substantial~~non-dilutive funding for ~~development of AV-101 and additional product candidates. We may~~our operations, while 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.~~requirements, and/or strategic acquisitions. Although we may seek additional collaborations ~~with the U.S. government or other third-parties~~ that could generate revenue and/or provide non-dilutive funding for development and commercialization of ~~AV-101 and other~~our product candidates, ~~and technologies, 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, potential impacts related to the on-going COVID-19 pandemic, the scope and nature of opportunities related to our success or failure and the success or failure of certain other companies in nonclinical and clinical trials, including ~~our~~the development and commercialization of ~~AV-101, initially as an adjunctive treatment for MDD,~~our current product candidates, and ~~as a potential treatment option for other CNS conditions, as well as various potential 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~~PH94B,PH10, and ~~opportunities related to our stem cell technology platform,~~AV-101, as well as support our operating activities, we plan to continue to carefully manage our ~~routine~~ operating costs ~~including~~and our ~~employee headcount~~clinical 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.

nonclinical programs.

Notwithstanding the foregoing, there can be no assurance that ~~if needed,~~our current strategic collaboration under the AffaMed Agreement will generate revenue from future ~~financing~~potential milestone payments or that future financings or other strategic collaborations will be available to us in sufficient amounts, in a timely manner, or on terms acceptable to us, if at all. If we are unable to obtain ~~substantial~~ additional financing on a timely basis when needed, our business, financial condition, and results of operations may be harmed, the price of our common 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~~The Condensed ~~Consolidated~~Consolidate Financial Statements included in this Report do not include any adjustments that might result from the negative outcome of this uncertainty.

Note 3.Summary of Significant Accounting Policies

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include those relating to revenue recognition, share-based compensation, right-of-use assets and lease liabilities and assumptions that have been used historically to value warrants and warrant modifications. ~~With~~

Cash and Cash Equivalents

Cash and cash equivalents are considered to be highly liquid investments with maturities of three months or less at the ~~exception~~date of ~~the $1.25 million~~purchase.

Revenue Recognition

The AffaMed Agreement, involving clinical development and commercialization of ~~sublicense~~PH94B for acute treatment of anxiety in adults with SAD, and potentially other anxiety-related disorders, in Greater China, South Korea, and Southeast Asia, has been our only source of revenue ~~recorded in~~for the quarter ended ~~December 31, 2016~~June 30, 2022 and both Fiscal 2022 and Fiscal 2021.The terms of the AffaMed Agreement include a $5.0 million non-refundable upfront license fee which we received in August 2020, potential payments based upon achievement of certain development and commercial milestones, and royalties on product sales. In prior years, we have occasionally generated revenue from collaborative research and development arrangements, licensing and technology transfer agreements, including strategic licenses or sublicenses, and government grants.

Under Accounting Standards Codification (ASC) Topic 606,Revenue from Contracts with Customers (Topic 606), we recognize revenue when our customers obtain control of promised goods or services, in an amount that reflects the consideration that we expect to receive in exchange for those goods or services. To determine revenue recognition for arrangements that we determine are within the scope of Topic 606, we perform the following five steps: (i) identify the contract with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price, including variable consideration, if any; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) we satisfy a performance obligation. We only apply the five-step model to contracts when it is probable that we will collect the consideration to which we are entitled in exchange for the goods or services we transfer to a customer.

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Once a contract is determined to be within the scope of Topic 606, we assess the goods or services promised within each contract and determine those that are performance obligations. Arrangements that include rights to additional goods or services that are exercisable at a customer’s discretion are generally considered options. We assess whether these options provide a material right to the customer and if so, they are considered performance obligations. The exercise of a material right may be accounted for as a contract modification or as a continuation of the contract for accounting purposes.

We assess whether each promised good or service is distinct for the purpose of identifying the performance obligations in the contract. This assessment involves subjective determinations and requires judgments about the individual promised goods or services and whether such are separable from the other aspects of the contractual relationship. Promised goods and services are considered distinct provided that: (i) the customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer (that is, the good or service is capable of being distinct) and (ii) our promise to transfer the good or service to the customer is separately identifiable from other promises in the contract (that is, the promise to transfer the good or service is distinct within the context of the contract). In assessing whether a promised good or service is distinct in the evaluation of a collaboration arrangement subject to Topic 606, we consider factors such as the research, manufacturing and commercialization capabilities of the collaboration partner and the availability of the associated expertise in the general marketplace. We also consider the intended benefit of the contract in assessing whether a promised good or service is separately identifiable from other promises in the contract. If a promised good or service is not distinct, we are required to combine that good or service with other promised goods or services until we identify a bundle of goods or services that is distinct.

The transaction price is then determined and allocated to the identified performance obligations in proportion to their standalone selling prices (SSP) on a relative SSP basis. SSP is determined at contract inception and is not updated to reflect changes between contract inception and satisfaction of the performance obligations. Determining the SSP for performance obligations requires significant judgment. In developing the SSP for a performance obligation, we consider applicable market conditions and relevant Company-specific factors, including factors that were contemplated in negotiating the agreement with the customer and estimated costs. In certain circumstances, we may apply the residual method to determine the SSP of a good or service if the standalone selling price is considered highly variable or uncertain. We validate the SSP for performance obligations by evaluating whether changes in the key assumptions used to determine the SSP will have a significant effect on the allocation of arrangement consideration between multiple performance obligations.

If the consideration promised in a contract includes a variable amount, we estimate the amount of consideration to which we will be entitled in exchange for transferring the promised goods or services to a customer. We determine the amount of variable consideration by using the expected value method or the most likely amount method. We include the unconstrained amount of estimated variable consideration in the transaction price. The amount included in the transaction price is constrained to the amount for which it is probable that a significant reversal of cumulative revenue recognized will not occur. At the end of each subsequent reporting period, we re-evaluate the estimated variable consideration included in the transaction price and any related constraint, and if necessary, adjust our estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis in the period of adjustment.

If an arrangement includes development and regulatory milestone payments, we evaluate whether the milestones are considered probable of being reached and estimate the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price. Milestone payments that are not within our control or the licensee’s control, such as regulatory approvals, are generally not considered probable of being achieved until those approvals are received.

In determining the transaction price, we adjust consideration for the effects of the time value of money if the timing of payments provides us with a significant benefit of financing. We do not assess whether a contract has a significant financing component if the expectation at contract inception is such that the period between payment by the licensee and the transfer of the promised goods or services to the licensee will be one year or less. For arrangements with licenses of intellectual property that include sales-based royalties, including milestone payments based on the level of sales, and the license is deemed to be the predominant item to which the royalties relate, we recognize royalty revenue and sales-based milestones at the later of (i) when the related sales occur, or (ii) when the performance obligation to which the royalty has been allocated has been satisfied.

We then recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) each performance obligation is satisfied at a point in time or over time, and if over time, based on the use of an output or input method.

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The difference between revenue recognized to-date and the consideration invoiced or received to-date is recognized as either a contract asset/unbilled revenue (revenue earned exceeds cash received) or a contract liability/deferred revenue (cash received exceeds revenue earned). At June 30, 2022, we have recorded deferred revenue of $2,491,500. The following table presents changes in our contract liabilities for the three months ended June 30, 2022:

	Balance at							Balance at
	March 31, 2022		Additions		Deductions			June 30, 2022
Deferred Revenue - current portion	$	1,244,000	$	0	$	0		$	1,244,000
Deferred Revenue - non-current portion		1,557,600		0		(310,100	)		1,247,500
Total	$	2,801,600	$	0	$	(310,100	)	$	2,491,500

For the single combined performance obligation under the ~~BlueRock~~AffaMed Agreement, the measure of progress is stand-ready straight-line over the period in which we ~~do not currently~~expect to perform the services related to the license of PH94B. Accordingly, deferred revenue is being recognized on a straight-line basis over the period in which we expect to perform the services.

During the three months ended June 30, 2022 and 2021, we recognized $310,100 and $354,100, respectively, as revenue related to the AffaMed Agreement.

Contract Acquisition Costs

During the quarter ended September 30, 2020, we made cash payments aggregating $345,000 for sublicense fees, which we were obligated to make pursuant to our PH94B license agreement with Pherin Pharmaceuticals, Inc. (Pherin), and fees for consulting services exclusively related to the AffaMed Agreement. Additionally, on June 24, 2020, we issued 233,645 unregistered shares of our common stock, valued at $125,000, as partial compensation for consulting services related exclusively to the consummation of the AffaMed Agreement. These sublicense fees and consulting payments and the fair value of the common stock issued, aggregating $470,000, were incurred solely to obtain the AffaMed Agreement, and, accordingly, have ~~nor have~~been capitalized as deferred contract acquisition costs in our Condensed Consolidated Balance Sheet. Capitalized contract acquisition costs are amortized over the period in which we ~~had during~~expect to satisfy the ~~periods covered by this report, any arrangements requiring~~performance obligations under the AffaMed Agreement and the amortization expense has been included in general and administrative expense in our Condensed Consolidated Statement of Operations and Comprehensive Loss. During the three months ended June 30, 2022 and 2021, we amortized $29,100 and $33,300, respectively, to general and administrative expense in recognition of ~~revenue.~~

the services performed under the arrangement. There has been no impairment loss in relation to the costs capitalized.

The following table summarizes our contract acquisition costs for the three months ended June 30, 2022.

	Balance at							Balance at
	March 31, 2022		Additions		Deductions			June 30, 2022
Deferred Contract Acquisition Costs - current portion	$	116,900	$	0	$	0		$	116,900
Deferred Contract Acquisition Costs - non-current portion		146,400				(29,100	)		117,300
Total	$	263,300	$	0	$	(29,100	)	$	234,200

Research and Development ~~Expenses~~

Expense

Research and development ~~expenses are~~expense is composed of both internal and external costs. Internal costs include salaries and employment-related ~~expenses~~expense, including stock-based compensation expense, of ~~our~~ scientific personnel and direct project costs. External research and development ~~expenses consist~~expense consists primarily of costs associated with ~~nonclinical~~clinical and ~~clinical~~nonclinical development of AV-101, now in Phase 2 clinical development, initially for MDD, stem cell technology-related research and development costs, and costs related to the filing, maintenance and prosecution of patents and patent applications, technology licenses and protection of other intellectual property.PH94B,PH10, AV-101. All such costs are charged to expense as incurred.

We also record accruals for estimated ongoing clinical trial costs. Clinical trial costs represent costs incurred by contract research organizations (CROs) and clinical trial sites. Progress payments are generally made to CROs , clinical sites, investigators and other professional service providers. We analyze the progress of clinical trials, including levels of subject enrollment, invoices received and contracted costs, when evaluating the adequacy of accrued liabilities. Significant judgments and estimates must be made and used in determining the clinical trial accrual in any reporting period. Actual results could differ from those estimates under different assumptions. Revisions are charged to research and development expense in the period in which the facts that give rise to the revision become known.

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Costs incurred in obtaining product or technology licenses are charged immediately to research and development expense if the product or technology licensed has not achieved regulatory approval or reached technical feasibility and has no alternative future uses, as was the case with our acquisition of the exclusive worldwide licenses for PH94B and PH10 from Pherin during our fiscal year ended March 31, 2019.

Stock-Based Compensation

We recognize compensation cost for all stock-based awards to employees, orindependent directors and non-employee consultants based on the grant date fair value of the award. ~~Non-cash~~We record stock-based compensation expense ~~is recognized~~ over the period during which the employee or ~~consultant~~other grantee is required to perform services in exchange for the award, which generally represents the scheduled vesting period. We have nonot granted restricted stock awards to employees or others nor do we have any awards with market or performance conditions. ~~For equity awards~~Non-cash expense attributable to compensatory grants of shares of our common stock to non-employees ~~we re-measure~~is determined by the ~~fair value~~quoted market price of the ~~awards as they vest~~stock on the date of grant and ~~the resulting change in value~~ is either recognized as ~~an expense during~~fully-earned at the ~~period~~time of the grant or amortized ratably over ~~which~~ the ~~services are performed.~~

~~-7-~~

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the related service agreement, depending on the terms of the specific agreement.

The table below summarizes stock-based compensation expense included in the accompanying Condensed Consolidated Statements of Operations and Comprehensive ~~Loss~~Loss:

	Three Months Ended June 30,
	2022		2021

Research and development expense	$	329,600	$	240,800

General and administrative expense		627,300		349,600

Total stock-based compensation expense	$	956,900	$	590,400

Expense amounts reported above include $15,900 and $2,300 in research and development expense for the three ~~and nine~~ months ended ~~December 31, 2017~~ June 30, 2022 and ~~2016.~~

Three Months Ended

Nine Months Ended

December 31, December 31,

2017

2016

2017

2016

Research and development expense:

Stock option grants
$299,100
$113,900
$627,400
$239,900

  299,100
  113,900
  627,400
  239,900
General and administrative expense:




Stock option grants
  390,200
  153,300
  759,500
  334,000

  390,200
  153,300
  759,500
  334,000
Total stock-based compensation expense
$689,300
$267,200
$1,386,900
$573,900

~~In April 2017,~~2021, respectively, and $4,900 and $2,700 in general and administrative expense for the three months ended June 30, 2022 and 2021, respectively, attributable to our ~~Board approved~~ESPP.

During the ~~grant of~~three months ended June 30, 2022, we granted from our 2019 Omnibus Equity Incentive Plan (the 2019 Plan) options to purchase an aggregate of ~~880,000~~615,000 shares of our common stock at an exercise ~~price of $1.96 per share to~~prices at the ~~independent members of our Board, our officers and our employees. In September 2017, our stockholders approved an amendment to our 2016 Amended and Restated Stock Incentive Plan (the2016 Plan~~) to increase the number of shares issuable thereunder from 3.0 million shares to 10.0 million shares. Following that approval, our Board authorized the grant of options to purchase an aggregate of 770,000 sharesclosing market price of our common stock ~~at an exercise price~~on the date of ~~$1.56 per share~~grant primarily to newly-hired employees. The options to newly hired employees vest 25% on the ~~independent members~~first anniversary of ~~our Board, our officers, employees and certain consultants.~~the grant date with the remaining shares vesting ratably monthly over the next three years. We valued the options granted ~~in April 2017 and September 2017~~ during the three months ended June 30, 2022 using the Black-Scholes Option Pricing Model and the following ~~weighted average~~ assumptions:

Assumption:

April 2017

September 2017

Market price per share at grant date
$1.96
$1.56
Exercise price per share
$1.96
$1.56
Risk-free interest rate
  2.02%
  1.99%
Contractual or estimated term in years
  6.48
  6.70
Volatility
  83.24%
  92.29%
Dividend rate
  0.0%
  0.0%
Shares
  880,000
  770,000



Fair Value per share
$1.42
$1.20

Assumption:	Weighted Average			Range
Market price per share at grant date	$	1.18		$0.96	to	$1.51
Exercise price per share	$	1.18		$0.96	to	$1.51
Risk-free interest rate		3.02	%	2.76%	to	3.23%
Expected term in years		6.08		5.79	to	6.08
Volatility		80.14	%	79.14%	to	80.77%
Dividend rate		0.0	%		0	0.0%
Shares		615,000

Fair Value per share	$	0.83

During the quarter ended June ~~2016, our Board approved the grant of~~30, 2022, unvested options to purchase an aggregate of ~~655,000~~168,749 shares of our common stock ~~at an exercise price of $3.49 per share~~were cancelled due to employee terminations; such options were returned to the ~~independent members of our Board and~~2019 Plan to our officers, including our then-newly-hired Chief Medical Officer. In September 2016, the Board approved the grant of an option to purchase 125,000 shares of our common stock at an exercise price of $4.27 per share to another then-newly-hired officer. We valued the options granted in be available for future issuance. At June ~~2016 and September 2016 using the Black-Scholes Option Pricing Model and the following weighted average assumptions:~~

Assumption:

June 2016

September 2016

Market price per share at grant date
$3.49
$4.27
Exercise price per share
$3.49
$4.27
Risk-free interest rate
  1.34%
  1.29%
Contractual or estimated term in years
  6.68
  6.25
Volatility
  81.69%
  83.26%
Dividend rate
  0.0%
  0.0%
Shares
  655,000
  125,000



Fair Value per share
$2.50
$3.05

~~At December 31, 2017,~~ 30, 2022, there were stock options outstanding under our 2016 Equity Incentive Plan (the 2016 Plan) and our 2019 Plan to purchase ~~3,279,871~~19,728,390 shares of our common stock at a weighted average exercise price of ~~$3.23~~$1.45 per share. At that date, there were also 6,846,156 shares of our common stock available for future issuance under the 2019 Plan. There are 0 additional shares available for issuance under our 2016 Plan.

Leases, Right-of-use Assets and Operating Lease Obligations

We account for our leases following the guidance of Accounting Standards Update No.2016-02, “Leases (Topic 842)” (ASU 2016-02). ASU 2016-02 requires that we determine, at the inception of an arrangement, whether the arrangement is or contains a lease, based on the unique facts and circumstances present. Operating lease assets represent our right to use an underlying asset for the lease term (Right-of-use assets) and operating lease liabilities represent our obligation to make lease payments arising from the lease. Right-of-use assets and operating lease liabilities are recognized at the commencement date of the lease based upon the present value of lease payments over the lease term. When determining the lease term, we include options to extend or terminate the lease when it is reasonably certain, at inception, that we will exercise that option. The interest rate implicit in lease contracts is typically not readily determinable; accordingly, we use our incremental borrowing rate, which is the rate that would be incurred to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment, based upon the information available at the commencement date. The lease payments used to determine our operating lease assets may include lease incentives, stated rent increases and escalation clauses linked to rates of inflation, when determinable, and are recognized in determining our Right-of-use assets. Our operating lease is reflected in the Right-of-use asset – operating lease; Operating lease obligation – current portion; and Operating lease obligation – non-current portion in our Condensed Consolidated Balance Sheets.

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~~See~~

Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. Short-term leases, defined as leases that have a lease term of 12 months or less at the commencement date, are excluded from this treatment and are recognized on a straight-line basis over the term of the lease. Variable lease payments are amounts owed by us to a lessor that are not fixed, such as reimbursement for common area maintenance costs for our facility lease; and are expensed when incurred.

Financing leases, formerly referred to as capitalized leases, are treated similarly to operating leases except that the asset subject to the lease is included in the appropriate fixed asset category, rather than recorded as a Right-of-use asset, and depreciated over its estimated useful life, or lease term, if shorter. Refer to Note 9, ~~Subsequent Events~~,10,Commitments and Contingencies, for additional information regarding ~~option grants made during February 2018.~~

ASC 842 and its impact on our Condensed Consolidated Financial Statements.

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 instruments. We deposit cash and cash equivalents with quality financial institutions which are insured to the maximum of federal limitations. Balances in these accounts may exceed federally insured limits at times.

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.

~~-8-~~

~~Table of Contents~~

~~Income (Loss)~~

Loss per Common Share

Basic net ~~income (loss)~~loss attributable to common stockholders per share of common stock excludes the effect of dilution and is computed by dividing net ~~income (loss)~~loss increased by the accrual of dividends on outstanding shares of our Series B 10% Convertible Preferred Stock (Series B Preferred) prior to its conversion during Fiscal 2022, by the weighted-average number of shares of common stock outstanding for the period. Diluted net ~~income (loss)~~loss attributable to common stockholders per share of common stock reflects the potential dilution that could occur if securities or other contracts to issue shares of common stock were exercised or converted into shares of common stock.

In calculating diluted net loss attributable to common stockholders per share, we have generally not increased the denominator to include the number of potentially dilutive common shares assumed to be outstanding during the period using the treasury stock method because the result is antidilutive.

As a result of our net loss for ~~the~~both periods presented, potentially dilutive securities were excluded from the computation of diluted net loss per share, as their effect would be antidilutive. ~~For the three and nine-month periods ended December 31, 2017 and 2016, the accrual for dividends on our Series B 10% Convertible Preferred Stock (Series B Preferred~~) is treated as a deduction from our net loss to arrive at net loss attributable to common stockholders for those periods. Additionally, in 2017, the deemed dividend attributable to the trigger of the down round provision feature, and, in 2016, the deemed dividend attributable to our sale and issuance of Series B Preferred Units, each consisting of one share of Series B Preferred and a five-year warrant to purchase one share of our common stock for $7.00, each represent further deductions from our net loss to arrive at net loss attributable to common stockholders for those periods.

Potentially dilutive securities excluded in determining diluted net loss attributable to common stockholders per common share are as follows:

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As of December 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
  1,160,240
Series C Preferred stock issued and outstanding (3)
  2,318,012
  2,318,012
Outstanding options under the Amended and Restated 2016 (formerly 2008) and 1999 Stock Incentive Plans
  3,279,871
  1,659,324
Outstanding warrants to purchase common stock
  16,918,292
  4,550,370
Total
  24,426,415
  10,437,946

~~____________~~
~~(1)Assumes exchange under the terms of the October 11, 2012 Note Exchange and Purchase Agreement, as amended~~
~~(2)Assumes exchange under the terms of the Certificate of Designation of the Relative Rights and Preferences of the Series B 10% Convertible Preferred Stock, effective May 5, 2015~~
~~(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~~

	At June 30,		At March 31,		At June 30,
	2022		2022		2021

Series A Preferred stock issued and outstanding⁽¹⁾		0		0		750,000

Series B Preferred stock issued and outstanding⁽²⁾		0		0		1,131,669

Series C Preferred stock issued and outstanding⁽³⁾		0		0		2,318,012

Outstanding options under the Company's Amended and Restated 2016 (formerly 2008) Stock Incentive Plan and 2019 Omnibus Equity Incentive Plan		19,728,390		19,386,389		15,071,639

Outstanding warrants to purchase common stock		9,275,858		9,275,858		15,139,881

Total		29,004,248		28,662,247		34,411,201

⁽¹⁾ Assumes exchange under the terms of the October 11, 2012 Note Exchange and Purchase Agreement, as amended.

⁽²⁾ Assumes exchange under the terms of the Certificate of Designation of the Relative Rights and Preferences of the Series B 10% Convertible Preferred Stock, effective May 5, 2015; excludes shares of unregistered common stock issuable in payment of dividends on Series B Preferred upon conversion. We issued 3,295,778 unregistered shares of our common stock upon conversion of the Series B Preferred in November 2021.

⁽³⁾ Assumes exchange under the terms of the Certificate of Designation of the Relative Rights and Preferences of the Series C Convertible Preferred Stock, effective January 25, 2016.

Fair Value Measurements

We do not use derivative instruments for hedging of market risks or for trading or speculative purposes. Our only financial assets that are measured on a recurring basis at fair value were $50,101,200 and $65,094,900 held in money market funds and classified as cash equivalents at June 30, 2022 and March 31, 2022, respectively. Our money market funds are classified within Level 1 of the fair value hierarchy and are valued based on quoted prices in active markets for identical securities. We ~~carried no assets or~~had 0 financial liabilities that are measured on a recurring basis at fair value at ~~December 31, 2017~~ June 30, 2022 or March 31, ~~2017.~~

~~-9-~~

~~Table~~2022.

Warrants Issued in Connection with Equity Financing

We evaluate the appropriate balance sheet classification of ~~Contents~~

warrants we issue as either equity or as a derivative liability. In accordance with ASC 815-40,Derivatives and Hedging-Contracts in the Entity’s Own Equity (ASC 815-40), we classify a warrant as equity if it is “indexed to the Company’s equity” and meets several specific conditions for equity classification. A warrant is not considered “indexed to the Company’s equity,” in general, when it contains certain types of exercise contingencies or potential adjustments to its exercise price. If a warrant is not indexed to the Company’s equity or it has net cash settlement that results in the warrants to be accounted for under ASC 480,Distinguishing Liabilities from Equity or ASC 815-40, it is classified as a derivative liability which is carried on the consolidated balance sheet at fair value with any changes in its fair value recognized immediately in the Statement of Operations and Comprehensive Loss. At June 30, 2022 and March 31, 2022, we had both investor warrants and stock-based compensation warrants outstanding that were classified as equity.

Recent Accounting Pronouncements

~~Except as described below, there have been no~~

We believe the following recent accounting pronouncements or changes in accounting pronouncements during the nine months ended December 31, 2017, as compared to the recent accounting pronouncements described in our Form 10-K for the fiscal year ended March 31, 2017, that arepronouncement is of significance or potential significance to ~~us.~~

the Company.

In ~~July 2017,~~ August 2020, the Financial Accounting Standards Board (FASB) issued ~~Accounting Standards Update (~~ASU2020-06,Debt – Debt with Conversion and Other Options (Subtopic 470- 20) ~~2017-11, “Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480);~~and Derivatives and Hedging ~~(Topic 815)~~– Contracts in Entity’s Own Equity (Subtopic 815-40): ~~Part I:~~ Accounting for ~~Certain Financial~~Convertible Instruments ~~with Down Round Features; Part II: Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities~~ and ~~Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception” (ASU 2017-11). Part I of this ASU provides that an entity will no longer have to consider “down round” features (i.e., a provision~~Contracts in an ~~equity-linked financial instrument, such as a free-standing warrant, or an embedded feature, such as a conversion option~~Entity’s Own Equity (ASU 2020-06), to reduce complexity in a convertible instrument, that reduces the exercise price of such instrument if the entity subsequently sells stock for a lower price or issues an equity-linked instrument with a lower exercise price) when determining whetherapplying U.S. GAAP to certain ~~equity-linked~~ financial instruments with characteristics of liabilities and equity.

The guidance in ASU 2020-06 simplifies the accounting for convertible debt instruments and convertible preferred stock by removing the existing guidance in ASC 470-20,Debt: Debt with Conversion and Other Options, that requires entities to account for beneficial conversion features and cash conversion features in equity, separately from the host convertible debt or preferred stock. The guidance in ASC 470-20 applies to convertible instruments for which the embedded conversion features are not required to be bifurcated from the host contract and accounted for as derivatives.

In addition, the amendments revise the scope exception from derivative accounting in ASC 815-40 for freestanding financial instruments and embedded features that are indexed to its own stock. The definition of a down round feature in ASU 2017-11 excludes standard anti-dilution provisions related to changes in an entity’s capital structure. Accounting Standards Codification Topic 815-40, “Derivatives and Hedging–Contracts in Entity’s Own Equity” (~~ASC 815-40) requires that a freestanding equity-linked financial instrument be~~both indexed to the issuer’s own stock and classified in stockholders’ equity, by removing certain criteria required for equity classification. These amendments are expected to be classified as equity. An equity-linked embedded feature that meets the definition of a derivative may avoid bifurcation and derivative accounting if it is indexed to the issuer’s own stock. Under the terms of prior guidance, aresult in more freestanding financial ~~instrument or embedded feature was~~ instruments qualifying for equity classification (and, therefore, not considered indexed to the issuer’s own stock if it had a down round provision. Consequently, the freestanding financial instrument was classified as a liability (or asset), and if it met the definition of a derivative, was measured at fair value with changes in fair value recorded through earnings. Similarly, an embedded feature was bifurcated and separately accounted for as ~~a derivative if it met all other criteria for bifurcation under~~derivatives), as well as fewer embedded features requiring separate accounting from the host contract.

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The amendments in ASU 2020-06 further revise the guidance in ASC ~~815-40. The bifurcated embedded feature was also measured at fair value through earnings. Under the provisions of ASU 2017-11, an entity that presents~~260,Earnings Per Share, to require entities to calculate diluted earnings per share (EPS) ~~under Accounting Standards Codification Topic 260, “Earnings Per Share” will recognize~~for convertible instruments by using the ~~effect~~if-converted method. In addition, entities must presume share settlement for purposes of ~~a down round feature~~calculating diluted EPS when an instrument may be settled in ~~a freestanding equity-classified financial instrument only when it is triggered.~~ cash or shares.

The ~~effect~~amendments in ASU 2020-06 are effective for our fiscal year beginning April 1, 2024. We are evaluating the impact of ~~triggering such a feature will be recognized as a dividend and a reduction to income available to common shareholders in basic EPS. The~~this new guidance, ~~requires new disclosures for financial instruments with down round features and other terms~~but do not believe that change conversion or exercise prices. Part I of ASU 2017-11 is effective for fiscal years beginning after December 15, 2018, and interim periods therein, however early adoption is permitted. We early-adopted ASU 2017-11 effective with our quarter ended September 30, 2017 and applied its guidance to certain of the warrants issued in the September 2017 Public Offering, as described more completely in Note 7, ~~Capital Stock. No retrospective adjustments to our financial statements were required as a result of~~ our adoption of ASU ~~2017-11.~~

In February 2016, the FASB issued ASU No. 2016-2, “Leases.” This ASU requires substantially all leases, including operating leases, to be recognized by lessees on their balance sheet as a right-of-use asset and corresponding lease liability. This ASU is effective for our interim and annual reporting periods beginning April 1, 2019 and early adoption is permitted. We are currently evaluating the impact that the adoption of this ASU2020-06 will ~~have on our financial statements.~~

In March 2016, the FASB issued ASU No. 2016-09, “Improvements to Employee Share-Based Payment Accounting,” which simplified several aspects of the accounting for share-based payments, including immediate recognition of all excess tax benefits and deficiencies in the income statement, changing the threshold to qualify for equity classification up to the employees’ maximum statutory tax rates, allowing an entity-wide accounting policy election to either estimate the number of awards that are expected to vest or account for forfeitures as they occur, and clarifying the classification on the statement of cash flows for the excess tax benefit and employee taxes paid when an employer withholds shares for tax-withholding purposes. This ASU became effective for our interim and annual reporting periods beginning April 1, 2017, and the adoption of this standard did not have a material impact on our Consolidated Financial Statements.

Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on our consolidated financial ~~statements. Pursuant to our adoption of this standard, we elected to account for the impact of option forfeitures as they occur.~~

statements upon adoption.

Note 4.Prepaid ~~Expenses~~Expense and Other Current Assets

Prepaid ~~expenses~~expense and other current assets are composed of the ~~following~~following:

	June 30,		March 31,
	2022		2022

Clinical and nonclinical materials and contract services	$	996,300	$	2,139,600
Insurance		1,125,600		196,500
Receivable from CRO for cancelled project		337,900		337,900
Receivable from collaboration partner		343,900		0
All other		86,600		71,800
	$	2,890,300	$	2,745,800

The amount reported as receivable from CRO for cancelled project at ~~December 31, 2017~~ June 30, 2022 and March 31, ~~2017:~~

2022 represents the amount of prepayments on a cancelled project net of expense incurred by the CRO prior to project cancellation and was refunded to us in July 2022. The amount reported as receivable from collaboration partner at June 30, 2022 represents payments we made to two CROs for project and clinical trial services on behalf of our collaboration partner. Our collaboration partner has not reimbursed us for these amounts as of the date of this Report.

December 31,

March 31,

2017

2017

AV-101 materials and services
$770,500
$352,800
Insurance
  72,300
  85,800
Professional services
  48,000
  -
Public offering expenses
  25,900
  11,600
All other
  23,700
  6,400

$940,400
$456,600

Note 5. Property and Equipment

Property and equipment is composed of the following:

	June 30,			March 31,
	2022			2022

Laboratory equipment	$	1,356,400		$	1,181,300
Tenant improvements		214,400			214,400
Office furniture and equipment		72,100			76,200
Manufacturing equipment		211,200			211,200
		1,854,100			1,683,100

Accumulated depreciation and amortization		(1,286,500	)		(1,268,800	)
Property and equipment, net	$	567,600		$	414,300

We recorded depreciation and amortization expense of $32,300 and $34,500 for the three-month periods ended June 30, 2022 and 2021, respectively. Included in amounts reported above for office furniture and equipment is the right-of-use asset related to a financing lease of certain office equipment. Amounts associated with assets subject to the financing lease are as follows:

	June 30,			March 31,
	2022			2022

Office equipment subject to financing lease	$	10,600		$	14,700
Accumulated depreciation		(500	)		(14,700	)

Net book value of office equipment subject to financing lease	$	10,100		$	0

~~-10-~~13

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The fully-depreciated office equipment reported at March 31, 2022 was subject to a lease that expired in January 2022. That equipment was replaced subject to a new lease in April 2022. The new lease requires a monthly payment of approximately $200 through June 2027.

Note 5. 6.Accrued ~~Expenses~~

Expense

Accrued ~~expenses are~~expense is composed of the ~~following at December 31, 2017 and March 31, 2017:~~

following:

	June 30,		March 31,
	2022		2022

Accrued expenses for clinical and nonclinical materials, development and contract services	$	453,200	$	1,070,800
Accrued compensation		240,700		66,200
Accrued professional services		28,000		159,500
All other		5,400		32,700
	$	727,300	$	1,329,200

December 31,

March 31,

2017

2017

Accrued AV-101 development and related expenses
$565,700
$402,400
Accrued professional services
  97,100
  37,000
Accrued compensation
  105,000
  -
All other
  3,100
  3,600

$770,900
$443,000

Note ~~6. Notes~~7. Note Payable

The following table summarizes our ~~unsecured promissory~~outstanding notes payable at ~~December 31, 2017~~ June 30, 2022 and March 31, ~~2017.~~

December 31, 2017

March 31, 2017

Principal

Accrued

Principal

Accrued

Balance

Interest

Total

Balance

Interest

Total

7.95% and 8.25% Notes payable to insurance

premium financing company (current)
$43,700
$-
$43,700
$54,800
$-
$54,800





















Total notes payable to unrelated parties
$43,700
$-
$43,700
$54,800
$-
$54,800
less: current portion
  (43,700)
  -
  (43,700)
  (54,800)
  -
  (54,800)
Net non-current portion
$-
$-
$-
$-
$-
$-

2022.

	June 30, 2022						March 31, 2022
	Principal		Accrued				Principal		Accrued
	Balance		Interest		Total		Balance		Interest		Total

3.88% Note payable to insurance premium financing company (current)	$	1,037,800	$	0	$	1,037,800	$	0	$	0	$	0

In May ~~2017,~~ 2022, we executed a ~~7.95%~~3.88% promissory note in the principal amount of ~~$142,400~~$1,139,700 in connection with certain insurance policy premiums. The note is payable in monthly installments of ~~$14,800,~~$105,600, including principal and interest, through ~~March 2018,~~April 2023.

Note 8.Capital Stock

ATM Agreement

In May 2021, we entered into an Open Market Sale Agreement^SM (the Sales Agreement) with Jefferies LLC, as sales agent (Jefferies), with respect to an at-the-market offering program (the ATM) under which we may, in our sole discretion, offer and had a remaining outstanding balance of $43,700 at December 31, 2017. In February 2017, we executed a promissory note in the principal amount of $60,700 in connection with other insurance policy premiums. That note was payable in monthly installments of $6,300, including principal and interest, and was paid in full at December 31, 2017.

~~Note 7. Capital Stock~~

~~At our Annual Meeting of Stockholders on September 15, 2017, as approved by and recommended~~sell, from time to ~~our stockholders by our Board of Directors, our stockholders approved an amendment to our Restated and Amended Articles of Incorporation to increase the authorized number of~~time, shares of our common stock ~~that~~ having an aggregate offering price of up to $75.0 million (the Shares) through Jefferies. In transactions occurring during September and October 2021, we ~~may issue from 30.0 million shares to 100.0 million shares. The amendment became effective on September 15, 2017, upon our filing~~sold an aggregate of ~~a certificate of amendment with the Nevada Secretary of State.~~

~~Common Stock and Warrants Issued in December 2017UnderwrittenPublic Offering~~

~~On December 13, 2017, we completed the December 2017 Public Offering, resulting in gross proceeds of $15.0 million, pursuant to which we offered and sold~~1,517,798 shares of our common stock and ~~warrants to purchase~~received net cash proceeds of approximately $4.3 million under the ATM. We have not sold any additional shares of our common stock atunder the ATM from October 2, 2021 through the date of this Report.

We record transactions under the Sales Agreement on a ~~combined public~~settlement date basis. All legal fees and accounting expenses incurred in connection with the Sales Agreement are recorded as Deferred Offering Costs and are amortized to Additional Paid-in Capital as costs of the offering ~~price~~as sales of ~~$1.50 per shares~~ Shares are made under the Sales Agreement. Between execution of the Sales Agreement in May 2021 and March 31, 2022, we incurred legal fees and accounting expenses aggregating approximately $276,500 in connection with the Sales Agreement. During the quarter ended June 30, 2022, we incurred additional legal fees and accounting expenses aggregating $59,400 related ~~warrant. We issued~~to the Sales Agreement. The Sales Agreement will terminate upon the earlier of (i) the sale of all Shares subject to the Sales Agreement or (ii) the termination of the Sales Agreement by Jefferies or by us, as permitted.

Stock Option Exercises and ESPP Purchases

During the quarter ended June 30, 2022, the holder of an ~~aggregate of 10,000,000~~outstanding stock option exercised such option to purchase 100,000 shares of our common stock and ~~warrants to purchase up to 10,000,000~~we received cash proceeds of $100,000. During the quarter ended June 30, 2021, holders of an aggregate of 141,449 shares of our common stock atexercised such options and we received cash proceeds of $12,900. Certain of the options were exercised on a net exercise basis and we issued an ~~exercise price~~aggregate of ~~$1.50 per share (theDecember 2017 Offering Warrants). The~~98,328 shares of our common stock pursuant to the exercises. On June 30, 2022, our ESPP completed a purchase period pursuant to which we issued 75,000 shares of our registered common stock and ~~the~~received proceeds of $56,100. On June 30, 2021, our ESPP completed a purchase period pursuant to which we issued 16,251 shares of common stock ~~underlying the December 2017 Offering Warrants issued in the December 2017 Public Offering were offered, issued~~ and ~~sold pursuant to our Registration Statement on Form S-1 (Registration No. 333-221009)~~ ~~that was declared effective by the Securities and Exchange Commission (the~~ ~~Commission) on December 11, 2017. Th~~e December 2017 Offering Warrants are exercisable at any time through December 13, 2022, 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 do not contain any cashless exercise features as long as our Registration Statement on Form S-1 (Registration No. 333-221009) is effective. Accordingly, we have accounted for the December 2017 Offering Warrants as equity warrants. We received ~~net~~ proceeds of ~~approximately $13.6 million from the December 2017 Public Offering, after deducting underwriter’s commission and other expenses related to the offering.~~

$31,600.

~~-11-~~14

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~~Common Stock~~

Warrants Outstanding

The following table summarizes warrants outstanding and ~~Warrants Issued in September 2017UnderwrittenPublic Offering~~

~~On September 6, 2017, we completed the September 2017 Public Offering, resulting in gross proceeds~~exercisable as of ~~approximately $2.4 million, pursuant to which we offered~~ June 30, 2022 and ~~sold shares of our common stock and~~March 31, 2022. All outstanding warrants to two of our existing institutional investors. We issued an aggregate of 1,371,430 shares of our common stock, Series A1 Warrants to purchase up to 1,388,931 shares of common stock and Series A2 Warrants to purchase up to 503,641 of common stock (collectively, the~~Warrants), each~~are currently exercisable ~~for $1.82 per share in the September 2017 Public Offering. The Series A1 Warrants will be exercisable by the investors for a five-year period commencing on March 7, 2018,~~ and the Series A2 Warrants were immediately exercisable at any time through September 6, 2022. The common stock and the shares of common stock underlying the Warrants issued in the September 2017 Public Offering were offered, issued and sold pursuant to our S-3 Registration Statement (Registration No. 333-215671) ~~that had previously been declared effective by the Commission to cover this and potential future sales of our equity securities in one or more public offerings from time to time.~~ ~~We received net proceeds of approximately $2.0 million from the September 2017 Public Offering, after deducting underwriter’s commission and other expenses related to the offering.~~

The Series A1 Warrants to purchase an aggregate of 1,388,931 shares of our common stock issued in the September 2017 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 Series A2 Warrants to purchase an aggregate of 503,641 shares of our common stock contained anti-dilution protection provisions that became effective upon the issuance of common stock in the December 2017 Public Offering at a price below their then-current $1.82 per share exercise price. The anti-dilution protection provisions in the Series A2 Warrants constituted a down round feature subject to the guidance in ASU 2017-11. Since the Series A2 Warrants contained no other provisions which required their treatment as liability warrants rather than equity warrants, including 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 which are also present in the Series A1 Warrants, we also accounted for the Series A2 Warrants as equity warrants.

Our sale of units consisting of common stock and warrants in the December 2017 Public Offering at an offering price of $1.50 per unit triggered the anti-dilution provisions of the Series A2 Warrants. In accordance with the anti-dilution terms and formula contained in the Series A2 warrants, the exercise price of the Series A2 Warrants was reduced to $0.001 per share. In December 2017, certain holders exercised the reset Series A2 warrants to purchase an aggregate of 188,865 shares of our common stock from which we received nominal cash proceeds. In accordance with the guidance in ASU 2017-11, we recognized the effect of triggering the down round feature as a dividend in our Condensed Consolidated Statement of Stockholders’ Equity for the nine months ended December 31, 2017 and as an addition to net loss attributable to common stockholders and in our calculation of basic and fully diluted earnings per share in our Condensed Consolidated Statement of Operations for the three and nine months ended December 31, 2017.

~~We calculated the dividend from the trigger of the down round provision feature, $199,200, using~~ ~~the Black Scholes Option Pricing Model and the assumptions indicated in the table below:~~

Assumption:

Pre-reset

Post-reset

Market price per share
$1.17
$1.17
Exercise price per share
$1.82
$0.001
Risk-free interest rate
  2.09%
  2.09%
Remaining contractual term in years
  4.73
  4.73
Volatility
  97.8%
  97.8%
Dividend rate
  0.0%
  0.0%



Number of warrant shares
  503,641
  503,641
Fair value per share
$0.77
$1.17

~~Common Stock and Warrants Issued in Private Placements~~

During the quarter ended June 30, 2017, in self-placed private placement transactions, we accepted subscription agreements from individual accredited investors, pursuant to which we sold to such investors units, at a weighted average purchase price of $2.00 per unit, consisting of an aggregate of 437,751 unregistered shares of our common stock and warrants, exercisable through April 30, 2021, to purchase an aggregate of 218,875 unregistered shares of our common stock at a weighted average exercise price of ~~$3.99~~such warrants at June 30, 2022 is $1.47 per share. ~~The purchasers~~

		Warrants
		Exercisable and
Exercise		Outstanding at
Price	*Expiration*	*June 30, 2022 and*
per Share	*Date*	*March 31, 2022*

$0.50	12/9/2022		1,000,000
$0.73	7/25/2025		370,544
$0.805	12/31/2022		76,859
$1.50	12/13/2022		6,789,243
$1.70	10/5/2022		12,162
$1.82	3/7/2023		880,050
$7.00	3/3/2023		147,000
			9,275,858

In May 2020, we filed a Registration Statement on Form S-3 covering the resale of the ~~units have no registration rights with respect to the~~ shares ~~of common stock, warrants or the shares of common stock issuable upon exercise~~underlying substantially all of the currently outstanding warrants comprising the units sold. The warrants are not exercisable until six months and one day following the date of issuance. We received aggregate cash proceeds of $873,300 in connection with these self-placed private placement transactions, and the entire amount of the proceeds was credited to stockholders’ equity.

~~-12-~~

~~Table of Contents~~

During the quarter ended September 30, 2017, in a self-placed private placement transaction, we sold to an accredited investor units consisting of 28,572 shares of our unregistered common stock and warrants exercisable through April 30, 2021 to purchase 28,572 unregistered shares of our common stock at(the Warrant Registration Statement), except those having an exercise price of ~~$4.00~~$7.00 per share. The ~~purchaser of~~SEC declared the ~~units has no registration rights with respect~~Warrant Registration Statement effective on May 13, 2020. No outstanding warrant is subject to the shares of common stock, warrants or the shares of common stock issuable upon exercise of the warrants comprising the units sold. The warrants are not exercisable until six months and one day following the date of issuance. We received cash proceeds of $50,000 from this sale of our securities, and the entire amount of the proceeds was credited to stockholders’ equity.

During the quarter ended December 31, 2017, in a self-placed private placement transaction, we sold to an accredited investor units consisting of 150,000 shares of our unregistered common stock and warrants exercisable through November 30, 2021 to purchase 150,000 unregistered shares of our common stock at an exercise price of $2.00 per share. The purchaser 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. The warrants are not exercisable until six months and one day following the date of issuance. We received cash proceeds of $150,000 from this sale of our securities, and the entire amount of the proceeds was credited to stockholders’ equity.

~~Issuance of Common Stock to Professional Services Providers and in Settlement of Accounts Payable~~

~~During the quarter ended June 30, 2017,~~ ~~we issued 25,000 shares of our unregistered common stock having a fair value on the date of issuance of $49,800 as partial compensation to an investor relations service provider.~~

During the quarter ended September 30, 2017, we issued an aggregate of 927,500 unregistered shares of our common stock, of which 477,500 shares were issued from our 2016 Plan, for various professional services, including contract research, legal, investor relations and financial advisory services. The common stock issued had an aggregate fair value of $1,503,600 on the dates issued, of which all but $139,300 has been recognized as noncash expense through December 31, 2017. The un-expensed portion at December 31, 2017 is being recognized in expense ratably through July 2019 in accordance with the terms of work orders for certain contract research services to be provided through that period.

During the quarter ended December 31, 2017, we issued an aggregate of 70,000 unregistered shares of our common stock, all of which were issued from our 2016 Plan for additional investor relations and financial advisory services. The common stock issued had an aggregate fair value of $140,800 on the dates issued.

During the quarter ended December 31, 2017, we also issued 500,000 unregistered shares of our common stock having a fair value at the time of issuance of $585,000 and a cash payment of $76,500 to our contract manufacturing organization (~~CMO~~) in exchange for and settlement of $526,500 of open accounts payable for services provided by the CMO relating to production of AV-101 drug substance. We recognized a corresponding loss on settlement of accounts payable in the amount of $135,000 for the quarter ended December 31, 2017.

~~Modification of Warrants Issued in Private Placements~~

~~During the quarter ended September 30, 2017, our Board of Directors (Board~~) authorized the modification of outstanding warrants issued in private placement transactions between March 2017 and June 2017 to reduce the exercise prices and increase the number of shares issuable thereunder. We calculated the fair value of the warrant immediately before and after the modification using the Black Scholes Option Pricing Model and the weighted average assumptions indicated in the table below. We recognized the additional fair value, $279,700, as warrant modification expense, included as a component of general and administrative expenses, in our Condensed Consolidated Statement of Operations and Comprehensive Loss for the quarter ended September 30, 2017.

Assumption:

Pre-modification

Post-modification

Market price per share
$1.54
$1.54
Exercise price per share
$3.99
$2.00
Risk-free interest rate
  1.62%
  1.62%
Remaining contractual term in years
  3.62
  3.62
Volatility
  95.5%
  95.5%
Dividend rate
  0.0%
  0.0%



Number of warrant shares
  247,500
  495,001
Weighted average fair value per share
$0.71
$0.92

During the quarter ended December 31, 2017, the Board authorized the modification of outstanding warrants issued in private placement transactions between August 2017 and November 2017 to reduce the exercise prices of the warrants. We calculated the fair value of the warrants immediately before and after the modification using the Black Scholes Option Pricing Model and the weighted average assumptions indicated in the table below. We recognized the additional fair value, $13,000, as warrant modification expense, included as a component of general and administrative expenses, in our Condensed Consolidated Statement of Operations and Comprehensive Loss for the quarter ended December 31, 2017.

~~-13-~~

~~Table of Contents~~

Assumption:

Pre-modification

Post-modification

Market price per share
$1.14
$1.14
Exercise price per share
$2.32
$1.58
Risk-free interest rate
  2.12%
  2.12%
Remaining contractual term in years
  3.85
  3.85
Volatility
  98.7%
  98.7%
Dividend rate
  0.0%
  0.0%



Number of warrant shares
  178,572
  178,572
Weighted average fair value per share
$0.64
$0.71

~~Warrants Outstanding~~

Following the warrant issuances in the December 2017 Public Offering, the September 2017 Public Offering, and in our self-placed private placement transactions and the warrant modifications and exercises described above, at December 31, 2017, we had outstanding warrants to purchase shares of our common stock at a weighted average exercise price of $2.80 per share as follows:

Exercise Price
per Share

Expiration
Date

Warrants Outstanding at December 31, 2017

$0.001
9/6/2022
  314,776
$1.50
11/30/2021 to 12/13/2022
  10,150,000
$1.82
9/6/2022 to 3/7/2023
  1,388,931
$2.00
4/30/2021
  523,573
$3.51
12/31/2021
  50,000
$4.50
9/26/2019
  25,000
$5.30
5/16/2021
  2,705,883
$6.00
9/26/2019 to 11/30/2019
  97,750
$7.00
12/11/2018 to 3/3/2023
  1,346,931
$8.00
3/25/2021
  185,000
$10.00
11/15/2017 to 1/11/2020
  20,000
$20.00
9/15/2019
  110,448

  16,918,292

Of the warrants outstanding at December 31, 2017, 2,705,883 shares of common stock underlying the warrants exercisable at $5.30 per share issued in our May 2016 public offering, 1,388,931 shares of common stock underlying the warrants exercisable at $1.82 per share issued in our September 2017 Public Offering and 10,000,000 shares of common stock underlying the warrants exercisable at $1.50 per share issued in our December 2017 Public Offering are registered for resale by the warrant holders. At December 31, 2017, warrants to purchase an aggregate of 314,776 registered shares of our common stock remain subject toany down round anti-dilution protection ~~features. The common shares issuable upon exercise of our remaining outstanding warrants are unregistered.~~feature. All of the outstanding warrants are exercisable by the holders only by payment in cash of the stated exercise price per share.

Note 8. 9.Related Party Transactions

~~Cato Holding Company (CHC), doing business as Cato BioVentures (CBV), is~~

During the ~~parent~~fourth quarter of ~~Cato Research Ltd. (CRL). CRL is~~Fiscal 2022, we entered into a ~~contract research,~~consulting agreement with an independent member of our Board to provide corporate development and ~~regulatory services organization (CRO) recently engaged by us for a wide range~~public relations advisory services. We recorded expense of ~~material aspects~~ $45,000 during the quarter ended March 31, 2022 related to this agreement, all of which was included in accounts payable at that date. The agreement continued throughout the ~~nonclinical~~quarter ended June 30, 2022, during which we also recorded expense of $45,000, of which $15,000 was included in accounts payable at June 30, 2022. We did not have any related party transactions in the quarter ended June 30, 2021.

Note 10. Commitments and ~~clinical development~~Contingencies

We lease our headquarters office and ~~regulatory affairs~~laboratory space in South San Francisco, California under the terms of a lease that was set to expire on July 31, 2022, but which provided an option to renew for an additional five years at then-current market rates. For the purpose of determining the right-of-use asset and associated lease liability, we determined that the renewal of this lease for the period from August 2022 through July 2027 was reasonably probable at the time we adopted ASC 842. On October 14, 2021, we entered into an amendment to the lease (the Lease Amendment), pursuant to which the term of the lease was extended from August 1, 2022 to July 31, 2027 and the base rent under the lease for the five-year extension period was specified. Under the terms of the Lease Amendment, we have the option to renew the lease for an additional five-year term commencing on August 1, 2027. Consistent with our ~~efforts to develop and commercialize AV-101 for MDD and other potential CNS indications. CBV is among~~adoption of ASC 842, beginning April 1, 2019, we recorded this lease in our ~~largest institutional stockholders at December 31, 2017, holding approximately 4.2%~~Consolidated Balance Sheet as an operating lease. The lease of our ~~outstanding common stock. In October 2012, we issued certain unsecured promissory notes~~South San Francisco facilities does not include any restrictions or covenants requiring special treatment under ASC 842.

The following table summarizes the presentation of the operating lease in ~~the aggregate principal amount of approximately $1.3 million to CBV and CRL (theCato Notes~~) as payment in full for all contract research and development services and regulatory advice previously rendered to us by CRL for nonclinical and Phase 1 development of AV-101. In June 2015, the Cato Notes and additional amounts payable to CRL for CRO services related to AV-101 were extinguished in exchange for our issuance of an aggregate of 328,571 shares of Series B Preferred stock to CBV, which shares of Series B Preferred stock were automatically converted in accordance with their terms into an equal number of registered shares of our common stock as a result of our May 2016 public offering.

Condensed Consolidated Balance Sheet:

	As of June 30, 2022		As of March 31, 2022
Assets
Right of use asset – operating lease	$	2,565,000	$	2,662,000

Liabilities
Current operating lease obligation	$	442,600	$	433,300
Non-current operating lease obligation		2,491,200		2,605,400
Total operating lease liability	$	2,933,800	$	3,038,700

~~-14-~~15

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~~In July 2017,~~

Note 11. Sublicensing and Collaborative Agreements

On June 24, 2020, we entered into a ~~Master Services~~license and collaboration agreement with EverInsight Therapeutics Inc. (EverInsight ). Subsequent to entering into this agreement, in October 2020, EverInsight merged with AffaMed Therapeutics, Inc. (AffaMed), which as a combined entity is focusing on developing and commercializing therapeutics to address ophthalmologic and CNS disorders in Greater China (which includes Mainland China, Hong Kong, Macau and Taiwan) and beyond. Accordingly, we are now referring to EverInsight as AffaMed and our June 2020 license and collaboration agreement as the AffaMed Agreement. Under the AffaMed Agreement, (~~MSA) with CRL, which replaced a substantially similar May 2007 master services agreement, pursuant~~we granted AffaMed an exclusive license to ~~which CRL may assist us~~develop and commercialize PH94B for SAD and other anxiety-related disorders in Greater China, South Korea and Southeast Asia (which includes Indonesia, Malaysia, Philippines, Thailand and Vietnam) (collectively, the Territory). We retain exclusive development and commercialization rights for PH94B in the ~~evaluation, development, commercialization~~U.S. and ~~marketing~~throughout the rest of our potential product candidates, including AV-101, and provide regulatory and strategic consulting services as requested from time to time. Specific projects or services are and will be delineated in individual work orders negotiated from time-to-time under the ~~MSA.~~ world.

Table of Contents

Under the terms of ~~work orders issued pursuant~~the AffaMed Agreement, AffaMed is responsible for all costs related to developing, obtaining regulatory approval of, and commercializing PH94B for treatment of SAD, and potentially other anxiety-related indications, in the ~~July 2017 MSA~~Territory. A joint development committee has been established between us and AffaMed to coordinate and review the development and commercialization plans with respect to PH94B in the Territory.

We are responsible for pursuing clinical development and regulatory submissions of PH94B for acute treatment of anxiety in adults with SAD, and potentially other anxiety-related indications, in the United States on a “best efforts” basis, with no guarantee of success. AffaMed has the option to participate in a Phase 3 clinical trial of PH94B involving all or a portion of the Territory and will be responsible for a portion of the costs of such a trial, if conducted. We will transfer all development data (nonclinical and clinical data) and our ~~May 2007 master services agreement with CRL, we incurred expenses~~regulatory documentation related to PH94B throughout the term as it is developed or generated or otherwise comes into our control. We will grant to AffaMed a Right of $292,700 and $101,900 during the quarters ended December 31, 2017 and 2016, respectively, and $904,900 and $180,100 in the nine-month periods ended December 31, 2017 and 2016, respectively. During the nine months ended December 31, 2017, we have issued an aggregate of 350,000 unregistered sharesReference to all of our ~~common stock to CRL under~~regulatory documentation and our development data.

Under the terms of ~~certain work orders for current and future CRO services relating~~the AffaMed Agreement, AffaMed agreed to ~~our development~~pay us a non-refundable upfront license payment of ~~AV-101 for MDD, the fair value of which represented approximately $443,000~~$5.0 million within 30 business days of the ~~reported CRO expense~~effective date of the AffaMed Agreement, and AffaMed paid the $5.0 million in August 2020. Additionally, upon successful development and commercialization of PH94B in the Territory, we are eligible to receive milestone payments of up to $172.0 million. Further, we are eligible to receive royalty payments on a country-by-country basis on net sales for the ~~nine months then ended.~~ later of ten years or the expiration of market or regulatory exclusivity in the jurisdiction, except that payments will be reduced on a country-by-country basis in the event that there is no market exclusivity in the period. Royalty payments may also be reduced if there is generic competitive product in the period.

We ~~anticipate periodic expenses~~have determined that we have one combined performance obligation for ~~CRO~~the license to develop and commercialize PH94B in the Territory and related development and regulatory services. In addition, AffaMed has an option that will create manufacturing obligations for us during development upon exercise by AffaMed. This option for manufacturing services was evaluated and determined not to include a material right.

Development and commercialization milestones were not considered probable at inception and therefore were excluded from ~~CRL~~the initial transaction price. The royalties were excluded from the initial transaction price because they relate to a license of intellectual property and are subject to the royalty constraint.

We recognize revenue as the combined performance obligation is satisfied over time using an output method. The measure of progress is stand-ready straight-line over the period in which we expect to perform the services related to ~~nonclinical~~ the license of PH94B.

During the three months ended June 30, 2022 and ~~clinical development~~2021, we recognized $310,100 and $354,100, respectively, as sublicense revenue under the AffaMed Agreement. At June 30, 2022, the aggregate amount of the transaction price allocated to the remaining performance obligation is $2,491,500 which will be recognized as revenue as the services are completed. Significant management judgment is required to determine the level of effort attributable to the AffaMed Agreement and regulatory affairs related to, AV-101 and other potential product candidates will increase in future periods. In December 2017, we executed a work order with CRL for CRO services to be performed in conducting the ~~AV-101 MDD Phase 2 Adjunctive Treatment Study and pursuant to~~period over which we ~~became immediately obligated for an initial payment~~expect to complete our performance obligations under the arrangement. The performance period or measure of ~~$461,700,~~progress is estimated at the inception of the arrangement and re-evaluated in subsequent reporting periods. This re-evaluation may shorten or lengthen the period over which ~~amount is reflected~~we recognize revenue. At June 30, 2022, we estimated that we would complete our performance obligations during mid-calendar 2024. We are currently assessing the impact on completion of our performance obligations in ~~Accrued liabilities~~light of the results of PALISADE-1, which did not achieve its primary efficacy endpoint, and ~~Prepaid expenses~~the impending interim analysis of PALISADE-2. We will adjust our estimates, as necessary, in subsequent periods as we obtain more definitive information on which to base our ~~Condensed Consolidated Balance Sheet at December 31, 2017.~~

Note 9. 12.Subsequent Events

We have evaluated subsequent events through ~~February 9, 2018~~the date of this Report and have identified the following matters requiring disclosure:

~~Exercise~~

Grant of ~~Warrants~~

~~In January 2018,~~Options from 2019 Plan

From July 1, 2022 through the ~~holders~~date of ~~Series A2 warrants~~this Report, we have granted options to purchase ~~an aggregate of 314,774~~257,000 shares of our common stock ~~exercised all of such warrants at~~under the ~~reset exercise price of $0.001 per share, as described in Note 7,~~ ~~Capital Stock, from which we received nominal cash proceeds. Following these exercises, none~~terms of our ~~outstanding warrants have down round anti-dilution protection features.~~

~~Grant of Options from 2016~~2019 Plan

~~On February 2, 2018, the Compensation Committee of the Board approved the grant of options~~ to ~~independent members of the Board, officers and~~two newly-hired employees and ~~certain professional service providers~~ to ~~purchase an aggregate of 2,150,000 shares of our common stock at~~a consultant. The options have an exercise price ~~of $1.16 per share,~~equal to the quoted closing market price of our common stock on the Nasdaq Capital ~~Markets~~Market on the date of grant, a term of ten years and the ~~grant. The options are vested~~new employee grants vest 25% on the first anniversary of the grant date and ratably on a monthly basis for three years thereafter and the consultant grant vests 25% upon grant with the ~~remaining shares~~balance vesting ratably monthly over ~~the next twenty-four months.~~a period of one year.

~~-15-~~

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Item2.

~~MANAGEM~~E~~NT’S~~

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q (Report) includes forward-looking statements. All statements contained in this Report 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,~~“believe,” ~~“may,~~“may,” ~~“estimate,~~“estimate,” ~~“continue,~~“continue,” ~~“anticipate,~~“anticipate,” ~~“intend,~~“intend,” ~~“expect”~~“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. Our business is subject to significant risks including, but not limited to, our ability to obtain substantial additional financing, the results of our research and development efforts, the results of nonclinical and clinical testing, the effect of regulation by the U.S. Food and Drug Administration (FDA) and other domestic and foreign regulatory 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”~~“Risk Factors” in this 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 (Board) 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 or Board 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 Report 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 Report 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.

We are a late clinical-stage, biopharmaceutical company ~~focused on developing new generation medicines~~striving to transform the treatment landscape for individuals living with anxiety, depression and other central nervous system (CNS) disorders. ~~Unless~~We are focused on developing and commercializing innovative therapeutics with the ~~context otherwise requires, the words “VistaGen Therapeutics, Inc.” “VistaGen,” “~~we~~,” “the Company,” “~~us”potential to be faster-acting, and “~~our” refer to VistaGen Therapeutics, Inc., a Nevada corporation. All references to future quarters~~with fewer side effects and ~~years in this Report refer to calendar quarters and calendar years, unless reference is made otherwise.~~

~~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~~safety concerns, than products that are currently approved by the U.S. Food and Drug Administration (FDA). ~~AV-101’s~~Each of our drug candidates has a differentiated potential mechanism of action (MOA), has been well-tolerated in all clinical studies to date, and may have therapeutic potential in multiple CNS indications. Our goal is to become a biopharmaceutical company that develops and commercializes innovative CNS therapies for highly prevalent neuropsychiatric and neurological indications where current treatment options are inadequate to meet the needs of millions of patients in the U.S. and worldwide.

Our clinical-stage candidates belong primarily to a new class of neuroactive steroids known as pherines, which are odorless, tasteless and active on chemosensory neurons in the nasal passages . They have the potential to treat multiple anxiety and depression disorders without systemic uptake and without direct activation of GABA-A receptors or other CNS neurons in the brain, in distinct contrast to the mechanism of action of benzodiazepines, for example, which typically are taken orally, require systemic uptake and directly modulate GABA-A receptors.

Our most advanced product candidate, PH94B, is currently being evaluated as a potential treatment of multiple anxiety disorders, including for adults with social anxiety disorder (SAD). On July 22, 2022, we announced that PALISADE-1, our single administration assessment Phase 3 clinical study of PH94B for the acute treatment of anxiety in adults with SAD did not achieve its primary efficacy endpoint. PH94B’s safety profile in the study was favorable and consistent with all prior clinical studies to date. As discussed below, as of the date of this Report, we have paused enrollment in PALISADE-2, our replicate Phase 3 clinical trial in SAD, while an independent third-party conducts an interim data analysis of the study based on subjects randomized to date. When the interim analysis is complete, we will assess the results and determine next steps with respect to the study.

In addition, in August 2022 we opted to end recruitment and enrollment in the PALISADE Open-Label Safety Study (PALISADEOLS), a multiple-use, multiple-assessment long-term safety study of PH94B for the treatment of SAD. Preliminary data from the PALISADE OLS appears to support functional improvement and reduction of severity of SAD after use of PH94B on an as-needed basis over an extended exposure period when measured using the Liebowitz Social Anxiety Scale (LSAS). The LSAS is a well-established 24-item questionnaire, developed in 1987 by Dr. Michael Liebowitz, while a Professor of Psychiatry at Columbia University. The LSAS is commonly used to assess the range of social interaction and performance situations feared by a patient in order to assist in the diagnosis of SAD and was the primary efficacy endpoint supporting the approval of the three antidepressants currently approved by the FDA for treatment of SAD.

We remain steadfast in our commitment to changing the trajectory of mental health care and in the potential of our drug candidates to achieve our mission. As to PH94B in SAD, we believe the combination of the overall safety profile of PH94B in studies to date, data from two Phase 2 clinical studies of PH94B in SAD, and emerging preliminary LSAS data from our PALISADE OLS study indicate a potential for SAD patients to achieve cumulative functional improvement with longer uses of PH94B, while still being used acutely, as-needed. Accordingly, in parallel with the conduct of the independent third-party interim analysis of PALISADE 2, we are preparing to meet with the U.S. Food and Drug Administration (FDA) ~~involves both NMDA (N-methyl-D-aspartate)~~to discuss potential next steps for late-stage clinical development of PH94B as a potential treatment for SAD, including assessing PH94B’s therapeutic potential to achieve cumulative functional improvement over multiple uses during an extended exposure period.

A further description of PH94B and ~~AMPA (alpha-amino-3-hydroxy-5-methyl-4-isoxazolepropionic acid)~~our other product candidates, as well as our clinical and non-clinical development programs is below.

Our Product Candidates

PH94B Nasal Spray

PH94B is a first-in-class synthetic investigational pherine nasal spray designed with a novel rapid-onset MOA that regulates the olfactory-amygdala neural circuits of fear and anxiety and attenuates the tone of the sympathetic autonomic nervous system. PH94B is administered intranasally in low microgram doses, and is intended to be used as needed by a person with SAD before an anxiety provoking event, similar to the use of a rescue inhaler before a predictable asthma attack. The proposed MOA of PH94B is fundamentally differentiated from all currently approved anti-anxiety medications, including the antidepressants approved by the FDA for the treatment of SAD, as well as all benzodiazepines and beta blockers prescribed for treatment of SAD on an off-label basis. The MOA for PH94B does not involve systemic uptake, direct activation of GABA-A receptors in the brain, ~~responsible for fast excitatory synaptic activity throughout~~or binding to neuronal receptors in the CNS. ~~AV-101’s MOA~~Rather, when administered intranasally, PH94B binds to chemosensory neurons in the nose that activate neural circuits involving olfactory bulb neurons and the limbic amygdala, a region in the brain that is ~~fundamentally different from all standard FDA-approved antidepressants, as well as all atypical antipsychotics, such as aripiprazole, often used adjunctively~~involved in the pathophysiology of SAD and potentially other anxiety and mood disorders.

We are currently evaluating PH94B for the potential treatment of multiple anxiety disorders, including for adults with ~~standard antidepressants. We believe AV-101 also~~SAD and for adults experiencing Adjustment Disorder with Anxiety (AjDA). Both pre-clinical and Phase 2 clinical data to date suggest that PH94B has the potential to ~~treat several additional CNS indicationswhere modulation of the NMDA receptors, activation of AMPA pathways and/or key active metabolites of AV-101 may~~ achieve ~~therapeutic benefit, including, among others, as a non-opioid alternative for neuropathic pain and for Parkinson’s disease levodopa -induced dyskinesia (PD LID~~).

~~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 ketamine hydrochloride injection (~~ketamine~~), an ion-channel blocking NMDA receptor antagonist approved by the FDA as an anesthetic, 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 in the U.S., have demonstrated ketamine’s robust antidepressant effects in treatment-resistant MDD patients within twenty-four hours of a single sub-anesthetic dose administered by intravenous (IV~~) injection.~~

~~We believe orally administered AV-101 may have potential to deliver ketamine-like antidepressant~~rapid-onset anti-anxiety effects without ~~ketamine’s psychological~~systemic uptake or transport into the brain, reducing the risk of side effects and other safety concerns such as abuse potential associated with certain other pharmaceuticals that act directly on the CNS and ~~without~~are sometimes prescribed for anxiety disorders.

SAD Phase 1 Studies

Phase 1 Autonomic System Biomarker Study

Pherines such as PH94B appear to modulate the ~~need~~activity of the limbic-hypothalamic autonomic nervous system. To evaluate the pharmacodynamic activity of PH94B, a single-blind, randomized study (n =16) was performed to compare the effect of PH94B and steroidal hormones (estradiol, progesterone, cortisol, and testosterone) on the electrogram recorded from the mucosal lining of the vomeronasal organ (VNO) nasal chemosensory epithelium (including the VNO pit area) and autonomic nervous system function in healthy male (n = 8) and female (n = 8) subjects. Intranasal administration of PH94B (400 ng 0.4 µg) significantly increased the amplitude of the electrogram, decreased cardiac and respiratory frequency rate (within physiologic range), and decreased the frequency of electrodermal activity (skin conductance) events. Local intranasal application of steroidal hormones, estradiol, progesterone, cortisol, and testosterone (400 ng 0.4 µg each), had no significant effect on the electrical response of the mucosal lining of the nasal chemosensory epithelium (including the VNO pit area) or the measures of autonomic nervous system function. Volunteers felt calmer and less tense per self-report, suggesting an anxiolytic effect. We believe these results demonstrate the biological activity of PH94B and provide support for IVevaluating potential behavioral changes after intranasal PH94B administration. As

Phase 1 Dose Response Study

In a Phase 1 dose response pharmacology study, the increased electrical activity of the nasal chemosensory epithelium electrogram of nasal receptors (EGNR) was shown to be dose dependent and similar in both male and female healthy volunteers after receiving ascending doses of PH94B. Maximal EGNR amplitude was achieved at the 3.2 μg dose in both men (n=10) and women (n=10), and no significant increase was seen at higher doses (6.4 μg and 12.8 μg).

SAD Phase 2 Studies

Positive Results in Public Speaking and Social Interaction-Induced Stressors in a Clinical Setting

Phase 2 development of PH94B began with a two-part public speaking and social interaction challenge study. In this randomized, double-blind, placebo-controlled Phase 2 clinical trial (n=91) conducted at three clinical sites, 91 adult female subjects diagnosed with SAD underwent a placebo baseline period followed a week later by a randomized treatment period and intranasal administration of 1.6 μg of PH94B. PH94B (1.6 μg) was administered intranasally 15 minutes prior to both a performance challenge (public speaking) and a social interaction challenge simulation, which took place at the clinical sites. The two challenges were separated by a 30-minute rest period. The primary outcome measure was the Subjective Units of Distress Scale (SUDS). Peer-reviewed results published in the ~~October 2015 issue~~American Journal of Psychiatry (Monti, et al., Am. J. Psychiatry (2014) 171:675-682) showed statistically significant results for reducing anxiety during a public speaking performance and during social interactions in a clinical setting. During the public speaking challenge, subjects randomized to treatment with PH94B (n = 45) showed a 26.7-point improvement in mean SUDS scores following the treatment visit with PH94B as compared to the SUDS scores during the baseline visit (placebo treatment). In comparison, subjects randomized to treatment with placebo (n = 46) showed an improvement of only 14.0 points in mean SUDS scores compared to baseline. The PH94B treatment group’s improvement in the public speaking challenge significantly exceeded that of the ~~peer-reviewed,~~ ~~Journal of Pharmacology~~placebo group’s improvement (t = 3.16, p = 0.002).

Positive Results in SAD Outpatients

PH94B is designed with the potential to lower anxiety acutely, on an as-needed basis, and ~~Experimental Therapeutics,~~ to achieve cumulative functional improvement with continued use. Accordingly, the protocol for a subsequent randomized, double-blind, placebo-controlled multiple administration assessment Phase 2 crossover study (n=22) involving both adult males (n =11) and females (n=11), required subjects to self-administer PH94B or placebo nasal spray in an ~~article titled,~~ outpatient setting (i.e., not in a clinical environment) acutely, on an as-needed basis, just prior to an anxiety-provoking situation, up to four times a day, for two weeks. The ~~prodrug 4-chlorokynurenine causes ketamine-like~~primary efficacy measure in the study was the SUDS and the secondary efficacy measure was the LSAS. Dr. Michael Liebowitz, the innovator of the LSAS, was the Principal Investigator of this study.

The change from baseline SUDS scores was significantly greater for all subjects while taking PH94B compared with the placebo group. The average change from baseline SUDS score was 15.6 points for all subjects while on PH94B and was 8.3 points while on placebo (paired t-test = 3.09; p = 0.006; effect size 0.658). During the first two weeks of treatment, subjects who received PH94B first dropped an average of 23 points in LSAS score, while those who received placebo first dropped only eight points on average, showing a trend difference (p = 0.07) with a large effect size of 0.812.

Looking at only the first two weeks of treatment, subjects who received PH94B first had a significantly greater decrease in their avoidance score on the LSAS than those who received placebo first (p = 0.02, Cohen’s d = 1.078). A large effect size (0.78) and trend to significance (p = 0.083) in favor of PH94B also was observed when comparing overall the Clinical Global Impression (CGI) score means for PH94B and placebo during the first two weeks of treatment. Patient Global Impression of Change (PGI-C) ratings also showed improvement for PH94B after two weeks of treatment (p = 0.024).

No drug-related serious adverse events (SAEs) were reported during the study. All adverse events (AEs) were mild or moderate and the frequencies of their occurrence did not differ meaningfully between active and placebo treatments.

We believe this multiple-administration assessment Phase 2 study conducted outside a clinical environment indicates the potential for cumulative functional improvement with longer use of PH94B, while still being used acutely, as-needed, as subjects are increasingly able to engage in previously difficult social and performance situations in their daily lives with less anxiety.

SADPALISADEPhase 3 Program (PALISADE-1, PALISADE-2 and PALISADE OLS)

On July 22, 2022, we announced that PALISADE-1, our single administration assessment Phase 3 clinical study of PH94B for the acute treatment of anxiety in adults with SAD did not achieve its primary endpoint, as measured by change from baseline using the SUDS as compared to placebo. The study involved self-administration of a single dose of PH94B by subjects randomized to the treatment arm of the study prior to a public speaking challenge, which was conducted in a clinical setting. As we continue to evaluate the topline results from PALISADE-1, we have paused recruitment and enrollment in PALISADE-2, a replicate study of PALISADE-1, while an independent third-party biostatistician conducts an interim analysis of available data from subjects randomized in PALISADE-2 to date. Although PALISADE-1 did not meet its primary efficacy endpoint, the safety and tolerability of PH94B in PALISADE-1 were favorable and consistent with previously reported results from previous clinical trials.

We have also opted to end recruitment and enrollment in the PALISADE OLS study of PH94B to assess potential cumulative functional improvement as measured by the LSAS from preliminary data (not published) involving nearly 200 subjects enrolled in the study who have used PH94B acutely, as needed, multiple times over multiple different periods of time. As noted above, we believe preliminary data from the PALISADE OLS study of PH94B are encouraging and suggest that continued as-needed use of PH94B has potential to achieve cumulative functional improvement in the severity of SAD when measured with the LSAS. In addition, to date in the PALISADE OLS, we believe PH94B's safety profile has been favorable and consistent with reported results from all previous clinical trials.

As noted above, taking into consideration the results of PALISADE-1, and as we await the interim analysis of PALISADE-2, we believe the combination of the overall safety profile of PH94B in studies to date, data from two Phase 2 clinical studies of PH94B in SAD, and emerging preliminary LSAS data from our PALISADE OLS study indicate a potential for SAD patients to achieve cumulative functional improvement with longer uses of PH94B, while still being used acutely, as-needed. Accordingly, while the the independent third-party biostatistician conducts the interim analysis of PALISADE 2, we are preparing to meet with the FDA to discuss potential next steps for late-stage clinical development of PH94B as a potential treatment for SAD, including assessing PH94B’s therapeutic potential to achieve cumulative functional improvement over multiple uses during an extended exposure period. After the results of the interim analysis are available to us, we plan to meet with the FDA and pursue consensus on clearly defined path forward for further Phase 3 development of PH94B in SAD.

Exploratory Phase 2A Development for AjDA and Future Development Opportunities

Our exploratory Phase 2A clinical study of PH94B to assess the therapeutic potential of PH94B in adults experiencing Adjustment Disorder with Anxiety (AjDA) is ongoing. Adjustment Disorder (AjD) refers to a maladaptive emotional or behavioral response to an identifiable stressor. AjD occurs within three months of exposure to the stressor as evidenced by marked distress that is out of proportion to the socially or culturally expected reactions to the stressor, or that represents significant impairment in social, occupational or other important areas of daily functioning. Current pharmacological treatments for AjDA vary widely and include antidepressants (SSRIs and SNRIs), benzodiazepines, buspirone and natural products such as cannabidiol. Our randomized, double-blind, placebo-controlled exploratory Phase 2A study in AjDA involves daily use of PH94B in an outpatient setting for 28 days.

We plan to assess additional potential development opportunities involving PH94B, for both potential acute and continued use in the treatment of other anxiety-related disorders, including procedural anxiety, post-traumatic stress disorder, postpartum anxiety and panic disorder.

PH10 Nasal Spray

PH10 is an investigational pherine nasal spray with a potential rapid-onset MOA that is fundamentally differentiated from the MOA of all currently approved treatments for depression disorders. PH10, which is administered at microgram-level doses, engages and activates chemosensory cells in the nasal passages, connected to neural circuits in the brain that produce antidepressant ~~effects, but~~effects. Specifically, PH10’s proposed MOA involves binding to peripheral chemosensory neurons in the nasal passages to regulate the olfactory-amygdala neural circuits believed to increase activity of the limbic-hypothalamic sympathetic nervous system and increase the release of catecholamines. Importantly, unlike all currently approved oral antidepressants (ADs) and rapid-onset ketamine-based therapy (KBT), including both intravenous ketamine and intranasal ketamine (esketamine), we believe PH10 does not require systemic uptake to produce rapid-onset of antidepressant effects.

In a small (n=30) exploratory randomized, double-blind, placebo-controlled parallel design Phase 2A in major depressive disorder (MDD) conducted in Mexico, at a 6.4 μg dose administered intranasally twice daily for 8 weeks, PH10 significantly reduced depressive symptoms as early as one week based on the 17-item Hamilton Depression Scale (HAM-D-17) scores compared to placebo (p = 0.022). PH10 was well-tolerated and did not cause psychological side effects ~~by NMDA/glycineB-site inhibition,~~ ~~using well-established preclinical models~~(such as dissociation and hallucinations) or other safety concerns that may be associated with KBT.. Our planned U.S. Phase 1/2B clinical program for PH10 is designed to evaluate its potential as a fast-acting stand-alone treatment for MDD. We are currently preparing our U.S. Investigational New Drug (IND) application to enable clinical development of ~~depression,~~ PH10 in the U.S. . We are planning to initiate a small Phase 1 study of PH10 in the U.S. before the end of calendar 2022 to facilitate potential Phase 2B development of PH10 in the U.S. for treatment of MDD beginning in calendar 2023. We may also have potential opportunities to develop PH10 for other depression-related disorders.

AV-101

AV-101 ~~was shown to induce fast-acting, dose-dependent, persistent~~is an oral prodrug of 7-chloro-kynurenic acid (7-Cl-KYNA), which is a potent and ~~statistically significant antidepressant-like responses following a single treatment. These responses were equivalent to those seen with a single sub-anesthetic control dose~~selective antagonist of ~~ketamine. In addition, these studies confirmed that the fast-acting antidepressant effects of AV-101 were mediated through both inhibiting~~ the glycine ~~binding (GlyB~~)co-agonist site of the ~~NMDA receptor~~NMDAR that inhibits the function of the NMDAR. Unlike ketamine and ~~activating the AMPA receptor pathway~~many other NMDAR antagonists, 7-Cl-KYNA is not an ion channel blocker. At doses administered in the ~~brain.~~

~~In October 2017,~~Company’s studies completed to date, AV-101 has been observed to be well tolerated and has not exhibited dissociative or hallucinogenic psychological side effects or safety concerns, unlike other modulators of the NMDAR. Based on observations and findings from preclinical studies, we ~~received FDA authorization~~believe that AV-101, in combination with FDA-approved oral probenecid, has the potential to ~~launch our 180-patient~~become a new oral treatment alternative for certain CNS indications involving the NMDAR. We are presently conducting an exploratory Phase ~~2 multi-center, multi-dose, double blind, placebo-controlled efficacy and safety~~1B drug-drug interaction clinical study of AV-101 ~~as a new generation adjunctive treatment for MDD patients~~in combination with ~~an inadequate therapeutic response to standard, FDA-approved antidepressants (the~~ ~~AV-101 MDD Phase 2 Adjunctive Treatment Study~~)~~, and in December 2017 the~~probenecid.

The FDA has granted Fast Track ~~Designation to AV-101~~designation for development of AV-101 as a potential adjunctive treatment for ~~MDD.~~ ~~We intend to launch the AV-101~~ MDD ~~Phase 2 Adjunctive Treatment Study in the first quarter of 2018 with Dr. Maurizio Fava, Professor of Psychiatry at Harvard Medical School~~ and ~~Director, Division of Clinical Research, Massachusetts General Hospital (MGH~~) Research Institute, as the Principal Investigator. 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 theJournal of the American Medical Association~~(~~JAMA~~). We expect top line results of the AV-101 MDD Phase 2 Adjunctive Treatment Study to be available in the first half of 2019. In addition, pursuant to our Cooperative Research and Development Agreement (~~CRADA) with the NIMH, the NIMH is currently funding, and Dr. Zarate, as Principal Investigator, and his team are currently conducting, a small Phase 2 clinical study of AV-101~~ as a ~~monotherapy in subjects with treatment-resistant MDD (the~~ ~~NIMH AV-101 MDD Phase 2 Monotherapy Study~~).non-opioid treatment for neuropathic pain.

Subsidiaries

VistaGen Therapeutics, Inc., a California corporation d/b/a VistaStem ~~Therapeutics~~ (VistaStem), is our wholly owned ~~subsidiary focused~~subsidiary. For the relevant periods, our Consolidated Financial Statements in this Quarterly Report on ~~applying human pluripotent stem cell~~Form 10-Q (~~hPSC~~Report) ~~technology 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 utilize~~ ~~CardioSafe 3D, our customized cardiac bioassay system, to develop small molecule NCEs for our pipeline. To advance potential RM applications~~also include the accounts of ~~our cardiac stem cell technology, in December 2016, we exclusively sublicensed to BlueRock Therapeutics LP, a next generation RM company established by Bayer AG and Versant Ventures (BlueRock Therapeutics), rights to certain proprietary technologies relating to the production of cardiac stem cells for the treatment of heart disease (the~~ ~~BlueRock Agreement~~). In a manner similar to our exclusive sublicense agreement with BlueRock Therapeutics, we may pursue additional RM collaborations or out-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.

~~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 2016, 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) in an August 2017 report, one in eight Americans over the age of 12 reported taking a standard, FDA-approved antidepressant in the previous month.~~

~~Most standard antidepressants target chemical imbalances in the brain related to neurotransmitter reuptake inhibition – either serotonin (antidepressants known as~~ ~~SSRIs) or serotonin/norepinephrine (antidepressants known as~~ ~~SNRIs). Nearly~~VistaStem’s two out of every three drug-treated depression patients do not obtain adequate therapeutic benefit from their initial treatment with a standard antidepressant. Even when effective, these standard antidepressants take many weeks to achieve adequate therapeutic effects. After multiple treatment attempts involving 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 drug (a drug such as aripiprazole), despite only modest potential therapeutic benefit and the significant risk of additional side effects from such adjunctive drugs.

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 significant side effects, including, tardive dyskinesia, substantial weight gain, diabetes and heart disease, while offering only a modest potential increase in therapeutic benefit.

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~~AV-101~~

AV-101 is our oral CNS product 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 therapeutic 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, but 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 the NIMH and Dr. Carlos Zarate, Jr., the NIMH is currently funding, and Dr. Zarate, as Principal Investigator, and his team are currently conducting, the NIMH AV-101 MDD Phase 2 Monotherapy Study.

~~In October 2017, we received authorization from the FDA to proceed, under our Investigational New Drug (IND~~) application, with the AV-101 MDD Phase 2 Adjunctive Treatment Study, which will test the safety, efficacy and tolerability of AV-101 as an adjunctive treatment of MDD in adult patients with an inadequate therapeutic response to standard, FDA-approved antidepressants. We intend to launch the AV-101 MDD Phase 2 Adjunctive Treatment Study in the first quarter of 2018, and expect top line results to be available in the first half of 2019. In connection with our preparation for this study, as well as potential Phase 3 development and commercialization of AV-101, we, together with our CMO, developed a novel process for the production of AV-101 drug substance. We believe our new proprietary production process will significantly improve AV-101 manufacturing efficiency, thereby reducing the current and future cost of manufacturing AV-101 drug substance and improving the yield of AV-101 drug substance manufactured. Additionally, in December 2017 the FDA granted Fast Track Designation to AV-101 for development as a potential adjunctive treatment for MDD.The FDA’s Fast Track Designation is a process designed to facilitate the development and expedite the review of drugs to treat serious conditions and unmet medical needs. With Fast Track Designation, there is an increased possibility for a priority review of AV-101 by the FDA.

We believe preclinical studies and Phase 1 safety studies support our hypothesis that AV-101 also has potential as a non-opioid treatment alternative for neuropathic pain, as well as several additional CNS indications~~where modulation of the NMDA receptors, activation of AMPA pathways and/or key active metabolites of AV-101 may achieve therapeutic benefit~~, including PD LID, epilepsy, and Huntington’s disease. We are beginning to plan additional Phase 2 clinical studies to further evaluate the therapeutic potential of AV-101 beyond MDD, however we do not intend to initiate such studies in 2018.

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~~CardioSafe 3D™; NCE Drug Rescue and Regenerative Medicine~~

~~VistaStem Therapeutics is our~~ wholly owned ~~subsidiary focused on applying hPSC technology to discover, rescue, develop~~inactive subsidiaries, Artemis Neuroscience, Inc., a Maryland corporation which was dissolved in April 2022, 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~~ VistaStem Canada, Inc., a corporation organized under the laws of Ontario, Canada which was dissolved 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 using~~ ~~CardioSafe~~ 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 RM and cellular therapies. To advance potential RM applications of our cardiac stem cell technology, 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. In a manner similar to the BlueRock Agreement, 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.~~

June 2022.

Financial Operations Overview and Results of Operations

Our critical accounting policies and estimates and recent accounting pronouncements are disclosed in our Annual Report on Form 10-K for the fiscal year ended March 31, ~~2017,~~2022, as filed with the SEC on June ~~29, 2017,~~23, 2022, and in Note 3 to the accompanying unaudited Condensed Consolidated Financial Statements included in Part 1, Item 1 of this Report.

Summary

Net Loss

We ~~generated $1.25 million of sublicense revenue from the BlueRock Agreement in December 2016. However, we~~ have not yet achieved recurring revenue-generating status from any of our product candidates or ~~technologies.~~ technologies in amounts sufficient to sustain our operations and enable our strategic business plans. Since acquiring our ~~inception~~exclusive worldwide licenses to PH94B and PH10 in ~~May 1998,~~2018, we have devoted ~~substantially all~~substantial resources to advance initiatives related to research, development, and contract manufacturing of our ~~time~~intranasal investigational product candidates, PH94B and ~~efforts~~PH10, including initiatives related to ~~developing our lead CNS~~manufacturing processes, analytical methods and production programs for drug substance and finished drug product, ~~candidate, AV-101, from early nonclinical studies to our ongoing Phase 2 clinical development program in MDD,~~ as well as ~~stem cell technology research~~for preclinical studies and clinical studies focused on potential commercialization of these product candidates for neuropsychiatry indications. During calendar 2021 and to date in calendar 2022, we allocated significant resources to our PALISADE Phase 3 Program evaluating PH94B for the acute treatment of anxiety in adults with SAD, and we conducted, and are continuing to conduct, various preclinical studies and manufacturing activities intended to enable submission of our U.S. IND for PH10 in MDD and initiation of a small Phase 1 clinical study of PH10 to facilitate potential Phase 2B clinical development ~~bioassay development, small molecule drug development, and~~of PH10 in the U.S. as a stand-alone treatment for MDD. With respect to AV-101, our current focus is evaluating AV-101 in combination with probenecid which may provide opportunities to explore the therapeutic potential of the combination for certain CNS indications involving the NMDAR. We have continuing initiatives for creating, protecting and patenting intellectual property (IP) related to our product candidates and technologies, with the corollary initiatives of recruiting and retaining personnel and raising working capital. ~~As of December 31, 2017,~~ At June 30, 2022, we had an accumulated deficit of approximately ~~$152.5~~$287.4 million. Our net loss for the ~~nine months~~quarters ended ~~December 31, 2017~~June 30, 2022 and ~~2016~~2021 was approximately ~~$10.3~~$19.8 million and $7.7 million, respectively, and for the fiscal years ended March 31, 2022 (Fiscal 2022) and 2021 (Fiscal 2021) was approximately $47.8 million and $17.9 million, respectively. We expect losses to continue for the foreseeable future, primarily as we engage in further research, development and regulatory activities related to ~~our further development of AV-101 for the adjunctive treatment of MDD~~PH94B, PH10 and ~~other CNS indications.~~

~~Summary of the Nine Months Ended December 31, 2017~~

During the nine months ended December 31, 2017, we have continued to (i) advance nonclinical, including manufacturing, and clinical development of AV-101 as a potential new generation antidepressant and as a potential new therapeutic alternative for several other CNS indications with significant unmet medical need, (ii) expand the regulatory and intellectual property foundation to support broad clinical development and, ultimately, commercialization of AV-101 in the U.S. and foreign markets, and (iii) on a limited basis, advance the predictive toxicology capabilities of~~CardioSafe3D for small molecule new chemical entity drug rescue and development applications and collaborative regenerative medicine opportunities related to our cardiac stem cell technology platform.~~

Pursuant to our CRADA with the NIH, the NIH continues to fund, and Dr. Carlos Zarate Jr. of the NIMH continues to conduct, the NIMH AV-101 MDD Phase 2 Monotherapy Study at no cost to us other than supplying clinical trial material.

We continue to prepare for the launch of our AV-101 MDD Phase 2 Adjunctive Treatment Study with initiatives that have significantly improved the efficiency of our AV-101 manufacturing processes and are making available sufficient quantities of AV-101 to enable a comprehensive initiation of the study. 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.

AV-101.

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~~Additionally,~~

Summary of the Three Months Ended June 30, 2022

Throughout Fiscal 2022 and through the date of this Report, we have continued to advance our nonclinical and clinical development, manufacturing, and regulatory activities necessary for (i) Phase 3 clinical development of PH94B as a potential acute treatment of anxiety in adults with SAD, (ii) advancing our Phase 2A clinical study of PH94B in adults experiencing AjDA, (iii) initiating a small Phase 1 study of PH10 in the U.S. to facilitate potential Phase 2B development as a stand-alone treatment of MDD and (iv) exploratory Phase 1B development of AV-101 in combination with probenecid to assess potential opportunities to develop the combination for treatment of certain CNS indications.

We initiated our PALISADE Phase 3 Program for PH94B in SAD with the commencement of PALISADE-1 in May 2021 and PALISADE-2 in August 2021. During Fiscal 2022, we also initiated the PALISADE OLS and advanced our Phase 2A clinical study of PH94B in adults experiencing AjDA. We achieved last patient out of PALISADE-1 in June 2022 and commenced analysis of the data generated throughout the study. As noted above, in July 2022 we determined that PALISADE-1 did not achieve its primary efficacy endpoint. Accordingly, we are ~~pursuing initiatives~~actively investigating, on multiple fronts, potential contributors to ~~secure a broad spectrum~~that outcome. As noted above, we have paused recruitment and enrollment of ~~intellectual property protection for AV-101 covering multiple CNS~~PALISADE-2 while we engage an independent third-party statistician to conduct an interim assessment of data currently available from randomized subjects in that study. The results of that interim assessment will help guide near-term activities related to both PALISADE-2 and future clinical trials of PH94B in SAD and/or other anxiety indications. W~~e have filed~~In addition, we ended enrollment in our PALISADE OLS and are ~~pursuing several patent applications~~assessing preliminary data from the study that we believe supports continued late-stage clinical development of PH94B as a potential treatment for SAD in ~~Europe,~~a manner consistent with both data observed in Phase 2 development of PH94B in SAD, i.e., with multiple assessments of PH94B’s potential efficacy, as compared to placebo, when used acutely, as-needed, over an extended period of time in an outpatient setting, rather than a single administration assessment in an anxiety-provoking public speaking challenge conducted in a clinical setting.

Beginning in the fourth quarter of Fiscal 2021, throughout Fiscal 2022, and continuing through the date of this Report, we have expanded our employee infrastructure with experienced personnel additions across multiple functional areas, including clinical operations, clinical research, data management, chemistry, manufacturing and controls (CMC) and quality assurance, biostatistics and clinical analytics, regulatory affairs, medical affairs, translational medicine, commercial operations, legal, contracts and corporate affairs, development operations, and investor and public relations.

Throughout Fiscal 2021 and Fiscal 2022 and through the date of this Report, strains of SARS-CoV-2, commonly referred to as COVID-19 and multiple variants of the virus, have spread globally and the outbreak has been declared a pandemic by the World Health Organization and a public health emergency in the U.S. by the U.S. Secretary of Health and Human Services. Operations at our headquarters in South San Francisco were significantly curtailed during Fiscal 2021 and the first half of Fiscal 2022, and, to some extent, periodically thereafter, while state and local restrictions required remote working conditions. Most of our employee additions since Fiscal 2021 are geographically located away from our headquarters facility in South San Francisco and routinely work remotely. Our employees have worked efficiently and productively while remotely-located and working from home whether as a result of the COVID-19 pandemic or otherwise. From time to time during the COVID-19 pandemic, however, the efficiency and productivity of certain preclinical and clinical development programs and our third-party collaborators, including, among others, contract research and development organizations (CROs), contract manufacturing organizations (CMOs) and other ~~selected regions. Several~~third-party service providers have been, and may be in the future, impacted by prevailing surges in the spread of ~~these patent applications have already been granted or allowed, on both (i) certain novel therapeutic methods~~variants of ~~use of AV-101, including depression,~~COVID-19, such as spreads induced by the Delta and ~~(ii) certain novel methods of producing AV-101. In Europe, the European Patent Office (EPO) recently granted our patent related to methods of treating depression with AV-101~~Omicron variants and their sub-variants during Fiscal 2021, Fiscal 2022 and thereafter, shelter-in-place orders, social distancing measures, travel bans and restrictions, and certain ~~other neurological indications. In~~business and government closures or reductions in service. From time to time since the ~~U.S. and other selected regional markets,~~beginning of the COVID-19 pandemic, we ~~are currently pursuing a counterpart AV-101 patent application similar to the patent granted by the EPO. Although the U.S. Patent and Trademark Office (USPTO) has not yet allowed the counterpart application filed~~have experienced delays in the ~~U.S., we believe that our counterpart patent applications under review by the USPTO~~delivery of supplies of active pharmaceutical product (API) or other key materials required to continue development of PH94B and ~~other countries ultimately will be granted.~~

In the U.S., Europe and other selected regional markets, we are also prosecuting patent applications related to novel methods of producing AV-101. The USPTO recently granted a patent covering our manufacturing process and the Chinese counterpart has also been granted. We have submitted a counterpart application to the EPO, which has not yet been approved. However, given that the USPTO has granted a patentPH10, as well as temporary disruptions in the ~~U.S., we believe our counterpart patent application at the EPO ultimately will be granted.~~

~~The USPTO has also recently issued a patent related to~~ ~~methods for producing, from human pluripotent stem cells (hPSCs), hematopoietic precursor stem cells, which are stem cells that give rise to all~~availability of ~~the blood cells~~third-party personnel and ~~most of the bone marrow cells~~others involved in the ~~body. VistaGen holds~~conduct of our preclinical and clinical programs. Future unexpected delays may result in a significant, material delay or disruption to our current clinical and nonclinical development plans, programs, and operations.

We did not complete any capital-raising or other significant financing activities during the quarter ended June 30, 2022. In May 2021, we entered into an ~~exclusive license~~Open Market Sale Agreement^SM (the Sales Agreement) with Jefferies LLC as sales agent (Jefferies), with respect to ~~this patent from the University Health Network (UHN~~). The technology covered by the patent has the potential to impact both direct and supportive therapy for autoimmune disorders and cancer, with CAR-T cell applications, and foundational technology which may provide approaches for producing bone marrow stem cells for bone marrow transfusions.

~~In December 2017, we completed~~ an ~~underwritten public~~at-the-market offering ~~resulting in gross proceeds of $15.0 million, during~~program (the ATM) under which we ~~offered~~may, at our option, offer and sell, from time to time, shares of our common stock having an aggregate offering price of up to $75.0 million through Jefferies as our sales agent. During September and early October 2021, we sold an aggregate of 1,517,798 shares of our common stock and ~~warrants to purchase shares of our common stock at a combined public offering price of $1.50 per share and related warrant (theDecember 2017 Public Offering). We issued an aggregate of 10,000,000 shares of our common stock and warrants to purchase up to 10,000,000 shares of our common stock at an exercise price of $1.50 per share (theDecember 2017 Offering Warrants~~). The December 2017 Offering Warrants are exercisable at any time through December 13, 2022, and do not contain any cashless exercise features as long as our Registration Statement on Form S-1 (Registration No. 333-221009) (the~~S-1) is effective. We~~ received ~~net~~gross cash proceeds of approximately ~~$13.6~~$4.45 million under the ATM. We have not sold any shares under the ATM from the December 2017 Public Offering, after deducting underwriter’s commission and other expenses related to the offering. The common stock and the shares of common stock underlying the December 2017 Offering Warrants issued in the December 2017 Public Offering were offered, issued and sold pursuant to the S-1.

In September 2017, we completed an underwritten public offering, pursuant to which we sold 1,371,430 shares of our common stock and Series A1 Warrants to purchase up to 1,388,931 shares of common stock and Series A2 Warrants to purchase up to 503,641 shares of common stock (collectively, the~~Warrants), each initially exercisable for $1.82 per share to two of our existing institutional investors, resulting in net proceeds of approximately $2.0 million (theSeptember 2017 Public Offering~~). The Series A1 Warrants will be exercisable for a five-year period commencing on March 7, 2018, and the Series A2 Warrants are exercisable at any time and expire on September 6, 2022. The common stock and the shares of common stock underlying the Warrants issued in the September 2017 Public Offering were sold pursuant to our effective ~~Registration Statement on Form S-3 (Registration No. 333-215671) to cover this and potential future sales of our equity securities in one or more public offerings from time to time.~~ ~~Consistent with the anti-dilution protection provisions of the Series A2 Warrants, the exercise price of such warrants was reduced upon the closing of the December 2017 Public Offering. At~~October 2, 2021 through the date of this ~~Report, all~~Report.

Given the results of ~~the Series A2 Warrants have been exercised at the reset exercise price as a result of the December 2017 Public Offering.~~ ~~Following these exercises, none of~~PALISADE-1, we are carefully monitoring our ~~outstanding warrants have down round anti-dilution protection features.~~

During the nine months ended December 31, 2017, we entered into self-placed private placement transactions with individual accredited investors, pursuant to which we sold units consisting of an aggregate of 616,323 shares ofcash resources and critically evaluating our unregistered common stock and, after adjustments, warrants which are not exercisable until six months and one day following issuance and expire between April 30, 2021 and November 30, 2022, to purchase an aggregate of 616,323 unregistered shares of our common stock at a weighted average fixed exercise price of approximately $2.00 per share. We received aggregate cash proceeds of approximately $1.1 million in these self-placed private placement transactions.

~~In July 2017, we appointed~~Mark Wallace, M.D., Distinguished Professor of Clinical Anesthesiology at the University of California, San Diego, to our Clinical and Regulatory Advisory Board to assist us in advancing development of AV-101 as a potential non-opioid treatment alternative for neuropathic pain. Dr. Wallace is an internationally recognized leader in the field of multi-modal pain management, with over 30 years of professional experience, board certifications, licensures, honors/awards, grants, articles and abstracts.

~~As a matter of course, we continue to minimize, to the greatest extent possible, cash commitments and expenditures for both~~ internal and external research and development and general and administrative ~~services.~~ Toexpenditures, which includes pausing recruitment and enrollment in PALISADE-2, ending enrollment in our PALISADE OLS, deferring multiple potential NDA-enabling nonclinical development and manufacturing activities of PH94B and pausing a substantial portion of PH94B pre-commercialization initiatives pending further ~~advance~~assessment of the ~~nonclinical~~results of PALISADE-1 and ~~clinical development~~assessment of AV-101 and our stem cell technology platform, as well as support our operating activities, we 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 protectionthe independent third-party interim analysis of ~~intellectual property, public company compliance and other professional services and internal costs.~~ PALISADE-2.

Table of Contents

Results of Operations

Comparison of Three Months Ended ~~December 31, 2017~~June 30, 2022 and ~~2016~~

2021

The following table summarizes the results of our operations ~~including both cash and noncash components,~~ for the three months ended ~~December 31, 2017~~June 30, 2022 and ~~2016~~2021 (amounts in thousands).

Three Months Ended December 31,

2017

2016

Sublicense revenue
$-
$1,250
Operating expenses:


Research and development
  1,602
  1,611
General and administrative
  1,266
  2,276
  Total operating expenses
  2,868
  3,887



Loss from operations
  (2,868)
  (2,637)



Interest expense, net
  (2)
  (1)
Loss on extinguishment of accounts payable
  (135)
  -



Loss before income taxes
  (3,005)
  (2,638)
Income taxes
  -
  -



Net loss
  (3,005)
  (2,638)
  Accrued dividend on Series B Preferred Stock
  (263)
  (238)
  Deemed dividend from trigger of down round


       provision feature
  (199)
  -
Net loss attributable to common stockholders
$(3,467)
$(2,876)

	Three Months Ended June 30,
	2022			2021

Sublicense revenue	$	310		$	354
Operating expenses:
Research and development		15,291			5,457
General and administrative		4,792			2,643
Total operating expenses		20,083			8,100

Loss from operations		(19,773	)		(7,746	)

Interest income, net		2			5

Loss before income taxes		(19,771	)		(7,741	)
Income taxes		(5	)		(3	)

Net loss		(19,776	)		(7,744	)
Accrued dividends on Series B Preferred Stock		-			(362	)
Net loss attributable to common stockholders	$	(19,776	)	$	(8,106	)

Revenue

We recognized ~~$1.25 million~~$310,100 in sublicense revenue pursuant to the ~~BlueRock Therapeutics~~AffaMed Agreement in the quarter ended ~~December 31, 2016.~~June 30, 2022, compared to $354,100 in the quarter ended June 30, 2021. As described more completely in Note 11, Sublicensing and Collaboration Agreements, to our Condensed Consolidated Financial Statements in Part I of this Report (Note 11), on June 24, 2020, we entered into the AffaMed Agreement, pursuant to which we received a non-refundable upfront license fee payment of $5.0 million on August 3, 2020, which payment permitted the commencement of our revenue recognition under the AffaMed Agreement. We expect to recognize an aggregate of approximately $2.5 million in revenue pursuant to this payment in future periods during our current fiscal year and thereafter, as described in Note 11. However, we are currently assessing the impact on completion of our performance obligations in light of the results of the PALISADE-1. We will adjust our estimates, as necessary, in subsequent periods as we obtain more definitive information on which to base our projections. While we may potentially receive additional cash payments and royalties ~~under the BlueRock Therapeutics Agreement~~ in the future under the AffaMed Agreement in the event certain performance-based milestones and commercial sales are achieved, ~~we reported no revenue for the quarter ended December 31, 2017 and we presently have no recurring revenue generating arrangements with respect to AV-101 or other potential product candidates. There~~there can be no assurance that the ~~BlueRock~~AffaMed Agreement will provide any additional revenue beyond that noted or cash payments to us in the near term, or at all.

Research and Development Expense

Research and development (R&D) expense increased by $9.8 million, from $5.5 million for the quarter ended June 30, 2021 to $15.3 million for the quarter ended June 30, 2022. Expense related to conducting our PALISADE Phase 3 Program for PH94B, including PALISADE-1, PALISADE-2 and the PALISADE OLS study, and the PH94B Phase 2 Study in AjDA, as well as nonclinical development and outsourced manufacturing activities for both PH94B and PH10, accounted for the increased expenses of approximately $9.1 million during the quarter ended June 30, 2022 in relation to the comparable quarter in the prior year. As a result of pausing recruitment and enrollment in PALISADE-2, ending enrollment in the PALISADE OLS study and deferring certain previously projected NDA-enabling nonclinical and clinical development of PH94B subsequent to June 30, 2022, we expect R&D expense to decrease in subsequent periods, as compared to the period ended June 30, 2022.

~~-21-~~24

Table of Contents

~~Research~~

Salaries and ~~Development Expense~~

~~Research~~benefits expense for the quarter ended June 30, 2022 increased by approximately $345,000 versus the comparable prior-year quarter primarily due to the hiring of additional regulatory, clinical, CMC and data management personnel partially offset by a reduction in the accrual for estimated additional compensation expense resulting from the achievement of certain corporate objectives during the 2022 calendar year versus the 2021 calendar year. Noncash research and development expense, ~~including both cash~~primarily stock-based compensation and ~~noncash components, totaled $1.6 million for each of the quarters ended December 31, 2017 and 2016. Noncash expenses, including stock compensation,~~ depreciation ~~and a portion of rent expense~~ in both periods, accounted for approximately $353,000 and ~~a portion of AV-101 project expenses in the quarter ended December 31, 2017, totaled approximately $385,000 and $215,000~~$267,000 for the quarters ended ~~December 31, 2017~~June 30, 2022 and ~~2016,~~2021, respectively. While total research and development expense remains essentially unchanged, we have continued our focus on nonclinical and clinical development of AV-101, particularly our preparations for the launch of the AV-101 MDD Phase 2 Adjunctive Treatment Study, which is currently anticipated in the first quarter of 2018. The following table indicates the primary components of research and development expense for each of the periods (amounts in thousands):

Three Months Ended December 31,

2017

2016

Salaries and benefits
$347
$302
Stock-based compensation
  299
  114
Consulting and other professional services
  7
  (139)
Technology licenses and royalties, including UHN
  149
  293
Project-related research and supplies:


AV-101
  665
  894
Stem cell and all other
  15
  50

  680
  944
Rent
  104
  88
Depreciation
  16
  8
All other
  -
  1



Total Research and Development Expense
$1,602
$1,611

	Three Months Ended June 30,
	2022		2021

Salaries and benefits	$	1,652	$	1,307
Stock-based compensation		330		241
Consulting and other professional services		271		135
Clinical and nonclinical studies and development expenses:
PH94B and PH10		12,585		3,439
AV-101		248		160
All other		16		-
		12,849		3,599
Rent		130		153
Depreciation		18		20
All other		41		2
Total Research and Development Expense	$	15,291	$	5,457

The increase in salaries and benefits expense for the quarter ended June 30, 2022 primarily reflects the addition of eleven additional management and staff positions across multiple functional disciplines, including biostatistics and clinical analytics, clinical operations, chemistry, manufacturing and controls, and regulatory affairs during the period from July 2021 through June 2022. Also contributing to the increase is the impact of ~~modest~~ salary increases ~~granted~~effective in January 2022 to our ~~Chief Medical Officer (CMO~~)R&D management and ~~Chief Scientific Officer (CSO~~)staff. These increases are partially offset by a reduction of approximately $302,000 in ~~July 2017~~the accrual for estimated additional compensation expense for R&D officers and employees pursuant to achievement of calendar year 2022 corporate operational objectives compared to the ~~non-officer members~~accrual at June 30, 2021 for achievement of calendar 2021 objectives. We are currently evaluating our ~~scientific staff~~salaries and benefit expense following the topline results of PALISADE-1 and the subsequent impact on other studies in ~~June 2017~~our PALISADE Phase 3 development program. As of the date of this Report, we expect our R&D salary and benefit expense to ~~bonus payments made to scientific staff members~~remain consistent in ~~December 2017, offset by the impact of a staff position terminated in April 2017.~~

~~Noncash stock-based~~subsequent periods.

Stock-based compensation expense ~~increased in~~for the ~~current period primarily from~~quarter ended June 30, 2022 reflects the ~~routine~~ amortization of option grants made to our ~~CSO, CMO~~R&D staff and certain clinical and scientific ~~staff~~consultants since May 2019, in ~~September 2017, April 2017~~addition to grants to new employees as indicated above. All outstanding options granted to R&D employees and ~~November 2016.~~consultants prior to May 2019 have become fully vested and amortized prior to the quarter ended June 30, 2022 and the May 2019 grants became fully vested in the current quarter. Grants awarded after ~~December 2016~~June 30, 2021, including those granted to new employees, account for approximately ~~$199,000~~$140,000 of ~~2017 expense. Expense~~expense in the quarter ended June 30, 2022, offset by an expense reduction of approximately $66,000 attributable to ~~these grants is generally being~~certain options granted between May 2019 and May 2020 that became fully vested and amortized ~~over two-year to four-year vesting periods, based on the terms of the respective grants. Additionally, substantially all option grants made~~ prior to ~~September 2015 were fully-vested and fully-expensed prior to~~or during the quarter ended June 30, ~~2017.~~

2022. ESPP expense for the quarter ended June 30, 2022 was $15,900 compared to $2,300 in the quarter ended June 30, 2021.

Consulting and other professional services in both periods reflects fees ~~paid or accrued~~incurred, generally on an as-needed basis, for project-based scientific, nonclinical and clinical development and regulatory advisory and analytical services rendered to us by ~~third-parties,~~third parties primarily ~~by members~~in support of our ~~scientific~~PH94B and ~~CNS~~PH10 development initiatives. Expense for the quarter ended June 30, 2022 also includes nominal contract recruiting services for certain specialized R&D employee and consultant positions.

The significant increase in PH94B and PH10 clinical and ~~regulatory advisory boards. The reduction~~nonclinical project expense during the quarter ended June 30, 2022 compared to the quarter ended June 30, 2021 is primarily due to the conduct of PALISADE-1, which began in ~~expense~~May 2021 as the initial study in the ~~current period primarily reflects~~PH94B PALISADE Phase 3 Program in SAD, compared to conducting PALISADE-1, PALISADE-2, the ~~change~~PALISADE OLS study and the Phase 2A clinical trial of PH94B in ~~terms~~AjDA during the quarter ended June 30, 2022 as well as additional nonclinical and preclinical development activities for PH94B and PH10 in both periods. During the quarters ended June 30, 2022 and 2021, manufacturing, formulation, validation and analysis of ~~consulting agreements~~sufficient quantities of drug substance and drug product for the clinical trials and other developmental requirements were significant initiatives for advancing both PH94B and PH10. Due to its later stage of development, costs for PH94B initiatives have significantly exceeded those for PH10 during both Fiscal 2022 and Fiscal 2021. However, as a result of pausing of PALISADE-2 and ending enrollment in the PALISADE OLS study subsequent to June 30, 2022, we expect costs associated with our ~~stem cell-related scientific advisory board members. Consulting~~continued PH94B-related initiatives, including our Phase 2 AjDA study and other nonclinical studies of PH94B, to substantially decrease in subsequent periods. We anticipate an increase in clinical development expense associated with PH10 as we initiate U.S. Phase 1 development of PH10 to facilitate potential U.S. Phase 2B development of PH10 for treatment of MDD. In both periods, AV-101 project expense includes costs for certain preclinical studies related to the use of AV-101 with adjunctive probenecid and certain AV-101 manufacturing stability studies. Expense in ~~2016 reflected~~the quarter ended June 30, 2022 also includes the impact of ~~the rationalization of the agreements and accruals related to such advisory board members.~~

~~Technology license expense reflects both recurring annual license fees as well as legal counsel and other costs related to patent prosecution and protection pursuant to~~ our stem cell technology license agreements or that we have elected to pursue for commercial purposes. We recognize these costs as they are invoiced to us by the licensors or counsel and they do not occur ratably throughout the year or between years. In both periods, this expense includes legal counsel and other costs we have incurred to advance pending patent applications in the U.S. and numerous foreign countries with respect toongoing exploratory Phase 1B AV-101 and our stem cell technology platform. Technology license-related expense for 2016 also includes net expense of $158,000 related to the sublicense consideration paid to UHN pursuant to the BlueRock Therapeutics Agreement plus additional fees and expenses related to two new stem cell technology related licenses acquired from UHN, net of amounts previously accrued in connection with our prior Sponsored Research Collaboration Agreement (~~SRCA) with UHN, and $55,000 representing the fair value of a warrant granted to intellectual property counsel as partial compensation for services.~~

~~AV-101 project expenses~~

Rent expense for both periods reflects our implementation of ASC 842 and the ~~quarters ended December 31, 2017~~requirement to recognize, as an operating lease related to our South San Francisco office and ~~2016 include continuing costs incurred to develop more efficient~~laboratory facility, a right-of-use asset and cost-effective proprietary manufacturing methods for AV-101, and to produce clinical trial material for the AV-101 MDD Phase 2 Adjunctive Treatment Study, as well as costs incurred for certain other nonclinical studies to facilitate further clinical developmenta lease liability, both of ~~AV-101 in MDD and potentially for other indications, and to comply with applicable FDA regulations. We expect these expenses to increase materially~~which must be amortized over the next several quarters as we initiate and conduct the AV-101 MDD Phase 2 Adjunctive Treatment Study. AV-101 expenses in 2016 also included initial costs for preparation of the IND and trial protocol submission to the FDA to obtain approval for the AV-101 MDD Phase 2 Adjunctive Treatment Study. Stem cell and other project related expensesexpected lease term. The underlying lease reflects ~~costs associated with our in-house stem cell technology-related initiatives in both years, and, in 2016, our participation in the FDA’s Comprehensive In Vitro Proarrhythmia Assay (CiPA) project.~~

~~The increase in rent expense for the quarter ended December 31, 2017 reflects higher~~ commercial property rents prevalent in the South San Francisco real estate market ~~and recognized in~~at the time of our November 2016 lease amendment extending the lease of our headquarters facilities in South San Francisco by five years from July 31, 2017 to July 31, 2022. As disclosed in Note 10, Commitments and Contingencies, in the Condensed Consolidated Financial Statements in Part I of this Report, in October 2021, we entered into an amendment to this lease, pursuant to which the term of the lease was extended from August 1, 2022 to July 31, 2027 and the ~~related accounting~~base rent under the lease for the five-year extension ~~amendment.~~

period was specified. We allocate total rent expense for our South San Francisco facility between R&D expense and G&A expense based generally on square footage dedicated to each function. In both periods reported, rent expense includes charges for such items as common area maintenance fees, taxes and insurance which are generally assessed to us by our landlord.

General and Administrative Expense

General and administrative (G&A) expense ~~including both cash and noncash components, decreased~~increased by ~~44%~~approximately $2.2 million to approximately ~~$1.3 million from $2.3~~$4.8 million for the ~~quarters~~quarter ended ~~December 31, 2017~~June 30, 2022, compared to approximately $2.6 million for the quarter ended June 30, 2021. Certain pre-commercialization market research studies and ~~2016, respectively.~~analyses initiated during the quarter ended June 30, 2022 in expectation of positive PALISADE-1 results contributed approximately $1.2 million to the increase. We are currently evaluating the extent and timing of such future activities, although it is not currently anticipated that such expenditures will recur in the short term at or near the same level as expended during the quarter ended June 30, 2022. Salary and benefits expense and stock-based compensation increased as a result of new G&A employees hired between July 2021 and June 2022 and related option grants upon employment, partially offset by a reduction in the accrual for estimated additional compensation expense resulting from the achievement of certain corporate objectives during the 2022 calendar year versus the 2021 calendar year. Insurance expense increased in the quarter ended June 30, 2022 as a result of increased coverage amounts and new coverages added to our insurance portfolio. In the quarter ended June 30, 2021, we expensed, as a noncash charge, $232,000 of deferred offering costs attributable to a previous financing arrangement that we terminated in June 2021. Noncash general and administrative expense, ~~accounted for~~ approximately ~~$485,000~~$673,000 and ~~$1,486,000 for~~$632,000 in the quarters ended ~~December 31, 2017~~June 30, 2022 and ~~2016,~~2021, respectively, ~~including,~~primarily reflects stock-based compensation and depreciation in ~~both periods,~~2022 and stock based compensation, ~~expense, a portion~~depreciation, and the write-off of ~~investor relations and investment banking expenses, warrant modification expense, and a portion of rent expense. The overall decrease~~the deferred offering costs in general and administrative expenses resulted primarily from decreased professional services expenses, notably attributable to a decrease in noncash expense attributable to grants of common stock for services, a decrease in noncash warrant modification expense, partially offset by increased salary and benefits and noncash stock compensation expenses.2021. The following table indicates the primary components of general and administrative ~~expenses, including the cash and noncash components,~~expense for each of the periods (amounts in thousands):

Three Months Ended December 31,

2017

2016

Salaries and benefits
$339
$257
Stock-based compensation
  390
  153
Board fees
  39
  36
Legal, accounting and other professional fees
  44
  1,017
Investor relations
  232
  241
Insurance
  60
  38
Travel expenses
  33
  54
Rent and utilities
  69
  63
Warrant modification expense
  13
  370
All other expenses
  47
  47

$1,266
$2,276

	Three Months Ended June 30,
	2022		2021

Salaries and benefits	$	1,092	$	951
Stock-based compensation		627		350
Board fees and other consulting services		150		81
Legal, accounting and other professional fees		693		474
Investor and public relations		401		136
Pre-launch marketing studies and analyses		1,301		102
Insurance		330		122
Travel expenses		19		1
Sublicense contract amortized acquisition expense		29		33
Rent and utilities		93		117
Write off of deferred offering costs		-		232
All other expenses		57		44
	$	4,792	$	2,643

The increase in salaries and benefits expense for the quarter ended June 30, 2022 primarily ~~reflects~~results from the full-quarter impact of the addition of our Chief Commercial Officer in May, and the additions of our Vice President, Medical Affairs in October 2021, our Vice President, Strategic Insights and Analytics in November 2021, our Vice President, Human Resources in January 2022, our Chief Legal Officer in May 2022 and two other administrative employees in August 2021 and June 2022. Also contributing to the increase is the impact of ~~modest~~ salary increases ~~granted in July 2017 to our Chief Executive Officer (CEO) and Chief Financial Officer (CFO), and~~effective beginning in January ~~2017 and July 2017~~2022 granted to ~~our Vice President-Corporate Development (VP-Corporate Development) and, in June 2017, to a non-officer member~~members of our management and administrative ~~staff as well as bonus payments~~staff. Offsetting this increase is a reduction of approximately $207,000 in ~~December 2017 to our VP-Corporate Development and an administrative staff member.~~

~~Stock based~~the accrual at June 30, 2022 for estimated additional compensation expense ~~increased in~~for officers and administrative employees pursuant to achievement of calendar year 2022 corporate operational objectives compared to the ~~current period primarily as a result~~accrual at June 30, 2021 for achievement of calendar year 2021 objectives. As of the ~~routine~~date of this Report, we expect our G&A salary and benefit expense to remain consistent in subsequent periods.

Stock-based compensation expense for the quarter ended June 30, 2022 reflects the amortization of option grants made to our G&A officers and staff and certain consultants since May 2019, in addition to grants to new employees as indicated above. With the exception of options granted in May 2019 and September 2019, all outstanding options granted to G&A employees and consultants prior to October 2020 have become fully vested and amortized prior to the quarter ended June 30, 2022 and the May 2019 grants became fully vested in the current quarter. Grants awarded after June 30, 2021, including those granted to new employees, account for approximately $426,000 of expense in the quarter ended June 30, 2022, offset by an expense reduction of approximately $150,000 attributable to certain options granted between May 2019 and June 2020 that became fully vested and amortized prior to or during the quarter ended June 30, 2022. ESPP expense for the quarter ended June 30, 2022 was approximately $4,900 compared to $2,700 in the quarter ended June 30, 2021.

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Board fees and other consulting services represents, in both periods, fees paid as consideration for Board and Board Committee services to the independent members of our Board of Directors. We modified our cash compensation policy for our independent Board members at the beginning of Fiscal 2022, increasing payments to reflect current market conditions and ~~our CEO, CFO, VP Corporate Development~~we added one new independent Board member in April 2021 and ~~administrative staff in September 2017, April 2017 and November 2016, plus~~two additional independent members during July 2021. Expenses for the new-hire grant made to our VP-Corporate Development in September 2016. Grants awarded after December 2016 account for approximately $274,000 of 2017 expense. Expense attributable to these grants is generally being amortized over a two-year to four-year vesting period, based on the terms of the respective grants. Additionally, substantially all option grants made prior to September 2015 were fully-vested and fully-expensed prior toquarter ended June 30, ~~2017.~~

~~Board~~2022 also include recruiting fees ~~includes fees recognized~~ for ~~the services of independent members of our Board. The Board modified committee assignments effective in April 2017, resulting in the slight increase in current year expense.~~

certain administrative positions.

Legal, accounting and other professional fees for ~~the quarters ended December 31, 2017 and 2016 includes cash expense~~both periods include expenses related to routine and project-based legal services as well as accounting ~~expense~~services related to the ~~review~~audit of our annual financial statements. Expense for both periods includes the cost of certain outsourced financial ~~statements for the third quarter of each fiscal year. Other professional fees for~~and accounting services and our information technology service provider. Expense in the quarter ended ~~December 31, 2016 additionally~~June 30, 2021 also included ~~noncash expense~~costs related to ~~grants~~our implementation of ~~an aggregate of 220,000 unregistered shares of~~new accounting software. Expense in both periods also includes legal counsel and other costs related to patent prosecution and protection pursuant to our ~~common stock valued on~~stem cell technology license agreements, our AV-101 patents, or patents that we have elected to pursue for commercial purposes, recurring annual license fees, and costs we have incurred to advance various patent applications in the ~~respective grant dates at an aggregate of $862,800 plus aggregate cash payments of $80,000~~U.S. and numerous foreign countries, primarily with respect to ~~investment professionals for financial advisory~~AV-101 and ~~corporate development services.~~

our stem cell technology platform, but also nominally with respect to our PH94B and PH10 intellectual property portfolios.

Investor and public relations expense in both periods includes the fees of our various external service providers for a broad spectrum of investor relations, public relations and social media services, and, primarily in the quarter ended June 30, 2022, additional market awareness and strategic advisory and support functions ~~as well as initiatives that included~~and initiatives. During both years, we conducted numerous virtual meetings ~~in multiple U.S. markets~~ and other communication activities focused on expanding global market awareness of the Company, our CNS product candidate pipeline and technologies and our research and development programs, including among registered investment professionals and investment advisors, ~~and~~ individual and institutional ~~investors. In the quarters ended December 31, 2017~~investors, and ~~2016,~~prospective strategic collaborators for development and commercialization of our product candidates in ~~addition to cash fees and expenses~~major pharmaceutical markets worldwide.

During both periods, we incurred expenses for a number of pre-commercialization studies, analyses, projections, strategic modeling and awareness services, primarily attributable to PH94B as a potential acute treatment of anxiety in adults with SAD. Given the results of PALISADE-1 and the resulting delay to our anticipated commercialization timeline for PH94B, we ~~granted an aggregate~~expect these expenditures to substantially decrease as we pause pre-commercialization initiatives pending the results of ~~70,000~~the independent third-party interim analysis of PALISADE-2.

The increase in insurance expense is primarily attributable to the increased coverage obtained under our directors’ and ~~35,000 unregistered shares~~officers’ liability insurance upon renewal of our ~~common stock, respectively,~~policy in May 2022 and additional coverages, including cybersecurity, added to ~~certain investor relations, market awareness~~our insurance program during Fiscal 2022.

As a result of periodic shelter-in-place restrictions and ~~strategic business advisory service providers for their services~~travel and ~~recognized noncash expense of $84,000~~workplace precautions and ~~$137,800, respectively, representing the fair value of the stock at the time of issuance~~.

~~In both periods, travel expense reflects costs~~restrictions associated with the COVID-19 pandemic continuing throughout both Fiscal 2021 and Fiscal 2022, management presentations to and historically in-person meetings held in multiple U.S. markets and certain international markets with existing and potential individual and institutional investors, investment professionals and advisors, media, and securities analysts, as well as various investor relations, market awareness and corporate development and partnering ~~initiatives. Travel expenses for~~initiatives, have generally occurred remotely without requiring in-person business travel by our executives. We incurred nominal travel expense in the quarter ended ~~December 31, 2017 were primarily~~June 30, 2022 for attendance at seminars, and for vendor audits, clinical trial site visits and certain investor-focused events, as conditions have permitted.

Rent expense for both periods reflects our implementation of ASC 842 and the requirement to recognize, as an operating lease related to ~~advancing~~our South San Francisco office and laboratory facility, a right-of-use asset and a lease liability, both of which must be amortized over the ~~consummation of the December 2017 Public Offering.~~

expected lease term. The ~~increase in rent expense for the quarter ended December 31, 2017~~underlying lease reflects ~~higher~~ commercial property rents prevalent in the South San Francisco real estate market and recognized in our November 2016 lease amendment extending the lease of our headquarters facilities by five years from July 31, 2017 to July 31, 2022 and the related accounting for the extension amendment.

During the quarter ended December 31, 2017, we modified outstanding warrants issued in private placement transactions between August 2017 and November 2017 to purchase an aggregate of 178,572 shares of our common stock to reduce the exercise prices from a weighted average of $2.32 per share to a weighted average of $1.58 per share. We recognized the calculated increase in the fair value of the warrants, $13,000, as noncash warrant modification expense. During the quarter ended December 31, 2016, we entered into warrant exchange agreements with certain warrant holders pursuant to which the warrant holders exchanged outstanding warrants to purchase an aggregate of 163,044 shares of our common stock for an aggregate of 110,008 shares of our unregistered common stock. We accounted for these transactions as warrant modifications, resulting in our recognition of $293,300 in noncash expense in the quarter ended December 31, 2016. During that quarter we also 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 noncash expense as the incremental fair value attributable to the modification.

~~Interest and Other Expenses~~

Interest expense totaled $2,000 for the quarter ended December 31, 2017 compared to $900 reported for the quarter ended December 31, 2016. Interest expense in both periods relates to interest paid on insurance premium financing and on a capital lease of office equipment.

~~During the quarter ended December 31, 2017, we issued 500,000 unregistered shares of our common stock having a fair value~~ at the time of issuance of $585,000 and a cash payment of $76,500 to a contract manufacturing organization in settlement of $526,500 of open accounts payable. We recognized a corresponding loss on settlement of accounts payable in the amount of $135,000 for the quarter.

~~We recognized $263,000 and~~ $237,700 for the quarters ended December 31, 2017 and 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 Condensed Consolidated Statement of Operations and Comprehensive Loss included in Part I of this Report. There have been no conversions of outstanding shares of our Series B Preferred stock into shares of our common stock since August 2016.

Our sale of units consisting of common stock and warrants in the December 2017 Public Offering at an offering price of $1.50 per unit triggered the anti-dilution provisions of the Series A2 Warrants to purchase an aggregate of 503,641 shares of our common stock issued in the September 2017 Public Offering. In accordance with the anti-dilution terms and formula contained in the Series A2 warrants, the exercise price of the Series A2 Warrants was reduced from the initial exercise price of $1.82 per share to $0.001 per share. We recognized the effect of triggering the down round feature, $199,200, as a further addition to net loss attributable to common stockholders and in our calculation of basic and fully diluted earnings per share in our accompanying Condensed Consolidated Statement of Operations and Comprehensive Loss and as a dividend in our Condensed Consolidated Statement of Stockholders’ Equity included in Part I of this Report.

~~Comparison of Nine Months Ended December 31, 2017 and 2016~~

~~The following table summarizes the results of our operations, including both cash and noncash components, for the nine months ended December 31, 2017 and 2016 (amounts in thousands).~~

Nine Months Ended December 31,

2017

2016

Sublicense revenue
$-
$1,250
Operating expenses:


Research and development
  5,125
  4,043
General and administrative
  4,997
  4,908
  Total operating expenses
  10,122
  8,951



Loss from operations
  (10,122)
  (7,701)



Interest expense (net)
  (8)
  (4)
Loss on extinguishment of accounts payable
  (135)
  -



Loss before income taxes
  (10,265)
  (7,705)
Income taxes
  (2)
  (2)



Net loss
  (10,267)
  (7,707)
  Accrued dividend on Series B Preferred Stock
  (767)
  (1,018)

Deemed dividend from trigger of down round


       provision feature
  (199)
  -
Deemed dividend on Series B Preferred Stock
  -
  (111)
Net loss attributable to common stockholders
$(11,233)
$(8,836)

We recognized $1.25 million in sublicense revenue pursuant to the BlueRock Therapeutics Agreement in the nine months ended December 31, 2016. While we may potentially receive additional payments and royalties under the BlueRock Therapeutics Agreement in the future, in the event certain performance-based milestones and commercial sales are achieved, we reported no revenue for the nine months ended December 31, 2017 and we presently have no recurring revenue generating arrangements with respect to AV-101 or other potential product candidates. There can be no assurance that the BlueRock Agreement will provide additional revenue to us in the near term or at all.

~~Research and Development Expense~~

Research and development expense, including both cash and noncash components, totaled $5.1 million for the nine months ended December 31, 2017, an increase of approximately 27% compared to the $4.0 million reported for the nine months ended December 31, 2016. Noncash expenses totaled approximately $1,228,000 and $346,000 in the nine months ended December 31, 2017 and 2016, respectively, including stock compensation, depreciation and a portion of rent expense in both periods, and a portion of AV-101 project expenses in the nine months ended December 31, 2017. The increase in research and development expense in 2017 reflects our continued focus on nonclinical and clinical development of AV-101, particularly our preparations for the launch of the AV-101 MDD Phase 2 Adjunctive Treatment Study, which is currently anticipated in the first quarter of 2018. The following table indicates the primary cash and noncash components of research and development expense for each of the periods (amounts in thousands):

Nine Months Ended December 31,

2017

2016

Salaries and benefits
$1,231
$1,013
Stock-based compensation
  627
  240
Consulting and other professional services
  23
  (81)
Technology licenses and royalties
  309
  547
Project-related research and supplies:


AV-101
  2,465
  1,963
Stem cell and all other
  105
  129

  2,570
  2,092
Rent
  308
  206
Depreciation
  54
  25
All other
  3
  1



Total Research and Development Expense
$5,125
$4,043

~~The increase in salaries and benefits reflects the hiring of our Chief Medical Officer (CMO) in June 2016, and a salary increase granted to our CMO in July 2017, as well as salary increases granted to our Chief Scientific Officer (CSO~~) and to the non-officer members of our scientific staff in June 2016 and June 2017, offset by the impact of a staff position terminated in April 2017. Additionally, our then-newly-hired CMO did not receive a bonus in July 2016; however, both our CMO and CSO were granted a bonus in September 2017.

Stock based compensation expense increased in the current period primarily as a result of the routine amortization of option grants made to our CSO, CMO and scientific staff in September 2017, April 2017 and November 2016, plus the new-hire grant made to our CMO in June 2016. Grants awarded after December 2016 account for approximately $279,000 of 2017 expense. The expense attributable to these grants is generally being amortized over a two-year to four-year vesting period, based on the terms of the respective grants. Substantially all option grants made prior to September 2015 were fully-vested and fully-expensed prior to June 30, 2017.

Consulting services reflects fees paid or accrued for scientific, nonclinical and clinical development and regulatory advisory services rendered to us by third-parties, primarily by members of our scientific and CNS clinical and regulatory advisory boards. The reduction in expense in 2017 primarily reflects the change in terms of consulting agreements with our stem cell-related scientific advisory board members. Consulting expense in 2016 reflected the impact of the rationalization of the agreements and accruals related to such advisory board members.

Technology license expense in both periods reflects both recurring annual license fees as well as legal counsel and other costs related to patent prosecution and protection pursuant to our stem cell technology license agreements or that we have elected to pursue for commercial purposes. We recognize these costs as they are invoiced to us by the licensors or counsel and they do not occur ratably throughout the year or between years. In both periods, this expense also includes legal counsel and other costs we have incurred to advance numerous pending or now-granted patent applications in the U.S. and various foreign countries with respect to AV-101 and our stem cell technology platform. Technology license-related expense for 2016 also includes net expense of $158,000 related to the sublicense consideration paid to UHN pursuant to the BlueRock Therapeutics Agreement plus additional fees and expenses related to two new stem cell technology related licenses acquired from UHN, net of amounts previously accrued in connection with our prior SRCA with UHN, and $55,000 representing the fair value of a warrant granted to intellectual property counsel as partial compensation for services.

AV-101 project expense for both periods includes costs incurred to develop more efficient and cost-effective proprietary manufacturing methods for AV-101, and to produce clinical trial material enabling the AV-101 MDD Phase 2 Adjunctive Treatment Study, and, primarily in 2017, costs incurred for certain other nonclinical studies to facilitate further clinical development of AV-101 in MDD and potentially for other indications and to comply with applicable FDA regulations. We expect these expenses to increase materially over the next several quarters as we initiate and conduct the AV-101 MDD Phase 2 Adjunctive Treatment Study. Stem cell and other project related expenses reflects costs associated with our in-house stem cell technology-related initiatives, and, to a greater extent in 2016, our participation in the FDA’s CiPA project.

~~The increase in rent expense for 2017 reflects higher commercial property rents prevalent in the South San Francisco real estate market and recognized in~~ our November 2016 lease amendment extending the lease of our headquarters facilities in South San Francisco by five years from July 31, 2017 to July 31, 2022. As disclosed in Note 10, Commitments and Contingencies, in the Condensed Consolidated Financial Statements in Part I of this Report, in October 2021, we entered into an amendment to this lease, pursuant to which the term of the lease was extended from August 1, 2022 to July 31, 2027 and the base rent under the lease for the five-year extension period was specified. We allocate total rent expense for our South San Francisco facility between R&D expense and G&A expense based generally on square footage dedicated to each function. In both periods reported, rent expense includes charges for such items as common area maintenance fees, taxes and insurance which are generally assessed to us by our landlord.

Beginning in the quarter ended September 30, 2020, we began to amortize the deferred contract acquisition costs related to our acquisition of the AffaMed Agreement, composed of the cash payment of $220,000 for sublicense fees which we were obligated to make pursuant to our PH94B license from Pherin, and the $125,000 cash payment and $125,000 fair value of common stock issued for consulting services, in each case exclusively related to our acquisition of the AffaMed Agreement. The contract acquisition costs are amortized over the expected term of the services to be provided under the AffaMed Agreement. During the quarters ended June 30, 2022 and 2021, we amortized $29,100 and $33,300, respectively, of contract acquisition costs.

In June 2021, we terminated the equity line agreement with Lincoln Park Capital. Upon termination of the agreement, we expensed the remaining $232,100 of deferred offering costs related ~~accounting~~to the agreement as a noncash charge to G&A expense.

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Interest and Other Expense

Interest income, net totaled $2,300 for the ~~extension amendment.~~

~~General and Administrative Expense~~

~~General and administrative expense, including both cash and noncash components, increased approximately 2%~~quarter ended June 30, 2022, compared to ~~$5.0 million~~$5,100 for the ~~nine months~~quarter ended December 31, 2017 from $4.9 million for the nine months ended December 31, 2016. Noncash expense accounted for approximately $2.2 million and $2.5 million for the nine months ended December 31, 2017 and 2016, respectively, including, in both periods, stock compensation expense, a portion of investor relations and professional services expenses, warrant modification expense, and a portion of rent expense. The overall increase in general and administrative expenses was primarily attributable to increased salary and benefits expense and noncash stock compensation and investor relations expenses, offset by reductions in professional services and noncash warrant modification expenses.June 30, 2021. The following table indicates the primary components of ~~general~~interest income and ~~administrative expenses, including noncash components,~~expense for each of the periods (amounts in thousands):

Nine Months Ended December 31,

2017

2016

Salaries and benefits
$1,260
$932
Stock-based compensation
  760
  334
Board fees
  117
  105
Legal, accounting and other professional fees
  739
  1,766
Investor relations
  1,229
  820
Insurance
��181
  116
Travel expenses
  95
  126
Rent and utilities
  209
  148
Warrant modification expense
  293
  427
All other expenses
  114
  134

$4,997
$4,908

~~The increase in salaries and benefits reflects~~

	Three Months Ended June 30,
	2022			2021

Interest income	$	6		$	5
Interest expense on financing lease and insurance premium financing note		(4	)		-

Interest income, net	$	2		$	5

For the impact of the hiring of our VP-Corporate Development in September 2016 and salary increases granted in June 2016 and July 2017 to our CEO and CFO, and in June 2016 and June 2017 to a non-officer member of our administrative staff. Additionally, each of our officers was granted a bonus in September 2017, but our VP-Corporate Development had not yet joined the Company in July 2016, when our CEO and CFO received a bonus payment.

Stock based compensation expense increased in 2017 primarily as a result of the routine amortization of option grants to independent members of our Board of Directors and our CEO, CFO, VP-Corporate Development and administrative staff in September 2017, April 2017 and November 2016, plus the new-hire grant made to our VP-Corporate Development in September 2016. Grants awarded after December 2016 account for approximately $383,000 of 2017 expense. The expense attributable to these grants is generally being amortized over a two-year to four-year vesting period based on the terms of the respective grants. Substantially all option grants made prior to September 2015 were fully-vested and fully-expensed prior toquarters ended June 30, ~~2017.~~

~~Board fees includes fees recognized for the services of independent members of our Board. The Board modified committee assignments effective in April 2017, resulting in the modest increase in expense.~~

~~Legal, accounting~~2022 and other professional fees for the nine months ended December 31, 2017 and 2016 includes expense related to routine legal services as well as the accounting expense related to the annual audit of the prior year’s financial statements, tax return preparation and the review of the financial statements for the first three quarters of the current fiscal year. In addition2021, interest income relates to cash fees incurred, during the nine months ended December 31, 2017, we granted an aggregate of 20,000 unregistered shares of our common stock having an aggregate fair value of $30,800 to legal services providers as partial compensation for services and an aggregate of 150,000 unregistered shares of our common stock having an aggregate fair value of $234,000 to two investment banking firms pursuant to financial advisory agreements. Noncashdeposits in interest-bearing cash equivalent accounts. Interest expense for ~~the nine months ended December 31, 2016 included (i) $337,500 recognized in~~ the quarter ended June 30, ~~2016 pursuant~~2022 relates to interest paid on the insurance premium financing note and in both periods on our financing lease of office equipment subject to ASC 842. We did not finance insurance premiums for policies that renewed in February 2021 or February 2022 or in May 2021.

We recognized approximately $361,800 during the quarter ended June 30, 2021 attributable to the ~~June 30, 2015 grant of an~~ ~~aggregate of 90,000~~10% cumulative dividend accrued on then-outstanding shares of our Series B 10% convertible preferred stock having an aggregate fair value of $1,350,000 as compensation for financial advisory and corporate development service contracts with two independent providers for services to be performed through June 30, 2016; (ii) $108,500 recognized in the quarter ended September 30, 2016 representing the fair value of 25,000 unregistered shares of our common stock granted to a legal services provider as compensation for services; and (iii) $862,800 recognized in the quarter ended December 31, 2016 representing the fair value of 220,000 unregistered shares of our common stock granted as compensation for financial advisory, investment banking and business development services.

Investor relations expense includes the fees of our various external service providers for a broad spectrum of investor relations, market awareness and strategic advisory and support functions, as well as initiatives that included numerous meetings in multiple U.S. markets and other communication activities focused on expanding market awareness of the Company, including among registered investment professionals and investment advisors, and individual and institutional investors. In the nine months ended December 31, 2017, in addition to cash fees and expenses we incurred, we granted an aggregate of 552,000 shares of our unregistered common stock to various corporate development, investor relations, market awareness and business advisory service providers as full or partial compensation for their services and recognized noncash expense totaling $847,300, representing the fair value of the stock at the time of issuance. In the nine months ended December 31, 2016, in addition to cash fees and expenses we incurred, we granted an aggregate of 60,000 unregistered shares of our common stock to three investor relations and investor awareness service providers as partial compensation for their services and recognized noncash expense of $246,300, representing the fair value of the stock at the time of issuance. During the same period in 2016, 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 management presentations to and meetings in multiple U.S. markets with existing and potential individual and institutional investors, investment professionals and advisors, media, and securities analysts, as well as various investor relations, market awareness and corporate development initiatives.

The increase in rent expense for 2017 reflects higher commercial property rents prevalent in the South San Francisco real estate market and recognized in our November 2016 lease amendment extending the lease of our headquarters facilities in South San Francisco by five years, from July 31, 2017 to July 31, 2022, and the related accounting for the extension amendment.

In September 2017, we reduced the exercise price of 247,500 warrants issued in the Spring 2017 Private Placement from a weighted average exercise price of $3.99 per share to $2.00 per share. We also issued to each of the Spring 2017 Private Placement investors additional warrants to purchase an aggregate total of 247,501 shares of common stock, with an exercise price of $2.00 per share. We recognized noncash expense of $279,700 in the quarter ended September 30, 2017, representing the increase in fair value of the warrants granted initially before and after the modification and the fair value of the additional warrants granted. In December 2017, we modified outstanding warrants issued in private placement transactions between August 2017 and November 2017 to purchase an aggregate of 178,572 shares of our common stock to reduce the exercise prices from a weighted average of $2.32 per share to a weighted average of $1.58 per share. We recognized the increase in the fair value of the warrants, $13,000, as noncash warrant modification expense in the quarter ended December 31, 2017. Between April 2016 and December 2016, we entered into warrant exchange agreements with certain warrant holders pursuant to which the warrant holders exchanged outstanding warrants to purchase an aggregate of 224,513 shares of our common stock for an aggregate of 156,246 shares of our unregistered common stock. We accounted for these transactions as warrant modifications, resulting in our recognition of an aggregate of $350,700 in noncash expense attributable to the increase in fair value related to the warrant exchanges during the nine-month period ended December 31, 2016. 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 in the quarter then ended as the incremental fair value attributable to the modification.

~~Interest and Other Expenses~~

Interest expense totaled $7,700 for the nine months ended December 31, 2017 compared to $3,700 for the nine months ended December 31, 2017. Interest expense in both periods relates to interest paid on insurance premium financing and on a capital lease of office equipment.

During the quarter ended December 31, 2017, we issued 500,000 unregistered shares of our common stock having a fair value at the time of issuance of $585,000 and a cash payment of $76,500 to a contract manufacturing organization in settlement of $526,500 of open accounts payable. We recognized a corresponding loss on settlement of accounts payable in the amount of $135,000 for the quarter.

~~We recognized $766,600 and~~ ~~$1,018,500 for the nine months ended December 31, 2017 and 2016, respectively, representing the 10% cumulative noncash dividend payable on our~~ Convertible Preferred Stock (Series B Preferred) as an additional deduction in arriving at net loss attributable to common stockholders in the ~~accompanying~~ Condensed Consolidated ~~Statement~~Financial Statements. In November 2021, the custodial holder of ~~Operations and Comprehensive Loss included in Part I~~1,131,669 outstanding shares of ~~this Report. The reduction in the dividend accrual results from the automatic conversion of~~ ~~an aggregate of 2,403,051 shares of~~our Series B Preferred exercised its rights for conversion into ~~an equal number~~common stock under the terms of the Certificate of Designation of the Relative Rights and Preferences of the Series B 10% Convertible Preferred Stock (Series B Certificate of Designation) and we issued 1,131,669 shares of our common stock upon ~~our completion~~conversion. From initial issuance in May 2015 through the time of ~~our May 2016 public offering~~conversion in November 2021, the Series B Preferred had accrued 10% dividends aggregating $7,217,800 and, in accordance with the terms of the Series B Certificate of Designation, we issued 3,295,778 shares of our unregistered common stock ~~and warrants, and a subsequent voluntary~~in payment of the accrued dividends. Following this conversion ~~of 87,500 shares of our Series B Preferred in August 2016. There have been~~there were no ~~conversions of outstanding~~additional shares of Series B Preferred ~~into common shares since August 2016.~~

~~Our sale~~outstanding and no further accrual of units consisting of common stock and warrants in the December 2017 Public Offering at an offering price of $1.50 per unit triggered the anti-dilution provisions of the Series A2 Warrants to purchase an aggregate of 503,641 shares of our common stock issued in the September 2017 Public Offering. In accordance with the anti-dilution terms and formula contained in the Series A2 warrants, the exercise price of the Series A2 Warrants was reduced from the initial exercise price of $1.82 per share to $0.001 per share. We recognized the effect of triggering the down round feature, $199,200, as a further addition to net loss attributable to common stockholders and in our calculation of basic and fully diluted earnings per share in our accompanying Condensed Consolidated Statement of Operations and Comprehensive Loss and as a dividend in our Condensed Consolidated Statement of Stockholders’ Equity included in Part I of this Report.

~~During the quarter ended June 30, 2016, we allocated the proceeds from our self-placed private placement sales of Series B Preferred Units to~~dividends on the Series B Preferred stock 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 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 in arriving at net loss attributable to common stockholders ~~for~~ ~~the nine months ended December 31, 2016 in the~~ ~~accompanying Condensed Consolidated Statement of Operations and Comprehensive Loss included in Part I of this Report.~~

Preferred.

Liquidity and Capital Resources

~~From~~

Since our inception in May 1998 through ~~December 31, 2017,~~June 30, 2022, 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 ~~$61.4~~$208.7 million, as well as from an aggregate of approximately ~~$17.6~~$22.7 million of government research grant awards (excluding the fair market value of government sponsored and funded clinical trials), strategic collaboration payments and intellectual property ~~sublicensing~~licensing, and other revenues. WeAdditionally, we have ~~also~~ issued equity securities with an approximate ~~aggregate~~ value at issuance of ~~$35.6~~$38.2 million in ~~non-cash~~noncash acquisitions of product licenses and in settlements of certain liabilities, including liabilities for professional services rendered to us or as compensation for such services. ~~Additionally, pursuant~~

During Fiscal 2022, holders of outstanding warrants to purchase an aggregate of approximately 7.3 million shares of our CRADA with the NIH, the NIMH continues to conduct Phase 2 clinical development activities relating to AV-101 as a potential new generation antidepressant. The NIMH AV-101 MDD Phase 2 Monotherapy Study is being sponsored in full, at no cost to us other than supplying clinical trial material, by the NIMH under the direction of Dr. Carlos Zarate Jr. as Principal Investigator.

In September 2017, we completed the September 2017 Public Offering, pursuant to which we sold 1,371,430 shares of our common stock and Series A1 Warrants to purchase up to 1,388,931 shares of common stock and Series A2 Warrants to purchase up to 503,641 shares of common stock, each initially exercisable for $1.82 per share to two of our existing institutional investors, resulting in net proceeds of approximately $2.0 million. The Series A1 Warrants will be exercisable for a five-year period commencing on March 7, 2018, and the Series A2 Warrants are exercisable at any time and expire on September 6, 2022. The common stock and the shares of common stock underlying the Warrants issued in the September 2017 Public Offering were sold pursuant to our effectiveS-3 (the S-3 Shelf Registration Statement ~~on Form S-3 (Registration No. 333-215671) to cover this and potential~~) remains available for future sales of our equity securities in one or more public offerings from time to time. Consistent with the anti-dilution protection provisions of the Series A2 Warrants, the exercise price of such warrants was reduced upon the closing of the December 2017 Public Offering. At the date of this Report, all of the Series A2 Warrants have been exercised at the reset exercise price as a result of the December 2017 Public Offering. ~~Following these exercises, none~~While we may make additional sales of our ~~outstanding warrants have down round anti-dilution protection features.~~

~~During~~equity securities under the nine months ended December 31, 2017, we entered into self-placed private placement transactions with individual accredited investors, pursuant to which we sold units consisting of an aggregate of 616,323 shares of our unregistered common stock and, after adjustments, warrants which are not exercisable until six months and one day following issuance and expire between April 30, 2021 and November 30, 2022, to purchase an aggregate of 616,323 unregistered shares of our common stock at a weighted average fixed exercise price of approximately $2.00 per share. We received aggregate cash proceeds of approximately $1.1 million in these self-placed private placement transactions.

At December 31, 2017, we had a cash and cash equivalents balance of $13.0 million. We believe this amount is sufficient to enable us to fund our planned operations for the next 12 months. We expect to seek additional capital to finalize and release the results of the AV-101 MDD Phase 2 Adjunctive Treatment Study, produce additional AV-101 study material, conduct Phase 3-enabling studies, conduct Phase 3 studies in MDD, conduct AV-101 Phase 2 studies in CNS indications other than MDD and to fund our internal operations in 2019 and beyond.

~~We expect, as we have numerous times in the past, to raise additional capital as and when necessary and advisable, potentially including through an offering under a~~S-3 Shelf Registration Statement, ~~on Form S-1, through one~~ we do not have an obligation to do so.

In addition to the potential sale our equity and/or more offerings under our effective S-3 Registration Statement or through other capital raising activity, to sustain our operations and achieve our key corporate objectives beyond the next twelve months, including finalizing and releasing the results of the AV-101 MDD Phase 2 Adjunctive Treatment Study. There can, however, 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.

Wedebt securities, we may also seek ~~additional~~to enter research, ~~and~~ development and/or commercialization collaborations ~~that could generate revenue,~~similar to the AffaMed Agreement to provide non-dilutive funding for ~~development of AV-101 and additional product candidates, and/or additional government grant awards and agreements similar to~~ our current CRADA with the NIMH, under which the NIMH is fully funding and conducting the NIMH AV-101 MDD Phase 2 Monotherapy Study. Such strategic collaborations may provide non-dilutive resources to advance our strategic initiativesoperations, while also 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 provide non-dilutive funding for development and commercialization of ~~AV-101 and other~~our 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, potential impacts related to the on-going COVID-19 pandemic, the scope and nature of opportunities related to our success and the success of certain other companies in nonclinical and 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,~~current product candidates, 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~~PH94B, PH10, and ~~our stem cell technology platform,~~AV-101, as well as support our operating activities, we plan to continue to carefully manage our routine operating costs ~~including~~and our ~~employee headcount~~clinical and ~~related expenses, as well as the timing of~~nonclinical programs and, projected costs relating to key research and development projects, including our expenses associated with the AV-101 MDD Phase 2 Adjunctive Treatment Study, regulatory consulting, CRO and CMO services, investor relations and corporate development, legal, acquisition and protection of intellectual property, public company compliance and other professional services and working capital costs.

when appropriate, pre-launch commercialization initiatives.

Notwithstanding the foregoing, ~~substantial additional financing may not~~there can be no assurance that our current strategic collaboration under the AffaMed Agreement will generate revenue from future potential milestone payments, or that future financings or other strategic collaborations will be available to us onin sufficient amounts, in a timely ~~basis,~~manner, or on terms acceptable ~~terms, or~~to us, if at all. If we are unable to obtain ~~substantial~~ additional financing on a timely basis ~~as and~~ when needed, ~~in 2018 or 2019 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.

this uncertainty.

Cash and Cash Equivalents

The following table summarizes changes in cash and cash equivalents for the periods stated (in thousands):

	Three Months Ended June 30,
	2022			2021

Net cash used in operating activities	$	(15,968	)	$	(6,173	)
Net cash used in investing activities		(175	)		(150	)
Net cash provided by (used in) financing activities		(6	)		992

Net decrease in cash and cash equivalents		(16,149	)		(5,331	)
Cash and cash equivalents at beginning of period		68,135			103,108
Cash and cash equivalents at end of period	$	51,986		$	97,777

As described above, the combination of the net proceeds we received from public offerings in Fiscal 2021, from transactions under our ATM in Fiscal 2022 and from warrant exercises in both Fiscal 2021 and Fiscal 2022, have been the primary sources of our available cash during Fiscal 2022 and in the quarter ended June 30, 2022. The increase in cash used in operations during the quarter ended June 30, 2022 reflects the continued operation of PH94B clinical trials including PALISADE-1, PALISADE-2, the PALISADE OLS, and the Phase 2 AjDA study, as well as ongoing manufacturing initiatives and other nonclinical studies of our product candidates. Additionally, during Fiscal 2022, we expanded our internal capabilities with the addition of numerous senior personnel with significant expertise in disciplines critical to the advancement of our product pipeline. In both periods, but to a much greater extent in the quarter ended June 30, 2022, in parallel with our clinical and regulatory initiatives, and in expectation of positive results from the PALISADE Phase 3 studies, we have engaged in customary pre-commercialization analyses, modeling, planning and awareness initiatives. Given the results of the PALISADE-1 study, we are currently evaluating the extent and timing of such future activities. Cash used in investing activities in the quarter ended June 30, 2022 reflects laboratory analytical equipment acquired for our internal studies and experiments on both PH94B and PH10 and cash used in the quarter ended June 30, 2021 primarily reflects the cost of laboratory analytical equipment acquired for use by our CMO in connection with the development and production of PH94B drug product. Cash used by financing activities in the quarter ended June 30, 2022 is primarily the result of the proceeds of option exercises and the purchase of common stock under our ESPP, net of a principal payment on our insurance premium financing note and expenditures related to the ATM transaction with Jefferies and recorded as deferred offering costs. Cash provided by financing activities in the quarter ended June 30, 2021 is primarily the result of warrant exercises, net of expenditures related to the ATM transaction with Jefferies and recorded as deferred offering costs.

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Nine Months Ended December 31,

2017

2016

Net cash used in operating activities
$(6,454)
$(5,968)
Net cash used in investing activities
  (2)
  (10)
Net cash provided by financing activities
  16,567
  9,921



Net increase in cash and cash equivalents
  10,111
  3,943
Cash and cash equivalents at beginning of period
  2,921
  429
Cash and cash equivalents at end of period
$13,032
$4,372

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

Recent Accounting Pronouncements

For information relating to recent accounting pronouncements and the expected impact of such pronouncements on our condensed consolidated financial statements, see Note 3 of the Notes to Condensed Consolidated Financial Statements included In Part I of this Report.

Item4.

~~CONTRO~~LS

CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) as of the end of the period covered by this Report. Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this Report were effective.

Internal Control over Financial Reporting

In our Annual Report on Form 10-K for our fiscal year ended March 31, 2017 filed with the Securities and Exchange Commission on June 29, 2017, we identified two material weaknesses in our internal control over financial reporting relating to (i) segregation of duties and (ii) the functionality of our accounting software. Management has determined that current resources would be more appropriately applied elsewhere and when resources permit, they will alleviate such material weaknesses through various steps, which may include the addition of qualified financial personnel and/or the acquisition and implementation of alternative accounting software. Accordingly, ~~there~~

There was no change in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) from that described in our Annual Report on Form 10-K for our fiscal year ended March 31, 2022, filed with the Securities and Exchange Commission (SEC) on June 23, 2022, that occurred during the ~~fiscal~~ quarter ended June 30, 2022, to which this Report relates, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II: ~~OTHE~~OTHER INFORMATION

R ~~INFORMATION~~

Item 1. ~~Lega~~Legal Proceedings

None.

l ~~Proceedings~~

~~None.~~

Item 1A. RiskRisk Factors

~~Investing~~

Risk Factor Summary

Our business is subject to substantial risk and an investment in our securities involves ~~a high degree~~various risks. Some of ~~risk.~~ the material risks include those set forth below. You should consider carefully these risks, and those discussed under “Risk Factors” below, before investing in our securities. These risks include, among others:

●

Failures of our current and/or future clinical studies of our product candidates, or delays in the commencement of completion of our clinical trials, could result in increased costs to us and could delay, prevent or limit our ability to generate revenue and continue our business;

●

we are a development stage biopharmaceutical company with no recurring revenues from product sales or approved products, and limited experience developing or commercializing new drug candidates, which makes it difficult to assess our future viability;

●

we depend heavily on the success of our current CNS product candidates, PH94B, PH10 and AV-101, and we cannot be certain that we will be able to obtain regulatory approval for, or successfully commercialize, any of our current or future product candidates;

●

if we are unable to retain or attract key management and scientific personnel, we may be unable to successfully produce, develop and commercialize our product candidates;

●

the successful completion of clinical or nonclinical studies in any of our development programs may not be sufficient to cause the FDA to approve of any NDA that we may submit or cause any other agency to provide regulatory approval of any of our product candidates and, even if approved, does not ensure acceptance of such product candidates by clinicians leading to a revenue stream to support our operations;

●

the COVID-19 pandemic has had, and may continue to have, an impact on our business, including delays and potential delays in manufacturing and testing of certain drug substance and drug products, potential delays in recruitment and enrollment in our planned clinical and nonclinical studies of our product candidates and potential impact of the results of our clinical and nonclinical studies of our product candidates;

●

we face significant competition, and if we are unable to compete effectively, we may not be able to achieve or maintain significant market penetration or improve our results of operations;

●

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 compete against us more directly, which would have a material adverse impact on our business, results of operations, financial condition and prospects;

●

we have incurred significant net losses since inception and we will continue to incur substantial operating losses for the foreseeable future;

●

we require substantial additional financing to execute our long-term business plan, including further development and commercialization of our CNS product candidates, and to continue to operate as a going concern;

●

raising additional capital in equity-based financing transactions is likely to cause substantial 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;

●

if we fail to comply with the continued listing requirements of the Nasdaq Capital Market, our common stock may be delisted and the price of our common stock and our ability to access the capital markets could be negatively impacted; and

●

other risks and uncertainties, including those described under Risk Factors below.

If we are unable to effectively manage the impact of these and other risks, our ability to operate and execute our business plan would be substantially impaired. In turn, the value of our securities would be materially reduced.

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Risk Factors

You should consider carefully the risks and uncertainties described below, together with all of the other information in this ~~Quarterly~~ Report ~~on Form 10-Q (Report) and in our Annual Report on Form 10-K filed with the Securities and Exchange Commission for the fiscal year ended March 31, 2017~~ before 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 condition and/or operating results. If any of the following risksare realized, our business, financial condition and results of operations could be materially and adversely affected.

~~-31-~~

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Risks Related to Product Development, Regulatory Approval and Commercialization

Failures of our current and/or future 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.

Our PALISADE-1 Phase 3 clinical study of PH94B for the acute treatment of anxiety in adults with SAD did not achieve its primary endpoint, as measured by change from baseline using the SUDS as compared to placebo. Successful completion of our nonclinical and clinical trials is a prerequisite to submitting an NDA and, consequently, the ultimate approval required before commercial marketing of any product candidate we may develop. Failure of any of our current and/or future clinical and nonclinical trials to achieve the planned endpoints, such our PALISADE-1 Phase 3 clinical trial of PH94B, could result in increased costs to us and could delay, prevent or limit our ability to generate revenue and continue our business.

We depend heavily on the success of ~~AV-101. We~~one or more of our current CNS drug candidates and we cannot be certain that we will be able to obtain regulatory approval for, or successfully commercialize ~~AV-101, or~~ any of our product ~~candidate.~~

candidates.

We currently have no drug products for sale and may never be able to develop and commercialize marketable drug products. Our business currently depends heavily on the successful development, manufacturing, regulatory approval and commercialization of ~~AV-101 for depression, including for MDD, and, potentially, various other diseases and disorders involving the~~one or more of our current CNS drug candidates, as well as, but to a more limited extent, our ability to acquire, license or produce, develop and commercialize ~~NCEs from~~additional product candidates. Each of our current investigational CNS drug ~~rescue programs. AV-101~~candidates will require substantial additional nonclinical and clinical ~~testing~~development, manufacturing and regulatory approval before itany of them may be ~~commercialized. It is unlikely to~~commercialized, and there can be no assurance that any of them will ever achieve regulatory approval, if at all, until at least 2021. Each drug rescue NCE will require substantial nonclinical development, all phases of clinical development, and regulatory approval before it may be commercialized.approval. The nonclinical 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~~U.S. and in other countries where we or our collaborators 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 numerous nonclinical and clinical studies that the product candidate is safe and effective for use in each target indication. ~~Drug~~Research and development of product candidates in the pharmaceutical industry is a long, expensive and uncertain process, and delay or failure can occur at any stage of any of ~~our~~ nonclinical or clinical studies. This process takes many years and may also include post-marketing studies, ~~and~~ surveillance obligations and drug safety programs, which would require the expenditure of substantial resources beyond the proceeds we have raised to date. Of the large number of ~~drugs~~drug candidates in development in the ~~United States,~~U.S., only a small percentage will successfully complete the required FDA regulatory approval process and will be commercialized. Accordingly, we cannot assure you that ~~AV-101,~~ any of our current drug ~~rescue NCE,~~candidates or any ~~other~~ future product ~~candidate~~candidates will be successfully developed or ~~commercialized.~~

commercialized in the U.S. or any market outside the U.S.

We are not permitted to market our product candidates in the ~~United States~~U.S. 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 toxicology studies, additional nonclinical 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 ana NDA is a complex, lengthy, expensive and uncertain ~~process, and~~process. The FDA may refuse to permit the ~~FDA may~~filing of our NDA, delay, limit or deny approval of ~~AV-101 or any other product candidate we may seek to develop~~a NDA 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.~~

●

if we submit an NDA and it is reviewed by a FDA 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 nonclinical or clinical studies, limitations on approved labeling or distribution and use restrictions;

●

a FDA advisory committee may recommend, or the FDA may require, a Risk Evaluation and Mitigation Strategies (REMS) safety program as a condition of approval or post-approval;

●

a FDA advisory committee or the FDA or applicable regulatory agency may determine that there is insufficient evidence of overall effectiveness or safety in a NDA and require additional clinical studies;

●

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~~any current or ~~any other~~future drug product candidate we may ~~develop, including drug rescue NCEs.~~develop. Any such setback in our pursuit of regulatory approval for any product candidate would have a material adverse effect on our business and prospects.

In addition, certain of our product candidates, including PH94B and PH10, will be subject to regulation as combination products, which means that they are composed of both a drug product and device product. Although we do not contemplate doing so, if marketed individually, each component would be subject to different regulatory pathways and reviewed by different centers within the FDA. Our product candidates that are considered to be drug-device combination products will require review and coordination by FDA’s drug and device centers prior to approval, which may delay approval. In the U.S., a combination product with a drug primary mode of action generally would be reviewed and approved pursuant to the drug approval processes under the Federal Food, Drug and Cosmetic Act of 1938. In reviewing the NDA application for such a product, however, FDA reviewers in the drug center could consult with their counterparts in the device center to ensure that the device component of the combination product met applicable requirements regarding safety, effectiveness, durability and performance. Under FDA regulations, combination products are subject to cGMP requirements applicable to both drugs and devices, including the Quality System (QS) regulations applicable to medical devices. Problems associated with the device component of the combination product candidate may delay or prevent approval.

The COVID-19 pandemic has adversely impacted and may continue to adversely impact our business.

Beginning in late-2019, a new strain of coronavirus (COVID-19) spread across the world, and the outbreak has since been declared a pandemic by the World Health Organization. The U.S. Secretary of Health and Human Services has also declared a public health emergency in the U.S. in response to the outbreak. Considerable uncertainty still surrounds COVID-19 and variant strains of the COVID-19 virus and their potential effects, and the extent of and effectiveness of responses taken on international, national and local levels. Measures taken to limit the impact of the pandemic, including shelter-in-place orders, social distancing measures, travel bans and restrictions, and business and government shutdowns, resulted in significant negative economic impacts on a global basis.

Due to the emergence of variant strains of the COVID-19 virus, such as the Delta and Omicron variants, and the emergence of subvariants of the virus, such as the subvariants of Omicron, we cannot at this time accurately predict the potential future effects of the pandemic on our operations. Uncertainties remain as to the duration of the pandemic, the success of treatments and vaccines designed to combat the pandemic, and the length, scope and episodic nature of the travel restrictions and business disruptions, including business closures imposed by the governments of impacted countries and localities. The continued COVID-19 pandemic, the spread of variant and subvariant strains of the COVID-19 virus or another highly transmissible and pathogenic infectious disease may lead to the implementation of further responses, including additional travel restrictions, government-imposed quarantines or stay-at-home orders, and other public health safety measures, which may result in further disruptions to our business and operations or those of our collaborators. The COVID-19 pandemic has impacted our business and may continue to do so as the pandemic persists. Additionally, future outbreaks may have ~~applied for,~~several adverse effects on our business, results of operations and financial condition.

●

Adverse impact on product development: We have faced, and may continue to face, delays and other disruptions to our ongoing development programs for PH94B, PH10 and AV-101 due to the ongoing COVID-19 pandemic, which may, in turn, have an adverse impact on the outcome of our clinical and nonclinical trials. Regulatory oversight and actions regarding our products may be disrupted or delayed in regions impacted by COVID-19, including the United States and elsewhere, which may impact review and approval timelines for products in development. Although we remain invested in continuing our development programs for our current product candidates, unforeseen circumstances related to the COVID-19 pandemic may impair our ability to conduct nonclinical and clinical studies in a timely and/or effective manner.

In addition, recent medical literature has reported that the SARS-COV-2 virus, which causes COVID-19, may cause long-term and reversible olfactory dysfunction (OD) in approximately 30% of affected individuals. OD may occur in cases where the SARS-COV-2 virus damages the nasal chemosensory epithelium, a structure in the nose where the types of cells are found that respond to pherines such as PH94B and PH10. Accordingly, there is a risk that the prevalence of OD caused by COVID-19 infections may interfere with the ability of PH94B and/or PH10 to provide a therapeutic benefit, which, may, in turn, have a materially adverse impact on results of our clinical trials designed to assess the efficacy of these product candidates or a negative impact on potential future sales should either PH94B or PH10 be approved for commercialization.

●

Negative impacts on our employees, collaborators and suppliers: COVID-19 has impacted, and variant and subvariant strains of COVID-19 or another highly transmissible and pathogenic infectious disease may impact or continue to impact, the health of our employees, collaborators, contractors or suppliers, reduce the availability of our workforce or those of companies with which we do business, divert our attention toward succession planning, or create disruptions in our supply or distribution networks. Since the beginning of the COVID-19 pandemic, we have experienced delays of the delivery of supplies of active pharmaceutical product (API) required to continue development of PH94B and PH10. Although our supply of raw materials and API remains sufficiently operational, we may experience adverse effects of such events, which may result in a significant, material disruption to clinical development programs and our operations. Additionally, having substantially shifted to remote working arrangements, we also face a heightened risk of cybersecurity attacks or data security incidents and are more dependent on internet and telecommunications access and capabilities.

COVID-19 has also created significant disruption and volatility in national, regional and local economies and markets. Uncertainties related to, and perceived or experienced negative effects from COVID-19, may cause significant volatility or decline in the trading price of our securities, capital markets conditions and general economic conditions. Our future results of operations and liquidity could be adversely impacted by supply chain disruptions and operational challenges faced by our CROs, CMOs, clinical sites involved in our clinical studies and other contractors. The ongoing COVID-19 pandemic, or another highly transmissible and pathogenic infectious disease, could result in a widespread health crisis that could adversely affect the economies and financial markets of many countries, resulting in a further economic downturn or a global recession. Such events may limit or restrict our ability to access capital on favorable terms, or at all, lead to consolidation that negatively impacts our business, weaken demand, increase competition, cause us to reduce our capital spend further, or otherwise disrupt our business or make it more difficult to implement our strategic plans.

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We have been granted Fast Track designation from the FDA for ~~AV-101~~development of PH94B for the treatment of ~~MDD.~~social anxiety disorder (SAD) and AV-101 for the adjunctive treatment of major depressive disorder (MDD) and for the treatment of neuropathic pain (NP). However, ~~this designation~~these designations may not actually lead to a faster development or regulatory review or approval ~~process~~processes for PH94B or AV-101. Further, there is no guarantee the FDA will grant Fast Track designation for PH94B or AV-101 as a treatment option for other CNS indications or for any of our other product candidates in the future.

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~~life-threatening conditions. Compounds selected must demonstrate the potential to address unmet medical needs. The FDA’s 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 FDA approval or expedited approval of any application for the ~~product.~~

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product candidate.

In ~~October 2017 we applied for FDA Fast Track designation for AV-101, and in~~ December 2017, the FDA granted Fast Track designation for development of AV-101 for the adjunctive (add-on) treatment of MDD in patients with an inadequate response to current antidepressants. In September 2018, the FDA granted Fast Track designation for development of AV-101 for the treatment of ~~MDD.~~NP. In December 2019, the FDA granted Fast Track designation for development of PH94B for the treatment of SAD. However, ~~this designation~~these FDA Fast Track designations may not lead to a faster development or regulatory review or approval process for PH94B or AV-101 and the FDA may withdraw Fast Track designation of PH94B or AV-101 if it believes that the respective designation is no longer supported by data from our clinical development programs.

In addition, we may apply for Fast Track designation for PH94B, PH10 and AV-101 as a treatment option for other CNS ~~indications, as well as for other product candidates.~~indications. The FDA has broad discretion whether or not to grant a Fast Track designation, and even if we believe PH94B, PH10, AV-101 ~~and~~or other product candidates ~~are~~may be eligible for this designation, we cannot be sure that the ~~review or approval~~FDA will ~~compare to conventional FDA procedures.~~

grant it.

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 PH94B, PH10, AV-101 and/or our other future product candidates, if any, including positive results, may not be predictive of the results of later-stage clinical trials. PH94B, PH10, AV-101 or any other future product candidates in later stages of clinical ~~trials~~development may fail to show the desired safety and efficacy results despite having progressed through ~~preclinical~~nonclinical studies and initial clinical ~~trials.~~trials, as is the case for results from our PALISADE-1 clinical trial. Many companies in the biopharmaceutical industry have suffered significant setbacks in ~~advanced~~later-stage 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.

Moreover, ~~preclinical~~nonclinical and clinical data are often susceptible to varying interpretations and analyses, and many companies that believed their product candidates performed satisfactorily in ~~preclinical~~nonclinical studies and clinical trials nonetheless failed to obtain FDA ~~approval. We have not yet completed~~approval or approval from a ~~Phase 2~~similar regulatory authority in another country. With respect to our current product candidates, if our future nonclinical or clinical ~~trial for~~study of PH94B, PH10 or AV-101 ~~and if the NIMH AV-101 MDD Phase 2 Monotherapy Study and/or our AV-101 MDD Phase 2 Adjunctive Treatment Study~~ fail(s) to produce positive results, the development timeline and regulatory approval and commercialization prospects for PH94B, PH10 or AV-101 and, correspondingly, our business and financial prospects, could be materially adversely affected.

~~This drug candidate development risk is heightened by any~~

Any changes in planned timing or nature of clinical trials compared to completed clinical ~~trials.~~ trials could impede our ability to meet our clinical development objectives for our product candidates.

As product candidates are developed through preclinical to ~~early~~early- and ~~late stage~~late-stage clinical trials towards regulatory 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~~timing of planned clinical trials may be ~~adversely~~affected by delays caused by the ongoing COVID-19 pandemic, including potential delays in recruitment and enrollment in our planned clinical and nonclinical studies or supply chain disruptions experienced by certain of our CMOs and/or CROs. In addition, clinical development of our products may be further affected if we or any of our ~~collaborator~~collaborators 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 nonclinical or clinical studies of our product candidates. In addition, health and safety precautions at clinical sites related to the COVID-19 pandemic could cause us to incur additional costs or delay initiation or completion of planned clinical and/or nonclinical trials.

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If serious adverse events or other undesirable side effects or safety concerns ~~are identified during the use of AV-101 in investigator-sponsored clinical trials or in~~attributable to our ~~clinical trials of AV-101, it~~product candidates occur, they may adversely affect or delay our clinical development and commercialization of ~~AV-101 for MDD~~PH94B, PH10 or AV-101.

Undesirable side effects or safety concerns caused by our product candidates could cause us or regulatory authorities to interrupt, delay or halt our clinical trials and ~~other CNS indications.~~

~~AV-101 as~~could result in a ~~monotherapy is currently being tested by~~more restrictive label or the ~~NIMH in the NIMH AV-101 MDD Phase 2 Monotherapy Study and may be subjected to testing in the future for other CNS indications in additional investigator sponsored clinical trials. If~~delay or denial of regulatory approval. Although no treatment-related serious adverse events (SAEs) were reported in any clinical trials of any of our product candidates completed to date, if treatment-related SAEs or other undesirable side effects or safety concerns, or unexpected characteristics ofattributable to PH94B, PH10 and/or AV-101, are ~~observed~~reported in ~~investigator-sponsored~~any future clinical trials ~~of AV-101 or in~~involving our ~~clinical trials of AV-101, it~~drug candidates, they may adversely affect or delay our clinical development and commercialization of ~~AV-101,~~the effected product candidate, and the occurrence of these events ~~would~~could have a material adverse effect on our business and financial prospects.

Results of our future clinical trials could reveal a high and unacceptable severity and prevalence of adverse side effects. In such an event, our trials could be suspended or terminated, and the FDA or other regulatory agency could order us to cease further development of or deny approval of our product candidates for any or all targeted indications. The drug-related side effects could affect patient recruitment or the ability of enrolled patients to complete the trial or result in potential product liability claims.

Additionally, if any of our product candidates receives marketing approval and we or others later identify undesirable or unacceptable side effects or safety concerns caused by these product candidates, a number of potentially significant negative consequences could result, including:

●

regulatory authorities may withdraw, suspend, or limit approvals of such product and require us to take them off the market;

●

regulatory authorities may require the addition of labeling statements, specific warnings, a contraindication or field alerts to physicians and pharmacies;

●

regulatory authorities may require a medication guide outlining the risks of such side effects for distribution to patients, or that we implement a Risk Evaluation and Mitigation Strategy (REMS) drug safety program or REMS-like plan to ensure that the benefits of the product outweigh its risks;

●

we may be required to change the way a product is distributed or administered, conduct additional clinical trials or change the labeling of a product;

●

we may be required to conduct additional post-marketing studies or surveillance;

●

we may be subject to limitations on how we may promote the product;

●

sales of the product may decrease significantly;

●

we may be subject to regulatory investigations, government enforcement actions, litigation or product liability claims; and

●

our products may become less competitive or our reputation may suffer.

Any of these events could prevent us or any collaborators from achieving or maintaining market acceptance of our product candidates or could substantially increase commercialization costs and expense, which in turn could delay or prevent us from generating significant revenue from the sale of our product candidates.

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Failures or delays in the commencement or completion of our planned ~~clinical trials~~nonclinical and ~~nonclinical~~clinical studies of PH94B, PH10, AV-101 or other 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 with the NIMH, the NIMH is conducting and funding the NIMH AV-101 MDD Phase 2 Monotherapy Study.~~

We will need to successfully complete at least one Phase 3 clinical trial and certain other clinical and nonclinical studies prior to our potential submission of an NDA for regulatory approval of PH94B as an acute treatment of anxiety in adults with SAD, or for any other anxiety disorder such as AjDA. For PH10, at present, we believe we will need to complete at least one additional Phase 2B clinical study, two adequate and well-controlled Phase 3 clinical trials, as well as standard nonclinical and long-term clinical safety studies, as well as other smaller clinical studies prior to the ~~planned~~potential submission of a NDA for regulatory approval of PH10 as a stand-alone rapid-onset treatment for MDD, or any other depression disorder. For AV-101 ~~MDD~~in combination with probenecid, at present, for treatment of any CNS indication, we believe we will need to complete our ongoing exploratory Phase 1B clinical study, two Phase 2 ~~Adjunctive Treatment Study, at least~~clinical studies, two ~~additional large~~adequate and well-controlled Phase 3 ~~pivotal~~ clinical trials, additional toxicology and other standard nonclinical and long-term clinical safety studies, ~~and~~as well as certain standard smaller clinical studies prior to the potential submission of an NDA for ~~AV-101 as a new generation adjunctive treatment for MDD.~~regulatory approval in any CNS indication. Successful completion of our nonclinical and clinical trials is a prerequisite to submitting an NDA ~~to the FDA~~ and, consequently, the ultimate approval required before commercial marketing of ~~AV-101 for MDD and~~ any ~~other~~ product ~~candidates~~candidate we may develop. ~~Except as disclosed herein, we~~We do not know whether ~~the NIMH AV-101 MDD Phase 2 Monotherapy Study, our AV-101 MDD Phase 2 Adjunctive Treatment Study or~~ any of our future-planned nonclinical and clinical trials of PH94B, PH10, AV-101 or any other product candidate will be completed on schedule, if at all, as the commencement and completion of nonclinical 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 nonclinical studies;~~

●

delays in reaching or failing to reach agreement on acceptable terms with prospective CROs, investigators and clinical trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs, investigators and clinical trial sites;

●

delays in the manufacturing of, or insufficient supply of, AV-101 or other product candidates necessary to conduct nonclinical or clinical trials, including delays in the manufacturing of sufficient supply or finished drug product resulting from our new manufacturing process for AV-101;

●

~~inability to manufacture or obtain clinical supplies of a product candidate meeting required quality standards;~~

●

~~difficulties obtaining Institutional Review Board (IRB) approval to conduct a clinical trial at a prospective clinical 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 a clinical trial, the nature of a 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 nonclinical 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 nonclinical 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 trial, lack of efficacy, side effects, personal issues or loss of interest.

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●

delays due to events resulting from the ongoing COVID-19 pandemic, including potential delays in recruitment and enrollment in clinical and nonclinical studies of our product candidates;

●

the regulatory authority may deny permission to proceed with 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 from regulatory authorities of additional INDs that may be required;

●

negative or ambiguous results from nonclinical or clinical studies;

●

delays in the manufacturing of, or insufficient supply of product candidates necessary to conduct nonclinical or clinical trials, including delays in the manufacturing of sufficient supply of drug substance or finished drug product;

●

inability to manufacture or obtain clinical supplies of a product candidate meeting required quality standards;

●

difficulties obtaining Institutional Review Board (IRB) approval to conduct a clinical trial at a prospective clinical site or sites;

●

challenges in recruiting and enrolling patients to participate in clinical trials, including the proximity of patients to clinical trial sites;

●

severe or unexpected adverse drug-related side effects experienced by patients in a clinical trial;

●

delays in validating any endpoints utilized in a clinical trial;

●

the regulatory authority may disagree with our clinical trial design and our interpretation of data from prior nonclinical 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 nonclinical or clinical testing of other CNS indications or therapies that raise safety or efficacy concerns; and

●

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,~~regulatory authority, 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 approved clinical protocols;

●

inspection of the clinical trial operations or trial sites by the regulatory authority 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 nonclinical carcinogenicity studies, adverse side effects or lack of effectiveness;

●

changes in government regulations or administrative actions;

●

problems with clinical supply materials that may lead to regulatory actions; and

●

lack of adequate funding to continue nonclinical or clinical studies.

●

~~failure to conduct the clinical trial in accordance with regulatory requirements or approved clinical protocols;~~36

●

~~inspection~~Table 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;Contents

●

~~unforeseen safety issues, including any that could be identified in our ongoing nonclinical carcinogenicity studies, adverse side effects or lack of effectiveness;~~

●

~~changes in government regulations or administrative actions;~~

●

~~problems with clinical supply materials that may lead to regulatory actions; and~~

●

~~lack of adequate funding to continue nonclinical or clinical studies.~~

Changes in regulatory requirements, ~~FDA~~regulatory guidance or unanticipated events during our nonclinical studies and clinical trials of PH94B, PH10, AV-101 or other CNS product candidates may occur, which may result in changes to nonclinical studies and clinical trial protocols or additional nonclinical 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 nonclinical studies and clinical trials of PH94B, PH10, AV-101 or other CNS product candidates may force us to amend nonclinical studies and clinical trial protocols or the ~~FDA~~regulatory authority may impose additional nonclinical studies and clinical trial requirements. Amendments or changes to our clinical trial protocols would require resubmission to the ~~FDA~~regulatory authority and IRBs for review and approval, which may adversely impact the cost, timing or successful completion of clinical trials. Similarly, amendments to our nonclinical studies may adversely impact the cost, timing, or successful completion of those ~~non-clinical~~nonclinical studies. If we experience delays completing, or if we terminate, any of our nonclinical studies or clinical trials, or if we are required to conduct additional nonclinical studies or clinical trials, the commercial prospects for PH94B, PH10, AV-101 or other CNS 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 our nonclinical and clinical trials of ~~AV-101~~our current CNS product candidates and will continue to do so for any other future CNS product candidates. If these third parties do not successfully carry out their contractual duties and/or meet expected deadlines, completion of our nonclinical ~~and~~or clinical trials and development of PH94B, PH10, AV-101 ~~and~~or other CNS future product candidates may be delayed and we may not be able to obtain regulatory approval for or commercialize PH94B, PH10, AV-101 or other future CNS product candidates and our business could be substantially harmed.

By strategic design, we do not have the extensive internal staff resources to independently conduct nonclinical and clinical trials of our product candidates completely on our own. We rely on our network of strategic relationships with various academic research centers, medical institutions, nonclinical and clinical investigators, contract laboratories, CROs and other third parties ~~such as contract research~~to assist us to conduct and ~~development organizations (CROs), to conduct~~complete nonclinical 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~~third parties for efficient execution of nonclinical and clinical trials for our product candidates and we control only certain aspects of their activities. As a result, we have less direct control over the conduct, timing and completion of these nonclinical and clinical trials and the management of data developed through nonclinical and clinical trials than would be the case if we were relying entirely upon our own ~~staff.~~internal staff resources. Communicating with outside parties can also be challenging, potentially leading to mistakes as well as difficulties and inefficiencies in coordinating activities. ~~Outside~~CROs and other 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.~~

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●

experience disruptions to their operations, such as staff attrition, reduced staffing and supply chain disruptions, as a result of the ongoing COVID-19 pandemic;

●

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 nonclinical 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 nonclinical studies and clinical trials is conducted and completed in accordance with the applicable protocol, legal, regulatory and scientific requirements and standards, and our reliance on CROs, or ~~the NIH~~independent investigators does not relieve us of our regulatory responsibilities. We and our CROs, ~~the NIMH~~ and any investigator in an investigator-sponsored study are required to comply with regulations and guidelines, including current Good Clinical Practice regulations (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, any of our CROs or any of our ~~CROs~~third-party collaborators fail to comply with applicable cGCPs, the clinical data generated in ~~our~~ clinical trials involving our product candidates 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 or other third-party collaborators 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.

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Although we design our clinical trials for our product candidates, ~~we plan to have~~our clinical development strategy involves having CROs and ~~in the case~~other third-party investigators and medical institutions conduct clinical trials of ~~the NIMH AV-101 MDD Phase 2 Monotherapy Study, the NIMH, conduct the AV-101 Phase 2 and Phase 3 clinical trials.~~our product candidates. As a result, many important aspects of our drug development programs are outside of our direct control. In addition, ~~the~~although CROs, or ~~the NIMH,~~independent investigators or medical institutions, as the case may be, may not perform all of their obligations under arrangements with us or in compliance with applicable regulatory requirements, ~~but~~under certain circumstances, we ~~remain~~may be 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 clinical trials of our ~~clinical trials.~~product candidates. If ~~the NIMH or CROs~~such third parties do not perform clinical trials of our product candidates in a satisfactory manner, breach their obligations to us or fail to comply with applicable regulatory requirements, the development and commercialization of ~~AV-101 and other~~our product candidates may be delayed or our development program materially and irreversibly harmed. WeIn certain cases, including the Baylor Study and other investigator-sponsored clinical studies, we cannot control the amount and timing of resources these ~~CROs or the NIMH~~third parties devote to clinical trials involving our ~~program or our clinical products.~~product candidates. If we are unable to rely on nonclinical and clinical data collected by our ~~CROs or the NIMH,~~third-party collaborators, 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~~one or more of our third-party ~~CROs or the NIMH terminate,~~collaborators terminates, we may not be able to enter into arrangements with alternative ~~CROs or~~third-party collaborators. If such third-party collaborators, including our 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~~their failure to adhere to ~~our~~applicable clinical protocols, regulatory requirements or for other reasons, any clinical trials that such ~~CROs or the NIMH~~third-parties 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.

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We rely completely on ~~third-parties~~third parties to manufacture, formulate, analyze, hold and ~~prepare~~distribute supplies of ~~AV-101~~our CNS product candidates for all nonclinical and clinical studies, ~~of AV-101,~~ and we intend to continue to rely on third parties to produce all nonclinical, clinical and commercial supplies of ~~AV-101~~our CNS product candidates in the future.

By strategic design, we do not currently have, nor do we plan to acquire or develop, ~~the necessary~~extensive internal infrastructure ~~internal resources~~ or technical capabilities to manufacture, ~~and prepare~~formulate, analyze, hold or distribute supplies of ~~AV-101, or any future~~our product candidates, for use in nonclinical and clinical studies ~~and we lack the internal resources and the capability to manufacture any product candidate on a clinical~~ or commercial scale. As a result, with respect to all of our product candidates, we rely, and will continue to rely, completely on ~~third party contract manufacturing organizations (CMO~~s)CMOs to manufacture ~~AV-101 active pharmaceutical ingredient (~~API) and ~~prepare AV-101~~formulate, hold and distribute final drug product. The facilities used by our CMOs to manufacture PH94B, PH10 and AV-101 API and formulate PH94B, PH10 and AV-101 final drug product are subject to a pre-approval inspection by the FDA and other comparable foreign regulatory agencies to assess compliance with applicable regulatory guidelines and requirements, including cGMPs, and may be required to undergo similar inspections by the FDA or other comparable foreign regulatory agencies, after we submit INDs, NDAs or relevant foreign regulatory submission equivalent to the applicable regulatory agency.

We do not directly control ~~either~~the manufacturing process, or the supply or quality of materials used in the manufacturing, analysis and ~~preparation~~formulation of ~~AV-101 or the AV-101 manufacturing process,~~our product candidates, and, with respect to all of our product candidates, we are completely dependent on our CMOs to comply with all applicable cGMPs for ~~manufacture~~the manufacturing of both ~~AV-101~~ API and ~~AV-101~~ finished drug product. If our CMOs cannot secure adequate supplies of suitable raw materials due to supply chain disruptions caused by the ongoing COVID-19 pandemic or otherwise, or successfully manufacture our product candidates, including PH94B, PH10 and AV-101 API and finished drug product, that conforms to our specifications and the strict regulatory requirements of the FDA or applicable foreign regulatory agencies, production of sufficient supplies of our product candidates, including PH94B, PH10 and AV-101 API and finished drug product, may be delayed and our CMOs may not be able to secure and/or maintain regulatory approval for their manufacturing facilities, or the FDA may take other actions, including the imposition of a clinical hold. In addition, we have no direct control over our CMOs’ ability to maintain adequate quality control, quality assurance and qualified personnel. All of our CMOs are engaged with other companies to supply and/or manufacture materials or products for such other companies, which exposes our CMOs 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 CMO’s facilities generally or affect the timing of manufacture of PH94B, PH10 and AV-101 for required or planned nonclinical and/or clinical ~~studies of AV-101.~~studies. If the FDA or an applicable foreign regulatory agency determines now or in the future that our CMOs’ facilities are noncompliant, we may need to find alternative manufacturing facilities, which would adversely impact our ability to develop, obtain regulatory approval for or market ~~AV-101.~~our product candidates. Our reliance on CMOs 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.

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With respect to PH94B, PH10 and AV-101, we do not yet have long-term ~~AV-101~~ supply agreements in place with our CMOs and each batch of PH94B, PH10 and AV-101 is or will be individually contracted under a separate supply agreement. If we engage new CMOs, such contractors must complete an inspection by the FDA and other applicable foreign regulatory agencies. We plan to continue to rely upon CMOs and, potentially, collaboration partners, to manufacture research and development scale, and, if approved, commercial quantities of ~~AV-101 and any other~~our product ~~candidates we may seek to develop in the future.~~candidates. Although we believe our current scale of API manufacturing for AV-101, and our contemplated scale of API manufacturing for PH94B and PH10, and the current and projected supply of PH94B, PH10 and AV-101 API and finished drug product will be adequate to support our planned nonclinical and clinical studies of PH94B, PH10 and AV-101, no assurance can be given that unanticipated ~~AV-101~~ supply shortages or CMO-related delays in the manufacture and ~~production~~formulation of PH94B, PH10 or AV-101 API ~~and~~and/or finished drug product will not occur in the future.

Additionally, PH94B and PH10 will be considered drug-device combination products. Third-party manufacturers may not be able to comply with cGMP requirements applicable to drug/device combination products, including applicable provisions of the FDA’s or a comparable foreign regulatory authority’s drug cGMP regulations, device cGMP requirements embodied in the Quality System Regulation (QSR) or similar regulatory requirements outside the U.S. Our failure, or the failure of our third-party manufacturers, to comply with applicable regulations could result in sanctions being imposed on us, including clinical holds, fines, injunctions, civil penalties, delays, suspension or withdrawal of approvals, license revocation, seizures or recalls of product candidates, operating restrictions and criminal prosecutions, any of which could significantly affect supplies of our product candidates. The facilities used by our CMOs to manufacture our product candidates must be approved by the FDA and comparable foreign regulatory authorities pursuant to inspections that will or may be conducted after we submit our NDA. We do not control the manufacturing process of, and are completely dependent on, our CMO partners for compliance with cGMPs and QSRs. If our CMOs cannot successfully manufacture material that conforms to our specifications and the strict regulatory requirements of the FDA or other comparable foreign regulatory authorities, they will not be able to secure and/or maintain regulatory approval for their manufacturing facilities. In addition, we have no control over the ability of our contract manufacturers to maintain adequate quality control, quality assurance and qualified personnel. If the FDA or a comparable foreign regulatory authority does not approve these facilities for the manufacture of our product candidates or if it withdraws any such approval in the future, we may need to find alternative manufacturing facilities, which would significantly impact our ability to develop, obtain regulatory approval for or market our product candidates, if approved. CMOs may face manufacturing or quality control problems causing drug substance production and shipment delays or a situation where the contractor may not be able to maintain compliance with the applicable cGMP and QSR requirements. Any failure to comply with cGMP or QSR requirements or other FDA, EMA and comparable foreign regulatory requirements could adversely affect our clinical research activities and our ability to develop our product candidates and market our products following approval.

Even if we receive marketing approval for PH94B, PH10, AV-101 or any other CNS product candidate in the ~~United States,~~U.S., we may never receive regulatory approval to market PH94B, PH10, AV-101 or any other CNS product candidate 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.~~ U.S.

In order to market PH94B, PH10, AV-101 or any other CNS product candidate outside of the ~~United States, however,~~U.S., 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~~U.S. as well as other risks. In particular, in many countries outside of the ~~United States,~~U.S., 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.

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If any of our CNS product candidates are ultimately regulated as controlled substances, we, our CMOs, as well as future distributors, prescribers, and dispensers will be required to comply with additional regulatory requirements which could delay the marketing of our product candidates, and increase the cost and burden of manufacturing, distributing, dispensing, and prescribing our product candidates.

Before we can commercialize our product candidates in the ~~United States~~U.S. or any market outside the U.S., the U.S. Drug Enforcement Administration (DEA) or its foreign counterpart may need to determine ~~the~~whether such product candidates will be considered to be a controlled substance, ~~schedule,~~ taking into account the recommendation of the ~~FDA.~~FDA or its foreign counterpart, as the case may be. This may be a lengthy process that could delay our marketing of a product candidate and could potentially diminish any regulatory exclusivity periods for which we may be eligible, which would increase the cost associated with commercializing such products and, in turn, may have an adverse impact on our results of operations. ~~While~~Although we currently do not know whether the DEA or any foreign counterpart will consider any of our current or future product ~~candidates will be considered~~candidate to be controlled substances, ~~certain of our~~we cannot yet give any assurance that such product candidates, including PH94B, PH10 and AV-101 ~~may~~will not be regulated as controlled substances.

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If any of our product candidates are regulated as controlled substances, depending on the DEA controlled substance schedule in which the product candidates are placed or that of its foreign counterpart, we, our ~~contract manufacturers,~~CMOs, and any future distributers, prescribers, and dispensers of the scheduled product candidates may be subject to significant regulatory requirements, such as registration, security, recordkeeping, reporting, storage, distribution, importation, exportation, inventory, quota and other requirements administered by the ~~DEA.~~DEA or a foreign counterpart of the DEA as the case may be. Moreover, if any of our product candidates are regulated as controlled substances, we and our CMOs would be subject to initial and periodic DEA ~~inspection.If~~inspection. If we or our ~~contract manufacturers~~CMOs are not able to obtain or maintain any necessary DEA registrations or comparable foreign registrations, we may not be able to commercialize any product candidates that are deemed to be controlled substances or we may need to find alternative CMOs, which would take time and cause us to incur additional costs, delaying or limit our commercialization efforts.

Because of their restrictive nature, these laws and regulations could limit commercialization of our product candidates, should they be deemed to contain controlled substances. Failure to comply with the applicable controlled substance laws and regulations can also result in administrative, civil or criminal enforcement. The DEA or its foreign counterparts may seek civil penalties, refuse to renew necessary registrations, or initiate administrative proceedings to revoke those registrations. In some circumstances, violations could result in criminal proceedings or consent decrees. Individual states also independently regulate controlled substances.

If we are unable to establish broad sales and marketing capabilities on our own or enter into agreements with third parties to market and sell our CNS product candidates, we may not be able to generate any revenue.

We ~~do not~~ currently have ~~an infrastructure~~limited internal resources for the sale, marketing and distribution of pharmaceutical products, ~~nor do~~and we ~~intend~~may not be able to create ~~such~~broad internal capabilities in the foreseeable future. Therefore, ~~in order~~ to market our CNS product candidates, if approved by the FDA or any other regulatory body, we must ~~make contractual arrangements with third parties to perform services~~establish broad internal capabilities related to sales, marketing, managerial and other non-technical capabilities relating to the commercialization of our product ~~candidates.~~candidates or make contractual arrangements with third parties to perform such services, prior to market approval. If we are unable to establish adequate ~~contractual arrangements for such~~internal sales, marketing and distribution capabilities, or if we are unable to do so contractually on commercially reasonable terms, our business, results of operations, financial condition and prospects will be materially adversely affected.

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Even if we receive marketing approval for our CNS 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 CNS 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.~~payers. 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.

●

~~the efficacy and safety~~

Table 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;Contents

●

~~limitations or warnings contained in the labeling approved for~~

If 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;~~

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~~the willingness of the target patient population to try new therapies and of physicians to prescribe these therapies;~~

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~~the strength of marketing and distribution support and timing of market introduction of competitive products;~~

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~~publicity concerning our products or competing products and treatments;~~

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~~pricing and cost effectiveness;~~

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~~the effectiveness of our sales and marketing strategies;~~

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~~our ability to increase awareness of our product candidates through marketing efforts;~~

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~~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~~CNS product candidates are approved but do not achieve an adequate level of acceptance by patients, physicians and ~~payors,~~payers, we may not generate sufficient revenue from our product candidates to become or remain profitable. Before granting reimbursement approval, healthcare ~~payors~~payers 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~~payers about the benefits of our product candidates may require significant resources and may never be successful.

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Our CNS 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~~

If our product candidates ~~could~~are determined to cause usundesirable side effects and safety concerns, we or regulatory authorities tomay interrupt, delay or halt nonclinical 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;~~

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~~we may be subject to regulatory investigations and government enforcement actions;~~

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~~we may decide to remove such product candidates from the marketplace;~~

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~~we could be sued and held liable for injury caused to individuals exposed to or taking our product candidates; and~~

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~~our reputation may suffer.~~

●

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;

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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;

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we may be subject to regulatory investigations and government enforcement actions;

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we may decide to remove such product candidates from the marketplace;

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we could be sued and held liable for injury caused to individuals exposed to or taking our product candidates; and

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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 CNS product candidates, we may still face future development and regulatory difficulties.

Even if we receive marketing approval for our CNS 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~~and other regulatory authorities have 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 and other regulatory authorities also ~~has~~have the authority to require, as part of an NDA or post-approval, the submission of a ~~REMS.~~REMS or comparable drug safety program. Any REMS or comparable drug safety program required by the FDA or other regulatory authority 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.

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Manufacturers of drug and device 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:

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issue warning letters or untitled letters;

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seek an injunction or impose civil or criminal penalties or monetary fines;

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~~issue warning letters or untitled letters;~~41

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~~seek an injunction or impose civil or criminal penalties or monetary fines;~~Table of Contents

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~~suspend or withdraw marketing approval;~~

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~~suspend any ongoing clinical trials;~~

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~~refuse to approve pending applications or supplements to applications submitted by us;~~

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~~suspend or impose restrictions on operations, including costly new manufacturing requirements; or~~

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~~seize or detain products, refuse to permit the import or export of products, or require that we initiate a product recall.~~

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suspend or withdraw marketing approval;

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suspend any ongoing clinical trials;

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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 CNS product candidates.

The ~~pharmaceuticals~~pharmaceutical 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 and compete with our product candidates or address similar markets. It is probable that the number of companies seeking to develop product candidates similar to and competitive with our product candidates will ~~increase.~~

increase in the future.

Currently, management is unaware of any FDA-approved ~~oral adjunctive therapy for MDD patients~~rapid-onset, acute treatment of anxiety in adults with ~~an inadequate response to standard antidepressants~~SAD having the same mechanism of pharmacological action and safety profile as PH94B. Also, management is currently unaware of any FDA-approved oral treatment for MDD having the same mechanism of pharmacological action and safety profile as our ~~oral AV-101.~~intranasally-administered PH10 or our orally administered AV-101 in combination with probenecid. However, new antidepressant products with other mechanisms of pharmacological action or products approved for other indications, including the FDA-approved anesthetic ketamine hydrochloride administered intravenously, are being or may be used ~~off-label~~ for treatment of MDD, as well as other CNS indications for which PH10 or AV-101 in combination with probenecid 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.

With respect to PH94B and current treatment options for SAD in the U.S., our competition may include, but is not limited to, current generic oral antidepressants approved by the FDA for treatment of SAD, as well as certain classes of drugs prescribed on an off-label basis for treatment of SAD, including benzodiazepines such as alprazolam, and beta blockers such as propranolol, and certain investigational oral drug candidates in Phase 2 development. In the field of new generation, ~~orally available, adjunctive~~oral treatments offor adult ~~MDD~~ patients with ~~an inadequate response to standard FDA-approved antidepressants,~~MDD, we believe our principal ~~competitor is Alkermes’ oral opiate modulator drug candidate, ALKS-5461, which adjunctive treatment product candidate is the subject of a New Drug Application recently submitted~~competitors may be Axsome, Alkermes, Relmada and Sage. Additional potential competitors may include, but not be limited to, ~~the FDA by Alkermes.~~

academic and private commercial clinics providing intravenous ketamine therapy on an off-label basis and Janssen’s intranasally-administered esketamine.

Many of our potential competitors, alone or with their ~~strategic partners,~~collaborators, 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~~investigational product candidates. With respect to PH94B, in addition to potential competition from certain current FDA-approved antidepressants and off-label use of benzodiazepines and beta blockers, we believe additional drug candidates in development for SAD may include, but potentially not be limited to, an oral fatty acid amide hydrolase inhibitor in development by Janssen, and two oral drug candidates in Phase 2 development that act on the alpha-7 nicotinic acetylcholine receptor, one in development by Bionomics and the other in development by Vanda. With respect to PH10 and AV-101 in combination with probenecid for treatment of depression disorders, including MDD, and AV-101 in combination with probenecid for treatment of certain neurological disorders, including levodopa-induced dyskinesia associated with therapy for Parkinson’s disease, neuropathic pain, and epilepsy, we believe a range of pharmaceutical and biotechnology companies have programs to develop ~~small molecule~~new drug candidates and/or medical device technologies for ~~the treatment of depression, including MDD, Parkinson’s disease levodopa induced dyskinesia, neuropathic pain, epilepsy, and other neurological conditions and diseases,~~such indications, including, but not limited to, Abbott Laboratories, Acadia, Allergan, Alkermes, Aptynix, AstraZeneca, Axsome, Eli Lilly, GlaxoSmithKline, IntraCellular, ~~Johnson & Johnson/~~Janssen, Lundbeck, Merck, Neurocrine, Novartis, Ono, Otsuka, Pfizer, Relmada, Roche, Sage, Sumitomo Dainippon, Takeda and ~~Takeda,~~Xenon, 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.

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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 investigational 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.~~candidates, such as the AffaMed Agreement.

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We may derive revenue from research and development fees, license fees, milestone payments and royalties under any collaborative arrangement into which we enter, including the AffaMed Agreement and the Bayer Agreement. However, our ability to generate revenue from such arrangements will depend on our collaborators’ abilities to successfully perform the functions assigned to them in these arrangements. In addition, our collaborators have the right to abandon research or development projects and terminate applicable agreements, including funding obligations, prior to or upon the expiration of the agreed upon terms. As a result, we can expect to relinquish some or all of the control over the future success of a product candidate that we license to a third party in the territories included in the licenses.

We face significant competition in seeking appropriate collaborators. Whether we reach aadditional definitive ~~agreement~~agreements for ~~collaboration~~collaborations 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 nonclinical and clinical trials, the likelihood of approval by the FDA or similar regulatory authorities outside the ~~United States,~~U.S., 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 additional 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 CNS 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 CNS product candidates with therapeutic and commercial ~~and therapeutic~~ potential. ~~Although AV-101 is in Phase 2 clinical development for treatment of MDD, we~~We may fail to pursue additional ~~CNS-related Phase 2~~ development opportunities for PH94B, PH10 or AV-101, or identify additional CNS product candidates for ~~clinical~~ development and commercialization 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~~

We strategically 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~~PH94B, PH10 and ~~RM.~~AV-101. As a result, we may forego or delay pursuit of opportunities with other product candidates or for other potential CNS-related indications for PH94B, PH10 and/or 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.

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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,~~CNS product candidates, 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~~payers 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:

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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.

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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.

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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.

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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.

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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.

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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.

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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 payers, including private insurers, and some state laws require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance.

●

Foreign Corrupt Practices Act and its application to marketing and selling practices as well as to clinical trials.

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 isare found ~~not~~ to be inout of compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs.

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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 PH94B, PH10 and 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 FDA marketing approval for ~~AV-101~~PH94B as an ~~adjunctive~~acute treatment of ~~MDD,~~anxiety in adults with SAD, physicians may ~~nevertheless~~ prescribe ~~AV-101~~PH94B to their patients in a manner that is inconsistent with the FDA-approved label. IfHowever, 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 off-label promotion and has enjoined several companies from engaging in off-label promotion. The FDA has also requested that companies enter into consent decrees or imposed 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 CNS 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,~~payers, 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.~~United States healthcare industry and elsewhere. Government authorities and these third-party ~~payors~~payers 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 CNS product ~~candidates, including AV-101.~~candidates. Even if we have obtained FDA Orphan Drug designation for ~~AV-101 of other~~a product ~~candidates,~~candidate, 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 current or future CNS product ~~candidates, including AV-101.~~candidates. Even if we obtain Orphan Drug designation from the FDA for ~~AV-101 or any other~~a product ~~candidates,~~candidate, there are limitations to the exclusivity afforded by such designation. In the ~~United States,~~U.S., 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~~U.S. 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.

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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.~~parties such as our collaboration with AffaMed to develop and commercialize PH94B in key Asian markets. If we commercialize our product candidates in foreign markets, we would be subject to additional risks and uncertainties, including:

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our customers’ ability to obtain reimbursement for our product candidates in foreign markets;

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our inability to directly control commercial activities because we are relying on third parties;

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the burden of complying with complex and changing foreign regulatory, tax, accounting and legal requirements;

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~~our customers’ ability to obtain reimbursement for our product candidates in foreign markets;~~45

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~~our inability to directly control commercial activities because we are relying on third parties;~~Table of Contents

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~~the burden of complying with complex and changing foreign regulatory, tax, accounting and legal requirements;~~

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~~different medical practices and customs in foreign countries affecting acceptance in the marketplace;~~

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~~import or export licensing requirements;~~

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~~longer accounts receivable collection times;~~

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~~longer lead times for shipping;~~

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~~language barriers for technical training;~~

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~~reduced protection of intellectual property rights in some foreign countries;~~

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~~the existence of additional potentially relevant third party intellectual property rights;~~

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~~foreign currency exchange rate fluctuations; and~~

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~~the interpretation of contractual provisions governed by foreign laws in the event of a contract dispute.~~

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different medical practices and customs in foreign countries affecting acceptance in the marketplace;

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import or export licensing requirements;

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longer accounts receivable collection times;

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longer lead times for shipping;

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language barriers for technical training;

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reduced protection of intellectual property rights, different standards of patentability and different availability of prior art in some foreign countries as compared with the U.S.;

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the existence of additional potentially relevant third-party intellectual property rights;

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foreign currency exchange rate fluctuations; and

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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~~development-stage biopharmaceutical company with no ~~current~~recurring revenues from product sales or approved products, and limited experience developing new ~~drug, biological and/or regenerative medicine~~therapeutic product 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~~development-stage biopharmaceutical company. ~~Although our lead drug candidate is in Phase 2 development, we~~We currently have no approved products and ~~currently generate~~ no recurring revenues from product sales, 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 or continue to accomplish the following fundamental objectives, either on our own or with ~~strategic~~ collaborators:

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~~produce product candidates;~~

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~~develop and obtain required regulatory approvals for commercialization of product candidates we produce;~~

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~~maintain, leverage and expand our intellectual property portfolio;~~

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~~establish and maintain sales, distribution and marketing capabilities, and/or enter into strategic partnering arrangements to access such capabilities;~~

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~~gain market acceptance for our products; and~~

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~~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.~~

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develop and obtain required regulatory approvals for commercialization of PH94B, PH10, AV-101 and/or other CNS product candidates;

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maintain, leverage and expand our intellectual property portfolio;

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establish and maintain sales, distribution and marketing capabilities, and/or enter into strategic partnering arrangements to access such capabilities;

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gain market acceptance for our product candidates; and

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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.

Our future success is highly dependent upon our ability to successfully develop and commercialize, ~~AV-101,~~on our own or with collaborators, any of our current CNS product candidates, acquire or license additional CNS product candidates, ~~or discover, as well as produce, develop and commercialize proprietary drug rescue NCEs using our stem cell technology,~~ and we cannot provide any assurance that we will successfully develop and commercialize PH94B, PH10, or AV-101 or acquire or license additional CNS product candidates, or ~~discover and develop drug rescue NCEs, or~~ that, if ~~produced,~~approved, PH94B, PH10, AV-101 or any other CNS product candidate will be successfully commercialized.

Business development and research and development programs designed to identify, acquire or license additional product candidates ~~or, as the case may be, produce drug rescue NCEs~~ require substantial technical, financial and human resources, whether or not any additional CNS product candidate is acquired or ~~licensed or NCEs~~licensed. We are ~~ultimately identified and produced. In particular, our drug rescue programs may initially show promise~~ in ~~identifying potential NCEs, yet fail to yield a lead NCE suitable for preclinical, clinical development or commercialization for many reasons, including~~ the ~~following:~~

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~~our drug rescue research and development methodology may not be successful in identifying and developing potential drug rescue NCEs;~~

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~~competitors may develop alternatives that render our drug rescue NCEs obsolete;~~

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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;

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~~a drug rescue NCE may not be capable~~beginning stages of ~~being produced in commercial quantities at an acceptable cost, or at all; or~~

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~~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~~building a sales orand marketing infrastructure, ~~and we,~~ including ~~our~~hiring certain executive officers ~~do not~~and other employees that have ~~any significant~~ pharmaceutical sales, marketing or distribution experience. WeIn addition, if beneficial, we may seek to collaborate with others to develop and commercialize PH94B, PH10, AV-101, ~~drug rescue NCEs~~ and/or other CNS product candidates, if and when they are acquired and ~~developed.~~developed, or we may seek to establish those commercial capabilities ourselves. If we enter into arrangements with third parties to perform sales, marketing and distribution services for our products, the resulting revenues or the 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 not be successful in entering into arrangements with third parties to sell, market and distribute PH94B, PH10, AV-101, ~~any drug rescue NCEs~~ or other CNS 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, either on our own or 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 acquisition of additional product candidates or the assessment of potential drug rescue NCEs and no operating history with respect to the production of drug rescue NCEs, and we may never be able to produce a drug rescue NCE.

If we are unable to develop and commercialize AV-101, acquire or license additional product candidates, or produce suitable drug rescue NCEs, we may not be able to generate sufficient revenues 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.

~~With respect to drug rescure,there are a number of factors, in addition to the utility of~~ ~~CardioSafe~~ ~~3D, that may impact our ability to identify and produce, develop or out-license and commercialize 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;~~46

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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;

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~~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.

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Even if we do acquire additional product candidates or produce proprietary drug rescue NCEs, we can give no assurance that we will be able to develop and commercialize them as marketable drugs, on our own or in collaboration with others. Before we generate any revenues from AV-101, additional acquired or licensed products candidates or any drug rescue NCEs we or our potential collaborators must complete preclinical and clinical developments, submit clinical and manufacturing data to the FDA, qualify a third party CMO, 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.

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

~~Our success is partly 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 candidatesand drug rescue NCEs. 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.~~

~~CardioSafe~~ 3D ~~may not be meaningfully more predictive of the behavior of human cells than existing methods.~~

~~The success of our drug rescue programs is highly dependent upon~~ ~~CardioSafe~~ 3D 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 will be more efficient or accurate at predicting the heart safety of new drug candidates than the testing models currently used. If~~ ~~CardioSafe~~ 3D fails to provide a meaningful difference compared to existing or new models in predicting the behavior of human heart, 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 NCEs for which there proves to be no demand.~~

To generate revenue from our drug rescue activities, we must produce proprietary 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 NCE for development and commercialization prior to market approval, then also among pharmaceutical companies and other potential collaborators. However, we may produce drug 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, 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 technically complex, and the time and resources necessary to develop various human cell types and customized bioassay systems are difficult to predict in advance. We might 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 stem cell technology platform. In particular, we may conduct exploratory nonclinical RM programs involving blood, bone, cartilage, and/or liver cells. Although we and our collaborators have developed proprietary protocols for the production of multiple differentiated cell types, we could encounter difficulties in differentiating and producing sufficient quantities of particular cell types, even when following these proprietary protocols. These difficulties could result in delays in production of certain cells, assessment of certain drug rescue candidates and drug rescue NCEs, design and development of certain human cellular assays and performance of certain exploratory non-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 and liver 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, and liver 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.

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Restrictions on research and development involving human embryonic stem cells and religious and political pressure 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 and our business model.

~~Some of our research and development programs may involve the use of human cells derived from our controlled differentiation of human embryonic stem cells (hESC~~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, which would have a material adverse effect on our business.

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.

~~The foregoing potential ethical concerns do not apply to our use of induced pluripotent stem cells~~ ~~(iPSCs) because their derivation does not involve the use of embryonic tissues.~~

We have assumed that the biological capabilities of 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 stem cell technology platform could be harmed.

~~We may use both hESCs and iPSCs to produce human cells for our customized~~ ~~in vitro~~ assays 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 stem 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 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 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~~expense 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, which could have a material adverse effect on our operations.

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To the extent our research and development activities involve using 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.

~~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.

Our human cellular 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.

~~The human cells we produce from hPSCs and our customized bioassay systems using such cells, including~~ ~~CardioSafe~~ 3D, 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 hPSCs 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 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.

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Risks Related to Our Financial Position

We have incurred significant net losses since inception, and 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 in 1998, including net losses of ~~$10.3~~approximately $19.8 million and ~~$47.2~~$7.7 million ~~which includes $26.7~~for the quarters ended June 30, 2022 and 2021, respectively, and $47.8 million ~~of non-cash expense related to the extinguishment of essentially all of~~and $17.9 million during our ~~outstanding promissory notes and certain other indebtedness, during the~~ fiscal years ended March 31, ~~2017~~2022 and ~~2016,~~2021, respectively. ~~We incurred a net loss of approximately $10.3 million in the nine months ended December 31, 2017 and, as of that date,~~At June 30, 2022, we had an accumulated deficit of approximately ~~$152.5 million.~~$287.4 million and our auditors have included a qualification to their opinion on our Financial Statements at March 31, 2022 as a result of the uncertainty of our ability to continue as a going concern. We do not know whether or when we will become profitable. Substantially all of our operating losses have resulted from costs incurred in connection with our research and 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 losses, 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~~expense to significantly increase in connection with ~~non-clinical~~planned nonclinical and clinical studies, and ~~clinical trials~~out-sourced manufacturing, of our product candidates. In addition, if we obtain marketing approval for our product candidates, we ~~may~~expect to incur significant commercial operations expense, including medical education, sales and marketing ~~and outsourced-manufacturing expenses should we elect not to collaborate with one or more third parties for such services and capabilities.~~expense. 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 recurring revenues. ~~To date,~~Through June 30, 2022, we have generated approximately ~~$17.7~~$23.0 million in revenues, ~~including receipt~~consisting of receipts of non-dilutive cash payments from collaborators, sublicense revenue, including the $5.0 million cash payment received under the AffaMed Agreement during the quarter ended September 30, 2020, a substantial portion of which remains recorded as deferred revenue at June 30, 2022, 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 fully-sponsored by the NIMH under our NIMH CRADA.~~NIH. 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, PH94B, PH10, AV-101 or another future CNS product candidate, or we enter into one or more development and commercialization agreements with respect to PH94B, PH10, AV-101 or one or more other future CNS product candidates. Our ability to generate recurring revenue depends on a number of factors, including, but not limited to, our ability to:

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initiate and successfully complete nonclinical and clinical trials that meet their prescribed endpoints;

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initiate and successfully complete all safety studies required to obtain U.S. and foreign marketing approval for our CNS product candidates;

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~~initiate and successfully complete non-clinical and clinical trials that meet their prescribed endpoints;~~47

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~~initiate and successfully complete all safety studies required to obtain U.S. and foreign marketing approval for our product candidates;~~Table of Contents

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~~commercialize our product candidates, if approved, by developing a sales force or entering into collaborations with third parties; and~~

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~~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.

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timely complete and compose successful regulatory submissions such as NDAs or comparable documents for both the U.S. and foreign jurisdictions;

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commercialize our CNS product candidates, if approved, by developing a sales force and/or entering into collaborations with third parties for sales and marketing capabilities; and

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achieve market acceptance of our CNS product candidates in the medical community and with third-party payers.

We require additional financing to execute our long-term business ~~plan and continue to operate as a going concern.~~

Our audited consolidated financial statements for the year ended March 31, 2017 as well as the unaudited condensed consolidated financial statements for the period ended December 31, 2017 included elsewhere in this Report have been prepared assuming we will continue to operate as a going concern, although we and 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.

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~~Since~~plan.

From our inception ~~most~~through 2019, a substantial portion of our resources ~~have been~~were dedicated to research and development of AV-101 and ~~the drug rescue capabilities of our~~VistaStem’s stem cell technology platform. In particular, (i) for AV-101, we ~~have~~ expended substantial resources ~~advancing AV-101 through~~on research and development of methods and processes relating to the production of API and drug product, IND-enabling preclinical ~~development and~~studies, Phase 1 clinical safety studies, and ~~developing~~ ~~CardioSafe~~ 3Da Phase 2 clinical study and ~~our~~(ii) for VistaStem, development of cardiac stem cell ~~technology~~technology.

Since 2019, we have expended a considerable portion of our resources for research, clinical development, manufacturing and regulatory expense related to PH94B, including costs related to the PALISADE Phase 3 Program, as well as for research and development of methods and processes relating to the production of PH10 API and drug ~~rescue~~product and ~~potential regenerative medicine applications, and we will~~U.S. IND-enabling preclinical studies involving PH10. We expect to continue to expend substantial resources for the foreseeable future developing and commercializing ~~AV-101 for multiple CNS indications,~~PH94B, PH10 and ~~potentially, developing drug rescue NCEs and RM therapies,~~AV-101 on our own orand in ~~collaborations similar to the BlueRock Agreement.~~collaborations. These expenditures will include costs associated with general and administrative costs, facilities costs, research and development, acquiring new technologies, manufacturing product candidates, conducting nonclinical experiments and clinical trials and obtaining regulatory approvals, as well as commercializing PH94B and our other product candidates, should the FDA approve any ~~products approved~~of such product candidates for sale.

~~At December 31, 2017,~~

Although we had a cash and cash equivalents ~~balance~~ of ~~$13.0 million. We believe this amount is sufficient to enable us to fund~~approximately $52.0 million at June 30, 2022, we have not yet developed products that generate recurring revenue and, assuming successful completion of our planned ~~operations for at least~~clinical and nonclinical programs, we will need to invest substantial additional capital resources to commercialize any of them.

During the next twelve months, ~~following~~we plan to (i) continue to advance our opportunities to explore PH94B’s therapeutic potential beyond SAD in a series of small clinical and nonclinical studies, (ii) complete clinical, if any, and nonclinical preparations to initiate Phase 2B clinical development of PH10 as a potential stand-alone treatment for MDD, (iii) complete our exploratory Phase 1B drug-drug interaction clinical study of AV-101 in combination with probenecid to better understand opportunities to explore its therapeutic potential in certain neurological disorders, and (iv) conduct various nonclinical studies involving PH94B, PH10 and AV-101.

Although we received the ~~issuance of~~$5 million upfront payment under the ~~financial statements included~~AffaMed Agreement in ~~this Report. We~~August 2020 and expect to ~~seek additional capital to finalize the results from the AV-101 MDD Phase 2 Adjunctive Treatment Study,~~ ~~produce additional AV-101 study material, conduct Phase 3-enabling studies, conduct Phase 3 studies~~recognize that amount as revenue in ~~MDD, conduct AV-101 Phase 2 studies in CNS indications other than MDD~~ ~~and to fund our internal operations in 2019 and beyond.~~

~~Further,~~future periods, we have no ~~current~~other recurring source of revenue or recurring cash flows from product sales to sustain our present activities, and we do not expect to generate ~~revenue~~sustainable positive operating cash flows until, and unless, we (i) out-license or sell ~~AV-101,~~ a ~~drug rescue NCE, and/or another drug~~product candidate ~~unrelated~~ to ~~AV-101 to third-parties,~~a third-party that is subsequently successfully developed and commercialized, (ii) enter into ~~license arrangements~~additional transactions involving our stem cell technology, or (iii) obtain approval from the FDA orand other regulatory authorities and successfully commercialize PH94B, or one of our other product candidates, on our own orin the U.S. and through ~~a future collaboration, one or more of our compounds.~~

collaborations outside the U.S.

As the outcome of our ~~AV-101~~ongoing research and ~~NCE drug rescue~~development activities, ~~and~~including the outcome of future anticipated nonclinical studies and clinical trials is highly uncertain, we cannot reasonably estimate the actual amounts necessary to successfully complete the development and commercialization of PH94B or our other current CNS product candidates, on our own or in collaboration with others. As in prior periods, we will continue to incur substantial costs associated with other clinical and nonclinical development programs for PH94B, PH10 and AV-101. 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 plans and requirements, including capital necessary to develop, obtain regulatory approval for, and to commercialize PH94B and our other CNS 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.~~ plans and requirements.

We ~~are considering~~have completed in the past a range of potential ~~sources of funding,~~financing transactions, 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 pursue and complete additional financing arrangements in ~~2017 and beyond. Raising funds in~~ the ~~current economic environment may present additional challenges.~~future. Even if we believe we have sufficient funds for our current or future operating plans and requirements, we may seek additional capital if market conditions are favorable or if we have specific strategic considerations.

Our future capital requirements may depend on many factors, including:

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the number and characteristics of the product candidates we pursue;

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the scope, progress, results and costs of researching and developing our product candidates, and conducting preclinical and clinical studies;

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~~Our future capital requirements depend on many factors, including:~~

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~~the number and characteristics of the product candidates we pursue, including AV-101 and drug rescue NCEs;~~

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~~the scope, progress, results and costs of researching and developing our product candidates, and conducting preclinical and clinical studies;~~

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~~the timing of, and the costs involved in, obtaining regulatory approvals for our product candidates;~~

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~~the cost of commercialization activities if any of our product candidates are approved for sale, including marketing, sales and distribution costs;~~

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~~the cost of manufacturing our product candidates and any products we successfully commercialize;~~

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~~our ability to establish and maintain strategic partnerships, licensing or other arrangements and the financial terms of such agreements;~~

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~~market acceptance of our products;~~

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~~the effect of competing technological and market developments;~~

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~~our ability to obtain government funding for our programs;~~

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~~the costs involved in obtaining and enforcing patents to preserve our intellectual property;~~

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~~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;~~

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~~the timing, receipt and amount of potential future licensee fees, milestone payments, and sales of, or royalties on, our future products, if any; and~~

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~~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.~~

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the timing of, and the costs involved in, obtaining regulatory approvals for our product candidates;

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the cost of commercialization activities if any of our product candidates are approved for sale, including marketing, sales and distribution costs;

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the cost of manufacturing and formulating our product candidates and any products we successfully commercialize;

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our ability to establish and maintain strategic partnerships, licensing or other collaborative arrangements and the financial terms of such agreements;

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market acceptance of our product candidates;

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the effect of competing technological and market developments;

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our ability to obtain government funding for our research and development programs;

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the costs involved in obtaining, maintaining and enforcing patents to preserve our intellectual property;

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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;

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the timing, receipt and amount of potential future licensee fees, milestone payments, and sales of, or royalties on, our future products, if any; and

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the extent to which we may acquire or invest in additional businesses, product candidates and technologies.

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~~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~~all. The terms of any future 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, exchange or ~~exchange~~exercise of certain of our outstanding securities will dilute all of our stockholders. The incurrence of debt could result 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 in certain territories, including the U.S., or ~~otherwise~~ at an earlier stage than otherwise would be desirable or aligned with our business plan, and we may be required to relinquish rights to some of our technologies or product ~~candidate~~candidates or otherwise agree to terms unfavorable to us, any of which may have a material adverse effect on our business, operating results and prospects.

When necessary, if we are unable to obtain additional funding on a timely basis and on acceptable terms, we may be required to significantly curtail, delay or discontinue one or more of our research or product development programs or the commercialization of any product candidate or be unable to continue or expand our operations or otherwise capitalize on our business opportunities, as desired, which could materially affect our business, financial condition and results of operations.

Current volatile and/or recessionary economic conditions in the U.S. or abroad could adversely affect our business or our access to capital markets in a material manner.

To date, our principal sources of capital used to fund our development programs and other operations have been the net proceeds we received from sales of equity securities. We have and will continue to use significant capital for the development and commercialization of our product candidates, and, as such, we expect to seek additional capital from future issuance(s) of our securities, which may consist of issuances of equity and/or debt securities, to fund our planned operations.

Accordingly, our results of operations and the implementation of both our short-term and long-term business plan could be adversely affected by general conditions in the global economy, including conditions that are outside of our control, such as the impact of health and safety concerns from the current COVID-19 pandemic. The ongoing COVID-19 pandemic has resulted in extreme volatility and disruptions in the capital and credit markets. A prolonged economic downturn could result in a variety of risks to our business and may have a material adverse effect on us, including limiting or restricting our ability to access capital on favorable terms, or at all, which would limit our ability to obtain adequate financing to maintain our operations.

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We previously identified material weaknesses in our internal control over financial reporting, and ~~our business and stock price~~we may ~~be adversely affected if we do not adequately address those weaknesses or if we have other~~identify future material weaknesses ~~or significant deficiencies~~ in our internal control over financial reporting. If we are unable to remediate these material weaknesses, or if we fail to establish and maintain adequate internal control over financial reporting,.

we may not be able to produce timely and accurate financial statements, and we may conclude that our internal control over financial reporting is not effective, which may adversely affect our business.

We ~~have~~previously identified material weaknesses in our internal control over financial ~~reporting. In particular, we concluded~~reporting that, ~~(i) the size and capabilities~~as of ~~the Company’s staff does not permit appropriate segregation~~March 31, 2022, were remediated. A material weakness is a deficiency, or combination of ~~duties to prevent one individual from overriding the~~deficiencies, in internal control ~~system by initiating, authorizing~~over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim condensed consolidated financial statements will not be prevented or detected on a timely basis.

Although we have determined that the previously identified material weaknesses have been remediated as of March 31, 2022, we cannot assure you that we will not identify other material weaknesses in the future, which could negatively impact our results of operations in future periods.

Ensuring that we have adequate internal control over financial reporting in place so that we can produce accurate financial statements on a timely basis is a costly and ~~completing all transactions,~~time-consuming effort that needs to be re-evaluated frequently. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and ~~(ii)~~ the ~~Company utilizes~~preparation of financial statements in accordance with generally accepted accounting ~~software that does not prevent erroneous or unauthorized~~principles.

Implementing any appropriate changes to ~~previous~~our internal control over financial reporting ~~periods and/~~may entail substantial costs to modify our existing processes and take significant time to complete. These changes may not, however, be effective in establishing and maintaining the adequacy of our internal control, and any failure to maintain that adequacy, or ~~can be adjusted so as~~consequent inability to ~~not provide an adequate auditing trail of entries made~~produce accurate financial statements on a timely basis, could increase our operating costs and harm our business.

Any failure to maintain or implement required effective internal control over financial reporting, or any difficulties we encounter in ~~the accounting software.~~

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T~~he existence of one or more material weaknesses or significant deficiencies~~their implementation, could result in ~~errors~~additional material weaknesses, cause us to fail to meet our reporting obligations or result in material misstatements in our financial ~~statements, and substantial costs and resources may be required to rectify any internal control deficiencies. If~~statements. Furthermore, if we cannot ~~produce~~provide reliable financial reports or prevent material misstatements due to fraud or error, our business and results of operations could be harmed, and investors could lose confidence in our reported financial ~~information, we may be unable~~information. We also could become subject to ~~obtain~~investigations by The Nasdaq Stock Market, the Securities and Exchange Commission or other regulatory authorities, which could require additional ~~financing to operate~~financial and ~~expand our business and our business and financial condition could be harmed.~~

management resources.

Raising additional capital ~~will~~is likely to cause substantial 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~~may pursue private and public equity offerings, debt financings, and strategic acquisitions, collaborations and licensing arrangements ~~during 2017 and beyond.~~in the future. 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 or in the context of strategic acquisitions, we ~~convert or exchange certain~~issue shares of ~~our outstanding securities into~~ common stock, our current stockholders’ ownership interest in our company will be substantially 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~~would 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 acquisitions, 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.

~~Some~~

We may be required to raise additional financing by issuing new securities with terms or rights superior to those of our existing securityholders, which could adversely affect the market price of shares of our common stock and our business.

We will require substantial additional financing to fund future operations, including research and development activities for our CNS product candidates and our anticipated pre-launch and other commercialization activities, assuming our clinical development programs ~~have been partially supported by government grant awards, which~~are successful and we receive necessary regulatory approvals from the FDA. We may not be ~~available~~able to ~~us in~~obtain financing on favorable terms, if at all. If we raise additional funds by issuing equity securities, 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~~percentage ownership of ~~Neurological Disease and Stroke (NINDS~~)our current stockholders will be reduced, and the ~~NIMH,~~holders of the new equity securities may have rights superior to those of our existing security holders, which could adversely affect the market price of our common stock and the ~~California Institute for Regenerative Medicine (CIRM). To fund a portion~~voting power of shares of our ~~future research~~common stock. If we raise additional funds by issuing debt securities, the holders of these debt securities would similarly have some rights senior to those of our existing securityholders, and ~~development programs, we may apply~~the terms of these debt securities could impose restrictions on operations and create a significant interest expense 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~~us, which could have a ~~number~~materially adverse effect on our business.

Table 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.Contents

Our ability to use net operating losses to offset future taxable income is subject to certain limitations.

As of March 31, ~~2017,~~2022, we had federal and state net operating loss carryforwards of ~~$77.1~~approximately $182.2 million and ~~$67.6~~$65.5 million, respectively, which ~~begin~~have begun to expire in fiscal ~~2018.~~2022 and will continue to expire in future periods. Under Section 382 of the Internal Revenue Code of 1986, as amended (the Code), 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 prior or future offerings ~~prior~~of our debt and/or equity securities, 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 yet 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~~retain and ~~retain~~attract senior management and key scientific personnel, we may be unable to successfully produce, develop and commercialize ~~AV-101, drug rescue NCEs, other potential~~our product ~~candidates and other commercial applications of our stem cell technology.~~

candidates.

Our success depends in part on our continued ability to attract, retain and motivate highly qualified management and ~~scientific~~technical personnel across multiple key functions, including, but not limited to clinical operations, commercial operations, finance, human resources, information technology, manufacturing and ~~technical personnel.~~quality assurance, regulatory affairs and medical affairs. We are highly dependent upon our Chief Executive Officer, ~~President and Chief Scientific Officer,~~ Chief Medical Officer, Chief Financial Officer, and Chief ~~Financial~~Commercial Officer, as well as our other ~~employees,~~senior management personnel, advisors, consultants and scientific and clinical collaborators. As of the date of this Report, we have ~~nine~~38 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~~our 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.

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Although we have not historically experienced unique difficulties attracting and retaining qualified employees, we could experience such problems following our change in business plans as a result of the negative results of our PALISADE-1 clinical trial or in the future. ~~For example, competition~~Competition for qualified personnel in the ~~biotechnology and~~ pharmaceuticals field is ~~intense. We will need to hire additional personnel as~~intense, and 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 broad and diverse range of strategic consultants and advisors, including manufacturing, ~~scientific~~nonclinical and clinical development and regulatory advisors and CMOs and CROs, to assist us in designing and implementing our research and development and regulatory strategies and plans ~~including~~for our ~~AV-101 development and drug rescue strategies and plans.~~product candidates. 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,~~our product candidates, we will need to further expand our research and development capabilities ~~and/or contract~~and our contractual arrangements 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, development and ~~development~~regulatory efforts effectively, and hire, train and integrate additional management, administrative, research and ~~technical~~development, regulatory, commercial and other 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.

As we develop ~~AV-101, drug rescue NCEs, other~~our product ~~candidates, or regenerative medicine product candidates,~~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 PH94B, PH10, AV-101, or any ~~drug rescue NCE,~~ other product candidate we or ~~regenerative medicine product candidate we~~our collaborators 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 product candidates that we may develop;

●

injury to our reputation;

●

withdrawal of clinical trial participants;

●

costs to defend the related litigation;

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a diversion of management's time and our resources;

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substantial monetary awards to trial participants or patients; or

●

product recalls, withdrawals or labeling, marketing or promotional restrictions.

●

~~decreased demand for products that we may develop;~~51

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~~injury to our reputation;~~Table of Contents

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~~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; or~~

●

~~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 currently maintain general and product 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.

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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 public company reporting requirements, continues to occupy a significant amount of the time of management and involves significant accounting, legal and other expenses. Furthermore, these laws, regulations and requirements require us to observe greater corporate governance practices than we have employed in the past, including, but not limited to maintaining a sufficient number of independent 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 and credit markets. A severe or prolonged economic downturn, such as the recent ~~global financial crisis,~~economic downturn triggered by the ongoing COVID-19 pandemic, could result in a variety of risks to our business, 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 foregoing 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~~business and operations would suffer in the event of cybersecurityor other system failures.Our business depends on complex information systems, and any failure to successfully maintain these systems or ~~those of~~implement new systems to handle our ~~third-party CROs or other contractors or consultants, may fail or suffer security breaches, which~~changing needs could result in a material disruption of our product ~~candidates’~~candidates’ development ~~programs.~~

programs or otherwise materially harm our operations.

In the ordinary course of our business, we collect and store sensitive data, including intellectual property, our proprietary business information and that of our suppliers, as well as personally identifiable information of employees. Similarly, our third-party CROs, CMOs and other contractors and consultants possess certain of our sensitive data. The secure maintenance of this information is material to our operations and business strategy. Despite the implementation of security measures, our internal computer systems and those of our third-party CROs, CMOs and other contractors and consultants are vulnerable to attacks by hackers, damage from computer viruses, unauthorized access, breach due to employee error, malfeasance or other disruptions, natural disasters, terrorism ~~war~~ and telecommunication and electrical failures. Additionally, having shifted substantially to remote working arrangements, we also face a heightened risk of cybersecurity attacks or data security incidents and are more dependent on internet and telecommunications access and capabilities. Any such attack or breach could compromise our networks and the information stored there could be accessed, publicly disclosed, lost or stolen. The legislative and regulatory landscape for privacy and data protection continues to evolve, and there has been an increasing amount of focus on privacy and data protection issues with the potential to affect our business, including recently enacted laws in a majority of states requiring security breach notification. Thus, any access, disclosure or other loss of information, including our data being breached at our partners or third-party providers, could result in legal claims or proceedings and liability under laws that protect the privacy of personal information, disruption of our operations, and damage to our reputation, which could adversely affect our business.

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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 PH94B, PH10, AV-101 or other product candidates could result in substantial 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 delayed.

Remote working arrangements driven by the COVID-19 pandemic could significantly increase the Company’s digital and cybersecurity risks.

The COVID-19 pandemic has caused us to significantly modify our business practices. Most of our employees are geographically dispersed from our headquarters facility in South San Francisco and now routinely work remotely. With the continuing COVID-19-driven shift to remote working, and the use of virtual board and executive management meetings, cybersecurity risks are exponentially greater, including increased risk of phishing and other cybersecurity attacks as well as increased risk of unauthorized dissemination of sensitive personal information or proprietary or confidential information about us or our customers, employees, or business partners. Despite our cybersecurity measures, we may be more susceptible to security breaches and other security incidents because we have less capability to implement, monitor, and enforce our information security and data protection policies. Techniques or software used to gain unauthorized access, and/or disable, degrade, or harm our systems may be difficult to detect for prolonged periods of time, and we may be unable to anticipate these techniques or put in place protective or preventive measures. The damage or disruption of our systems, or the theft or compromise of our technology, data, or intellectual property, may negatively impact our business, financial condition and results of operations, reputation, stock price and long-term value, which could adversely affect our Company's business.

We may acquire businesses or ~~products,~~product candidates, or form strategic alliances, in the future, and we may not realize the benefits of such acquisitions.

We may acquire additional businesses or ~~products,~~CNS product candidates, 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~~product candidates resulting from a strategic alliance, licensing transaction 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 or licensing transaction, we will achieve the expected synergies to justify the transaction.

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Current politics in the U.S. could diminish the value of ~~Contents~~

the pharmaceutical industry, thereby diminishing the value of our securities.

The current political environment in the U.S. has led many incumbents and political candidates to propose various measures to reduce the prices for pharmaceuticals. These proposals may receive increasing publicity which, in turn, may cause the investing public to reduce the perceived value of pharmaceutical companies. Any decrease in the overall perception of the pharmaceutical industry may have an adverse impact on our share price and may limit our ability to raise capital needed to continue our drug development programs.

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 compete against us more directly, which would have 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~~product candidates, their compositions and ~~compositions,~~formulations, their methods of use and methods of manufacturing and any other inventions we consider 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 obtain 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 confidentiality 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~~product candidates PH94B, PH10, AV-101 and also to certain stem cell technology.

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Although we own and have anlicensed issued and allowed patents and patent applications relating to PH94B, PH10 and AV-101 in the U.S. and ~~the European Union,~~selected countries in other jurisdictions, we cannot yet provide any assurances that any of our ~~other numerous~~ pending U.S. and additional foreign patent applications ~~relating to AV-101~~ will mature into issued patents and, if they do, that ~~such~~any of our patents will include claims with a scope sufficient to protect ~~AV-101~~our product candidates 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,~~properties, for example, 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 or maintain patent protection.

The uncertainty about adequate protection includes changes to the patent laws through either legislative action to change statutory patent law or court action that may reinterpret existing law in ways affecting the scope or validity of issued patents. Moreover, relevant laws differ from country-to-country.

The patent positions of ~~biotechnology and pharmaceutical~~biopharmaceutical companies, including our patent ~~position,~~portfolio with respect to our product candidates, involve complex legal and factual questions, and, therefore, the issuance, scope, validity and enforceability of any ~~additional~~ patent claims that we may ~~obtain~~be granted cannot be predicted with certainty. ~~Patents, if issued,~~

Our ability to obtain valid and enforceable patents depends, among other factors, on whether the differences between our technology and the prior art allow our inventions to be patentable over relevant prior art. Such prior art includes, for example, scientific publications, investment blogs, granted patents and published patent applications. Patent uncertainty cannot be eliminated because of the potential existence of other prior art, about which we are currently unaware, that may be ~~challenged,~~relevant to our patent applications and patents and that may prevent a pending patent application from being granted or result in an issued patent being held invalid or unenforceable. Moreover, the relevant standards for granting and reviewing patents varies among countries in which we pursue patents.

In addition, some patent-related uncertainty exists because of the challenge in finding and addressing all of the relevant and material prior art in the biotechnology and pharmaceutical fields. For example, there are numerous reports in the scientific literature of compounds that target similar cellular receptors as do certain of our product candidates or that were evaluated in early (often pre-clinical) studies that did not progress to regulatory approval. In addition, even some reports in the trade press and public announcements made by us before the filing date of our AV-101 patent applications mentioned that AV-101 was in development for certain therapeutic purposes. For example, we published a web post on the NIH clinical trials website prior to the filing of our initial AV-101 patent application, which describes unit doses for a then future study, but does not mention treatment of depression and does not provide any preclinical or clinical study data relating to depression or any other medical condition, disease or disorder. This post was not submitted to the United States Patent and Trademark Office (USPTO) in our two granted U.S. patents related to (i) unit dose formulations of AV-101 effective to treat depression and (ii) methods of treating depression with AV-101, respectively. However, it was submitted in two continuation depression-related AV-101 patent applications that have similar claims and the USPTO did not make further rejection based on that post. Another source of uncertainty pertains to patent properties that were in-licensed by us for which prior art submissions were under the control of the licensor. We rely on these licensors to have satisfied the relevant disclosure obligations.

In the event any previously published prior art is deemed to be invalidating prior art, it may cause certain of our issued patents to be invalid and/or unenforceable, which would cause us to lose at least part, and perhaps all, of the patent protection on relevant product candidates. Such a loss of patent protection would have a material adverse impact on our business.

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 USPTO 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.

Even if patents do successfully issue, third parties may challenge the validity, enforceability or scope of such issued patents or any other issued patents we own or license, which may result in such patents being narrowed, invalidated or ~~circumvented. U.S.~~held unenforceable.

United States and foreign patents and patent applications may ~~also~~ be subject to various types of infringement and validity proceedings, including interference proceedings, ex parte reexamination, or inter partes review proceedings, supplemental examination and challenges in district court. Patents may be subjected to opposition, post-grant review, invalidity actions, or comparable proceedings lodged in various foreign, both national and regional, patent ~~offices.~~offices or courts. 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,~~in such ~~proceedings may be costly. Thus, any patents~~a way 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 commercializethey no longer cover our product ~~candidates.~~candidates or competitive products.

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Furthermore, though aan issued 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~~for example, by using pre-existing or newly developed technology. Other parties may develop and obtain patent protection for more effective technologies, designs or methods.

If we or one of our licensing partners initiated legal proceedings against a third-party to enforce a patent covering one of our product candidates, including patents related to PH94B, PH10 or AV-101, 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 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. 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.

In addition, such patent-related proceedings may be costly. Thus, any patent properties that we may own or exclusively license ultimately may not provide commercially meaningful 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.

We may not be able to prevent the unauthorized disclosure or use of our technical knowledge or trade secrets by consultants, vendors, or former ~~employees and~~or 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 also depends on our ability to detect infringement. It is difficult to detect infringers who do not advertise the components or manufacturing processes 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.

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~~The~~

Overall, the degree of future protection for our proprietary rights is uncertain, and we cannot ensure that:

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any issued patents related to PH94B, PH10, AV-101 or any pending patent applications, if issued and challenged by others, will include or maintain claims having a scope sufficient to protect PH94B, PH10, AV-101 or any other products or product candidates against generic or other competition, particularly considering that any patent rights to these compounds per se have expired;

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any of our pending patent applications will issue as patents at all;

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we will be able to successfully commercialize our product candidates, if approved, before our relevant patents expire;

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we were the first to make the inventions covered by each of our patents and pending patent applications;

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we were the first to file patent applications for these inventions;

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others will not develop similar or alternative technologies that do not infringe our patents;

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~~any~~

Table 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;Contents

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~~any of our pending patent applications will issue as patents at all;~~

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~~we will be able to successfully commercialize our product candidates, if approved, before our relevant patents expire;~~

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~~we were the first to make the inventions covered by each of our patents and pending patent applications;~~

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~~we were the first to file patent applications for these inventions;~~

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~~others will not develop similar or alternative technologies that do not infringe our patents;~~

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~~others will not use pre-existing technology to effectively compete against us;~~

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~~any of our patents, if issued, will be found to ultimately be valid and enforceable;~~

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~~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;~~

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~~we will develop additional proprietary technologies or product candidates that are separately patentable; or~~

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~~that our commercial activities or products will not infringe upon the patents or proprietary rights of others.~~

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others will not use pre-existing technology to effectively compete against us;

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any of our patents, if issued, will ultimately be found to be valid and enforceable, including on the basis of prior art relating to our patent applications and patents;

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any patents currently held or issued to us in the future 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;

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we will develop additional proprietary technologies or product candidates that are separately patentable; or

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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, collaborators and consultants who are parties to these agreements breach or violate the terms of these agreements, we may not discover or 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.

Third parties may initiate legal proceedings against us alleging that we infringe ~~the~~their intellectual property rights, ~~of others,~~ which may prevent or delay our product development efforts and stop us from commercializing candidate products or increase the costs of commercializing them, if approved. Also, we may file counterclaims or initiate other legal proceedings against third parties to challenge the validity or scope of their intellectual property rights, the outcomes of which also would be uncertain and could have a material adverse effect on the success of our business.

We cannot assure that our business, product candidates ~~if approved.~~

and methods do not or will not infringe the patents or other intellectual property rights of third parties. Third parties may initiate legal proceedings against us or our licensors or collaborators alleging that we or our licensors or collaborators infringe their intellectual property rights. In addition, we or our licensors or collaborators may file counterclaims in such proceedings or initiate separate legal proceedings against third parties to challenge the validity or scope of their intellectual property rights, including in oppositions, interferences, reexaminations, inter partes reviews or derivation proceedings before the United States or other jurisdictions.

Our success will depend in part on our ability to operate without infringing the intellectual property and proprietary rights of third parties. ~~We cannot assure you that~~Success also will depend on our ~~business, products~~ability to prevail in litigation if we are sued for infringement or to resolve litigation matters with rights and ~~methods do not or will not infringe the patents or other intellectual property rights of third parties.~~

at costs favorable to us.

The ~~pharmaceutical~~biopharmaceutical 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 their 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 treatment related to the use or manufacture of our product candidates. Because patent applications can take many years to issue, third parties may have currently pending patent applications that ~~may~~ later result in issued patents that our product candidates may infringe, or ~~which~~that such third parties ~~claim~~assert are infringed by our technologies.

The foregoing types of proceedings can be expensive and time-consuming and many of our own or our licensors’ or collaborators’ adversaries in these proceedings may have the ability to dedicate substantially greater resources to prosecuting these legal actions than we or our licensors or collaborators can. Our defense of litigation or other 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.

The outcome of intellectual property litigation is subject to uncertainties that cannot be adequately 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 financial resources to bring these actions to a successful conclusion.

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An unfavorable outcome in the foregoing kinds of proceedings could require us or our licensors or collaborators to cease using the related technology or developing or commercializing our product candidates, 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 or our licensors or collaborators a license on commercially reasonable terms or at all. Even if we or our licensors or collaborators obtain a license, it may be non-exclusive, thereby giving our competitors access to the same technologies licensed to us or our licensors or collaborators.

In addition, we could be found liable for monetary damages, including treble damages and attorneys’ fees, if we are found to have willfully infringed a patent. A finding of infringement could prevent us from commercializing our product candidates or force us to cease some of our business operations, which could materially harm our business.

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.

Patent and other types of intellectual property litigation can involve complex factual and legal questions, and their ~~outcome is~~outcomes are 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 behave willfully ~~infringing another~~infringed a third 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~~is 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.

Patent litigation is costly and time-consuming. We may not have sufficient resources to bring these actions to a successful conclusion. 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:

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~~cease developing, selling or otherwise commercializing our product candidates;~~

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~~pay substantial damages for past use of the asserted intellectual property;~~

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~~obtain a license from the holder of the asserted intellectual property, which license may not be available on reasonable terms, if at all; and~~

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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.

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cease developing, selling or otherwise commercializing our product candidates;

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pay substantial damages for past use of the asserted intellectual property;

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obtain a license from the holder of the asserted intellectual property, which license may not be available on reasonable terms, if at all; and

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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 academic advisor pursuant to which such academic advisor is required to 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~~their intellectual property to his or her employing institution.

Litigation may be necessary to defend against these and other 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.

~~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.

Third parties may initiate legal proceedings against us alleging that we infringe their intellectual property rights or we may initiate legal proceedings against third parties to challenge the validity or scope of intellectual property rights controlled by third parties, the outcome of which would be uncertain and could have a material adverse effect on the success of our business. Any lawsuit we are engaged in to protect or enforce our patents or the patents of our licensors 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.

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~~Further, third parties may initiate legal proceedings against us or~~

We do not seek to protect our ~~licensors or collaborators alleging that we or our licensors or collaborators infringe their~~ intellectual property rights orin all jurisdictions throughout the world and we ormay not be able to adequately enforce our ~~licensors or collaborators may initiate legal proceedings against third parties to challenge the validity or scope of~~ intellectual property rights ~~controlled by third parties, including~~even in ~~oppositions, interferences, reexaminations, inter partes reviews or derivation proceedings before~~ the ~~United States or other jurisdictions. These proceedings can be~~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 ~~time-consuming~~our intellectual property rights in some countries outside the U.S. could be less extensive than those in the U.S., assuming that rights are obtained in the U.S. In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as federal and ~~many of our or our licensors’ or collaborators’ adversaries~~state laws in ~~these proceedings may have~~ the ~~ability to dedicate substantially greater resources to prosecuting these legal actions than~~U.S. Consequently, we or our licensors or collaborators can. 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~~third parties from practicing our inventions in all countries outside the U.S., or from selling or importing products made using our inventions in and into the U.S. 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 pending patent applications relating to AV-101, as well as for other 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 or technologies, we will need to decide whether and where to pursue protection outside the U.S.

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 U.S. These products may compete with our ~~licensors,~~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 U.S. 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 and pharmaceuticals. 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, particularly~~rights. For example, many foreign countries have compulsory licensing laws under which a patent owner must grant licenses to third parties under certain circumstances. 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, ~~where~~and we will not have the ~~laws may not protect those rights as fully as~~benefit of patent protection in ~~the United States or European Union.~~

such countries.

An unfavorable outcome could require us or our licensors or collaborators to cease using the related technology or developing or commercializing our product candidates, 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 or our licensors or collaborators a license on commercially reasonable terms or at all. Even if we or our licensors or collaborators obtain a license, it may be non-exclusive, thereby giving our competitors access to the same technologies licensed to us or our licensors or collaborators. In addition, we could be found liable for monetary damages, including treble damages and attorneys’ fees, if we are found to have willfully infringed a patent. A finding of infringement could prevent us from commercializing our product candidates or force us to cease some of our business operations, which could materially harm our business.

~~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 enforce 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 rights are obtained in the United States. In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as federal and state laws in the United States. Consequently, we may not be able to prevent 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 or technologies, we will need to decide whether and where to pursue protection outside the United States.

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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.

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.

For PH94B, PH10 and certain stem cell technologies, we are a party to a number of license agreements under which we are granted rights to intellectual ~~property~~properties 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.~~business. Our existing license agreements impose, and we expect that any 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 necessary licenses on acceptable terms.

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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.

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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:

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~~the scope of rights granted under the license agreement and other interpretation-related issues;~~

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~~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;~~

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~~our right to sublicense patent and other rights to third parties under collaborative development relationships;~~

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our diligence obligations with respect to the use of the licensed technology in relation to our development and commercialization of our product candidates, and what activities satisfy those diligence obligations; and

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~~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.~~

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the scope of rights granted under the license agreement and other interpretation-related issues;

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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;

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our right to sublicense patent and other rights to third parties under collaborative development relationships;

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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, both in-license agreements and out-license agreements, to support and leverage 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 able 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 our loss of the right to use the licensed intellectual property, which could materially adversely affect our ability to develop and commercialize a 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.

Some intellectual property which we have licensed may have been discovered through ~~government funded~~government-funded programs and thus may be subject to federal regulations such as ~~“march-in”~~“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 will 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,~~Also, 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.

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Intellectual property generated under a government funded program is ~~also~~further 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.

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In the event we apply for additional U.S. government funding, and 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 do not obtain additional protection under the Hatch-Waxman Amendments and similar foreign legislation by extending the patent terms and obtaining data exclusivity for our product candidates, our business may be materially harmed.

~~Depending~~

In the U.S., depending upon the timing, duration and specifics of FDA marketing approval of our product candidates, one or more of the U.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 as the Hatch-Waxman Amendments. The Hatch-Waxman Amendments permit a patent restoration term of up to five years as compensation for patent term lost during product development and the FDA regulatory review process. However, we may not be granted 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 PH94B, PH10 or AV-101 is used in another drug company’s product candidate and that product candidate is the first to obtain FDA approval.

Moreover, the applicable time period or the scope of patent protection afforded could be less than we request. If we are unable to obtain 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.

Similar kinds of patent term and regulatory and data protection periods are available outside of the U.S. We will pursue such opportunities to extend the exclusivity of our products, but we cannot predict the availability of such exclusivity pathways or that we will be successful in pursuing them.

Changes in ~~U.S.~~ 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 pharmaceutical and biotechnology companies, our success is heavily dependent on intellectual 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~~U.S. in recent years 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 affect 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 on the operation of our business. However, the America Invents Act and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of any patents that may issue from our patent applications, all of which could have a material adverse effect on our business and financial condition.

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 inMayo 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 inAssociation 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, inAriosa 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. Other more recent court decisions and related USPTO examination guidelines must be taken into account, particularly as they relate to changes in what types of inventions are eligible for patent protection. Foreign patent and intellectual property laws also are evolving and are not predictable as to their impact on the Company and other biopharmaceutical companies.

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In addition to increasing uncertainty ~~with regard to~~regarding 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.

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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.~~

●

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 or be narrowed, 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.

Should any of these events occur, they could significantly harm our business and results of operations.

~~If,~~

With regard to our stem cell technology, if, instead of identifying ~~drug rescue candidates~~a potential NCE candidate based on information available to us in the public domain, we seek to in-license ~~drug rescue candidates~~a NCE candidate 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 that 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.

~~-63-~~61

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Risks Related to our Securities

If we fail to comply with the continued listing requirements of the Nasdaq Capital Market, our common stock may be delisted and the price of our common stock and our ability to access the capital markets could be negatively impacted.

The last reported price of our common stock on August 10, 2022, as reported on the Nasdaq Capital Market, was $0.17 per share, which amount is below the minimum bid price of $1.00 per share required under listing rules of the Nasdaq Stock Market (Nasdaq). No assurance can be given that we will meet applicable Nasdaq continued listing standards. Failure to meet applicable Nasdaq continued listing standards could result in a delisting of our common stock, which could materially reduce the liquidity of our common stock and result in a corresponding material reduction in the price of our common stock. In addition, delisting could harm our ability to raise capital through alternative financing sources on terms acceptable to us, or at all, and may result in the inability to advance our drug development programs, potential loss of confidence by investors and employees, and fewer business development opportunities.

Market volatility may affect our stock price and the value of your investment.

The market price for our common stock, similar to that of other biopharmaceutical companies, is likely to beremain highly 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:

●

volatility resulting from uncertainty and general economic conditions caused by the ongoing COVID-19 pandemic;

●

plans for, progress of or results from nonclinical and clinical development activities related to our product candidates;

●

the failure of the FDA or other regulatory authority 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 U.S. and other countries;

●

announcements regarding our intellectual property portfolio;

●

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 or purchases of large blocks of our common stock, including sales or purchases by our executive officers, directors and significant stockholders;

●

establishment of short positions by holders or non-holders of our stock or warrants;

●

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.

●

~~plans for, progress~~

Table of ~~or results from nonclinical and clinical development activities related to our product candidates;~~Contents

●

~~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.~~

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 such sales or issuances are occurring or might occur, including under our Sales Agreement, 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 significant 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 actual 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~~the 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.

~~-64-~~

~~Table of Contents~~

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~~any such 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 such 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, as amended (the Articles), permit us to issue up to 10.0 million shares of preferred stock. Our Board has authorized the issuance of ~~(i) 500,000 shares of Series A Preferred, all of which shares are issued and outstanding at December 31, 2017; (ii) 4.0~~9.5 million shares of ~~Series B 10% Convertible Preferred~~preferred stock, of which ~~approximately 1.2 million~~there are no shares ~~remain issued and~~remaining outstanding ~~at December 31, 2017; and (iii) 3.0 million shares~~as of ~~Series C Convertible Preferred Stock,~~the date of ~~which approximately 2.3 million shares are issued and outstanding at December 31, 2017. Our~~this Report. As a result, our Board could authorize the issuance of additional series of preferred stock in the future, up to a maximum of 500,000 shares, 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.

We do not intend to pay dividends on our common stock and, consequently, our ~~stockholders’~~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.

~~-65-~~

~~Table of Contents~~

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 reverse merger in 2011, we have been~~

We are 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 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~~resources that we could otherwise use to achieve our research and development and other strategic objectives.

Table of Contents

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 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~~expense 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.

Item 2.Unregistered Sales of Equity ~~Securi~~t~~ies~~Securities and Use of Proceeds

In November 2017, in a self-placed private placement transaction, we sold to an accredited investor units consisting of (i) 150,000 shares of our unregistered common stock and (ii) warrants exercisable through November 30, 2021 to purchase 150,000 unregistered shares of our common stock at an exercise price of $1.50 per share. The warrants are not exercisable until six months and one day following the date of issuance. We received cash proceeds of $150,000 from this sale of our securities.

~~In December 2017,~~ ~~we issued 50,000 shares of our unregistered common stock for services provided by our contract research organization under the terms of a negotiated work order.~~

~~In December 2017, we issued 500,000 shares of our unregistered common stock~~ ~~having a fair value at the time of issuance of $585,000 and a cash payment of $76,500 to a contract manufacturing organization in settlement of $526,500 of open accounts payable.~~

Proceeds from each of the offerings were used for general corporate purposes. All of the above sales were made in reliance on Section 4(a)(2) of the Securities Act as transactions by and issuer not involving any public offering, Regulation D of the Securities Act, and/or Section 3(a)(9) under the Securities Act. In all such transactions, certain inquiries were made by the Company to establish that such sales qualified for such exemption from the registration requirements. In particular, the Company confirmed that, with respect to the exemption claimed under Section 4(a)(2) of the Securities Act, that (i) all offers of sales and sales were made by personal contact from officers and directors of the Company or other persons closely associated with the Company, (ii) each investor made representations that he, she or it was an accredited investor as defined in Rule 501 of Regulation D under the Securities Act (and the Company had no reason to believe that such representations were incorrect), (iii) each purchaser gave assurance of investment intent, and (iv) offers and sales within any offering were made only to a limited number of persons.

None.

Item 3. ~~Defa~~u~~lts~~Defaults Upon Senior Securities

None.

~~-66-~~

~~Table of Contents~~

Item 6. EX~~HIBITS~~

EXHIBITS

Exhibit
Number		Description

~~Number~~ 10.1*		~~Description~~ Indemnification Agreement, dated May 13, 2022, by and between VistaGen Therapeutics, Inc. and Reid G. Adler J.D., filed herewith.
~~31.1~~
31.1*		Certification of the Principal Executive Officer required by Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

~~31.2~~ 31.2*		Certification of the Principal Financial Officer required by Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32 32*		Certification of the Principal Executive and Financial Officers required by Rule 13a-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS *		The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH*
~~101.INS~~		~~XBRL Instance Document~~
~~101.SCH~~		Inline XBRL Taxonomy Extension Schema
~~101.CAL~~ 101.CAL*		Inline XBRL Taxonomy Extension Calculation Linkbase
~~101.DEF~~ 101.DEF*		Inline XBRL Taxonomy Extension Definition Linkbase
~~101.LAB~~ 101.LAB*		Inline XBRL Taxonomy Extension Label Linkbase
~~101.PRE~~ 101.PRE*		Inline XBRL Taxonomy Extension Presentation Linkbase
104*		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

* Filed herewith.

~~-67-~~64

Table of Contents

~~SIG~~

N~~ATURES~~

SIGNATURES

Pursuant to the requirements 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.


	VISTAGEN THERAPEUTICS, INC.

	/s/ Shawn K. Singh
	Shawn K. Singh
	Chief Executive Officer (Principal Executive Officer)

	/s/ Jerrold D. Dotson
	Jerrold D. Dotson
	Chief Financial Officer (Principal Financial and Accounting ~~Officer~~	Officer)

Dated: ~~February 12, 2018~~

August 11, 2022

~~-68-~~65

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.001 per share	VTGN	Nasdaq Capital Market

	Page
PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets at ~~December 31, 2017~~June 30, 2022 and March 31, ~~2017~~2022	1
Condensed Consolidated Statements of Operations and Comprehensive Loss for the three ~~and nine~~ months ended ~~December 31, 2017~~June 30, 2022 and ~~2016~~2021	2
Condensed Consolidated Statements of Cash Flows for the ~~nine~~three months ended ~~December 31, 2017~~June 30, 2022 and ~~2016~~2021	3
Condensed Consolidated Statement of Changes in Stockholders’ Equity for the ~~nine~~three months ended ~~December 31, 2017~~June 30, 2022 and 2021	4
Notes to the Condensed Consolidated Financial Statements	5
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	16 18
Item 4. Controls and Procedures	31 30

PART II. OTHER INFORMATION


Item 1. Legal Proceedings	31
Item 1A. Risk Factors	31
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	66 64
Item 3. Defaults Upon Senior Secured Securities	66 64
Item 6. Exhibits	67 64

SIGNATURES	68 65

	For the Three Months Ended		For the Three Months Ended
	June 30, 2022		June 30, 2021
Operating lease cost	$	197,200	$	235,700

Fiscal Years Ending March 31,
2023 (remaining nine months)	$	507,000
2024		689,500
2025		710,200
2026		731,500
2027		753,500
Thereafter		253,600
Total lease expense		3,645,300
Less imputed interest		(711,500	)
Present value of operating lease liabilities	$	2,933,800

	AsofJune 30, 2022
Assumed remaining lease term in years		5.08
Assumed discount rate		8.54	%

	December 31,	March 31,
	2017	2017
	(Unaudited)

ASSETS
Current assets:
Cash and cash equivalents	$13,031,800	$2,921,300
Prepaid expenses and other current assets	940,400	456,600
Total current assets	13,972,200	3,377,900
Property and equipment, net	222,800	286,500
Security deposits and other assets	47,800	47,800
Total assets	$14,242,800	$3,712,200

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$509,300	$867,300
Accrued expenses	770,900	443,000
Current notes payable	43,700	54,800
Capital lease obligations	2,600	2,400
Total current liabilities	1,326,500	1,367,500

Non-current liabilities:
Accrued dividends on Series B Preferred Stock	2,344,400	1,577,800
Deferred rent liability	299,100	139,200
Capital lease obligations	10,000	11,900
Total non-current liabilities	2,653,500	1,728,900
Total liabilities	3,980,000	3,096,400

Commitments and contingencies

Stockholders’ equity:
Preferred stock, $0.001 par value; 10,000,000 shares authorized at December 31, 2017 and March 31, 2017:
Series A Preferred, 500,000 shares authorized, issued and outstanding at December 31, 2017 and March 31, 2017	500	500
Series B Preferred; 4,000,000 shares authorized at December 31, 2017 and March 31, 2017; 1,160,240 shares issued and outstanding at December 31, 2017 and March 31, 2017	1,200	1,200
Series C Preferred; 3,000,000 shares authorized at December 31, 2017 and March 31, 2017;
2,318,012 shares issued and outstanding at December 31, 2017 and March 31, 2017	2,300	2,300
Common stock, $0.001 par value; 100,000,000 and 30,000,000 shares authorized at December 31, 2017
and March 31, 2017, respectively; 22,723,504 and 8,974,386 shares issued and outstanding at
December 31, 2017 and March 31, 2017, respectively	22,700	9,000
Additional paid-in capital	166,669,200	146,569,600
Treasury stock, at cost, 135,665 shares of common stock held at December 31, 2017 and March 31, 2017	(3,968,100)	(3,968,100)
Accumulated deficit	(152,465,000)	(141,998,700)
Total stockholders’ equity	10,262,800	615,800
Total liabilities and stockholders’ equity	$14,242,800	$3,712,200

	Three Months Ended December 31,		Nine Months Ended December 31,
	2017	2016	2017	2016
Revenues:
Sublicense revenue	$-	$1,250,000	$-	$1,250,000
Total revenues	-	1,250,000	-	1,250,000
Operating expenses:
Research and development	1,601,800	1,611,000	5,124,600	4,042,800
General and administrative	1,266,000	2,276,600	4,997,400	4,907,800
Total operating expenses	2,867,800	3,887,600	10,122,000	8,950,600
Loss from operations	(2,867,800)	(2,637,600)	(10,122,000)	(7,700,600)
Other expenses, net:
Interest expense, net	(2,000)	(900)	(7,700)	(3,700)
Loss on extinguishment of accounts payable	(135,000)	-	(135,000)	-

Loss before income taxes	(3,004,800)	(2,638,500)	(10,264,700)	(7,704,300)
Income taxes	-	-	(2,400)	(2,400)
Net loss and comprehensive loss	(3,004,800)	(2,638,500)	(10,267,100)	(7,706,700)

Accrued dividend on Series B Preferred stock	(263,000)	(237,700)	(766,600)	(1,018,500)
Deemed dividend from trigger of down round
provision feature	(199,200)	-	(199,200)	-
Deemed dividend on Series B Preferred Units	-	-	-	(111,100)

Net loss attributable to common stockholders	$(3,467,000)	$(2,876,200)	$(11,232,900)	$(8,836,300)

Basic and diluted net loss attributable to common
stockholders per common share	$(0.25)	$(0.34)	$(1.03)	$(1.23)

Weighted average shares used in computing basic
and diluted net loss attributable to common
stockholders per common share	13,895,642	8,381,824	10,947,556	7,181,307

									Additional			Total
	Series A Preferred Stock		Series B Preferred Stock		Series C Preferred Stock		Common Stock		Paid-in	Treasury	Accumulated	Stockholders’
	Shares	Amount	Shares	Amount	Shares	Amount	Shares	Amount	Capital	Stock	Deficit	Equity


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
Proceeds from sale of common stock and warrants for cash in September
2017 Public Offering, net of underwriting discount and expenses	-	-	-	-	-	-	1,371,430	1,300	2,023,200	-	-	2,024,500
Proceeds from sale of common stock and warrants for cash in December
2017 Public Offering, net of underwriting discount and expenses	-	-	-	-	-	-	10,000,000	10,000	13,614,000	-	-	13,624,000
Proceeds from sale of common stock and warrants for cash in
private placement offerings	-	-	-	-	-	-	616,323	600	1,072,600	-	-	1,073,200
Accrued dividends on Series B Preferred stock	-	-	-	-	-	-	-	-	(766,600)	-	-	(766,600)
Stock-based compensation expense	-	-	-	-	-	-	-	-	1,386,900	-	-	1,386,900
Fair value of common stock granted for services	-	-	-	-	-	-	1,072,500	1,100	1,693,100	-	-	1,694,200
Fair value of common stock granted in settlement of accounts payable	-	-	-	-	-	-	500,000	500	584,500	-	-	585,000
Increase in fair value attributable to warrant modifications	-	-	-	-	-	-	-	-	292,700	-	-	292,700
Deemed dividend from trigger of down round provision feature	-	-	-	-	-	-	-	-	199,200	-	(199,200)	-
Proceeds from exercise of warrants	-	-	-	-	-	-	188,865	200	-	-	-	200
Net loss for the nine months ended December 31, 2017	-	-	-	-	-	-	-	-	-	-	(10,267,100)	(10,267,100)

Balances at December 31, 2017	500,000	$500	1,160,240	$1,200	2,318,012	$2,300	22,723,504	$22,700	$166,669,200	$(3,968,100)	$(152,465,000)	$10,262,800

	Three Months Ended		Nine Months Ended
	December 31,		December 31,
	2017	2016	2017	2016

Research and development expense:
Stock option grants	$299,100	$113,900	$627,400	$239,900
	299,100	113,900	627,400	239,900
General and administrative expense:
Stock option grants	390,200	153,300	759,500	334,000
	390,200	153,300	759,500	334,000
Total stock-based compensation expense	$689,300	$267,200	$1,386,900	$573,900

Assumption:	April 2017	September 2017
Market price per share at grant date	$1.96	$1.56
Exercise price per share	$1.96	$1.56
Risk-free interest rate	2.02%	1.99%
Contractual or estimated term in years	6.48	6.70
Volatility	83.24%	92.29%
Dividend rate	0.0%	0.0%
Shares	880,000	770,000

Fair Value per share	$1.42	$1.20

Assumption:	June 2016	September 2016
Market price per share at grant date	$3.49	$4.27
Exercise price per share	$3.49	$4.27
Risk-free interest rate	1.34%	1.29%
Contractual or estimated term in years	6.68	6.25
Volatility	81.69%	83.26%
Dividend rate	0.0%	0.0%
Shares	655,000	125,000

Fair Value per share	$2.50	$3.05

	As of December 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	1,160,240
Series C Preferred stock issued and outstanding (3)	2,318,012	2,318,012
Outstanding options under the Amended and Restated 2016 (formerly 2008) and 1999 Stock Incentive Plans	3,279,871	1,659,324
Outstanding warrants to purchase common stock	16,918,292	4,550,370
Total	24,426,415	10,437,946

	December 31, 2017			March 31, 2017
	Principal	Accrued		Principal	Accrued
	Balance	Interest	Total	Balance	Interest	Total

7.95% and 8.25% Notes payable to insurance
premium financing company (current)	$43,700	$-	$43,700	$54,800	$-	$54,800



Total notes payable to unrelated parties	$43,700	$-	$43,700	$54,800	$-	$54,800
less: current portion	(43,700)	-	(43,700)	(54,800)	-	(54,800)
Net non-current portion	$-	$-	$-	$-	$-	$-

Assumption:	Pre-reset	Post-reset
Market price per share	$1.17	$1.17
Exercise price per share	$1.82	$0.001
Risk-free interest rate	2.09%	2.09%
Remaining contractual term in years	4.73	4.73
Volatility	97.8%	97.8%
Dividend rate	0.0%	0.0%

Number of warrant shares	503,641	503,641
Fair value per share	$0.77	$1.17

Assumption:	Pre-modification	Post-modification
Market price per share	$1.54	$1.54
Exercise price per share	$3.99	$2.00
Risk-free interest rate	1.62%	1.62%
Remaining contractual term in years	3.62	3.62
Volatility	95.5%	95.5%
Dividend rate	0.0%	0.0%

Number of warrant shares	247,500	495,001
Weighted average fair value per share	$0.71	$0.92

Exercise Price per Share	Expiration Date	Warrants Outstanding at December 31, 2017

$0.001	9/6/2022	314,776
$1.50	11/30/2021 to 12/13/2022	10,150,000
$1.82	9/6/2022 to 3/7/2023	1,388,931
$2.00	4/30/2021	523,573
$3.51	12/31/2021	50,000
$4.50	9/26/2019	25,000
$5.30	5/16/2021	2,705,883
$6.00	9/26/2019 to 11/30/2019	97,750
$7.00	12/11/2018 to 3/3/2023	1,346,931
$8.00	3/25/2021	185,000
$10.00	11/15/2017 to 1/11/2020	20,000
$20.00	9/15/2019	110,448
		16,918,292