Vistagen Therapeutics, Inc. 10-Q

10-Q 1 vtgn10q_dec312020.htm 10-Q vtgn10q_dec312020     UNITED STATES SECURITIES AND EXCHANGE COMMISSION   Washington, DC 20549   Form 10-Q (Mark One)       ☑   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934   For the quarterly period ended December 31, 2020 or       ☐   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934   For the transition period from                      to                      .   Commission File Number: 001-37761   VistaGen Therapeutics, Inc. (Exact name of registrant as specified in its charter)     Nevada   20-5093315 (State or other jurisdiction of incorporation or organization)   (I.R.S. Employer Identification No.)   343 Allerton Avenue South San Francisco, CA 94080 (Address of principal executive offices including zip code)   (650) 577-3600 (Registrant’s telephone number, including area code)   Securities registered pursuant to Section 12(b) of the Act:   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   Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐   Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ 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 [  ]       If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [  ]   Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒   As of February 11, 2021, 141,694,413 shares of the registrant’s common stock, $0.001 par value, were issued and outstanding.         VistaGen Therap e utics, Inc. Quarterly Report on Form 10-Q for the Quarter Ended December 31, 2020     TABLE OF CONTENTS     Page PART I. FINANCIAL INFORMATION       Item 1. Condensed Consolidated Financial Statements (Unaudited)   Condensed Consolidated Balance Sheets at December 31, 2020 and March 31, 2020 1 Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and nine months ended December 31, 2020 and 2019 2 Condensed Consolidated Statements of Cash Flows for the nine months ended December 31, 2020 and 2019 3 Condensed Consolidated Statement of Changes in Stockholders’ Equity (Deficit) for the nine months ended December 31, 2020 and 2019 4 Notes to the Condensed Consolidated Financial Statements 6 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 24 Item 4. Controls and Procedures 44   44 PART II. OTHER INFORMATION       Item 1. Legal Proceedings 45 Item 1A. Risk Factors 45 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 83 Item 3. Defaults Upon Senior Secured Securities 83 Item 6. Exhibits 84     SIGNATURES 85           -i- Table of Contents     PART I. FINANCI A L INFORMATION   Item 1. Condensed Consolidated Financial Statements (Unaudited)   VISTAGEN THERAPEUTICS, INC.   CONDENSED CONSOLIDATED BALANCE SHEETS (Amounts in Dollars, except share amounts)       December 31,      March 31,       2020     2020        (Unaudited)     (Note 2)                  ASSETS             Current assets:             Cash and cash equivalents   $ 104,331,100     $ 1,355,100    Prepaid expenses and other current assets     547,500       225,100   Deferred contract acquisition costs - current portion     116,900       -   Total current assets     104,995,500       1,580,200   Property and equipment, net     382,200       209,600   Right of use asset - operating lease     3,312,100       3,579,600   Deferred offering costs     241,300       355,100   Deferred contract acquisitions cost - non-current portion     292,200       -   Security deposits and other assets     47,800       47,800   Total assets   $ 109,271,100     $ 5,772,300                      LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)                  Current liabilities:                  Accounts payable   $ 776,400     $ 1,836,600    Accrued expenses     507,200       561,500    Current notes payable     98,400       56,500    Deferred revenue - current portion     1,244,000       -    Operating lease obligation - current portion     351,500       313,400    Financing lease obligation - current portion     3,600       3,300    Total current liabilities     2,981,100       2,771,300                      Non-current liabilities:                  Accrued dividends on Series B Preferred Stock     5,923,700       5,011,800    Deferred revenue - non-current portion     3,108,400       -    Operating lease obligation - non-current portion     3,446,900       3,715,600    Financing lease obligation - non-current portion     300       3,000    Total non-current liabilities     12,479,300       8,730,400    Total liabilities     15,460,400       11,501,700                      Commitments and contingencies (Note 10)                                    Stockholders’ equity (deficit):                 Preferred stock, $0.001 par value; 10,000,000 shares authorized at December 31, 2020 and March 31, 2020: Series A Preferred, 500,000 shares authorized, issued and outstanding at December 31, 2020 and March 31, 2020     500       500   Series B Preferred; 4,000,000 shares authorized at December 31, 2020 and March 31, 2020; 1,131,669 shares and 1,160,240 shares issued and outstanding at December 31, 2020 and March 31, 2020, respectively     1,100       1,100   Series C Preferred; 3,000,000 shares authorized at December 31, 2020 and March 31, 2020; 2,318,012 shares issued and outstanding at September 30, 2020 and March 31, 2020     2,300       2,300   Series D Preferred; 2,000,000 shares and no shares authorized, issued and outstanding at December 31, 2020 and March 31, 2020, respectively     2,000       -   Common stock, $0.001 par value; 175,000,000 shares authorized at December 31, 2020 and March 31, 2020; 138,800,137 and 49,348,707 shares issued and outstanding at December 31, 2020 and March 31, 2020, respectively     138,800        49,300    Additional paid-in capital     311,264,800       200,092,800   Treasury stock, at cost, 135,665 shares of common stock held at December 31, 2020 and March 31, 2020     (3,968,100 )     (3,968,100 ) Accumulated deficit     (213,630,700 )     (201,907,400 ) Total stockholders’ equity (deficit)     93,810,700       (5,729,400 ) Total liabilities and stockholders’ equity (deficit)   $ 109,271,100     $ 5,772,300       See accompanying notes to Condensed Consolidated Financial Statements.         -1- Table of Contents     VISTAGEN THERAPEUTICS, INC.   CONDENSED CONSOLIDATED STATEMENTS OF OP E RATIONS AND COMPREHENSIVE LOSS (Unaudited) (Amounts in dollars, except share amounts)        Three Months Ended December 31,      Nine Months Ended December 31,        2020     2019      2020     2019    Sublicense revenue   $ 313,600     $ -     $ 647,600     $ -     Total revenues     313,600       -       647,600       -   Operating expenses:                                  Research and development     3,496,100       3,014,500       7,585,500       11,533,600    General and administrative     2,116,800       2,948,300       4,776,900       6,004,500     Total operating expenses     5,612,900       5,962,800       12,362,400       17,538,100   Loss from operations     (5,299,300 )     (5,962,800 )     (11,714,800 )     (17,538,100 ) Other income (expenses), net:                                  Interest income (expense), net     600       1,500       (6,500 )     33,400    Other income     -       -       600       -   Loss before income taxes     (5,298,700 )     (5,961,300 )     (11,720,700 )     (17,504,700 ) Income taxes     -       (200 )     (2,600 )     (2,600 ) Net loss and comprehensive loss   $ (5,298,700 )   $ (5,961,500 )   $ (11,723,300 )   $ (17,507,300 )                                      Accrued dividends on Series B Preferred stock     (353,600 )     (321,800 )     (1,036,600 )     (938,100 )                                   Net loss attributable to common stockholders   $ (5,652,300 )   $ (6,283,300 )   $ (12,759,900 )   $ (18,445,400 )                                   Basic and diluted net loss attributable to common                                      stockholders per common share   $ (0.07 )   $ (0.15 )   $ (0.19 )   $ (0.43 )                                   Weighted average shares used in computing                                  basic and diluted net loss attributable to common                                  stockholders per common share     81,086,105       43,158,889       66,551,962       42,802,256       See accompanying notes to Condensed Consolidated Financial Statements.       -2- Table of Contents     VISTAGEN THERAP E UTICS, INC.   CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Amounts in Dollars)      Nine Months Ended December 31,       2020     2019    Cash flows from operating activities:               Net loss   $ (11,723,300 )   $ (17,507,300 )    Adjustments to reconcile net loss to net cash used in operating activities:              Depreciation and amortization     77,300       77,600      Stock-based compensation     1,815,900       3,088,700      Expense related to modification of warrants     -       826,900      Amortization of fair value of common stock issued for services     -       92,100      Amortization of fair value of warrants issued for services     -       13,800      Changes in operating assets and liabilities:                     Receivable from supplier     -       300,000       Prepaid expenses and other current assets     (200 )     56,200       Right of use asset - operating lease     267,500       249,400       Operating lease liability     (230,700 )     (196,300 )        Deferred sublicense revenue, net of deferred contract acquisition costs     4,068,300       -       Accounts payable and accrued expenses     (1,066,400 )     (178,900 )      Net cash used in operating activities     (6,791,600 )     (13,177,800 )                    Cash flows from property and investing activities:                   Purchases of manufacturing and other equipment     (249,900 )     -        Net cash used in investing activities     (249,900 )     -                      Cash flows from financing activities:                   Net proceeds from issuance of common stock and Series D Preferred stock     93,675,100       -     Net proceeds from issuance of common stock and warrants, including Units     12,974,900       650,000     Net proceeds from exercise of warrants     808,500       410,000     Proceeds from sale of warrants     -       300,000     Net proceeds from sale of common stock under equity line     2,841,600       -     Proceeds from issuance of note under Payroll Protection Plan     224,400       -     Repayment of capital lease obligations     (2,400 )     (2,200 )   Repayment of notes payable, including Payroll Protection Plan note     (504,600 )     (217,000 )      Net cash provided by financing activities     110,017,500       1,140,800    Net increase (decrease) in cash and cash equivalents     102,976,000       (12,037,000 )  Cash and cash equivalents at beginning of period     1,355,100       13,100,300    Cash and cash equivalents at end of period   $ 104,331,100     $ 1,063,300                                        Supplemental disclosure of noncash activities:                     Insurance premiums settled by issuing note payable   $ 322,200     $ 230,200       Accrued dividends on Series B Preferred   $ 1,036,600     $ 939,100      Accrued dividends on Series B Preferred settled upon conversion by issuance                   of common stock   $ 124,600     $ -       See accompanying notes to Condensed Consolidated Financial Statements.         -3- Table of Contents     VISTAGEN THERAP E UTICS, INC.   CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT) FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31, 2019 AND 2020 (Unaudited) (Amounts in Dollars, except share amounts)                                                                 Additional     Total Stockholders' '   Series A Preferred Stock     Series B Preferred Stock     Series C Preferred Stock     Series D Preferred Stock      Common Stock      Paid-in     Treasury     Accumulated     Equity        Shares      Amount      Shares      Amount      Shares      Amount      Shares      Amount      Shares      Amount      Capital     Stock     Deficit     (Deficit)                                                                                         Balances at March 31, 2019     500,000     $ 500       1,160,240     $ 1,200       2,318,012     $ 2,300       -     $ -       42,758,630     $ 42,800     $ 192,129,900     $ (3,968,100 )   $ (181,133,400 )   $ 7,075,200                                                                                                                     Accrued dividends on Series B Preferred stock     -       -       -       -       -       -       -       -       -       -       (302,500 )     -       -       (302,500 ) Stock-based compensation expense     -       -       -       -       -       -       -       -       -       -       1,063,000       -       -       1,063,000                                                                                                                     Net loss for the quarter ended June 30, 2019     -       -       -       -       -       -       -       -       -       -       -       -       (6,209,900 )     (6,209,900 )                                                                                                                   Balances at June 30, 2019     500,000     $ 500       1,160,240     $ 1,200       2,318,012     $ 2,300       -     $ -       42,758,630     $ 42,800     $ 192,890,400     $ (3,968,100 )   $ (187,343,300 )   $ 1,625,800                                                                                                                     Accrued dividends on Series B Preferred stock     -       -       -       -       -       -       -       -       -       -       (313,800 )     -       -       (313,800 ) Stock-based compensation expense     -       -       -       -       -       -       -       -       -       -       393,500       -       -       393,500                                                                                                                     Net loss for the quarter ended September 30, 2019     -       -       -       -       -       -       -       -       -       -       -       -       (5,335,900 )     (5,335,900 )                                                                                                                   Balances at September 30, 2019     500,000     $ 500       1,160,240     $ 1,200       2,318,012     $ 2,300       -     $ -       42,758,630     $ 42,800     $ 192,970,100     $ (3,968,100 )   $ (192,679,200 )   $ (3,630,400 )                                                                                                                   Proceeds from sale of units of common stock and warrants for cash in private placement     -       -       -       -       -       -       -       -       650,000       600       649,400       -       -       650,000   Proceeds from sale of warrants in private placement     -       -       -       -       -       -       -       -       -       -       300,000       -       -       300,000   Proceeds from exercise of warrants     -       -       -       -       -       -       -       -       820,000       800       409,200       -       -       410,000   Accrued dividends on Series B Preferred stock     -       -       -       -       -       -       -       -       -       -       (321,800 )     -       -       (321,800 ) Stock-based compensation expense     -       -       -       -       -       -       -       -       -       -       1,632,200       -       -       1,632,200   Increase in fair value attributed to warrant modifications and additional warrants issued     -       -       -       -       -       -       -       -       -       -       826,900       -       -       826,900                                                                                                                     Net loss for the quarter ended December 31, 2019     -       -       -       -       -       -       -       -       -       -       -       -       (5,961,500 )     (5,961,500 )                                                                                                                   Balances at December 31, 2019     500,000     $ 500       1,160,240     $ 1,200       2,318,012     $ 2,300       -     $ -       44,228,630     $ 44,200     $ 196,466,000     $ (3,968,100 )   $ (198,640,700 )   $ (6,094,600 )   (Continued on next page)         -4- Table of Contents     VISTAGEN THERAPEUTICS, INC.   CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT) (Continued) FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31, 2019 AND 2020 (Unaudited) (Amounts in Dollars, except 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' Equity        Shares      Amount      Shares      Amount      Shares      Amount      Shares      Amount      Shares      Amount      Capital     Stock     Deficit     (Deficit)                                                                                         Balances at March 31, 2020     500,000     $ 500       1,160,240     $ 1,200       2,318,012     $ 2,300       -     $ -       49,348,707     $ 49,300     $ 200,092,800     $ (3,968,100 )   $ (201,907,400 )   $ (5,729,400 )                                                                                                                   Proceeds from sale of units of common stock and warrants for cash in private placement     -       -       -       -       -       -       -       -       125,000       200       49,800       -       -       50,000   Net proceeds from sale of common stock under equity line     -       -       -       -       -       -       -       -       6,201,995       6,200       2,741,300       -       -       2,747,500   Issuance of common stock at fair value for professional services     -       -       -       -       -       -       -       -       233,645       200       124,800       -       -       125,000   Sale of common stock pursuant to 2019 Employee Stock Purchase Plan     -       -       -       -       -       -       -       -       28,125       -       12,600       -       -       12,600   Expenses related to S-3 registration statement for warrant shares     -       -       -       -       -       -       -       -       -       -       (29,400 )     -       -       (29,400 ) Accrued dividends on Series B Preferred stock     -       -       -       -       -       -       -       -       -       -       (335,800 )     -       -       (335,800 ) Stock-based compensation expense     -       -       -       -       -       -       -       -       -       -       674,600       -       -       674,600                                                                                                                     Net loss for the quarter ended June 30, 2020     -       -       -       -       -       -       -       -       -       -       -       -       (3,126,800 )     (3,126,800 )                                                                                                                   Balances at June 30, 2020     500,000     $ 500       1,160,240     $ 1,200       2,318,012     $ 2,300       -     $ -       55,937,472     $ 55,900     $ 203,330,700     $ (3,968,100 )   $ (205,034,200 )   $ (5,611,700 )                                                                                                                   Net proceeds from sale of common stock in public offering     -       -       -       -       -       -       -       -       17,868,250       17,900       12,887,200       -       -       12,905,100   Net proceeds from exercise of warrants     -       -       -       -       -       -       -       -       228,000       200       113,800       -       -       114,000   Net proceeds from sale of common stock under equity line     -       -       -       -       -       -       -       -       100,000       100       49,200       -       -       49,300   Accrued dividends on Series B Preferred stock     -       -       -       -       -       -       -       -       -       -       (347,200 )     -       -       (347,200 ) Stock-based compensation expense     -       -       -       -       -       -       -       -       -       -       410,900       -       -       410,900                                                                                                                 -   Net loss for the quarter ended September 30, 2020     -       -       -       -       -       -       -       -       -       -       -       -       (3,297,800 )     (3,297,800 )                                                                                                                   Balances at September 30, 2020     500,000     $ 500       1,160,240     $ 1,200       2,318,012     $ 2,300       -     $ -       74,133,722     $ 74,100     $ 216,444,600     $ (3,968,100 )   $ (208,332,000 )   $ 4,222,600                                                                                                                     Net proceeds from sale of common stock and Series D Preferred stock in public offering     -       -       -       -       -       -       2,000,000       2,000       63,000,000       63,000       93,582,900       -       -       93,647,900   Net proceeds from exercise of warrants     -       -       -       -       -       -       -       -       1,447,782       1,400       722,500       -       -       723,900   Accrued dividends on Series B Preferred stock     -       -       -       -       -       -       -       -       -       -       (353,600 )     -       -       (353,600 ) Stock-based compensation expense     -       -       -       -       -       -       -       -       -       -       730,400       -       -       730,400   Conversion of Series B Preferred stock to common and payment of accrued dividends in common stock     -       -       (28,571 )     (100 )     -       -       -       -       188,633       200       124,500       -       -       124,600   Sale of common stock pursuant to 2019 Employee Stock Purchase Plan     -        -       -       -       -       -       -       -       30,000       100       13,500       -       -       13,600   Net loss for the quarter ended December 31, 2020     -       -       -       -       -       -       -       -       -       -       -       -       (5,298,700 )     (5,298,700 )                                                                                                                   Balances at December 31, 2020     500,000     $ 500       1,131,669     $ 1,100       2,318,012     $ 2,300       2,000,000     $ 2,000       138,800,137     $ 138,800     $ 311,264,800     $ (3,968,100 )   $ (213,630,700 )   $ 93,810,700       See accompanying notes to Condensed Consolidated Financial Statements.       -5- Table of Contents     VISTA G EN THERAPEUTICS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)   Note 1.  Description of Business   VistaGen Therapeutics, Inc., a Nevada corporation (which may be referred to as VistaGen , the Company , we , our , or us ), is a clinical-stage biopharmaceutical company committed to developing and commercializing differentiated new generation medications that go beyond the current standard of care for anxiety, depression and other central nervous system ( CNS ) disorders . Our pipeline includes three CNS product candidates, PH94B, PH10 and AV-101, each with a differentiated potential mechanism of action, favorable safety results observed in all clinical studies to date, and therapeutic potential in multiple CNS indications. We are currently preparing PH94B for a pivotal Phase 3 clinical study as a potential acute treatment of anxiety in adults with social anxiety disorder ( SAD ). We are also planning for several small exploratory Phase 2A studies in adult patients experiencing adjustment disorder, pre-procedural anxiety, postpartum anxiety and post-traumatic stress disorder. PH10 has completed a successful exploratory Phase 2A study for the treatment of major depressive disorder ( MDD ). We are currently preparing for planned Phase 2B clinical development of PH10 as a potential stand-alone treatment for MDD. In several clinical studies, AV-101 was shown to be orally bioavailable and was well-tolerated. Based on successful these clinical studies and several preclinical studies, we are currently planning to pursue Phase 1B, and, if successful, subsequent Phase 2A, clinical development of AV-101 in combination with probenecid for treatment of CNS indications involving the N-methyl-D-aspartate receptor ( NMDAR ). Additionally, our wholly owned subsidiary, VistaGen Therapeutics, Inc., d/b/a VistaStem, a California corporation ( VistaStem ), has pluripotent stem cell technology focused on assessing and developing small molecule new chemical entities ( NCEs ) for our CNS pipeline, or for out-licensing, by utilizing CardioSafe 3D, VistaStem’s customized human heart cell-based cardiac bioassay system. Our goal is to become a biopharmaceutical company that develops and commercializes innovative CNS therapies for multiple large and growing neuropsychiatry and neurology markets worldwide where current treatments are inadequate to meet the needs of millions of patients.   Our Product Candidates   We believe that PH94B has the potential to be a first-in-class neuroactive steroid nasal spray for use in a wide range of indications involving anxiety or phobia. Designed to be self-administered in microgram level doses, PH94B does not require systemic uptake and distribution to produce rapid-onset anti-anxiety effects and has demonstrated a favorable safety profile in all clinical studies to date. We are initially developing PH94B as a potential fast-acting, non-sedating acute treatment of anxiety in adults with SAD. We believe PH94B also has potential to be developed as a novel treatment for a broad range of anxiety disorders, including adjustment disorder, postpartum anxiety, post-traumatic stress disorder, pre-procedural anxiety, panic and others. The U.S. Food and Drug Administration ( FDA ) has granted Fast Track designation for development of PH94B for the acute treatment of SAD.   PH10 is an innovative investigational neuroactive steroid nasal spray designed to have rapid-onset and therapeutic potential in several neuropsychiatric indications involving depression. Self-administered in microgram level doses, PH10 does not require systemic uptake and distribution to produce rapid-onset antidepressant effects. Following completion of a successful exploratory Phase 2A clinical study, we are preparing for a planned Phase 2B clinical study of PH10 as a stand-alone treatment of MDD. With its rapid-onset pharmacology, lack of systemic exposure at clinical doses administered to-date and favorable safety results observed in all clinical studies to date, we believe PH10 has potential to be a new stand-alone treatment for several additional depression disorders.   AV-101 (4-Cl-KYN) is a potentially novel, investigational prodrug designed to be orally administered and to target the NMDAR, an ionotropic glutamate receptor in the brain. Abnormal NMDAR function is associated with numerous CNS diseases and disorders. AV-101’s active metabolite, 7-chloro-kynurenic acid (7-Cl-KYNA), has been observed to be a potent and selective full antagonist of the glycine co-agonist site of the NMDAR that inhibits the function of the NMDAR, but does not block NMDAR function like ketamine and other NMDAR antagonists. At doses administered to-date, AV-101 has been observed in clinical trials to be orally bioavailable, well-tolerated and not cause dissociative or hallucinogenic psychological side effects or safety concerns similar to those that may be caused by other NMDAR antagonists. In light of these and findings from a wide range of preclinical studies, we believe that AV-101, in combination with FDA-approved probenecid, has potential to become a new oral treatment alternative for multiple large CNS markets. We are currently preparing to evaluate AV-101’s therapeutic potential in combination with probenecid in a Phase 1B clinical study. The FDA has granted Fast Track designation for development of AV-101 as both a potential adjunctive treatment for MDD and as a non-opioid treatment for neuropathic pain ( NP ).   VistaStem is applying pluripotent stem cell (hPSC) technology and CardioSafe 3D, our customized cardiac bioassay system, to discover and develop novel, investigational small molecule NCEs for our CNS pipeline or for out-licensing.       -6- Table of Contents     Subsidiaries   As noted above, VistaStem Therapeutics, a California corporation, is our wholly-owned subsidiary. Our Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q ( Report ) also include the accounts of VistaStem and VistaStem’s two wholly-owned inactive subsidiaries, Artemis Neuroscience, Inc., a Maryland corporation, and VistaStem Canada, Inc., a corporation organized under the laws of Ontario, Canada.   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 and Rule 8-03 of Regulation 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, 2020 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, 2020 are not necessarily indicative of the operating results to be expected for our fiscal year ending March 31, 2021, 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, 2020 contained in our Annual Report on Form 10-K, as filed with the Securities and Exchange Commission ( SEC ) on June 29, 2020.   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 approximately $213.6 million accumulated from inception (May 1998) through December 31, 2020. We expect losses and negative cash flows from operations to continue for the foreseeable future as we engage in further development of PH94B, PH10 and AV-101, execute our drug rescue programs and pursue potential drug development and regenerative medicine opportunities.   Since our inception in May 1998 through December 31, 2020, 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 $193.6 million, as well as from an aggregate of approximately $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 licensing, and other revenues. Additionally, we have issued equity securities with an approximate value at issuance of $38.2 million in 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.   Recent Developments   As described more completely in Note 8, Capital Stock , in December 20 20, we entered into an underwriting agreement (the December 2020 Underwriting Agreement ) pursuant to which we sold, in an underwritten public offering (the December 2020 Public Offering ), 63,000,000 shares of our common stock, par value $0.001 per share ( Common Stock ) at a public offering price of $0.92 per share and 2,000,000 shares of a newly issued series of convertible preferred stock ( Series D Preferred) and, together with the Common Stock, the Securities ) at a public offering price of $21.16 per share, resulting in gross proceeds to us of $100 million. Net proceeds to us from the securities sold in the December 2020 Public Offering, after deducting underwriting discounts and commissions and offering expenses payable by us, were approximately $93.6 million.   As also described more completely in Note 8, Capital Stock , in August 2020, we entered into an underwriting agreement (the August 2020 Underwriting Agreement ) pursuant to which we sold, in an underwritten public offering (the August 2020 Public Offering ), an aggregate of 15,625,000 shares of our common stock at a public offering price of $0.80 per share, resulting in gross proceeds to us of $12,500,000. Under the terms of the August 2020 Underwriting Agreement, we granted to the underwriter an over-allotment option (the Over-Allotment Option ) to purchase up to an additional 2,343,750 shares of common stock at a public offering price of $0.80 per share. The underwriter exercised the Over-Allotment Option with respect to 2,243,250 shares (the Exercised Option Shares ), resulting in additional gross proceeds to us of $1,794,600. Aggregate net proceeds to us from the August 2020 Public Offering, after deducting underwriting discounts and commissions and offering expenses payable by us, were approximately $12.9 million.         -7- Table of Contents     As more completely described in Note 11, Sublicensing and Collaboration Agreements , in June 2020, we entered into a strategic licensing and collaboration agreement for the clinical development and commercialization of PH94B for acute treatment of anxiety in adults with SAD and other potential anxiety-related disorders (the EverInsight Agreement ), with EverInsight Therapeutics Inc., ( EverInsight ), a biopharmaceutical company focused on developing and commercializing transformative pharmaceutical products for patients in Greater China and other parts of Asia, and funded by CBC Group, a global healthcare-focused venture capital firm. Subsequent to entering into the EverInsight Agreement, in October 2020, EverInsight merged with AffaMed Therapeutics, also funded by CBC Group, which as a combined, complementary entity is focusing on developing and commercializing therapeutics to address ophthalmologic and CNS disorders in Greater China and beyond. Accordingly, we are now referring to EverInsight and the EverInsight Agreement as AffaMed and the AffaMed Agreement, respectively. Under the terms of the AffaMed Agreement, AffaMed agreed to make a non-dilutive upfront license payment of $5.0 million to us, which we received in August 2020. Upon successful development and commercialization of PH94B in AffaMed’s territory, we are eligible to receive up to $172 million in additional development and commercial milestone payments, plus royalties on commercial sales in the licensed territory. The $5.0 million upfront license payment resulted in net cash proceeds to us of approximately $4.655 million after the sublicense payment we agreed to make to Pherin Pharmaceuticals, Inc. ( Pherin ) pursuant to our PH94B license from Pherin, and payment for consulting services related to the AffaMed Agreement.   Additionally, as described in Note 8, Capital Stock , on March 24, 2020, we entered into a purchase agreement and a registration rights agreement with Lincoln Park Capital Fund ( Lincoln Park ) pursuant to which Lincoln Park committed to purchase up to $10,250,000 of our common stock at market-based prices over a period of 24 months (the LPC Agreement ). To satisfy our obligations under the registration rights agreement, we filed a Registration Statement on Form S-1 (the LPC Registration Statement ) with the Securities and Exchange Commission (the SEC ) on March 31, 2020, which the SEC declared effective on April 14, 2020 (Registration No. 333-237514). Subsequent to the effectiveness of the LPC Registration Statement and through July 2020, we sold 6,301,995 registered shares of our common stock to Lincoln Park and received gross cash proceeds of $2,891,200. We have not sold any shares of our common stock pursuant to the Lincoln Park Agreement since July 2020.   As also described in Note 8, Capital Stock , during December 2020, certain holders of outstanding warrants exercised such warrants to purchase an aggregate of 1,447,782 shares of our common stock and we received cash proceeds of $723,900 from such exercises. As disclosed in Note 12, Subsequent Events , since December 31, 2020, holders of outstanding warrants have exercised warrants to purchase an additional 2,941,027 shares of our common stock and we have received cash proceeds of approximately $2.86 million.   Liquidity and Capital Resources   As a clinical-stage biopharmaceutical company, we have historically financed our operations and technology acquisitions primarily through the issuance and sale of our equity and debt securities. During the nine months ended December 31, 2020, we generated approximately $114.8 million in net cash proceeds from the transactions described above. As of December 31, 2020, we had cash and cash equivalents of approximately $104.3 million, which we believe is sufficient to fund our planned operations for well beyond the twelve months following the issuance of these financial statements, removing earlier doubt regarding our ability to continue as a going concern. Nevertheless, we have not yet developed products that generate recurring revenue and, assuming successful completion of our planned clinical and nonclinical programs, we will need to invest substantial additional capital resources to commercialize any of them.   During the next twelve months, we plan to (i) prepare for and launch two pivotal Phase 3 clinical trials of PH94B for acute treatment of anxiety in adult patients with SAD, one in North America and another globally, (ii) prepare for and launch a small exploratory Phase 2A study of PH94B for acute treatment of adult patients with adjustment disorder, (iii) prepare for and potentially launch small exploratory Phase 2A clinical studies of PH94B in postpartum anxiety, post-traumatic stress disorder and/or pre-procedural (i.e. pre-MRI) anxiety, (iv) assess and potentially launch a Phase 1B study of AV-101 in combination with probenecid to enable exploratory Phase 2A development of the combination for treatment of CNS disorders, and (v) conduct several nonclinical studies involving PH94B, PH10 and AV-101.   Although we believe our current cash position is sufficient to fund our planned operations for the next twelve months, when necessary and advantageous, we may raise additional capital through the sale of our equity securities in one or more (i) public offerings (ii) private placements to accredited investors, and/or (iii) in strategic licensing and development collaborations involving one or more of our drug candidates in markets outside the United States, similar to the AffaMedAgreement. Subject to certain restrictions, our Registration Statement on Form S-3 (Registration No. 333-234025) (the S-3 Registration Statement ), which became effective on October 7, 2019 and was used to register the securities sold in the December 2020 Public Offering and the shares of common stock and the Exercised Option Shares sold in the August 2020 Public Offering, 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 Registration Statement, we do not have an obligation to do so. Further, at December 31, 2020 and through the date of this Report, there are approximately 2.04 million registered shares of our common stock remaining available for sale under the LPC Agreement. We have no obligation to sell any additional shares to Lincoln Park under the LPC Agreement.   In addition to the potential sale of our equity securities, we may also seek to enter research, development and/or commercialization collaborations similar to the AffaMed Agreement and the Bayer Agreement (defined in Note 11, below) to provide funding, including non-dilutive funding, for development of one or more of our CNS product candidate programs. We may also seek additional government grant awards or agreements similar to our prior agreement with the U.S. National Institutes of Health ( NIH ), Baylor University and the U.S. Department of Veterans Affairs in connection with certain government-sponsored studies of AV-101. 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. We may also pursue intellectual property arrangements similar to the AffaMed Agreement and the Bayer Agreement with other parties. Although we may seek additional collaborations that could generate revenue and/or provide non-dilutive funding for development of our product candidates, as well as new government grant awards and/or agreements, no assurance can be provided that any such collaborations, awards or agreements will occur in the future.         -8- Table of Contents     Our future working capital requirements will depend on many factors, including, without limitation, potential impacts related to the current 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 our current product candidates and various applications of our stem cell technology platform, the availability of, and our ability to obtain, government grant awards and agreements, and our ability to enter into collaborations on terms acceptable to us. To further advance the clinical development of PH94B, PH10, and AV-101 and, to a lesser extent, our stem cell technology platform, as well as support our operating activities, we plan to continue to carefully manage our routine operating costs, including our employee headcount and related expenses, as well as costs relating to regulatory consulting, contract manufacturing, research and development, investor and public relations, business development, legal, intellectual property acquisition and protection, public company compliance and other professional services and operating costs.    Notwithstanding the foregoing, there can be no assurance that our current strategic collaborations under the AffaMed Agreement and/or the Bayer Agreement (defined in Note 11, below) will generate revenue from future potential milestone payments, or that future financings or government 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 additional financing on a timely basis when needed, 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.     Note 3.  Summary of Significant Accounting Policies   Use of Estimates   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.   Revenue Recognition   We generate revenue from collaborative research and development arrangements, licensing and technology transfer agreements, including strategic licenses or sublicenses, and government grants. We expect that our primary source of revenue beginning in the quarter ended September 30, 2020 will be from the AffaMed Agreement involving clinical development and commercialization of PH94B for acute treatment of anxiety in adults with SAD, and potentially other anxiety-related disorders, in Greater China, South Korea, and Southeast Asia.   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. We also have the Bayer Agreement, pursuant to which we recorded sublicense revenue in the third quarter of our fiscal year ended March 31, 2017, also described in Note 11, Sublicensing and Collaborative Agreements , as a potential revenue generating arrangement.   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.   Performance Obligations   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 components are separable from the other aspects of the contractual relationship. 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.         -9- Table of Contents     Collaboration arrangements can have several promised goods or services including a license for our intellectual property, product supply and development and regulatory services. When the customer could not obtain the intended benefit of the contract from a promised good or service without one or more other promises in the contract, the promise is determined to be not distinct in the context of the contract and is combined with other promises until the combined promises are distinct to identify performance obligations. We have determined that the AffaMed Agreement includes a single combined performance obligation that includes both the license to intellectual property and development and regulatory services.   Arrangements can include promises for optional additional items, which are considered marketing offers and are accounted for as separate contracts when the customer elects such options. Arrangements that include a promise for future supply of product for either clinical development or commercial supply and optional research and development services at the customer’s or the Company’s discretion are generally considered as options. We assess whether these options provide a material right to the customer and if so, such material rights are accounted for as separate performance obligations. When the customer exercises an option, any additional payments related to the option are recorded in revenue when the customer obtains control of the goods or services.   Transaction Price   Arrangements may have both fixed and variable consideration. For collaboration agreements, the non-refundable upfront fees and product supply selling prices are considered fixed, while milestone payments are considered variable consideration when determining the transaction price. At the inception of each arrangement, we evaluate whether the development milestones are considered probable of being achieved and estimate an 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 value of the associated milestone is included in the transaction price. Milestone payments that are not within our control or the licensee’s control, such as approvals from regulators, are generally not considered probable of being achieved until such approvals are received.   For sales-based royalties, including commercial milestone payments based on the level of sales, for which the license is deemed to be the predominant item to which the royalties relate, we recognize revenue at the later of when (a) the related sales occur, or (b) the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied).   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.   Allocation of Consideration   As part of the accounting for collaboration arrangements, we must develop assumptions that require judgment to determine the stand-alone selling price of each performance obligation identified in the contract. The transaction price is 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. 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. 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. Since the AffaMed Agreement includes a single combined performance obligation that is not distinct, there is no allocation of consideration.   Timing of Recognition   Significant management judgment is required to determine the level of effort required under collaboration arrangements and the period over which we expect to complete our performance obligations under the arrangement. The performance period or measure of progress is estimated at the inception of the arrangement and re-evaluated in each reporting period. This re-evaluation may shorten or lengthen the period over which revenue is recognized. Changes to these estimates are recorded on a cumulative catch up basis. Revenue is recognized for products at a point in time and for licenses of functional intellectual property at the point in time the customer can use and benefit from the license. For performance obligations that are services, revenue is recognized over time using an output or input method. For performance obligations that are a combination of licenses to intellectual property and interdependent services, the nature of the combined performance obligation is considered when determining the method and measure of progress that best represents the satisfaction of the performance obligation. For the single combined performance obligation of the AffaMed Agreement, the measure of progress is stand-ready straight-line over the period in which we expect to perform the services related to the license of PH94B.         -10- Table of Contents     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 December 31, 2020, we have recorded deferred revenue of $4,352,400. The following table presents changes in our contract liabilities for the nine months ended December 31, 2020 (in thousands):     Balance at                 Balance at       March 31, 2020     Additions     Deductions     December 31, 2020   Deferred Revenue - current portion   $ -     $ 1,244,000     $ -     $ 1,244,000   Deferred Revenue - non-current portion     -       3,756,000       (647,600 )     3,108,400   Total   $ -     $ 5,000,000     $ (647,600 )   $ 4,352,400     For the single combined performance obligation under the AffaMed Agreement, the measure of progress is stand-ready straight-line over the period in which we 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 and nine months ended December 31, 2020 and 2019, we recognized the following revenue:        Three Months Ended December 31,      Nine Months Ended December 31,        2020      2019      2020      2019   Revenue recognized in the period from:                         Amounts included in contract liabilities at the                            beginning of the fiscal year:                         Performance obligations satisfied   $ -     $ -     $ -     $ -   New activities in the fiscal year:                                 Performance obligations satisfied     313,600       -       647,600       -                                         $ 313,600     $ -     $ 647,600     $ -     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 from 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 exclusively related to the AffaMed Agreement. These sublicense fees and consulting payments and the fair value of the common stock issued, aggregating $470,000, were incurred solely as a result of obtaining the AffaMed Agreement, and, accordingly, 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 expect to satisfy the performance obligations under the AffaMed Agreement and the amortization expense has been included in general and administrative expenses in our Condensed Consolidated Statement of Operations and Comprehensive Loss. In the three and nine months ended December 31, 2020, we amortized $29,500 and $60,900, respectively, to general and administrative expense in recognition of 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 nine months ended December 31, 2020.     Balance at                 Balance at       March 31, 2020     Additions     Deductions     December 31, 2020   Deferred Contract Acquisition Costs - current portion   $ -     $ 116,900     $ -     $ 116,900   Deferred Contract Acquisition Costs - non-current portion     -       353,100       (60,900 )     292,200   Total   $ -     $ 470,000     $ (60,900 )   $ 409,100           -11- Table of Contents     Research and Development Expenses   Research and development expenses are composed of both internal and external costs.  Internal costs include salaries and employment-related expenses, including stock-based compensation expense, of scientific personnel and direct project costs.  External research and development expenses consist primarily of costs associated with clinical and nonclinical development of PH94B, PH10, AV-101, and stem cell research and development costs, and costs related to the application and prosecution of patents related to those product candidates and, to a lesser extent, our stem cell technology platform. 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 ( CRO s) and clinical trial sites. Progress payments are generally made to contract research and development organizations, 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. 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 and non-employee consultants based on the grant date fair value of the award.  We record non-cash, stock-based compensation expense over the period during which the employee or other grantee is required to perform services in exchange for the award, which generally represents the scheduled vesting period.  We have not granted restricted stock awards to employees nor do we have any awards with market or performance conditions. Non-cash expense attributable to compensatory grants of shares of our common stock to non-employees is determined by the quoted market price of the stock on the date of grant and is either recognized as fully-earned at the time of the grant or amortized ratably over the term of 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 for the three and nine months ended December 31, 2020.       Three Months Ended December 31,     Nine Months Ended December 31,       2020     2019     2020     2019                                                       Research and development expense   $ 218,900     $ 502,500     $ 567,900     $ 1,060,600                                     General and administrative expense     511,500       1,129,700       1,248,000       2,028,100                                                                       Total stock-based compensation expense   $ 730,400     $ 1,632,200     $ 1,815,900     $ 3,088,700     Expense amounts reported above include $1,400 and $5,200 in research and development expense for the three and nine months ended December 31, 2020, respectively, and $1,300 and $4,100 in general and administrative expense for the three and nine months ended December 31, 2020, respectively, attributable to our 2019 Employee Stock Purchase Plan (the 2019 ESPP ).   During the three and nine months ended December 31, 2020, we granted from our 2019 Omnibus Equity Incentive Plan (the 2019 Plan ) options to purchase an aggregate of 1,650,000 shares and 3,715,000 shares, respectively, of our common stock at exercise prices at or above the closing market price of our common stock on the date of grant to the independent members of our Board, our officers and employees and certain consultants. The options generally vested 25% upon grant with the remaining shares vesting ratably over two years for independent directors, officers and employees, and over one to three years for consultants. We valued the options granted during the three and nine months ended December 31, 2020 using the Black-Scholes Option Pricing Model and the following assumptions:       Three Months Ended December 31, 2020     Nine Months Ended December 31, 2020   Assumption:   Weighted Average     Range     Weighted Average       Range   Market price per share at grant date   $ 1.60     $ 0.70 to 1.77     $ 0.95     $ 0.40 to 1.77   Exercise price per share   $ 1.60     $ 0.70 to 1.77     $ 0.95     $ 0.40 to 1.77   Risk-free interest rate     0.44 %   0.38% to 0.56 %     0.41 %   0.26% to 0.56 % Expected term in years     5.47     5.25 to 6.08       5.41     5.20 to 6.08   Volatility     84.19 %   83.00% to 85.08 %     84.16 %   82.93% to 85.85 % Dividend rate     0.0 %     0.0 %     0.0 %     0.0 % Shares     1,650,000               3,715,000                                             Fair Value per share   $ 1.09             $ 0.64                   -12- Table of Contents     At December 31, 2020, there were stock options outstanding under our 2016 Equity Incentive Plan (the 2016 Plan ) and our 2019 Plan to purchase 13,718,088 shares of our common stock at a weighted average exercise price of $1.25 per share. At that date, there were also 3,051,248 shares of our common stock available for future issuance under the 2019 Plan. There are no additional shares available for issuance under our 2016 Plan.   Leases, Right-of-Use Assets and Lease Liabilities   On April 1, 2019, we adopted Financial Accounting Standards Board ( FASB ) Accounting Standards Update ( ASU ) No. 2016-02,  Leases , which replaced the existing guidance in Accounting Standards Codification ( ASC ) 840, “Leases”, and its subsequent amendments including ASU No. 2018-11,  Leases (Topic 842): Targeted Improvements ( ASC 842 ) using the modified transition method.   We determine whether an arrangement is an operating or financing lease at contract inception. Operating lease assets represent our right to use an underlying asset for the lease term and operating lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease assets and 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 that we will exercise that option. In determining the present value of the lease payments, we use the interest rate implicit in the lease when it is readily determinable and we use our estimated incremental borrowing rate based upon information available at the commencement date when the implicit rate is not readily determinable.   The lease payments used to determine our operating lease assets include lease incentives and stated rent increases and may include escalation or other clauses linked to rates of inflation or other factors when determinable and are recognized in our operating lease assets in our condensed consolidated balance sheets.   Our operating leases are reflected in right of use asset – operating leases, other current liabilities and non-current operating lease liability in our condensed consolidated balance sheets. 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.   Our accounting for financing leases, previously referred to as “capital leases” under earlier guidance, remained substantially unchanged with our adoption of ASC 842. Financing leases are included in property and equipment, net and as current and non-current financing lease liabilities in our condensed consolidated balance sheets. Refer to Note 10, Commitments and Contingencies, for additional information regarding ASC 842 and its impact on our condensed consolidated financial statements.   Comprehensive Loss   We have no components of other comprehensive loss other than net loss, and accordingly our comprehensive loss is equivalent to our net loss for the periods presented.   Loss per Common Share   Basic net loss attributable to common stockholders per share of common stock excludes the effect of dilution and is computed by dividing net loss increased by the accrual of dividends on outstanding shares of our Series B 10% Convertible Preferred Stock ( Series B Preferred ), by the weighted-average number of shares of common stock outstanding for the period. Diluted net 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.         -13- Table of Contents     As a result of our net loss for all periods presented, potentially dilutive securities were excluded from the computation of diluted net loss per share, as their effect would be antidilutive. Potentially dilutive securities excluded in determining diluted net loss attributable to common stockholders per common share are as follows:       At December 31,     At March 31,       2020     2020                 Series A Preferred stock issued and outstanding (1)     750,000       750,000                     Series B Preferred stock issued and outstanding (2)     1,131,669       1,160,240                     Series C Preferred stock issued and outstanding (3)     2,318,012       2,318,012                     Series D Preferred stock issued and outstanding (4)     46,000,000       -                     Outstanding options under the Company's Amended and Restated 2016 (formerly 2008) Stock Incentive Plan and 2019 Omnibus Equity Incentive Plan     13,718,088       10,003,088                     Outstanding warrants to purchase common stock     24,314,052       26,555,281                                       Total     88,231,821       40,786,621   ____________         (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 (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     (4) Assumes exchange under the terms of the Certificate of Designation of the Relative Rights and Preferences of the Series D Convertible Preferred Stock, effective December 21, 2020. As disclosed in Note 8, Capital Stock, we do not have a sufficient number of shares of authorized common stock to permit the conversion in full of the Series D Preferred stock at December 31, 2020.             Fair Value Measurements   We do not use derivative instruments for hedging of market risks or for trading or speculative purposes. We carried no assets or liabilities that are measured on a recurring basis at fair value at December 31, 2020 or March 31, 2020.   Recent Accounting Pronouncements   In August 2020, the Financial Accounting Standards Board ( FASB ) issued ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470- 20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity ( ASU 2020-06 ), to reduce complexity in applying GAAP to certain 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.         -14- Table of Contents     In addition, the amendments revise the scope exception from derivative accounting in ASC 815-40 for freestanding financial instruments and embedded features that are 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 result in more freestanding financial instruments qualifying for equity classification (and, therefore, not accounted for as derivatives), as well as fewer embedded features requiring separate accounting from the host contract.   The amendments in ASU 2020-06 further revise the guidance in ASC 260, Earnings Per Share, to require entities to calculate diluted earnings per share (EPS) for convertible instruments by using the if-converted method. In addition, entities must presume share settlement for purposes of calculating diluted EPS when an instrument may be settled in cash or shares.   The amendments in ASU 2020-06 are effective for public companies for fiscal years beginning after December 15, 2021. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020. Entities should adopt the guidance as of the beginning of the fiscal year of adoption and cannot adopt the guidance in an interim reporting period. We are evaluating the impact of this new guidance, but do not believe that our adoption of ASU 2020-06 will have a material impact on our consolidated financial statements.   Other than ASU 2020-06 and as described in our Form 10-K for our fiscal year ended March 31, 2020, we do not expect that 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 will have a material impact on our consolidated financial statements upon adoption.   Note 4.  Prepaid Expenses and Other Current Assets   Prepaid expenses and other current assets are composed of the following at December 31, 2020 and March 31, 2020:        December 31,      March 31,        2020      2020                  Clinical and nonclinical materials and contract services   $ 381,000     $ 115,200    Insurance     164,400       107,200    All other     2,100       2,700       $ 547,500     $ 225,100     Note 5. Property and Equipment   Property and equipment is composed of the following at December 31, 2020 and March 31, 2020:        December 31,      March 31,       2020     2020                  Laboratory equipment   $ 935,500     $ 892,500    Tenant improvements     214,400       214,400    Computers and network equipment     61,900       54,600    Office furniture and equipment     84,600       84,600    Construction in progress     199,600       -         1,496,000       1,246,100                      Accumulated depreciation and amortization     (1,113,800 )     (1,036,500 )  Property and equipment, net   $ 382,200     $ 209,600           -15- Table of Contents     We recorded depreciation and amortization expense of $26,400 and $25,500 for the three month periods ended December 31, 2020 and 2019, respectively, and $77,300 and $77,600 for the nine-month periods ended December 31, 2020 and 2019, respectively. The amount reported above as construction in progress at December 31, 2020 reflects the cost of certain process equipment acquired in connection with the manufacture of PH94B drug product. The equipment has not yet been fully validated or placed in service at December 31, 2020. 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 at December 31, 2020 and March 31, 2020 are as follows:       December 31,     March 31,       2020     2020                 Office equipment subject to financing lease   $ 14,700     $ 14,700   Accumulated depreciation     (11,600 )     (9,400 )                   Net book value of office equipment subject to                    financing lease   $ 3,100     $ 5,300     Note 6.  Accrued Expenses   Accrued expenses are composed of the following at December 31, 2020 and March 31, 2020:        December 31,      March 31,       2020     2020                 Accrued expenses for clinical and nonclinical materials, development and contract services   $ 400,900     $ 462,300   Accrued professional services     100,800       76,500   All other     5,500       22,700       $ 507,200     $ 561,500     Note 7.  Notes Payable   The following table summarizes our unsecured promissory notes at December 31, 2020 and March 31, 2020:         December 31, 2020                     March 31, 2020                     Principal     Accrued           Principal     Accrued             Balance     Interest     Total     Balance     Interest     Total                                            7.30% and 6.30% Notes payable                                     to insurance premium financing company (current)   $ 98,400     $ -     $ 98,400     $ 56,500     $ -     $ 56,500     In May 2020, we executed a 6.30% promissory note in the principal amount of $322,200 in connection with certain insurance policy premiums. The note is payable in monthly installments of $33,200, including principal and interest, through March 2021, and had an outstanding principal balance of $98,400 at December 31, 2020. In February 2020, we executed a 7.30% promissory note in the principal amount of $62,600 in connection with other insurance policy premiums. That note was payable in monthly installments of $6,500 including principal and interest, through December 2020 and had been fully paid at December 31, 2020.         -16- Table of Contents     In April 2020, we entered into a note payable agreement (the PPP Loan Agreement ) with Silicon Valley Bank as lender (the Lender ), pursuant to which we received net proceeds of $224,400 from a potentially forgivable loan from the U.S. Small Business Administration ( SBA ) pursuant to the Paycheck Protection Program ( PPP ) enacted by Congress under the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act ) administered by the SBA (the PPP Loan ). In accordance with its terms, the PPP Loan was to mature on April 22, 2022. The PPP Loan accrued interest at a rate of 1.00% per annum throughout the period the PPP Loan was outstanding. The CARES Act provides that all or a portion of the PPP Loan may be forgiven upon our request to the Lender, subject to requirements in the PPP Loan Agreement and the CARES Act. While we believe our use of the PPP Loan proceeds met all of the conditions for forgiveness under the PPP, following the completion of the December 2020 Public Offering, on December 23, 2020, we voluntarily repaid in full the outstanding principal balance of the PPP Loan, $224,400, plus accrued interest of approximately $1,500.   Note 8.  Capital Stock   Common Stock Purchase Agreement with Lincoln Park Capital Fund   On March 24, 2020, we entered into a purchase agreement and a registration rights agreement with Lincoln Park Capital Fund ( Lincoln Park ) pursuant to which Lincoln Park committed to purchase up to $10,250,000 of our common stock at market-based prices over a period of 24 months (the LPC Agreement ). On March 24, 2020, we sold 500,000 unregistered shares of our common stock (the Initial Purchase Shares ) to Lincoln Park under the purchase agreement at a price of $0.50 per share for gross cash proceeds of $250,000 (the Initial Purchase ) and we also issued 750,000 unregistered shares of our common stock to Lincoln Park under the terms of the LPC Agreement for its purchase commitments under the LPC Agreement (the Commitment Shares ). To satisfy our obligations under the registration rights agreement associated with the LPC Agreement, we filed a Registration Statement on Form S-1 (the LPC Registration Statement ) with the SEC on March 31, 2020 (Registration No. 333-237514), which the SEC declared effective on April 14, 2020 (the Commencement Date ). The LPC Registration Statement included registration of the Initial Purchase Shares and the Commitment Shares. The fair value of the Commitment Shares, $284,400, determined based on the quoted closing market price of our common stock on March 24, 2020, is a component of deferred offering costs attributable to this offering, which costs are amortized ratably to additional paid-in capital as we sell shares of our common stock to Lincoln Park under the LPC Agreement. Subsequent to the Commencement Date and through July 2020, we sold an additional 6,301,995 registered shares of our common stock to Lincoln Park and received aggregate gross cash proceeds of $2,891,200. We have sold no shares of our common stock under the LPC Agreement since July 2020. At December 31, 2020, there were approximately 2.04 million registered shares of our common stock remaining available for sale under the LPC Agreement; however, we have no obligation to sell any additional shares under the LPC Agreement in the future.   On any business day during the term of the LPC Agreement, we have the right, in our sole discretion, to direct Lincoln Park to purchase up to 100,000 shares on such business day (the Regular Purchase ) (subject to adjustment under certain circumstances as provided in the LPC Agreement) . The purchase price per share for each such Regular Purchase will be based on prevailing market prices of our common stock immediately preceding the time of sale as computed under the LPC Agreement. In each case, Lincoln Park’s maximum commitment in any single Regular Purchase may not exceed $1,000,000. In addition to Regular Purchases, provided that we present Lincoln Park with a purchase notice for the full amount allowed for a Regular Purchase, we may also direct Lincoln Park to make accelerated purchases and additional accelerated purchases as described in the LPC Agreement . Although Lincoln Park has no right to require us to sell any shares of our common stock to them, Lincoln Park is obligated to make purchases as we direct, subject to certain conditions. In all instances, we may not sell shares of our common stock to Lincoln Park under the LPC Agreement if such sales would result in Lincoln Park beneficially owning more than 9.99% of our common stock. There are no upper limits on the price per share that Lincoln Park must pay for shares of our common stock.     Sale of Common Stock and Warrants in the Spring 2020 Private Placement   In April 2020, in a self-directed private placement, we sold to an accredited investor units to purchase an aggregate of 125,000 unregistered shares of our common stock and four-year warrants to purchase 125,000 shares of our common stock at an exercise price of $0.50 per share and we received cash proceeds of $50,000 (the Spring 2020 Private Placement ).         -17- Table of Contents     Registration Statement for shares underlying warrants issued in Private Placements   On May 1, 2020, we filed a registration statement on Form S-3 (Registration No. 333-237968) to register approximately 12.1 million shares of common stock underlying outstanding warrants that we had issued in earlier private placement offerings, including the Spring 2020 Private Placement, as well as common stock underlying warrants that had been previously issued to various consultants as full or partial compensation for their services. Included in the registration statement were shares of our common stock underlying approximately 5.8 million outstanding warrants to purchase shares of our common stock that had been modified in December 2019 to temporarily reduce, for a period of two years or, if sooner, until the expiration of the warrant, the exercise price of such warrants to $0.50 per share, in order to more closely align the exercise price of the warrants with the trading price of our common stock at that time (the Winter 2019 Warrant Modification ). We also registered approximately 0.8 million shares of unregistered outstanding common stock held by former holders of warrants who had exercised such warrants subsequent to the Winter 2019 Warrant Modification. Further, we registered the 125,000 shares of common stock issued in the Spring 2020 Private Placement. The SEC declared the registration statement effective on May 13, 2020 (the Warrant Registration Statement ). As a result of the effectiveness of this registration statement, the shares of common stock underlying essentially all of our outstanding warrants have been registered. During July 2020, holders of warrants to purchase an aggregate of 228,000 shares of our common stock exercised such warrants, and we received aggregate cash proceeds of $114,000. We issued 228,000 registered shares of our common stock upon these exercises pursuant to the effectiveness of the Warrant Registration Statement. During the quarter ended December 31, 2020, holders of outstanding warrants to purchase an aggregate of 1,447,782 registered shares of our common stock exercised such warrants and we received $723,900 in cash proceeds.   August 2020 Registered Public Offering of Common Stock   On August 2, 2020, we entered into an underwriting agreement (the Underwriting Agreement ) with Maxim Group, LLC as representative of the underwriters named therein ( Maxim ), pursuant to which we sold, in an underwritten public offering (the August 2020 Public Offering ), an aggregate of 15,625,000 shares (the Shares ) of our common stock for a public offering price of $0.80 per share, resulting in gross proceeds to us of $12,500,000. The August 2020 Public Offering closed on August 5, 2020. Under the terms of the Underwriting Agreement, we granted to Maxim a 45-day over-allotment option to purchase up to an additional 2,343,750 shares at a public offering price of $0.80 per share, which Maxim elected to exercise on August 5, 2020 with respect to an aggregate of 2,243,250 shares (the Exercised Option Shares ). We completed the sale of the Exercised Option Shares on August 7, 2020 and received additional gross proceeds of $1,794,600. After deducting underwriting discounts and commissions and offering expenses payable by us, we received net proceeds of approximately $12.9 million from the August 2020 Public Offering.   Conversion of Series B Preferred Stock   On December 3, 2020, an institutional holder of 28,571 shares of our Series B Preferred converted such shares into an equal number of unregistered shares of our common stock. In accordance with the conversion terms of the Series B Preferred, we also issued 160,062 shares of unregistered common stock in payment of $124,600 of dividends that had accrued on the holder’s Series B Preferred since issuance.   Creation of Series D Preferred Stock     On December 17, 2020, in connection with the December 2020 Public Offering (defined below), our Board authorized the creation of a series of up to 2,000,000 shares of Series D Preferred Stock, par value $0.001 ( Series D Preferred ), which became effective with the filing of a Certificate of Designation of the Relative Rights and Preferences of the Series D Convertible Preferred Stock ( Certificate of Designation ) with the State of Nevada on December 21, 2020. The primary attributes of the Series D Preferred are described below.   Conversion Rights   Each share of our Series D Preferred is initially convertible into 23 shares of our common stock at any time at the option of the holder, provided   that, the Series D Preferred shall not be convertible prior to the date on which we have received approval from our stockholders to increase the total authorized shares of our common stock by at least an amount necessary to reserve shares sufficient to satisfy our conversion obligations in respect of the Series D Preferred and an amendment to our Restated and Amended Articles of Incorporation reflecting such increase becomes effective (the Approval Date ),   provided further, that the holder will be prohibited, subject to certain exceptions, from converting such shares of Series D Preferred into shares of our common stock if, as a result of such conversion, the holder, together with its affiliates and other attribution parties, would own more than 9.99% of the total number of shares of our common stock then issued and outstanding, which percentage may be changed at the holder’s election to a lower percentage at any time or to a higher percentage not to exceed 19.99% upon 61 days’ prior notice to us.         -18- Table of Contents     Liquidation Preference   Prior to the Approval Date, in the event of our liquidation, dissolution, or winding up or a deemed liquidation event, holders of our Series D Preferred will receive a payment equal to $0.001 per share before any proceeds are distributed to the holders of our common stock. On and after the Approval Date, the Series D Preferred will have no liquidation preference.   Voting Rights   Prior to the Approval Date, holders of shares of our Series D Preferred will have one vote per share of Series D Preferred and will vote as a single class with our shares of common stock. On and after the Approval Date, shares of Series D Preferred will generally have no voting rights, except to the extent expressly provided in our Restated and Amended Articles of Incorporation or as otherwise required by law.   However, for so long as shares of Series D Preferred are outstanding, the affirmative consent of holders of a majority of the outstanding Series D Preferred will be required before we can:   ● amend, alter, modify or repeal (whether by merger, consolidation or otherwise) the certificate of designations relating to our Series D Preferred, our articles of incorporation or our bylaws in any manner that adversely affects the rights, preferences, privileges or the restrictions provided for the benefit of, the Series D Preferred; ● issue further shares of Series D Preferred or increase or decrease (other than by conversion) the number of authorized shares of Series D Preferred; or ● enter into any agreement to do any of the foregoing that is not expressly made conditional on obtaining the affirmative vote or written consent of the requisite holders.   Ranking   The Series D Preferred will rank:   ●  senior to any class or series of our capital stock hereafter created specifically ranking by its terms junior to the preferred stock; ● until the Approval Date, senior to our common stock; ● on parity with any class or series of capital stock hereafter created specifically ranking by its terms on parity with the preferred stock; and ● junior to any class or series of capital stock hereafter created specifically ranking by its terms senior to the preferred stock;   in each case, as to distributions of assets upon our liquidation, dissolution or winding up, whether voluntarily or involuntarily.   At December 31, 2020, we did not have a sufficient number of authorized shares of our common stock to permit the conversion in full of our Series D Preferred and the issuance upon exercise or conversion of all other outstanding series of preferred stock, warrants to purchase common stock or outstanding stock options or shares reserved for issuance of the same. Accordingly, we have scheduled a Special Meeting of Stockholders to be held on March 5, 2021 (the Special Meeting ) at which we are requesting our stockholders to approve an amendment to our Restated and Amended Articles of Incorporation to increase the number of authorized shares of our common stock to 325 million shares (the Charter Amendment ), an amount sufficient to permit the conversion of all outstanding shares of Series D Preferred. The affirmative vote by a majority of our common stockholders and Series D Preferred holders, voting as a single class, at the Special Meeting would constitute the Approval Date noted above.   December 2020 Registered Public Offering of Common Stock and Series D Preferred Stock   O n December 18, 2020, we entered into an underwriting agreement (the December 2020 Underwriting Agreement ) with Jefferies LLC ( Jefferies ) and William Blair & Company, L.L.C. ( Willian Blair) , as representatives of the underwriters named therein (collectively, the Underwriters ), pursuant to which we agreed to issue and sell to the Underwriters, in an underwritten public offering (the December 2020 Public Offering ), 63,000,000 shares of our common stock, at a public offering price of $0.92 per share and 2,000,000 shares of the newly created Series D Preferred (together with the common stock, the Securities ) at a public offering price of $21.16 per share, resulting in gross proceeds to us of $100.28 million. The December 2020 Public Offering closed on December 22, 2020 at which time the shares of common stock and Series D Preferred were sold to the Underwriters. After deducting underwriting discounts and commissions and offering expenses payable by us, we received net proceeds of approximately $93.6 million from the December 2020 Public Offering.   The Series D Preferred issued in the December 2020 Public Offering contained a beneficial conversion feature (a BCF ), which arises when a debt or equity security is issued with an embedded conversion option that is deemed beneficial to the investor, that is, in-the-money, at inception because the conversion option has an effective strike or conversion price that is less than the market price of the underlying stock at the commitment date (with respect to the Series D Preferred, the date the security was actually issued rather than the date the agreement to do so was entered into, herein referred to as the Commitment Date ). In accordance with Accounting Standards Codification 470-20, Debt- Debt with Conversion and Other Options ( ASC 470-20 ), an embedded BCF is required to be recognized separately by allocating a portion of the proceeds equal to the intrinsic value of the feature to additional paid-in capital. ASC 470-20 also provides that the intrinsic value is to be calculated as of the Commitment Date. Per the Certificate of Designation, the Series D Preferred has a conversion price of $0.92 per share on an as-converted basis. When compared to the closing price of $1.42 per share of our common stock on the Commitment Date, there is a difference of $0.50 per share. When multiplied by the number of shares of our common stock issuable upon conversion of the Series D Preferred, the resulting BCF is an aggregate of $23.0 million. We have not recognized the impact of the BCF at December 31, 2020 because the Series D Preferred is not convertible into common stock prior to the Approval Date. Assuming approval of the Charter Amendment at the Special Meeting in March 2021, the contingency of the BCF will be eliminated and we will recognize the BCF in our consolidated financial statements in the quarter ending March 31, 2021 with both a noncash charge on our Consolidated Statement of Operations and Comprehensive Loss in arriving at net loss attributable to common stockholders and a corresponding credit to additional paid-in capital. The recognition of the BCF on the Series D Preferred will have no impact in aggregate on our stockholders’ equity or on our cash position.       -19- Table of Contents     Warrants Outstanding   The following table summarizes warrants outstanding and exercisable as of December 31, 2020. All outstanding warrants are currently exercisable and the weighted average exercise price of such warrants at December 31, 2020 is $1.59 per share.             Warrants Outstanding     Exercise       and Exercisable at     Price   Expiration   December 31,     per Share   Date   2020                   $ 0.50   3/25/2021 to 3/31/2024     6,475,530     $ 0.73   7/25/2025     3,870,077     $ 0.805   12/31/2022     80,431     $ 1.50   12/13/2022     9,596,200     $ 1.82   3/7/2023     1,388,931     $ 3.51   12/31/2021     50,000     $ 5.30   5/16/2021     2,705,883     $ 7.00   3/3/2023     147,000                 24,314,052     At December 31, 2020, with the effectiveness of the Warrant Registration Statement in May 2020, the shares of common stock underlying essentially all of the outstanding warrants except those having an exercise price of $7.00 per share have been registered for resale by the warrant holders. Additionally, no outstanding warrant is subject to any down round anti-dilution protection features and all of the outstanding warrants are exercisable by the holders only by payment in cash of the stated exercise price per share.   Note 9.  Related Party Transactions   Consulting Agreement   During the three quarters ended December 31, 2020 and 2019, we engaged a consulting firm headed by one of the independent members of our Board to provide various market research studies, competitive analyses, and commercial advisory projects for certain of our CNS pipeline candidates pursuant to which we recorded expense of $20,000 and $5,600 for the quarters ended December 31, 2020 and 2019, respectively, and $48,000 and $108,400 for the nine months ended December 31, 2020 and 2019, respectively. We recorded accounts payable and accrued expenses of $20,000 at December 31, 2020 and no amounts payable at March 31, 2020 related to these projects and services.   Note 10. Commitments and Contingencies   Operating Leases   We lease our headquarters office and laboratory space in South San Francisco, California under the terms of a lease that expires on July 31, 2022 and that provides an option to renew for an additional five years at then-current market rates. Consistent with the guidance in Accounting Standards Codification Topic 842, Leases ( ASC 842 ), beginning April 1, 2019, we recorded this lease in our Condensed Consolidated Balance Sheet as an operating lease. For the purpose of determining the right-of-use asset and associated lease liability, we determined that the renewal of this lease is reasonably probable. The lease of our South San Francisco facilities does not include any restrictions or covenants requiring special treatment under ASC 842.         -20- Table of Contents     The following table summarizes the presentation of the operating lease in our Condensed Consolidated Balance Sheet at December 31, 2020 and March 31, 2020:       As of December 31, 2020     As of March 31, 2020   Assets             Right of use asset – operating lease   $ 3,312,100     $ 3,579,600                     Liabilities                 Current operating lease obligation   $ 351,500     $ 313,400   Non-current operating lease obligation     3,446,900       3,715,600   Total operating lease liability   $ 3,798,400     $ 4,029,000     The following table summarizes the effect of operating lease costs in the Company’s Condensed Consolidated Statements of Operations for the three and nine months ended December 31, 2020 and 2019:       For the Three Months Ended December 31,     For the Nine Months Ended December31,        2020      2019      2020      2019                             Operatinglease cost   $ 207,300     $ 203,100     $ 627,400     $ 615,000     The minimum (base rental) lease payments related to our South San Francisco operating lease are expected to be as follows:   Fiscal Years Ending March 31,       2021 (remaining three months)   $ 163,300   2022     668,400   2023     726,000   2024     766,000   2025     789,000   Thereafter     1,931,400   Total lease expense     5,044,100   Less imputed interest     (1,245,700 ) Present value of operating lease liabilities   $ 3,798,400     The remaining lease term, including the assumed five-year extension at the expiration of the current lease period, and the discount rate assumption for our South San Francisco operating lease is as follows:       As of December 31, 2020   Assumed remaining lease term in years     6.58   Assumed discount rate     8.54 %   The interest rate implicit in lease contracts is typically not readily determinable and, as such, we used our estimated incremental borrowing rate based on information available at the adoption of ASC 842, which represents an internally developed 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.   Supplemental disclosure of cash flow information related to our operating lease included in cash flows used by operating activities in the Condensed Consolidated Statements of Cash Flows is as follows:       For the Nine Months Ended     For the Nine Months Ended       December 31, 2020     December 31, 2019   Cash paid for amounts included in the                measurement of lease liabilities     590,600       561,900     During the nine months ended December 31, 2020, we recorded no new right of use assets arising from new lease liabilities.   We also lease a small office in the San Francisco Bay Area under a month-to-month arrangement at insignificant cost and have made an accounting policy election not to apply the ASC 842 operating lease recognition requirements to such short-term lease. We recognize the lease payments for this lease in general and administrative expense over the lease term. We recorded rent expense of $3,600 and $3,500 for the three months ended December 31, 2020 and 2019, respectively, and $10,600 and $10,500 for the nine months ended December 31, 2020 and 2019, respectively, attributable to this lease.       -21- Table of Contents     Note 11. Sublicensing and Collaborative Agreements   PH94B Sublicense Agreement with EverInsight   On June 24, 2020, we entered into a license and collaboration agreement (the EverInsight Agreement ) with  EverInsight Therapeutics Inc., a company incorporated under the laws of the British Virgin Islands and funded by CBC Group, a global healthcare-focused venture capital firm ( EverInsight ). Subsequent to entering into the EverInsight Agreement, in October 2020, EverInsight merged with AffaMed Therapeutics, Inc., also funded by CBC Group, which as a combined, complementary entity is focusing on developing and commercializing therapeutics to address ophthalmologic and CNS disorders in Greater China and beyond. Accordingly, we are now referring to EverInsight and the EverInsight Agreement as AffaMed and the AffaMed Agreement, respectively. Under the AffaMed Agreement, we g ranted AffaMed an exclusive license to develop and commercialize PH94B, our neuroactive pherin drug candidate for SAD and other anxiety-related disorders, in Greater China (which includes Mainland China, Hong Kong, Macau and Taiwan), 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 rest of the world.   Under the terms of 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 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. EverInsight has the option to participate in the global Phase 3 clinical trial of PH94B and will assume all direct costs and expenses of conducting such clinical trial in the Territory and a portion of the indirect costs of the global trial. We will transfer all development data (nonclinical and clinical data) and our 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 Reference to all of our regulatory documentation and our development data.   Under the terms of the AffaMed Agreement, AffaMed agreed to pay us a non-refundable upfront license payment of $5.0 million within 30 business days of the effective date of the AffaMed Agreement, and AffaMed paid the $5 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 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 have determined that we have one combined performance obligation for 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 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 the license of PH94B.   During the three and nine months ended December 31, 2020, we have recognized $313,600 and $647,600, respectively, as sublicense revenue under the EverInsight Agreement. At December 31, 2020, the aggregate amount of the transaction price allocated to the remaining performance obligation is $4,352,400 which will be recognized as revenue as the services are completed, which is expected to occur over a period of approximately four years beginning with the quarter ended September 30, 2020.   During the three and nine months ended December 31, 2020, we have recognized $313,600 and $647,600, respectively, as sublicense revenue under the AffaMed Agreement. At December 31, 2020, the aggregate amount of the transaction price allocated to the remaining performance obligation is $4,352,400 which will be recognized as revenue as the services are completed, which is expected to occur over a period of approximately four years beginning with the quarter ended September 30, 2020.   Unless earlier terminated due to certain material breaches of the contract, or otherwise, the  AffaMed Agreement  will expire on a jurisdiction-by-jurisdiction basis until the latest to occur of expiration of the last valid claim under a licensed patent of PH94B in such jurisdiction, the expiration of regulatory exclusivity in such jurisdiction or ten years after the first commercial sale of PH94B in such jurisdiction.       -22- Table of Contents     BlueRock Therapeutics Sublicense Agreement   In December 2016, we entered into an Exclusive License and Sublicense Agreement with BlueRock Therapeutics, LP, a next generation regenerative medicine company established by Bayer AG and Versant Ventures ( BlueRock Therapeutics ), pursuant to which BlueRock Therapeutics received exclusive rights to utilize certain technologies exclusively licensed by us from University Health Network ( UHN ) for the production of cardiac stem cells for the treatment of heart disease. As a result of its acquisition of BlueRock Therapeutics in 2019, Bayer AG now holds the rights to develop and commercialize our hPSC technologies relating to the production of heart cells for the treatment of heart disease (the  Bayer Agreement ).  We retained rights to cardiac stem cell technology licensed from UHN related to small molecule, protein and antibody drug discovery, drug rescue and drug development, including small molecules with cardiac regenerative potential, as well as small molecule, protein and antibody testing involving cardiac cells. To date, we have recognized $1.25 million in sublicense revenue, in our fiscal year ended March 31, 2017, under the Bayer Agreement.   Note 12.  Subsequent Events   We have evaluated subsequent events through the date of this Report and have identified the following matters requiring disclosure:   Exercise of Warrants   From January 1, 2021 through the date of this Report, holders of outstanding warrants have exercised warrants to purchase an aggregate of 2,941,027 shares of our common stock and we have received cash proceeds of approximately $2.86 million.   Grant of Options from 2019 Plan   In February 2021, we granted options to purchase 200,000 shares of our common stock under the terms of our 2019 Plan to a newly-hired executive. The options have an exercise price equal to the quoted closing market price of our common stock on the Nasdaq Capital Market on the date of grant, a term of ten years and vest 25% on the first anniversary of the grant date and ratably on a monthly basis for three years thereafter.             -23- Table of Contents     Item 2.   MANAG E MENT’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,” “may,” “estimate,” “continue,” “anticipate,” “intend,” “expect” and similar expressions are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and assumptions. 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 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” 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.   Business Overview   We are a clinical-stage biopharmaceutical company committed to developing and commercializing differentiated new generation medications that go beyond the current standard of care for anxiety, depression and other central nervous system ( CNS ) disorders . Our pipeline includes three CNS product candidates, each with a differentiated potential mechanism of action, favorable safety results observed in all clinical studies to date, and therapeutic potential in multiple CNS markets. We are currently preparing PH94B for a pivotal Phase 3 clinical study as a potential acute treatment of anxiety in adults with social anxiety disorder ( SAD ), as well as additional nonclinical and clinical studies required to support our U.S. New Drug Application ( NDA ) for that indication should our Phase 3 clinical program be successful. In addition, we are planning for several small exploratory Phase 2A studies of PH94B in adult patients, including in adjustment disorder, pre-procedural anxiety, postpartum anxiety and post-traumatic stress disorder. PH10 has completed a successful exploratory Phase 2A study for the treatment of major depressive disorder ( MDD ). We are currently preparing for planned Phase 2B clinical development of PH10 as a potential stand-alone treatment for MDD. In several clinical studies, AV-101 was shown to be orally bioavailable and was well-tolerated. Based on successful preclinical studies involving AV-101 alone and in combination with probenecid, we are currently planning to pursue Phase 1B, and, if successful, subsequent Phase 2A clinical development of AV-101, in combination with probenecid, for treatment of CNS indications involving the N-methyl-D-aspartate receptor ( NMDAR ). Additionally, our wholly owned subsidiary, VistaGen Therapeutics, Inc., d/b/a VistaStem, a California corporation ( VistaStem ), has pluripotent stem cell technology focused on assessing and developing small molecule new chemical entities ( NCEs ) for our CNS pipeline, or for out-licensing, by utilizing CardioSafe 3D, VistaStem’s customized human heart cell-based cardiac bioassay system. Our goal is to become a biopharmaceutical company that develops and commercializes innovative CNS therapies for multiple large and growing neuropsychiatry and neurology markets worldwide where current treatments are inadequate to meet the needs of millions of patients.         -24- Table of Contents     PH94B Neuroactive Nasal Spray for Anxiety Disorders   PH94B is an odorless synthetic rapid-onset neuroactive pherine nasal spray with therapeutic potential in a wide range of neuropsychiatric indications involving anxiety or phobia. Conveniently self-administered in microgram-level doses without requiring systemic uptake and distribution to achieve its anti-anxiety effects, we are initially developing PH94B as a potential fast-acting, non-sedating, non-addictive new generation acute treatment of anxiety in adults with SAD. SAD affects approximately 20 million Americans and, according to the National Institutes of Health ( NIH ), is the third most common psychiatric condition after depression and substance abuse. A person with SAD feels symptoms of anxiety or fear in certain social situations, such as meeting new people, dating, being on a job interview, answering a question in a classroom or conference room, or having to talk to a cashier in a store. Doing everyday things in front of other people - such as eating or drinking or using a public restroom – may also cause anxiety or fear. A person with SAD may also feel symptoms of fear and anxiety in performance situations, such as giving a lecture, a speech or a presentation to classmates at school or colleagues at work, as well as playing in a sports game, or dancing or playing a musical instrument on stage.  A person with SAD is afraid that he or she will be humiliated, judged, and rejected.  The fear and anxiety that people with SAD have in social and performance situations is so strong that they feel they are beyond their ability to control. As a result, SAD gets in the way of going to work, attending school, meeting with others socially or doing everyday things in situations with potential for interpersonal interaction. People with SAD may worry about these and other things for weeks before they happen. Sometimes, they end up avoiding places or events where they think they might have to do something that will embarrass or humiliate them or cause them to be judged.  Without treatment, SAD can last for many years or a lifetime and prevent a person from reaching his or her full potential.   Three oral antidepressants are approved by the U.S Food and Drug Administration ( FDA ) specifically for treatment of SAD. These FDA-approved antidepressants have slow onset of therapeutic effect (often taking many weeks to months), require chronic administration and often cause significant side effects that begin soon after administration. We believe their slow onset of effect, required chronic administration and significant potential side effects and safety concerns may make these FDA-approved oral antidepressants inadequate or inappropriate treatment alternatives for many individuals affected by SAD. Our PH94B is fundamentally different from the oral antidepressants approved by the FDA for treatment of SAD, as well as all current anti-anxiety drugs, such as benzodiazepines prescribed off-label for treatment of SAD.   We believe PH94B-induced anxiolytic effects appear consistent with the modulation of neural circuits involved in the pathogenesis of SAD. Neurons in the limbic amygdala regulate fear and anxiety by modulating inhibitory neurotransmission in other brain regions. A microgram level intranasal dose of PH94B (3.2 micrograms) engages specific nasal chemosensory neurons which activate olfactory bulb neurons ( OBNs ) on the base of the brain. OBNs send neural connections to neurons in the central limbic amygdala, the brain center where fear and anxiety are regulated, resulting in downstream signaling and rapid-onset anti-anxiety effects. Importantly, PH94B does not require systemic uptake and distribution to produce its rapid-onset anti-anxiety effects. In all clinical studies to date, PH94B has not shown psychological side effects (such as dissociation, euphoria or hallucinations), sedation or other side effects and safety concerns that may be caused by the current oral antidepressants approved by the FDA for treatment of SAD, or by benzodiazepines and beta blockers, which, although not FDA-approved to treat SAD, are often prescribed by psychiatrists and physicians for treatment of SAD on an off-label basis. While oral antidepressants, benzodiazepines and beta blockers require systemic administration to achieve anxiolytic effects, due to its unique pharmacology, PH94B does not require systemic uptake and distribution to achieve its rapid-onset anti-anxiety effects.   In a peer-reviewed, published double-blind, placebo-controlled Phase 2 clinical trial, PH94B was statistically significantly more effective than placebo in reducing both public-speaking anxiety (p=0.002) and social interaction anxiety (p=0.009) in laboratory-simulated challenges of SAD patients, within 15 minutes of their self-administration of a non-systemic 1.6 microgram dose of PH94B.  Based on the results of this Phase 2 study and our recent consensus with the FDA that our initial pivotal Phase 3 study of PH94B may be conducted in a manner substantially similar to the public speaking anxiety component of such Phase 2 study, we are preparing for Phase 3 clinical development of PH94B as an acute treatment of anxiety in adults with SAD. Our goal is to develop and commercialize PH94B as the first FDA-approved, rapid-onset, non-sedating, non-systemic, non-additive acute treatment of anxiety in adults with SAD. We believe PH94B has potential for use on demand to treat symptoms of anxiety which result from often predictable anxiety-provoking stressors, much like a rescue inhaler is used on demand before an asthma attack or a migraine drug is used before onset of a migraine episode. We also believe PH94B has potential to treat other anxiety-related neuropsychiatric indications, such as adjustment disorder, postpartum anxiety, preprocedural anxiety (e.g., pre-MRI), panic disorder, post-traumatic stress disorder and specific social phobias. In addition to preparing for Phase 3 development of PH94B as a potential acute treatment of anxiety for adults with SAD, we are planning for a series of small exploratory Phase 2A clinical studies of PH94B for treatment of adjustment disorder, postpartum anxiety, post-traumatic stress disorder, and pre-procedural anxiety. The FDA has granted Fast Track designation for development of PH94B for acute treatment of anxiety in adults with SAD, which we believe is the FDA’s first such designation for a drug candidate for SAD.         -25- Table of Contents     PH10 Neuroactive Nasal Spray for Depression Disorders and Suicidal Ideation   PH10 is an odorless synthetic neuroactive pherine nasal spray with potential to be a fast-acting treatment for multiple neuropsychiatric indications involving depression and suicidal ideation. Conveniently self-administered in microgram-level doses without systemic exposure, we are initially developing PH94B as a potential rapid-onset, stand-alone treatment of MDD.   Depression is a serious medical illness and a global public health concern that can occur at any time over a person's life. While most people will experience depressed mood at some point during their lifetime, MDD is different. MDD is the chronic, pervasive feeling of utter unhappiness and suffering, which impairs daily functioning. Symptoms of MDD include diminished pleasure or loss of interest in activities, changes in appetite that result in weight changes, insomnia or oversleeping, psychomotor agitation, loss of energy or increased fatigue, feelings of worthlessness or inappropriate guilt, difficulty thinking, concentrating or making decisions, and thoughts of death or suicide and attempts at suicide.   The most commonly-prescribed current oral antidepressants are known as selective serotonin reuptake inhibitors ( SSRIs ), and serotonin-norepinephrine reuptake inhibitors ( SNRIs ). SSRIs are intended to increase the amount of available serotonin, a neurotransmitter closely linked to mood and anxiety disorders, by inhibiting the reuptake of serotonin in the brain, preventing nerve cells from reabsorbing serotonin and reducing the levels in the brain. This means more serotonin remains available, which can sometimes improve symptoms and make patients more responsive to psychotherapy and other treatments. SNRIs similarly are intended to inhibit the reuptake of serotonin and another neurotransmitter, norepinephrine, and increase the available amounts of each in the brain. Like serotonin, norepinephrine is a neurotransmitter linked to mood.   While these medications can certainly be effective in the right context, it can be a challenge to find the right drug or combination of drugs for a particular patient. About two-thirds of patients with MDD do not respond to their initial treatment with such medications. In addition, it can take many weeks or even months to identify whether an antidepressant is working, all the while leaving a patient to cope with their depression symptoms and the potentially debilitating side effects of the antidepressants they are prescribed.   Due to their long-onset pharmacology, limited efficacy and many side effects and safety concerns, current FDA-approved oral antidepressants available in the multi-billion-dollar global depression market are often inadequate to satisfy the underserved medical needs of millions suffering from the debilitating effects of depression. Inadequate response to current medications is among the key reasons MDD is one of the leading public health concerns in the United States, creating a significant unmet medical need for new agents with fundamentally different mechanisms of action and side effect and safety profiles.   PH10 is a new generation antidepressant with a mechanism of action that is fundamentally different from all current FDA-approved antidepressants. After self-administration, a non-systemic microgram-level dose of PH10 binds to nasal chemosensory receptors that, in turn, activate key neural circuits in the brain that can lead to rapid-onset antidepressant effects, but without the psychological side effects (such as dissociation and hallucinations) or safety concerns that maybe be caused by rapid-onset ketamine-based therapy, including both intravenous ketamine and esketamine nasal spray, or the side effects and safety concerns of current long-onset oral antidepressants. In a small exploratory Phase 2A clinical trial (n=30), PH10, self-administered at a dose of 6.4 micrograms, was well-tolerated and demonstrated statistically significant (p=0.022) rapid-onset antidepressant effects, which were sustained over an 8-week period, as measured by the Hamilton Depression Rating Scale ( HAM-D ), without side effects or safety concerns that may be caused by ketamine-based therapy and oral antidepressants. Based on positive results from this exploratory Phase 2A study, we are preparing for Phase 2B clinical development of PH10 in MDD, which preparation includes completing two additional preclinical toxicology studies required by the FDA to support our new Investigational New Drug ( IND ) application for proposed Phase 2B clinical development of PH10 in the U.S. With its favorable safety profile observed during clinical development to date, we believe PH10 has potential for multiple applications in global depression markets, including first as a differentiated stand-alone therapy for MDD.   AV-101, an Oral NMDA Receptor Antagonist for Depression and Neurological Disorders   AV-101 (4-Cl-KYN) targets the NMDAR (N-methyl-D-aspartate receptor), an ionotropic glutamate receptor in the brain. Abnormal NMDAR function is associated with numerous CNS diseases and disorders. AV-101 is an oral prodrug of 7-chloro-kynurenic acid (7-Cl-KYNA), which is a potent and selective full antagonist of the glycine co-agonist site of the NMDAR that inhibits the function of the NMDAR. Unlike ketamine and many other NMDAR antagonists, 7-Cl-KYNA is not an ion channel blocker. At doses administered in all studies to date, AV-101 has exhibited no dissociative or hallucinogenic psychological side effects or safety concerns. With its exceptionally few side effects and favorable safety profile observed in all studies to date, AV-101, in combination with the FDA-approved drug, probenecid, has potential to be a new, differentiated oral treatment for multiple large-market CNS indications where we believe current treatments are inadequate to meet high underserved patient needs. The FDA has granted Fast Track designation for development of AV-101 as both a potential adjunctive treatment for MDD and as a non-opioid treatment for neuropathic pain.         -26- Table of Contents     In late-2019, we completed a Phase 2 clinical trial of AV-101 as a potential adjunctive treatment, together with a standard FDA-approved oral SSRI or SNRI, in MDD patients who had an inadequate response to a stable dose of their oral antidepressant (the Elevate Study ). Topline results of the Elevate Study (n=199) indicated that the AV-101 treatment arm did not differentiate from placebo on the primary endpoint (change in the Montgomery-Åsberg Depression Rating Scale ( MADRS-10 ) total score compared to baseline), potentially due to sub-therapeutic levels of 7-Cl-KYNA in the brain. As in prior clinical studies, AV-101 was well tolerated, with no psychotomimetic side effects or drug-related serious adverse events.   Our recent discoveries from successful preclinical studies of AV-101 in combination with probenecid, a safe and well-known oral anion transport inhibitor approved by the FDA for treatment of gout, suggest that there is a substantially increased brain concentration of AV-101 and its active metabolite, 7-Cl-KYNA, when AV-101 is given together with probenecid. These surprising effects were first revealed as to AV-101 and 7-Cl-KYNA in our recent preclinical studies, although the effects are consistent with well-documented clinical studies of probenecid’s ability to increase the therapeutic benefits of several classes of FDA-approved drugs that are unrelated to AV-101 and 7-Cl-KYNA, including certain antibacterial, anticancer and antiviral drugs . When probenecid was administered in combination with AV-101 in animal models, substantially increased brain concentrations of AV-101 and 7-Cl-KYNA were discovered.   We also recently identified that some of the same kidney transporters that reduce drug concentrations in the blood, by excretion in the urine, are also found in the blood brain barrier and function to reduce 7-Cl-KYNA levels in the brain by pumping it out of the brain and back into the blood. In our recent preclinical studies with AV-101 and probenecid, we discovered that blocking those transporters in the blood brain barrier with probenecid resulted, as noted above, in a substantially increased brain concentration of 7-Cl-KYNA. This 7-Cl-KYNA efflux-blocking effect of probenecid, with the resulting increased brain levels and duration of 7-Cl-KYNA, suggests the potential impact of AV-101 with probenecid could result in far more profound therapeutic benefits for patients with MDD and other NMDAR-focused CNS disorders than demonstrated in the Elevate Study.   In addition, a Phase 1B target engagement study completed after the Elevate Study by the Baylor College of Medicine ( Baylor ) with financial support from the U.S. Department of Veterans Affairs ( VA ), involved 10 healthy volunteer U.S. military Veterans who received single doses of AV-101 (720 mg or 1440 mg) or placebo, in a double-blind, randomized, cross-over controlled trial. The primary goal of the study was to identify and define a dose-response relationship between AV-101 and multiple electrophysiological ( EEG ) biomarkers related to NMDAR function, as well as blood biomarkers associated with suicidality (the Baylor Study ). We believe the findings from the Baylor Study suggest that, in healthy Veterans, the higher dose of AV-101 (1440 mg) was associated with dose-related increase in the 40 Hz Auditory Steady State Response ( ASSR ), a robust measure of the integrity of inhibitory interneuron synchronization that is associated with NMDAR inhibition. Findings from the Baylor Study were presented at the 58th Annual Meeting of the American College of Neuropsychopharmacology ( ACNP ) in Orlando, Florida in December 2019.   The Baylor Study and the results of our recent preclinical studies involving AV-101 in combination with probenecid suggest that it may be possible to increase therapeutic concentrations and duration of 7-Cl-KYNA in the brain, and thus increase NMDAR antagonism in MDD patients and individuals suffering from other CNS indications involving abnormal function of the NMDAR, when AV-101 and probenecid are combined. We are currently preparing for Phase 1B clinical development of AV-101 in combination with probenecid.   VistaStem Therapeutics – Stem Cell Technology for Drug Rescue, Cell Therapy and Regenerative Medicine   In addition to our current CNS drug candidates, our wholly-owned subsidiary, VistaStem Therapeutics ( VistaStem ) has developed stem cell technology-based, pipeline-enabling capabilities involving application of human pluripotent stem cell ( hPSC ) technologies. VistaStem’s customized cardiac bioassay system, CardioSafe 3D, has been developed to discover and develop small molecule New Chemical Entities ( NCEs ) for our CNS pipeline or out-licensing. In addition, VistaStem’s stem cell technologies involving hPSC-derived blood, cartilage, heart and liver cells have multiple potential applications in the cell therapy ( CT ) and regenerative medicine ( RM ) fields.   To advance potential CT and RM applications of VistaStem’s hPSC technologies related to heart cells, we licensed to BlueRock Therapeutics LP, a next generation CT/RM company formed jointly by Bayer AG and Versant Ventures and acquired by Bayer AG in 2019, rights to develop and commercialize certain proprietary technologies relating to the production of cardiac stem cells for the treatment of heart disease. As a result of its acquisition of BlueRock Therapeutics in 2019, Bayer AG now holds such rights (the  Bayer Agreement ).  VistaStem retains all rights to such technologies to discover and develop small molecule NCEs and certain other applications not licensed pursuant to the Bayer Agreement. In a manner similar to the Bayer Agreement, we may pursue additional VistaStem collaborations involving rights to develop and commercialize its hPSC technologies for production of blood, cartilage, and/or liver cells for CT and RM applications, including, among other indications, treatment of arthritis, cancer and liver disease.         -27- Table of Contents     Subsidiaries   As noted above, VistaStem Therapeutics, a California corporation, is our wholly-owned subsidiary. Our Condensed Consolidated Financial Statements in this Report also include the accounts of VistaStem and VistaStem’s two wholly-owned inactive subsidiaries, Artemis Neuroscience, Inc., a Maryland corporation, and VistaStem Canada, Inc., a corporation organized under the laws of Ontario, Canada.   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, 2020, as filed with the SEC on June 29, 2020, and in Note 3 to the accompanying unaudited Condensed Consolidated Financial Statements included in Part 1, Item 1 of this Report.   Summary   Net Loss   Although we entered into the AffaMed Agreement in June 2020 and the Bayer Agreement in December 2016, we have not yet achieved recurring revenue-generating status in amounts sufficient to sustain our operations and enable our strategic business plans from any of our product candidates or technologies. Since inception, we have devoted substantial time and effort to developing AV-101 for multiple CNS indications, including manufacturing research, process development and production of AV-101 drug substance and finished drug product, preclinical efficacy and safety studies, and clinical efficacy and safety studies in CNS indications. In addition, since acquiring our exclusive worldwide licenses to PH94B and PH10 in 2018, we have devoted substantial resources focused on research, development and commercialization of PH94B and PH10, including initiatives to advance manufacturing research, process development and production programs for drug substance and finished drug product, additional preclinical safety studies, and clinical efficacy and safety studies in multiple neuropsychiatry indications. Also, from-time-to-time, we have devoted resources to VistaStem’s stem cell technology research and development, bioassay development and small molecule drug rescue initiatives, as well as creating, protecting and patenting intellectual property ( IP ) related to our product candidates and stem cell technologies, with the corollary initiatives of recruiting and retaining personnel and raising working capital. As of December 31, 2020, we had an accumulated deficit of approximately $213.6 million. Our net loss for the nine months ended December 31, 2020 and 2019 was approximately $11.7 million and $17.5 million, respectively. We expect losses to continue for the foreseeable future, primarily as we engage in further research, development and commercialization activities related to PH94B, PH10 and AV-101, and pursue VistaStem’s potential drug rescue, drug development and CT and RM opportunities.   Summary of the Nine Months Ended December 31, 2020   On December 22, 2020, we completed a transformative $100 million underwritten public offering (the December 2020 Public Offering ) of our securities, consisting of shares of our common stock and shares of our newly created Series D Convertible Preferred Stock ( Series D Preferred ). After deducting underwriting discounts and commissions and offering expenses payable by us, we received net proceeds of approximately $93.6 million from the sale of our securities in this offering. Combined with financing and development and commercialization partnering transaction completed earlier in our fiscal year, aggregating an additional $21 million, the proceeds from the December 2020 Public Offering provide us with working capital to advance an important stream of potential catalysts across our CNS pipeline, including, among others, our Phase 3 development program for PH94B for the acute treatment of anxiety in adults with social anxiety disorder ( SAD ) and, upon successful Phase 3 development, submission of our New Drug Application to the U.S. Food and Drug Administration and potential U.S. market approval of PH94B.   From an operational perspective, during the nine months ended December 31, 2020, we continued to advance our manufacturing, preclinical and clinical development, and regulatory initiatives necessary for our Phase 3 clinical development of PH94B as a potential acute treatment of anxiety in adults with SAD, PH10 as a potential stand-alone treatment of MDD and AV-101 in combination with probenecid as a potential treatment for NMDAR-focused indications. In addition, we continued to expand our regulatory and intellectual property foundation to support broad clinical development and, ultimately, commercialization of our product candidates in the U.S. and foreign markets, and on a limited basis, advance drug rescue applications of VistaStem’s stem cell technology to expand our CNS pipeline and out-licensing opportunities.   During the nine months ended December 31, 2020 and through the date of this Report, a new strain of coronavirus ( COVID-19 ) has spread to many countries in the world and the outbreak has 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. From time to time during the COVID-19 pandemic, our operations and those of our contract research organizations ( CROs ) and contract development and manufacturing organizations ( CDMOs ) have been impacted by shelter-in-place orders, social distancing measures, travel bans and restrictions, and certain business and government closures or reductions in service. Our headquarters operations have been significantly curtailed as our employees have been working remotely throughout this period. From time to time since the beginning of the COVID-19 pandemic, we have experienced delays in the delivery of supplies of active pharmaceutical product ( API ) required to continue development of PH94B and PH10. Future unexpected delays may result in a significant, material delay or disruption to our current clinical development plans, programs, and operations.         -28- Table of Contents     During the quarter ended June 30, 2020, we completed a successful and positive meeting with the FDA regarding Phase 3 clinical development of PH94B for the acute treatment of anxiety in adult patients with SAD, reaching consensus with the FDA on key aspects of the design of our Phase 3 clinical trials of PH94B, which studies will be randomized, double-blind, placebo-controlled, parallel comparison studies involving a single-event, laboratory-simulated public speaking challenge in adult subjects with SAD. Dr. Michael Liebowitz, Professor of Clinical Psychiatry at Columbia University, director of the Medical Research Network in New York City, and creator of the Liebowitz Social Anxiety Scale ( LSAS ), is expected to be the Principal Investigator of the studies. Target enrollment for the initial Phase 3 study (completed patients) is currently approximately 208 adult patients with SAD. As in the statistically significant public speaking component of the Phase 2 study (p=0.002), the patient-reported Subjective Units of Distress Scale ( SUDS ) will be used to assess the primary efficacy endpoint of our pivotal Phase 3 studies of PH94B as a potential acute treatment of anxiety in adults with SAD. Throughout the nine months ended December 31, 2020, we have been actively engaged in formalizing processes and procedures for the manufacture of PH94B for our Phase 3 program in SAD and Phase 2 program in other anxiety indications, and of PH10 for our Phase 2 studies and other nonclinical studies in 2021 and beyond.   In June 2020, we entered into a strategic licensing and collaboration agreement for the clinical development and commercialization of PH94B (the EverInsight Agreement ) with EverInsight Therapeutics Inc. ( EverInsight ), a biopharmaceutical company focused on developing and commercializing transformative pharmaceutical products for patients in Greater China and other parts of Asia and funded by CBC Group. Subsequent to entering into the EverInsight Agreement, in October 2020, EverInsight merged with AffaMed Therapeutics, Inc., also funded by CBC Group, which as a combined, complementary entity is focusing on developing and commercializing therapeutics to address ophthalmologic and CNS disorders in Greater China and beyond. Accordingly, we are now referring to EverInsight and the EverInsight Agreement as AffaMed and the AffaMed Agreement, respectively. Under the terms of the AffaMed Agreement, AffaMed is responsible for clinical development, regulatory submissions and commercialization of PH94B for the treatment of SAD, and potentially other anxiety-related indications, in key markets in Asia, including markets in Greater China, South Korea and Southeast Asia (collectively, the Territory ). Under the terms of the AffaMed Agreement, in August 2020, we received a non-dilutive upfront license fee payment of $5.0 million from AffaMed. Upon successful development and commercialization of PH94B in the Territory, we are eligible to receive up to $172 million in additional development and commercial milestone payments, plus royalties on commercial sales of PH94B in the Territory. After payment of sublicense fees to Pherin Pharmaceuticals, Inc. ( Pherin ) pursuant to our PH94B license from Pherin, and payment of consulting fees related to consummation of the AffaMed Agreement, we received net cash proceeds of approximately $4.655 million.   A noted earlier, in December 2020 we completed the $100 million December 2020 Public Offering. Earlier in the fiscal year, in August 2020, we entered into an underwriting agreement with Maxim Group LLC, as representative of the several underwriters named therein pursuant to which we sold, in an underwritten public offering (the August 2020 Public Offering ), an aggregate of 15,625,000 shares of our common stock for a public offering price of $0.80 per share, resulting in gross proceeds to us of $12,500,000. We also granted to Maxim an over-allotment option to purchase up to an additional 2,343,750 shares at a public offering price of $0.80 per share, which over-allotment option was with respect to 2,243,250 shares (the Exercised Option Shares ). The sale of the Exercised Option Shares resulted in additional gross proceeds to us of $1,794,600. Aggregate net proceeds to us from the August 2020 Public Offering, after deducting underwriting discounts and commissions and offering expenses payable by us, were approximately $12.9 million.   To satisfy our obligations under the common stock purchase and registration rights agreements that we entered into with Lincoln Park Capital Fund ( Lincoln Park ) in March 2020, we filed a Registration Statement on Form S-1 (the LPC Registration Statement ) with the SEC on March 31, 2020 (Registration No. 333-237514), which the SEC declared effective on April 14, 2020 (the Commencement Date ). Subsequent to the Commencement Date and through July 2020, we sold 6,301,995 registered shares of our common stock to Lincoln Park and received aggregate cash proceeds to us of $2,891,200. We have not sold any additional shares to Lincoln Park under these agreements since July 2020, nor do we have any obligation to do so in the future.   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. To further advance the nonclinical and clinical development of PH94B, PH10, 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 protection of intellectual property, public company compliance and other professional services and internal costs.          -29- Table of Contents     Results of Operations   Comparison of Three Months Ended December 31, 2020 and 2019   The following table summarizes the results of our operations for the three months ended December 31, 2020 and 2019 (amounts in thousands).        Three Months Ended December 31,       2020     2019                 Sublicense revenue   $ 314     $ -   Operating expenses:                  Research and development     3,496       3,015    General and administrative     2,117       2,948     Total operating expenses     5,613       5,963                     Loss from operations     (5,299 )     (5,963 )                   Interest income, net     1       2                     Loss before income taxes     (5,298 )     (5,961 ) Income taxes     -       -                     Net loss     (5,298 )     (5,961 )   Accrued dividends on Series B Preferred Stock     (354 )     (322 ) Net loss attributable to common stockholders   $ (5,652 )   $ (6,283 )   Revenue      We recognized $313,600 in sublicense revenue pursuant to the AffaMed Agreement in the quarter ended December 31, 2020 compared to none in the quarter ended December 31, 2019. As described more completely in Note 11, Sublicensing and Collaboration Agreements , to our Condensed Consolidated Financial Statements in Part I of this Report, on June 24, 2020 we entered into the AffaMed Agreement, pursuant to which we received a non-dilutive upfront license fee payment of $5.0 million on August 3, 2020. We expect to continue to recognize revenue pursuant to this payment in future periods during our fiscal year ending March 31, 2021 and thereafter, as described in Note 11, referenced previously. While we may potentially receive additional cash payments and royalties in the future under the AffaMed Agreement or the 2016 Bayer Agreement (also described in Note 11, Sublicensing and Collaborative Agreements , to our Condensed Consolidated Financial Statements in Part I of this Report) in the event certain performance-based milestones and commercial sales are achieved, there can be no assurance that the AffaMed Agreement or the Bayer Agreement will provide any additional revenue beyond that noted or cash payments to us in the near term, or at all.         -30- Table of Contents     Research and Development Expense   Research and development expense increased from $3.0 million to $3.5 million for the quarters ended December 31, 2019 and 2020, respectively. Cash compensation for the quarter ended December 31, 2020 increased by approximately $0.3 million and was offset by a similar decrease in noncash stock-based compensation for the same period compared to expenses in the quarter ended December 31, 2019. PH94B and PH10 development expenses increased by approximately $1.5 million in the quarter ended December 31, 2020 compared to expense for the quarter ended December 31, 2019 as drug substance and drug product manufacturing preceding clinical trials advanced. AV-101-related expenses decreased primarily due to the completion of the Elevate Study in the quarter ended December 31, 2019. Noncash research and development expenses, primarily stock-based compensation and depreciation in both periods, accounted for approximately $238,400 and $526,000 in the quarters ended December 31, 2020 and 2019, respectively. 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,       2020     2019                 Salaries and benefits   $ 652     $ 339   Stock-based compensation     219       503   Consulting and other professional services     124       110   Technology licenses and royalties     176       134   Project-related research, licenses and supplies:                 Elevate study and other AV-101 expenses     99       1,214   PH94B and PH10 development expenses     2,074       548   Stem cell and all other     4       20         2,177       1,782   Rent     135       132   Depreciation     13       13   All other     -       2                     Total Research and Development Expense   $ 3,496     $ 3,015     The increase in salaries and benefits expense for the quarter ended December 31, 2020 primarily reflects the impacts of bonus payments made to our Chief Medical Officer ( CMO ), Chief Scientific Officer ( CSO ), and members of our scientific staff in December 2020, as well as the addition of a Vice President – Translational Medicine ( VP-Translational Medicine ) effective on December 1, 2020. There were no changes in base compensation levels for our CMO, CSO, or other members of our scientific staff between the periods and no bonus payments were made in the quarter ended December 31, 2019.   Current year stock-based compensation expense reflects the amortization of option grants made to our CMO, CSO, VP-Translational Medicine, members of our scientific staff and certain clinical and scientific consultants since October 2018, all earlier outstanding grants having become fully vested and amortized prior to the quarter ended December 31, 2020. Grants awarded after December 31, 2019, including those granted during the quarter ended December 31, 2020, account for approximately $152,300 of expense in the quarter ended December 31, 2020, offset by the expense reduction of approximately $326,200 attributable to certain options granted between June 2016 and October 2018 that became fully vested and amortized during the quarter ended December 31, 2020 or earlier. Additionally, expense related to options granted as 25% vested during the quarter ended December 31, 2019 was reduced by $111,000 in the quarter ended December 31, 2020.         -31- Table of Contents     Consulting and other professional services reflects fees 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, including by members of our Scientific Advisory Board and CNS Clinical and Regulatory Advisory Board, especially in support of our PH94B and PH10 development initiatives. Prior year expense included development support payments to Pherin which terminated in April 2020 under the terms of our PH94B and PH10 license agreements and analytical services in support of PH94B development which did not recur in the quarter ended December 31, 2020.   Technology license and royalties expense reflects primarily legal counsel and other costs related to patent prosecution and protection pursuant to our stem cell technology license agreements, our AV-101 patents, or patents that we have elected to pursue for commercial purposes as well as recurring annual license fees. These costs 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 various patent applications in the U.S. and numerous foreign countries, primarily with respect to AV-101 and our stem cell technology platform, but also nominally with respect to our PH94B and PH10 intellectual property portfolios.   AV-101 project expense for the quarter ended December 31, 2019 reflects the costs of winding down the Elevate Study in MDD, including various CROs, investigator and clinical site costs, and determination of topline study results as well as CRO support services for AV-101 projects for indications other than MDD, and, to lesser extent, expense incurred to manufacture additional quantities of AV-101 for use in potential future clinical development of AV-101 in a number of potential CNS indications. AV-101 project expense for the quarter ended December 31, 2020 primarily reflects the cost of certain preclinical studies related to the use of AV-101 in combination with probenecid, certain AV-101 manufacturing stability studies, and costs incurred to finalize the results of the Elevate Study for regulatory submission.   PH94B and PH10 project expenses for the quarters ended December 31, 2020 and 2019 primarily reflect research and development and manufacturing and regulatory initiatives necessary to facilitate Phase 3 clinical development of PH94B for acute treatment of anxiety in patients with SAD and Phase 2B development of PH10 for MDD. Manufacturing, formulation and analysis of sufficient quantities of drug substance and drug product are currently the critical path items for advancing the further clinical development of both PH94B and PH10, with costs for PH94B significantly exceeding those for PH10 in the quarter ended December 31, 2020 and in comparison to those of the comparable prior year quarter.   Stem cell and other project related expenses reflects costs associated with drug rescue applications of our stem cell technology in both years. These expenses are typically incurred by our in-house scientific personnel. As a result of shelter-in-place and remote working requirements related to the ongoing COVID-19 pandemic, such expenses have been reduced to an insignificant level in the quarter ended December 31, 2020.   Rent expense for both periods presented reflects our implementation of ASC 842 effective April 1, 2019 and the requirement to recognize, as an operating lease related to 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 expected lease term. The underlying lease reflects commercial property rents prevalent in the South San Francisco real estate market 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. We allocate total rent expense for our South San Francisco facility between research and development expense and general and administrative expense based generally on square footage dedicated to each function. Refer to Note 10, Commitments and Contingencies , in the accompanying Condensed Consolidated Financial Statements in Part I of this Report for additional information. Following our implementation of ASC 842, changes in rent expense between periods are primarily related to changes in such items as common area maintenance fees, taxes and insurance which are generally assessed to us by our landlord.         -32- Table of Contents     General and Administrative Expense   General and administrative expense decreased to approximately $2.1 million from approximately $2.9 million for the quarters ended December 31, 2020 and 2019, respectively. Cash compensation for the quarter ended December 31, 2020 increased by approximately $0.6 million and was offset by a similar decrease in noncash stock-based compensation for the same period compared to expenses in the quarter ended December 31, 2019. Further, in the quarter ended December 31, 2019, we completed certain modifications to outstanding warrants and recognized non-cash warrant modification expense of $826,900. Noncash general and administrative expense, approximately $557,000 in the quarter ended December 31, 2020, decreased from approximately $1,975,000 in the quarter ended December 31, 2019 primarily due to prior-year warrant modification expense and decrease in current year stock-based compensation. The following table indicates the primary components of general and administrative expense for each of the periods (amounts in thousands):       Three Months Ended December 31,       2020     2019                 Salaries and benefits   $ 919     $ 339   Stock-based compensation     511       1,130   Board fees and other consulting services     92       47   Legal, accounting and other professional fees     135       130   Investor and public relations     171       218   Insurance     116       89   Travel expenses     -       39   Sublicense contract amortized acquisition expense     29       -   Rent and utilities     87       87   Warrant modification expense     -       827   All other expenses     57       42                         $ 2,117     $ 2,948     The increase in salaries and benefits expense for the quarter ended December 31, 2020 primarily reflects the impact of bonus payments made to our Chief Executive Officer ( CEO ), Chief Financial Officer ( CFO ), Vice President-Corporate Development ( VP Corporate Development ) and a non-officer member of our administrative staff in December 2020. There were no changes in base compensation levels for our CEO, CFO, or VP-Corporate Development between the periods and no bonus payments were made in the quarter ended December 31, 2019.   Current year stock-based compensation expense reflects the amortization of option grants made to our CEO, CFO, VP Corporate Development, administrative staff, independent members of our Board and certain consultants since October 2018, all earlier grants having become fully vested and amortized prior to the quarter ended December 31, 2020. Grants awarded after December 31, 2019, including those granted during the quarter ended December 31, 2020, account for approximately $346,700 of expense in the quarter ended December 31, 2020, offset by an expense reduction of approximately $605,000 attributable to certain options granted between June 2016 and October 2018 that became fully vested and amortized during the quarter ended December 31, 2020 or earlier. Additionally, expense related to options granted as 25% vested during the quarter ended December 31, 2019 was reduced by approximately $353,000 in the quarter ended December 31, 2020.   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 and, in the current year, other consulting service fees related to commercial market analyses of both PH94B and PH10.         -33- Table of Contents     Legal, accounting and other professional fees for the quarters ended December 31, 2020 and 2019 includes expenses related to routine legal services as well as accounting services related to the quarterly review of our current year financial statements.   Investor and public relations expense includes the fees of our various external service providers for a broad spectrum of investor relations, public relations and social media services, and well as market awareness and strategic advisory and support functions and initiatives that, in 2019, included numerous in-person meetings in multiple U.S. and certain foreign 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, individual and institutional investors, and prospective strategic collaborators for development and commercialization of our product candidates in major pharmaceutical markets worldwide. During the current fiscal year, we have curtailed the number and revised the scope of external service providers engaged in these activities as compared to the prior year.   The increase in insurance expense is primarily attributable to the market-rate increase in the premium for our directors and officers liability insurance upon renewal of our policy in May 2020.   In the quarter ended December 31, 2019, travel expense reflects limited costs associated with in-person management presentations and meetings held in the U.S. and internationally with existing and potential individual and institutional investors, investment professionals and advisors, media, and securities analysts. As a result of periodic shelter-in-place restrictions and travel and workplace precautions and restrictions associated with the ongoing COVID-19 pandemic, during most of 2020, such meetings have generally occurred remotely without requiring in-person business travel by our executives.   Rent expense for both periods presented reflects our implementation of ASC 842 effective April 1, 2019 and the requirement to recognize, as an operating lease related to 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 expected lease term. The underlying lease reflects commercial property rents prevalent in the South San Francisco real estate market 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. We allocate total rent expense for our South San Francisco facility between research and development expense and general and administrative expense based generally on square footage dedicated to each function. Refer to Note 10, Commitments and Contingencies , in the accompanying Condensed Consolidated Financial Statements in Part I of this Report for additional information. Following our implementation of ASC 842, changes in rent expense between periods are primarily related to changes in 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 c ash 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 quarter ended December 31, 2020, we amortized $29,500 of contract acquisition costs.         -34- Table of Contents     During the quarter ended December 31, 2019, we completed three warrant modifications resulting in an aggregate of $826,900 of noncash warrant modification expense as described below.   ● On December 4, 2019, we modified outstanding warrants previously issued as a part of completed private placements to purchase an aggregate of approximately 6.6 million unregistered shares of our common stock to temporarily reduce, for a period of two years or until the expiration of the warrant, if sooner, the exercise price of such warrants to $0.50 per share, in order to more closely align the exercise price of the warrants with the then-current trading price of our common stock. Following the two-year period during which the exercise price is reduced, the exercise price will revert to its pre-modification price. We determined that this modification increased the fair value of the modified warrants by $702,500, which we recorded as warrant modification expense; and   ● Also, on December 4, 2019, we issued additional warrants (the Additional Warrants ) to purchase an aggregate of 325,000 additional shares of our common stock to the participants in the Fall 2019 Private Placement to increase the number of unregistered shares of common stock issuable upon exercise of the warrants from 50% to 100% of the number of shares issued in the private placement. The Additional Warrants are exercisable through March 31, 2024 at an exercise price of $0.50 per share. We determined that the fair value of the Additional Warrants was $88,800, which we also recognized as noncash warrant modification expense.   ● Further, on December 19, 2019, we modified additional outstanding warrants previously issued as a part of a completed private placement to purchase a total of 80,431 shares of our unregistered common stock to permanently reduce the exercise price of such warrants to $0.805 per share and to extend the term of such warrants through December 31, 2022, in order to more closely align the exercise price of the warrants with the then-current trading price of our common stock and to provide additional time for the holders to exercise the warrants. We determined that these modifications increased the fair value of the subject warrants by $35,600, which we also recognized as noncash warrant modification expense.   Interest and Other Expenses      Interest income, net totaled $600 for the quarter ended December 31, 2020 compared to interest income, net of $1,500 for the quarter ended December 31, 2019. The following table indicates the primary components of interest income and expense for each of the periods (amounts in thousands):       Three Months Ended December 31,       2020     2019                 Interest income   $ 4     $ 4   Interest expense on financing lease, insurance premium financing notes                   and Payroll Protection Program loan (2020)     (3 )     (2 )                   Interest income (expense), net   $ 1     $ 2     In both periods, interest income relates to cash deposits in interest-bearing cash equivalent accounts. Although cash balances were higher in the quarter ended December 31, 2020, the decline in market interest rates during 2020 compared to 2019 generated roughly equivalent interest income for each period. Interest expense in both periods relates to interest paid on insurance premium financing notes and on our financing lease of office equipment subject to ASC 842, and in 2020, to interest accrued on our Payroll Protection Program loan prior to its voluntary repayment in December 2020.   We recognized $353,600 and $321,800 for the quarters ended December 31, 2020 and 2019, respectively, representing the 10% cumulative dividend accrued on outstanding shares of our Series B 10% 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 of Operations and Comprehensive Loss included in Part I of this Report. As disclosed in Note 8, Capital Stock, to the accompanying Condensed Consolidated Financial Statements included in Part I of this report, in December 2020, one holder of Series B Preferred converted 28,571 shares of Series B Preferred into an equal number of unregistered shares of our common stock and we issued an additional 160,062 unregistered shares of our common stock in payment of $124,600 of accrued dividends. .         -35- Table of Contents     Comparison of Nine Months Ended December 31, 2020 and 2019   The following table summarizes the results of our operations for the nine months ended December 31, 2020 and 2019 (amounts in thousands).        Nine Months Ended December 31,        2020      2019                 Sublicense revenue   $ 648     $ -   Operating expenses:                  Research and development     7,586       11,534    General and administrative     4,777       6,004     Total operating expenses     12,363       17,538                     Loss from operations     (11,715 )     (17,538 )                   Interest income (expense), net     (6 )     33   Other income     1       -                     Loss before income taxes     (11,720 )     (17,505 ) Income taxes     (3 )     (2 )                   Net loss     (11,723 )     (17,507 )   Accrued dividend on Series B Preferred Stock     (1,037 )     (938 ) Net loss attributable to common stockholders   $ (12,760 )   $ (18,445 )   Revenue      We recognized $647,600 in sublicense revenue pursuant to the AffaMed Agreement in the nine months ended December 31, 2020 compared to none in the nine months ended December 31, 2019. As described more completely in Note 11, Sublicensing and Collaboration Agreements , to our Condensed Consolidated Financial Statements in Part I of this Report, in June 2020, we entered into the AffaMed Agreement, pursuant to which we received a non-dilutive upfront license fee payment of $5.0 million in August 2020. We expect to continue to recognize revenue pursuant to this payment in future periods during our fiscal year ending March 31, 2021 and thereafter, as described in Note 11, referenced previously. While we may potentially receive additional cash payments and royalties in the future under the AffaMed Agreement or the 2016 Bayer Agreement (also described in Note 11, Sublicensing and Collaborative Agreements , to our Condensed Consolidated Financial Statements in Part I of this Report) in the event certain performance-based milestones and commercial sales are achieved, there can be no assurance that the AffaMed Agreement or the Bayer Agreement will provide additional revenue beyond that noted or cash payments to us in the near term, or at all.         -36- Table of Contents     Research and Development Expense   Research and development expense decreased from $11.5 million to $7.6 million for the nine months ended December 31, 2019 and 2020, respectively, primarily due to the completion of the Elevate Study in the fourth calendar quarter of 2019. Expenses related to the Elevate Study and other AV-101 related nonclinical activities decreased by approximately $5.9 million in the nine months ended December 31, 2020 compared to expense in the nine months ended December 31, 2019. Noncash research and development expenses, primarily stock-based compensation and depreciation in both periods, accounted for approximately $629,000 and $1,132,500 in the nine months ended December 31, 2020 and 2019, respectively. The following table indicates the primary components of research and development expense for each of the periods (amounts in thousands):       Nine Months Ended December 31,       2020     2019                 Salaries and benefits   $ 1,346     $ 1,022   Stock-based compensation     568       1,061   Consulting and other professional services     281       434   Technology licenses and royalties     452       443   Project-related research, licenses and supplies:                 Elevate study and other AV-101 expenses     484       6,401   PH94B and PH10 development expenses     3,993       1,642   Stem cell and all other     16       92         4,493       8,135   Rent     408       400   Depreciation     38       37   All other     -       2                     Total Research and Development Expense   $ 7,586     $ 11,534     The increase in salaries and benefits expense for the nine months ended December 31, 2020 primarily reflects the impacts of bonus payments made to our CMO, CSO, and members of our scientific staff in December 2020, as well as the addition of our VP–Translational Medicine effective on December 1, 2020. There were no changes in base compensation levels for our CMO, CSO, or other members of our scientific staff between the periods and no bonus expense was recognized in the nine months ended December 31, 2019.   Current year stock-based compensation expense reflects the amortization of option grants made to our CMO, CSO, VP-Translational Medicine, members of our scientific staff and certain clinical and scientific consultants since June 2016, all earlier outstanding grants having become fully vested and amortized prior to the nine months ended December 31, 2020. Grants awarded after December 31, 2019, including those granted during the nine months ended December 31, 2020, account for approximately $234,000 of expense in the nine months ended December 31, 2020, offset by an expense reduction of approximately $652,300 attributable to certain options granted between June 2016 and October 2018 that became fully vested and amortized during the nine months ended December 31, 2020 or earlier. Stock compensation expense is further reduced in the nine months ended December 31, 2020 by approximately $79,500 due to the absence of the impact of immediate vesting attributable to certain options granted in May 2019 or fully vesting prior to December 31, 2019. Expense attributable to recent option grants is generally being amortized over two-year to three-year vesting periods, with essentially all of the grants made since May 2019, including those made in the nine months ended December 31, 2020, being 25% vested and expensed upon grant, in accordance with the terms of the respective grants.         -37- Table of Contents     Consulting and other professional services reflects fees 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, including by members of our Scientific Advisory Board and CNS Clinical and Regulatory Advisory Board, especially in support of our PH94B and PH10 development initiatives. Current year expense reflects a reduction of $80,000 in development support payments to Pherin which terminated in April 2020 under the terms of our PH94B and PH10 license agreements and a $93,000 reduction in analytical services in support of PH94B and PH10 development compared to the prior year.   Technology license and royalties expense reflects primarily legal counsel and other costs related to patent prosecution and protection pursuant to our stem cell technology license agreements, our AV-101 patents, or patents that we have elected to pursue for commercial purposes as well as recurring annual license fees. These costs 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 various patent applications in the U.S. and numerous foreign countries, primarily with respect to AV-101 and our stem cell technology platform, but also nominally with respect to our PH94B and PH10 intellectual property portfolios.   AV-101 project expense for the nine months ended December 31, 2019 reflects the costs of actively conducting the Elevate Study in MDD, including various CROs, investigator and clinical site costs, and determination of topline study results, as well as CRO support services for AV-101 projects for indications other than MDD, and, to lesser extent, expense incurred to manufacture additional quantities of AV-101 for use in potential future clinical development of AV-101 in a number of potential CNS indications. AV-101 project expense for the nine months ended December 31, 2020 primarily reflects the cost of certain preclinical studies related to the use of AV-101 with probenecid and certain AV-101 manufacturing stability studies, and costs incurred to finalize the results of the Elevate Study for regulatory submission.   PH94B and PH10 project expenses for the nine months ended December 31, 2020 and 2019 primarily reflect research and development and manufacturing and regulatory initiatives necessary to facilitate Phase 3 clinical development of PH94B for acute treatment of anxiety in patients with SAD and Phase 2B development of PH10 for MDD. Manufacturing, formulation and analysis of sufficient quantities of drug substance and drug product are currently the critical path items for advancing the further clinical development of both PH94B and PH10, with costs for PH94B significantly exceeding those for PH10 in the nine months ended December 31, 2020 and in comparison to those of the comparable prior year period. From time to time, during the nine months ended December 31, 2020, production, logistics and analytical processes for both of these product candidates have been delayed due to the ongoing COVID-19 pandemic.   Stem cell and other project related expenses reflects costs associated with drug rescue applications of our stem cell technology in both years. These expenses are typically incurred by our in-house scientific personnel. As a result of shelter-in-place and remote working requirements related to the ongoing COVID-19 pandemic, such expenses have been reduced to an insignificant level during the nine months ended December 31, 2020.   Rent expense for both periods presented reflects our implementation of ASC 842 effective April 1, 2019 and the requirement to recognize, as an operating lease related to 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 expected lease term. The underlying lease reflects commercial property rents prevalent in the South San Francisco real estate market 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. We allocate total rent expense for our South San Francisco facility between research and development expense and general and administrative expense based generally on square footage dedicated to each function. Refer to Note 10, Commitments and Contingencies , in the accompanying Condensed Consolidated Financial Statements in Part I of this Report for additional information. Following our implementation of ASC 842, the increase in rent expense between periods is primarily related to increases in such items as common area maintenance fees, taxes and insurance which are generally assessed to us by our landlord.         -38- Table of Contents     General and Administrative Expense   General and administrative expense decreased to approximately $4.8 million from approximately $6.0 million for the nine months ended December 31, 2020 and 2019, respectively. Cash compensation for the nine months ended December 31, 2020 increased by approximately $0.6 million while noncash stock-based compensation decreased by approximately $0.8 million for the same period compared to comparable expenses in the nine months ended December 31, 2019. Further, during the nine months ended December 31, 2019, we completed certain modifications to outstanding warrants and recognized non-cash warrant modification expense of $826,900. Noncash general and administrative expense, approximately $1,361,000 for the nine months ended December 31, 2020, decreased from approximately $3,020,000 for the nine months ended December 31, 2019 primarily due to decreases in stock-based compensation and warrant modifications noted above and the noncash components of investor and public relations expense attributable to the amortization of the fair value of common stock or warrants granted to service providers. The following table indicates the primary components of general and administrative expense for each of the periods (amounts in thousands):       Nine Months Ended December 31,       2020     2019                 Salaries and benefits   $ 1,611     $ 1,023   Stock-based compensation     1,248       2,028   Board fees and other consulting services     197       139   Legal, accounting and other professional fees     446       499   Investor and public relations     438       719   Insurance     334       259   Travel expenses     4       75   Rent and utilities     264       264   Sublicense contract amortized acquisition expense     60       -   Warrant modification expense     -       827   All other expenses     175       171       $ 4,777     $ 6,004     The increase in salaries and benefits expense for the nine months ended December 31, 2020 primarily reflects the impact of bonus payments made to our CEO, CFO, VP-Corporate Development and a non-officer member of our administrative staff in December 2020. There were no changes in base compensation levels for our CEO, CFO, or VP-Corporate Development between the periods and no bonus expense was recognized during the nine months ended December 31, 2019.   Current year stock-based compensation expense reflects the amortization of option grants made to our CEO, CFO, VP Corporate Development, administrative staff, independent members of our Board and certain consultants since June 2016, all earlier grants having become fully vested and amortized prior to the nine months ended December 31, 2020. Grants awarded after December 31, 2019, including those granted during the nine months ended December 31, 2020, account for approximately $524,000 of expense in the nine months ended December 31, 2020, offset by an expense reduction of approximately $1,048,600 attributable to certain options granted between June 2016 and October 2018 that became fully vested and amortized during the nine months ended December 31, 2020 or earlier. Stock compensation expense is further reduced in the nine months ended December 31, 2020 by approximately $260,000 due to the absence of the impact of immediate vesting attributable to certain options granted in May 2019 or becoming fully vested by December 31, 2019. Expense attributable to recent option grants is generally being amortized over two-year to three-year vesting periods, with essentially all of the grants made since May 2019, including those made during the nine months ended December 31, 2020, being 25% vested and expensed upon grant, in accordance with the terms of the respective grants.         -39- Table of Contents     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 and, additionally in the current year, other consulting service fees related to commercial analyses of both PH94B and PH10.   Legal, accounting and other professional fees for the nine months ended December 31, 2020 and 2019 includes expense related to routine legal fees as well as the accounting expense related to the annual audit of our prior year financial statements and the quarterly review of our first and second quarter current year financial statements. In 2020, we incurred additional consulting fees related to revenue recognition accounting for the AffaMed Agreement and, in 2019, we incurred fees attributable to services provided by an international business development consultant.   Investor and public relations expense includes the fees of our various external service providers for a broad spectrum of investor relations, public relations and social media services, and well as market awareness and strategic advisory and support functions and initiatives that, in 2019, included numerous in-person meetings in multiple U.S. and certain foreign 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, individual and institutional investors, and prospective strategic collaborators for development and commercialization of our product candidates in major pharmaceutical markets worldwide. During the nine months ended December 31, 2020, we curtailed the number and scope of external service providers engaged in these activities compared to the prior year. Further, in the nine months ended December 31, 2019, in addition to cash fees and expenses we incurred for such activities, we recognized approximately $105,900 of noncash expense attributable to the amortization of the fair value of stock and warrants granted in previous periods to various corporate development, investor relations, and market awareness service providers. No such noncash expense was incurred in the nine months ended December 31, 2020.   The increase in insurance expense is primarily attributable to the market-rate increase in the premium for our directors and officers liability insurance upon renewal of our policy in May 2020.   In the nine months ended December 31, 2019, travel expense reflects costs associated with in-person management presentations and 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 and in monitoring the progress of our Elevate Study. As a result of periodic shelter-in-place restrictions and travel and workplace precautions and restrictions associated with the ongoing COVID-19 pandemic, during the nine months ended December 31, 2020, such meetings have occurred remotely without requiring in-person business travel by our executives.   Rent expense for both periods presented reflects our implementation of ASC 842 effective April 1, 2019 and the requirement to recognize, as an operating lease related to 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 expected lease term. The underlying lease reflects commercial property rents prevalent in the South San Francisco real estate market 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. We allocate total rent expense for our South San Francisco facility between research and development expense and general and administrative expense based generally on square footage dedicated to each function. Refer to Note 10, Commitments and Contingencies , in the accompanying Condensed Consolidated Financial Statements in Part I of this Report for additional information. Following our implementation of ASC 842, increases or decreases in rent expense between periods are primarily related to changes in 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 c ash payments of $220,000 for sublicense fees which we were obligated to make pursuant to our PH94B license from Pherin, and $125,000 of cash fees 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 nine months ended December 31, 2020, we have amortized $60,900 of contract acquisition costs.         -40- Table of Contents     During the nine months ended December 31, 2019, we completed three warrant modifications resulting in an aggregate of $826,900 of noncash warrant modification expense as described below.   ● On December 4, 2019, we modified outstanding warrants previously issued as a part of completed private placements to purchase an aggregate of approximately 6.6 million unregistered shares of our common stock to temporarily reduce, for a period of two years or until the expiration of the warrant, if sooner, the exercise price of such warrants to $0.50 per share, in order to more closely align the exercise price of the warrants with the then-current trading price of our common stock. Following the two-year period during which the exercise price is reduced, the exercise price will revert to its pre-modification price. We determined that this modification increased the fair value of the modified warrants by $702,500, which we recorded as warrant modification expense.   ● Also, on December 4, 2019, we issued additional warrants (the Additional Warrants ) to purchase an aggregate of 325,000 additional shares of our common stock to the participants in the Fall 2019 Private Placement to increase the number of unregistered shares of common stock issuable upon exercise of the warrants from 50% to 100% of the number of shares issued in the private placement. The Additional Warrants are exercisable through March 31, 2024 at an exercise price of $0.50 per share. We determined that the fair value of the Additional Warrants was $88,800, which we also recognized as noncash warrant modification expense.   ● Further, on December 19, 2019, we modified additional outstanding warrants previously issued as a part of a completed private placement to purchase a total of 80,431 shares of our unregistered common stock to permanently reduce the exercise price of such warrants to $0.805 per share and to extend the term of such warrants through December 31, 2022, in order to more closely align the exercise price of the warrants with the then-current trading price of our common stock and to provide additional time for the holders to exercise the warrants. We determined that these modifications increased the fair value of the subject warrants by $35,600, which we also recognized as noncash warrant modification expense.   The shares underlying the modified warrants and the Additional Warrants were included in a Registration Statement on Form S-3 (File No. 333-237968) that was declared effective by the Commission on May 13, 2020.   Interest and Other Expenses     Interest expense, net totaled $6,500 for the nine months ended December 31, 2020 compared to interest income, net of $33,400 for the nine months ended December 31, 2019. The following table indicates the primary components of interest income and expense for each of the periods (amounts in thousands):       Nine Months Ended December 31,       2020     2019                 Interest income   $ 6     $ 43   Interest expense on financing lease, insurance premium financing notes                   and Payroll Protection Program loan (2020)     (12 )     (10 )                   Interest income (expense), net   $ (6 )   $ 33     In both periods, interest income relates to cash deposits in interest-bearing cash equivalent accounts. Although cash balances were generally higher during the nine months ended December 31, 2020, the decline in market interest rates during 2020 compared to 2019 resulted in reduced interest income. Interest expense in both periods relates to interest paid on insurance premium financing notes and on our financing lease of office equipment subject to ASC 842, and in 2020, to interest accrued on our Payroll Protection Program loan prior to its voluntary repayment in December 2020.   We recognized $1,036,600 and $938,100 for the nine months ended December 31, 2020 and 2019, respectively, representing the 10% cumulative dividend accrued on outstanding shares of our Series B 10% 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 of Operations and Comprehensive Loss included in Part I of this Report. As disclosed in Note 8, Capital Stock, to the accompanying Condensed Consolidated Financial Statements included in Part I of this report, in December 2020, one holder of Series B Preferred converted 28,571 shares of Series B Preferred into an equal number of unregistered shares of our common stock and we issued an additional 160,062 unregistered shares of our common stock in payment of $124,600 of accrued dividends.         -41- Table of Contents     Liquidity and Capital Resources   Since our inception in May 1998 through December 31, 2020, 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 $193.6 million, as well as from an aggregate of approximately $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 licensing, and other revenues. Additionally, we have issued equity securities with an approximate value at issuance of $38.2 million in 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.   Recent Developments   As described more completely above and in Note 8, Capital Stock , to the accompanying Condensed Consolidated Financial Statements included in Part I of this Report ( Note 8 ), in December 20 20, we entered into an underwriting agreement for the December 2020 Public Offering, pursuant to which we sold 63,000,000 shares of our common stock at a public offering price of $0.92 per share and 2,000,000 shares of a newly issued Series D Preferred   at a public offering price of $21.16 per share, resulting in gross proceeds to us of $100 million. Net proceeds to us from the sale of securities during the December 2020 Public Offering, after deducting underwriting discounts and commissions and offering expenses payable by us, were approximately $93.6 million.   As also described more completely above and in Note 8, in August 2020, we entered into an underwriting agreement for the August 2020 Public Offering, pursuant to which we sold an aggregate of 15,625,000 shares of our common stock for a public offering price of $0.80 per share, resulting in gross proceeds to us of $12,500,000. Under the terms of the August 2020 Underwriting Agreement, we granted to the underwriter an over-allotment option to purchase up to an additional 2,343,750 shares at a public offering price of $0.80 per share, which over-allotment option was exercised with respect to 2,243,250 shares, resulting in additional gross proceeds to us of $1,794,600. Aggregate net proceeds to us from the August 2020 Public Offering, after deducting underwriting discounts and commissions and offering expenses payable by us, were approximately $12.9 million.   As more completely described above and in Note 11, Sublicensing and Collaboration Agreements , to the accompanying Condensed Consolidated Financial Statements included in Part I of this Report, in June 2020, we entered into the AffaMed Agreement, a strategic licensing and collaboration agreement for the clinical development and commercialization of PH94B for acute treatment of anxiety in adults with SAD and other potential anxiety-related disorders. Under the terms of the AffaMed Agreement, AffaMed agreed to make a non-dilutive upfront license payment of $5.0 million to us, which we received in August 2020. Upon successful development and commercialization of PH94B in AffaMed’s territory, we are eligible to receive up to $172 million in additional development and commercial milestone payments, plus royalties on commercial sales in the licensed territory. The $5.0 million upfront license payment resulted in net cash proceeds to us of approximately $4.655 million after the sublicense payment we agreed to make to Pherin Pharmaceuticals, Inc. ( Pherin ) pursuant to our PH94B license from Pherin, and payment for consulting services related to the AffaMed Agreement.   Additionally, as described above and in Note 8, on March 24, 2020, we entered into a purchase agreement and a registration rights agreement with Lincoln Park Capital Fund ( Lincoln Park ) pursuant to which Lincoln Park committed to purchase up to $10,250,000 of our common stock at market-based prices over a period of 24 months (the LPC Agreement ). To satisfy our obligations under the registration rights agreement, we filed a Registration Statement on Form S-1 (the LPC Registration Statement ) with the Securities and Exchange Commission (the SEC ) on March 31, 2020, which the SEC declared effective on April 14, 2020 (Registration No. 333-237514). Subsequent to the effectiveness of the LPC Registration Statement and through July 2020, we sold 6,301,995 registered shares of our common stock to Lincoln Park and received gross cash proceeds of $2,891,200. We have not sold any shares of our common stock pursuant to the LPC Agreement since July 2020, nor do we have any obligation to do so in the future.   As also described in Note 8, during December 2020, certain holders of outstanding warrants exercised such warrants to purchase an aggregate of 1,447,782 shares of our common stock and we received cash proceeds of $723,900 from such exercises. As disclosed in Note 12, Subsequent Events , to the accompanying Condensed Consolidated Financial Statements included in Part I of this Report, since December 31, 2020, holders of outstanding warrants have exercised warrants to purchase an additional 2,941,027 shares of our common stock and we have received cash proceeds of approximately $2.86 million.         -42- Table of Contents     The transactions described above have generated approximately $114.8 million in net cash proceeds to us between April 1, 2020 and December 31, 2020, and at that date, we had cash and cash equivalents of approximately $104.3 million. Accordingly, we believe that our cash position at December 31, 2020, which reflects such net proceeds, is sufficient to fund our planned operations for well beyond the twelve months following the issuance of these financial statements, removing earlier doubt regarding our ability to continue as a going concern. Nevertheless, we have not yet developed products that generate recurring revenue and, assuming successful completion of our planned clinical and nonclinical programs, we will need to invest substantial additional capital resources to commercialize any of them.   During the next twelve months, we plan to (i) prepare for and launch two pivotal Phase 3 clinical trials of PH94B for acute treatment of anxiety in adult patients with SAD, one in North America and another globally, (ii) prepare for and launch a small exploratory Phase 2A study of PH94B for acute treatment of adult patients with adjustment disorder, (iii) prepare for and potentially launch small exploratory Phase 2A clinical studies of PH94B in postpartum anxiety, post-traumatic stress disorder and/or pre-procedural (i.e. pre-MRI) anxiety, (iv) assess and potentially launch a Phase 1 study of AV-101 in combination with probenecid to enable exploratory Phase 2A development of the combination for treatment of CNS disorders, and (v) conduct several nonclinical studies involving PH94B, PH10 and AV-101.   Although we believe our current cash position is sufficient to fund our planned operations for the next twelve months, when necessary and advantageous, we may raise additional capital through the sale of our equity securities in one or more (i) public offerings (ii) private placements to accredited investors, and/or (iii) in strategic licensing and development collaborations involving one or more of our drug candidates in markets outside the United States, similar to the AffaMed Agreement. Subject to certain restrictions, our Registration Statement on Form S-3 (Registration No. 333-234025) (the S-3 Registration Statement ), which became effective on October 7, 2019 and was used to register the shares of common stock and Series D Preferred sold in the December 2020 Public Offering and the shares of common stock and the Exercised Option Shares sold in the August 2020 Public Offering, 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 Registration Statement, we do not have an obligation to do so. Further, at December 31, 2020 and through the date of this Report, there are approximately 2.04 million registered shares of our common stock remaining available for sale under the LPC Agreement. We have no obligation to sell any additional shares to Lincoln Park under the LPC Agreement.   As we have been in the past, we expect that, when and as necessary, we will be successful in raising additional capital from the sale of our equity securities either in one or more public offerings or in one or more private placement transactions with individual accredited investors and institutions. In addition to the potential sale of our equity securities, we may also seek to enter research, development and/or commercialization collaborations similar to the AffaMed Agreement and the Bayer Agreement that could generate revenue or provide funding, including non-dilutive funding, for development of one or more of our CNS product candidate programs. We may also seek additional government grant awards or agreements similar to our prior agreement with the U.S. National Institutes of Health ( NIH ), Baylor University and the U.S. Department of Veterans Affairs in connection with certain government-sponsored studies of AV-101. 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. We may also pursue intellectual property arrangements similar to the AffaMed Agreement and the Bayer Agreement with other parties. Although we may seek additional collaborations that could generate revenue and/or provide non-dilutive funding for development of our product candidates, as well as new government grant awards and/or agreements, 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 current 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 our current product candidates and various applications of our stem cell technology platform, the availability of, and our ability to obtain, government grant awards and agreements, and our ability to enter into collaborations on terms acceptable to us. To further advance the clinical development of PH94B, PH10, and AV-101 and, to a lesser extent, our stem cell technology platform, as well as support our operating activities, we plan to continue to carefully manage our routine operating costs, including our employee headcount and related expenses, as well as costs relating to regulatory consulting, contract manufacturing, research and development, investor and public relations, business development, legal, intellectual property acquisition and protection, public company compliance and other professional services and operating costs.    Notwithstanding the foregoing, there can be no assurance that our current strategic collaborations under the AffaMed Agreement and the Bayer Agreement will generate any revenue from future potential milestone payments, or that future financings or government 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 additional financing on a timely basis when needed, 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.          -43- Table of Contents     Cash and Cash Equivalents   The following table summarizes changes in cash and cash equivalents for the periods stated (in thousands):       Nine Months Ended December 31,       2020     2019                 Net cash used in operating activities   $ (6,792 )   $ (13,178 ) Net cash used in investing activities     (250 )     -   Net cash provided by financing activities     110,018       1,141                      Net increase (decrease) in cash and cash equivalents     102,976       (12,037 )  Cash and cash equivalents at beginning of period     1,355       13,100                      Cash and cash equivalents at end of period   $ 104,331     $ 1,063     The decrease in cash used in operations results primarily from the completion of the Elevate Study, which commenced at the end of the first calendar quarter of 2018 and was operationally completed during the fourth calendar quarter of 2019. Cash used in operations during the nine months ended December 31, 2020 was reduced by the August 2020 receipt of the $5.0 million nondilutive upfront payment from EverInsight under the AffaMed Agreement while cash used in nonclinical development and manufacturing advancements related to PH94B and PH10 increased during the current fiscal year compared to the prior year. Cash used in investing activities in the current fiscal year includes approximately $200,000 for the purchase of certain manufacturing equipment acquired for use by our contract development and manufacturing organization in connection with the production of PH94B drug product. The equipment has not yet been completely validated or placed in productive service at December 31, 2020. Cash provided by financing activities for the nine months ended December 31, 2020 primarily reflects net cash proceeds to us from sales of our common stock and Series D Preferred stock pursuant to the December 2020 Public Offering and from sales of our common stock pursuant to the August 2020 Public Offering, the LPC Agreement and the Spring 2020 Private Placement, as well as from the exercise of outstanding warrants, net of routine insurance premium financing note and financing lease payments. We received our Payroll Protection Program loan in April 2020 and voluntarily repaid all principal and accrued interest in December 2020 following the completion of the December 2020 Public Offering. Cash provided by financing activities in 2019 reflects the cash proceeds from our Fall 2019 Private Placement, our Fall 2019 Warrant Offering and the exercise of certain warrants following the modification of their exercise prices, net of routine insurance premium financing note and lease payments.   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.   Item 4.   CONTROLS AND P ROCEDURES   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.         -44- Table of Contents     Internal Control over Financial Reporting   In our Annual Report on Form 10-K for our fiscal year ended March 31, 2020 filed with the Securities and Exchange Commission on June 29, 2020, 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 does not believe that these weaknesses have resulted in any deficient financial reporting. Although there was no change in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) that occurred during the fiscal quarter to which this Report relates, subsequent to December 31, 2020, management has begun planning to alleviate both of these weaknesses through the implementation of alternative procedures to ensure adequate segregation of duties and transitioning to new accounting software.   PART II: OTH E R INFORMATION   Item 1. Legal Proceedings   None.   Item 1A. Risk Factors   Risk Factor Summary   Our business is subject to substantial risk and an investment in our securities involves various risks. Some of 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:   ● the COVID-19 pandemic has, and continues to have, an impact on our business, including delays in manufacturing of certain drug substance and drug products and potential delays in recruitment and enrollment in our planned clinical studies of PH94B;   ● we are a development stage biopharmaceutical company with no current revenues or approved products, and limited experience developing or commercializing new drug, biological and/or regenerative medicine candidates, which makes it difficult to assess our future viability;   ● we depend heavily on the success of our three CNS drug 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;   ● failures or delays in the commencement or completion of our planned clinical trials could delay, prevent or limit our ability to generate revenue and continue our business;   ● 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 have identified material weaknesses in our internal control over financial reporting, and our business and stock price may be adversely affected if we do not adequately address those weaknesses or if we have other material weaknesses or significant deficiencies in our internal control over financial reporting;   ● we require additional financing to execute our long-term business plan, including commercialization of our CNS pipeline, and to continue to operate as a going concern;   ● raising additional capital will 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; 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.           -45- Table of Contents     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 our fiscal year ended March 31, 2020 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 risks are realized, our business, financial condition and results of operations could be materially and adversely affected.   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 United States in response to the outbreak. Considerable uncertainty still surrounds COVID-19 and its potential effects, and the extent of and effectiveness of responses taken on international, national and local levels. Measures taken to limit the impact of COVID-19, including shelter-in-place orders, social distancing measures, travel bans and restrictions, and business and government shutdowns have already resulted in significant negative economic impacts on a global basis.   As the COVID-19 pandemic continues to rapidly evolve, we cannot at this time accurately predict the effects of these conditions 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 and scope of the travel restrictions and business closures imposed by the governments of impacted countries and localities. The continued COVID-19 pandemic, 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. The COVID-19 pandemic has impacted our business and may continue to do so as the pandemic persists. Additionally, future outbreaks may have several adverse effects on our business, results of operations and financial condition.   ● Delayed product development: We have faced, and may continue to face, delays and other disruptions to our ongoing clinical development programs for PH94B, PH10 and AV-101 due to the ongoing COVID-19 pandemic. In addition, 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 clinical development programs for our current product candidates, our research and development efforts may be impacted if our employees, our contract research organizations ( CROs ) and our third-party contract manufacturer(s) ( CMOs ) are advised to continue to work remotely as part of social distancing measures. Additionally, social distancing measures, stay-at-home orders and other governmental restrictions designed to combat the COVID-19 pandemic may impair our ability conduct our planned pivotal Phase 3 clinical study for PH94B in a timely manner.   ● Negative impacts on our suppliers and employees : COVID-19 has impacted, and COVID-19 or another highly transmissible and pathogenic infectious disease, may continue to impact the health of our employees, 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 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 and other contractors. The continued 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.         -46- Table of Contents     Risks Related to Product Development, Regulatory Approval and Commercialization   We depend heavily on the success of one or more of our current drug candidates and we cannot be certain that we will be able to obtain regulatory approval for, or successfully commercialize any of our product 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 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 additional product candidates. Each of our current CNS drug candidates will require substantial additional nonclinical and clinical development, manufacturing and regulatory approval before any of them may be commercialized, and there can be no assurance that any of them will ever achieve regulatory approval. Any new chemical entity ( NCE ) we may produce through drug rescue activities will require substantial nonclinical development, all phases of clinical development, manufacturing and regulatory approval before it may be commercialized. 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 U.S. and in other countries where we intend to test and, if approved, market any product candidate. Before obtaining regulatory approvals for the commercial sale of any product candidate, we must demonstrate through numerous nonclinical and clinical studies that the product candidate is safe and effective for use in each target indication. 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 nonclinical or clinical studies. This process takes many years and may also include post-marketing studies, 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 drug candidates in development in the 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 any of our current drug candidates or any future product candidates will be successfully developed or commercialized in the U.S. or any market outside the U.S.   We are not permitted to market our product candidates in the 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. Obtaining FDA approval of a NDA is a complex, lengthy, expensive and uncertain process. The FDA may refuse to permit the filing of our NDA, delay, limit or deny approval of a NDA for many reasons, including, among others:   ● if we submit a 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 the applicable foreign regulatory agency may determine that the manufacturing processes or facilities of third-party contract manufacturers with which we contract do not conform to applicable requirements, including current Good Manufacturing Practices ( cGMPs ); or   ● the FDA or applicable foreign regulatory agency may change its approval policies or adopt new regulations.    Any of these factors, many of which are beyond our control, could jeopardize our ability to obtain regulatory approval for and successfully commercialize any current or future drug product candidate we may 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, we anticipate that 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.         -47- Table of Contents     We have been granted Fast Track designation from the FDA for development of PH94B for the treatment of 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, these designations may not actually lead to faster development or regulatory review or approval 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 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 candidate.   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 NP. In December 2019, the FDA granted Fast Track designation for development of PH94B for the treatment of SAD. However, 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. The FDA has broad discretion whether or not to grant a Fast Track designation, and even if we believe PH94B, PH10, AV-101 or other product candidates may be eligible for this designation, we cannot be sure that the FDA will 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 development may fail to show the desired safety and efficacy results despite having progressed through nonclinical studies and initial clinical trials. Many companies in the biopharmaceutical industry have suffered significant setbacks in 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, nonclinical and clinical data are often susceptible to varying interpretations and analyses, and many companies that believed their product candidates performed satisfactorily in nonclinical studies and clinical trials nonetheless failed to obtain FDA approval or approval from a similar regulatory authority in another country. With respect to our current product candidates, if one or more of the future Phase 3 clinical trials of PH94B for acute treatment of anxiety in adults with SAD, any future clinical study of AV-101 or a future Phase 2 clinical trial of PH10 for MDD 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 changes in planned timing or nature of clinical trials compared to completed clinical trials. As product candidates are developed through preclinical to early- and late-stage clinical trials towards 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 of planned clinical trials have been affected by supply chain disruptions experienced by certain of our CDMOs as a result of the ongoing COVID-19 pandemic. In addition, clinical development of our products may be further affected if we or any of our 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 nonclinical and clinical trials.         -48- Table of Contents     If serious adverse events or other undesirable side effects or safety concerns attributable to our product candidates occur, they may adversely affect or delay our clinical development and commercialization of 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 could result in a more restrictive label or the delay or denial of regulatory approval. Although no treatment-related serious adverse events ( SAEs ) were observed in any clinical trials of any of our product candidates to date, if treatment-related SAEs or other undesirable side effects or safety concerns, or unexpected characteristics attributable to PH94B, PH10 and/or AV-101, are observed in any future clinical trials, including investigator-sponsored clinical trials, they may adversely affect or delay our clinical development and commercialization of the effected product candidate, and the occurrence of these events 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 REMS 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 expenses, which in turn could delay or prevent us from generating significant revenue from the sale of our product candidates.          -49- Table of Contents     Failures or delays in the commencement or completion of our planned clinical trials and nonclinical 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.   We will need to complete at least two pivotal Phase 3 clinical studies of PH94B, additional toxicology and other standard nonclinical and clinical safety studies, as well as certain other clinical studies prior to our 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 or phobia. For PH10, we will need to complete at least one additional Phase 2 clinical study, two pivotal Phase 3 clinical trials, additional toxicology and other standard nonclinical and clinical safety studies, as well as certain standard smaller clinical studies prior to the submission of an NDA for regulatory approval of PH10 as a stand-alone rapid-onset treatment for MDD, or any other depression disorder. For AV-101 in combination with probenecid, for treatment of any CNS indication, we will need to complete at least one Phase 1B clinical study, two Phase 2 clinical studies, two pivotal Phase 3 clinical trials, additional toxicology and other standard nonclinical and clinical safety studies, as well as certain standard smaller clinical studies prior to the submission of an NDA for regulatory approval. 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. We do not know whether 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:   ● delays due to events resulting from the ongoing COVID-19 pandemic;   ● 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 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 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;   ● 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 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   ● 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.            -50- Table of Contents     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 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.   Changes in regulatory requirements, regulatory guidance or unanticipated events during our nonclinical studies and clinical trials of PH94B, PH10, AV-101 or other 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, guidance or unanticipated events during our nonclinical studies and clinical trials of PH94B, PH10, AV-101 or other product candidates may force us to amend nonclinical studies and clinical trial protocols or the regulatory authority may impose additional nonclinical studies and clinical trial requirements. Amendments or changes to our clinical trial protocols would require resubmission to the 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 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 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 our current product candidates and will continue to do so for any other future product candidates. If these third parties do not successfully carry out their contractual duties and/or meet expected deadlines, completion of our nonclinical or clinical trials and development of PH94B, PH10, AV-101 or other 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 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 to assist us to conduct and 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 for 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 internal staff resources. Communicating with outside parties can also be challenging, potentially leading to mistakes as well as difficulties in coordinating activities. CROs and other outside parties may:   ● experience disruptions to their operations, such as 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.         -51- Table of Contents     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 independent investigators does not relieve us of our regulatory responsibilities. We and our CROs, 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 third-party collaborators fail to comply with applicable cGCPs, the clinical data generated in 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 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.   Although we design our clinical trials for our product candidates, our clinical development strategy involves having CROs and other third-party investigators and medical institutions conduct clinical trials of our product candidates. As a result, many important aspects of our drug development programs are outside of our direct control. In addition, although CROs, or 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, under certain circumstances, we may be responsible and 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 product candidates. If 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 our product candidates may be delayed or our development program materially and irreversibly harmed. In certain cases, including the Baylor Study and other investigator-sponsored clinical studies, we cannot control the amount and timing of resources these third-parties devote to clinical trials involving our product candidates. If we are unable to rely on nonclinical and clinical data collected by our 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 our relationships with one or more of our third-party collaborators terminates, we may not be able to enter into arrangements with alternative third-party collaborators.  If such third-party collaborators, including our CROs, 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 their failure to adhere to applicable clinical protocols, regulatory requirements or for other reasons, any clinical trials that such 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.   We rely completely on third-parties to manufacture, formulate, analyze, hold and distribute supplies of our product candidates for all nonclinical and clinical studies, and we intend to continue to rely on third parties to produce all nonclinical, clinical and commercial supplies of our product candidates in the future.   By strategic design, we do not currently have, nor do we plan to acquire or develop, extensive internal infrastructure or technical capabilities to manufacture, formulate, analyze, hold or distribute supplies of our product candidates, for use in nonclinical and clinical studies or commercial scale.  As a result, with respect to all of our product candidates, we rely, and will continue to rely, completely on CDMOs to manufacture API and formulate, hold and distribute final drug product. The facilities used by our CDMOs 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.         -52- Table of Contents     We do not directly control the manufacturing process or the supply or quality of materials used in the manufacturing, analysis and formulation of our product candidates, and, with respect to all of our product candidates, we are completely dependent on our CDMOs to comply with all applicable cGMPs for the manufacturing of both API and finished drug product. If our CDMOs cannot secure adequate supplies of suitable raw materials 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 CDMOs 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 CDMOs’ ability to maintain adequate quality control, quality assurance and qualified personnel. All of our CDMOs are engaged with other companies to supply and/or manufacture materials or products for such other companies, which exposes our CDMOs 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 CDMO’s facilities generally or affect the timing of manufacture of PH94B, PH10 and AV-101 for required or planned nonclinical and/or clinical studies. If the FDA or an applicable foreign regulatory agency determines now or in the future that our CDMOs’ 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 our product candidates. Our reliance on CDMOs 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.   With respect to PH94B, PH10 and AV-101, we do not yet have long-term supply agreements in place with our CDMOs and each batch of PH94B, PH10 and AV-101 is or will be individually contracted under a separate supply agreement. If we engage new CDMOs, such contractors must complete an inspection by the FDA and other applicable foreign regulatory agencies. We plan to continue to rely upon CDMOs and, potentially, collaboration partners, to manufacture research and development scale, and, if approved, commercial quantities of our product 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 supply shortages or CDMO-related delays in the manufacture and formulation of PH94B, PH10 or AV-101 API and/or finished drug product will not occur in the future.   Additionally, we anticipate that 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 CDMOs to manufacture our product candidates must be approved by the FDA anf 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 CDMO partners for compliance with cGMPs and QSRs. If our CDMOs 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. CDMOs 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.         -53- Table of Contents     Even if we receive marketing approval for PH94B, PH10, AV-101 or any other product candidate in the U.S., we may never receive regulatory approval to market PH94B, PH10, AV-101 or any other product candidate outside of the U.S.   In order to market PH94B, PH10, AV-101 or any other product candidate outside of the 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 U.S. as well as other risks. In particular, in many countries outside of the 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.   If any of our product candidates are ultimately regulated as controlled substances, we, our CDMOs, 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 U.S. or any market outside the U.S., the U.S. Drug Enforcement Administration ( DEA ) or its foreign counterpart may need to determine whether such product candidates will be considered to be a controlled substance, taking into account the recommendation of the 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. Although we currently do not know whether the DEA or any foreign counterpart will consider any of our current or future product candidate to be controlled substances, we cannot yet give any assurance that such product candidates, including PH94B, PH10 and AV-101 will not be regulated as controlled substances.   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 CDMOs, 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 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 CDMOs would be subject to initial and periodic DEA inspection. If we or our CDMOs 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 CDMOs, 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 sales and marketing capabilities on our own or enter into agreements with third parties to market and sell our product candidates, we may not be able to generate any revenue.   We do not currently have any internal resources for the sale, marketing and distribution of pharmaceutical products, and we may not create such internal capabilities in the foreseeable future. Therefore, to market our product candidates, if approved by the FDA or any other regulatory body, we must establish internal capabilities related to sales, marketing, managerial and other non-technical capabilities relating to the commercialization of our product candidates, or make contractual arrangements with third parties to perform services, prior to market approval. If we are unable to establish adequate such sales, marketing and distribution capabilities on our own, 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.         -54- Table of Contents     Even if we receive marketing approval for our product candidates, our product candidates may not achieve broad market acceptance, which would limit the revenue that we generate from their sales.   The commercial success of our product candidates, if approved by the FDA or other regulatory authorities, will depend upon the awareness and acceptance of our product candidates among the medical community, including physicians, patients and healthcare payors. Market acceptance of our product candidates, if approved, will depend on a number of factors, including, among others:   ● the efficacy and safety of our product candidates as demonstrated in clinical trials, and, if required by any applicable regulatory authority in connection with the approval for the applicable indications, to provide patients with incremental health benefits, as compared with other available therapies;   ● limitations or warnings contained in the labeling approved for our product candidates by the FDA or other applicable regulatory authorities;   ● the clinical indications for which our product candidates are approved;   ● availability of alternative treatments already approved or expected to be commercially launched in the near future;    ● the potential and perceived advantages of our product candidates over current treatment options or alternative treatments, including future alternative treatments;   ● the willingness of the target patient population to try new therapies and of physicians to prescribe these therapies;   ● the strength of marketing and distribution support and timing of market introduction of competitive products;   ● publicity concerning our products or competing products and treatments;   ● pricing and cost effectiveness;   ● the effectiveness of our sales and marketing strategies;    ● our ability to increase awareness of our product candidates through marketing efforts;   ● our ability to obtain sufficient third-party coverage or reimbursement; or   ● the willingness of patients to pay out-of-pocket in the absence of third-party coverage.   If our product candidates are approved but do not achieve an adequate level of acceptance by patients, physicians and payors, we may not generate sufficient revenue from our product candidates to become or remain profitable. Before granting reimbursement approval, healthcare payors may require us to demonstrate that our product candidates, in addition to treating these target indications, also provide incremental health benefits to patients. Our efforts to educate the medical community and third-party payors about the benefits of our product candidates may require significant resources and may never be successful.         -55- Table of Contents     Our product candidates may cause undesirable safety concerns and side effects that could delay or prevent their regulatory approval, limit the commercial profile of an approved label, or result in significant negative consequences following marketing approval, if any.   If our product candidates are determined to cause undesirable side effects and safety concerns, we or regulatory authorities may 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 regulatory authorities.   Further, clinical trials by their nature utilize a sample of potential patient populations. With a limited number of patients and limited duration of exposure, rare and severe side effects of our product candidates may only be uncovered with a significantly larger number of patients exposed to the product candidate. If our product candidates receive marketing approval and we or others identify undesirable safety concerns or side effects caused by such product candidates (or any other similar products) after such approval, a number of potentially significant negative consequences could result, including:   ● regulatory authorities may withdraw or limit their approval of such product candidates;   ● regulatory authorities may require the addition of labeling statements, such as a “black box” warning or a contraindication;   ● we may be required to change the way such product candidates are distributed or administered, conduct additional clinical trials or change the labeling of the product candidates;   ● we may be subject to regulatory investigations and government enforcement actions;   ● we may decide to remove such product candidates from the marketplace;   ● we could be sued and held liable for injury caused to individuals exposed to or taking our product candidates; and   ● our reputation may suffer.   We believe that any of these events could prevent us from achieving or maintaining market acceptance of the affected product candidates and would substantially increase the costs of commercializing our product candidates and significantly impact our ability to successfully commercialize our product candidates and generate revenues.   Even if we receive marketing approval for our product candidates, we may still face future development and regulatory difficulties.   Even if we receive marketing approval for our product candidates, regulatory authorities may still impose significant restrictions on our product candidates, indicated uses or marketing or impose ongoing requirements for potentially costly post-approval studies. Our product candidates will also be subject to ongoing regulatory requirements governing the labeling, packaging, storage and promotion of the product and record keeping and submission of safety and other post-market information. The FDA 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 have the authority to require, as part of an NDA or post-approval, the submission of a REMS or comparable safety program. Any REMS or comparable 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.         -56- Table of Contents     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:   ● issue warning letters or untitled letters;   ● seek an injunction or impose civil or criminal penalties or monetary fines;   ● suspend or withdraw marketing approval;   ● suspend any ongoing clinical trials;   ● refuse to approve pending applications or supplements to applications submitted by us;   ● suspend or impose restrictions on operations, including costly new manufacturing requirements; or   ● seize or detain products, refuse to permit the import or export of products, or require that we initiate a product recall.   Competing therapies could emerge adversely affecting our opportunity to generate revenue from the sale of our product candidates.   The 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 in the future.   Currently, management is unaware of any FDA-approved rapid-onset, acute treatment of anxiety in adults with SAD having the same mechanism of pharmacological action and safety profile as our 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 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 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 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. In the field of new generation, oral treatments for adult patients with MDD, we believe our principal competitors may be Axsome, Alkermes, Relmada and Sage. Additional potential competitors may include, but not be limited to, 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, 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.  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. 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 drug candidates for such indications, including, but not limited to, Abbott Laboratories, Acadia, Allergan, Alkermes, Aptynix, AstraZeneca, Axsome, Eli Lilly, GlaxoSmithKline, IntraCellular, Janssen, Lundbeck, Merck, Neurocrine, Novartis, Ono, Otsuka, Pfizer, Relmada, Roche, Sage, Sumitomo Dainippon, and Takeda, as well as any affiliates of the foregoing companies.   Mergers and acquisitions in the biotechnology and pharmaceutical industries may result in even more resources being concentrated among a smaller number of our competitors. Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products that are safer, more effective, have fewer or less severe side effects, are more convenient or are less expensive than any products that we may develop. Our competitors also may obtain FDA or other regulatory approval for their products more rapidly than we may obtain approval for ours, which could result in our competitors establishing a strong market position before we are able to enter the market.         -57- Table of Contents     We may seek to establish collaborations, and, if we are not able to establish them on commercially reasonable terms, we may have to alter our development and commercialization plans.   Our drug development programs and the potential commercialization of our product candidates will require substantial additional cash to fund expenses. For some of our product candidates, we may decide to collaborate with pharmaceutical and biotechnology companies for the development and potential commercialization of those product candidates, such as the License and Collaboration Agreement we entered into with AffaMed Therapeutics (formerly EverInsight Therapeutics) in June 2020 for the development and commercialization of PH94B in Greater China, South Korea and Southeast Asia.   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/or the Bayer Agreement. However, our ability to generate revenue from these 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 additional definitive agreements for 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, 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 product candidates, or we may expend our limited resources to pursue a particular product candidate or indication and fail to capitalize on product candidates or indications that may be more profitable or for which there is a greater likelihood of success.   The success of our business depends primarily upon our ability to identify, develop and commercialize product candidates with commercial and therapeutic potential. We may fail to pursue additional development opportunities for PH94B, PH10 or AV-101, or identify additional 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.         -58- Table of Contents     Because we currently have limited financial and management resources, we necessarily focus on a limited number of research and development programs and product candidates and are currently focused primarily on development of PH94B, PH10 and AV-101, with additional limited focus on NCE drug rescue and, through a third-party collaboration with Bayer AG, regenerative medicine. 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.   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 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 will expose us to broadly applicable fraud and abuse and other healthcare laws and regulations that may constrain the business or financial arrangements and relationships through which we market, sell and distribute our product candidates, if we obtain marketing approval. Restrictions under applicable federal and state healthcare laws and regulations include the following:   ● The federal anti-kickback statute prohibits, among other things, persons from knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward either the referral of an individual for, or the purchase, order or recommendation of, any good or service, for which payment may be made under federal healthcare programs such as Medicare and Medicaid.   ● The federal False Claims Act imposes criminal and civil penalties, including those from civil whistleblower or qui tam actions, against individuals or entities for knowingly presenting, or causing to be presented, to the federal government, claims for payment that are false or fraudulent or making a false statement to avoid, decrease, or conceal an obligation to pay money to the federal government.   ● The federal Health Insurance Portability and Accountability Act of 1996, as amended by the Health Information Technology for Economic and Clinical Health Act, imposes criminal and civil liability for executing a scheme to defraud any healthcare benefit program and also imposes obligations, including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of individually identifiable health information.   ● The federal false statements statute prohibits knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false statement in connection with the delivery of or payment for healthcare benefits, items or services.   ● The federal transparency requirements, sometimes referred to as the “Sunshine Act,” under the Patient Protection and Affordable Care Act, require manufacturers of drugs, devices, biologics and medical supplies that are reimbursable under Medicare, Medicaid, or the Children’s Health Insurance Program to report to the Department of Health and Human Services information related to physician payments and other transfers of value and physician ownership and investment interests.   ● Analogous state laws and regulations, such as state anti-kickback and false claims laws and transparency laws, may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by non-governmental third-party payors, including private insurers, and some state laws require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance.   ● Guidance promulgated by the federal government in addition to requiring drug manufacturers to report information related to payments to physicians and other healthcare providers or marketing expenditures and drug pricing.   ● Foreign Corrupt Practices Act and its application to marketing and selling practices as well as to clinical trials.         -59- Table of Contents     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 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 are found to be out of compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs.   The FDA and other regulatory agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses. If we are found to have improperly promoted off-label uses, we may become subject to significant liability.   The FDA and other regulatory agencies strictly regulate the promotional claims that may be made about prescription products, such as 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 PH94B as a treatment of SAD, physicians may prescribe PH94B to their patients in a manner that is inconsistent with the FDA-approved label. However, 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 product candidates.   Market acceptance and sales of our product candidates will depend heavily on reimbursement policies and may be affected by healthcare reform measures. Government authorities and third-party payors, such as private health insurers and health maintenance organizations, decide which medications they will pay for and establish reimbursement levels for those medications. Cost containment is a primary concern in the United States healthcare industry and elsewhere. Government authorities and these third-party payors have attempted to control costs by limiting coverage and the amount of reimbursement for particular medications. We cannot be sure that reimbursement will be available for our product candidates and, if reimbursement is available, the level of such reimbursement. Reimbursement may impact the demand for, or the price of, our product candidates. If reimbursement is not available or is available only at limited levels, we may not be able to successfully commercialize our product candidates.   In some foreign countries, particularly in Canada and European countries, the pricing of prescription pharmaceuticals is subject to strict governmental control. In these countries, pricing negotiations with governmental authorities can take six months or longer after the receipt of regulatory approval and product launch. To obtain favorable reimbursement for the indications sought or pricing approval in some countries, we may be required to conduct a clinical trial that compares the cost-effectiveness of our product candidates with other available therapies. If reimbursement for our product candidates is unavailable in any country in which we seek reimbursement, if it is limited in scope or amount, if it is conditioned upon our completion of additional clinical trials, or if pricing is set at unsatisfactory levels, our operating results could be materially adversely affected.   We may seek FDA Orphan Drug designation for one or more of our product candidates. Even if we have obtained FDA Orphan Drug designation for a product 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 product candidates. Even if we obtain Orphan Drug designation from the FDA for a product candidate, there are limitations to the exclusivity afforded by such designation. In the 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 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.         -60- Table of Contents     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 such as our collaboration with EverInsight 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:   ● our customers’ ability to obtain reimbursement for our product candidates in foreign markets;   ● our inability to directly control commercial activities because we are relying on third parties;   ● the burden of complying with complex and changing foreign regulatory, tax, accounting and legal requirements;   ● different medical practices and customs in foreign countries affecting acceptance in the marketplace;   ● import or export licensing requirements;   ● longer accounts receivable collection times;   ● longer lead times for shipping;   ● language barriers for technical training;   ● reduced protection of intellectual property rights, different standards of patentability and different availability of prior art in some foreign countries as compared with the U.S.;   ● the existence of additional potentially relevant third party intellectual property rights;   ● foreign currency exchange rate fluctuations; and   ● the interpretation of contractual provisions governed by foreign laws in the event of a contract dispute.   Foreign sales of our product candidates could also be adversely affected by the imposition of governmental controls, political and economic instability, trade restrictions and changes in tariffs.   We are a development stage biopharmaceutical company with no current revenues or approved products, and limited experience developing new 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 biopharmaceutical company. We currently have no approved products and currently generate no revenues, and we have not yet fully demonstrated an ability to overcome many of the fundamental risks and uncertainties frequently encountered by development stage companies in new and rapidly evolving fields of technology, particularly biotechnology. To execute our business plan successfully, we will need to accomplish the following fundamental objectives, either on our own or with collaborators:   ● develop and obtain required regulatory approvals for commercialization of PH94B, PH10, AV-101 and/or other product candidates;   ● maintain, leverage and expand our intellectual property portfolio;   ● establish and maintain sales, distribution and marketing capabilities, and/or enter into strategic partnering arrangements to access such capabilities;   ● gain market acceptance for our product candidates; and   ● obtain adequate capital resources and manage our spending as costs and expenses increase due to research, production, development, regulatory approval and commercialization of product candidates.           -61- Table of Contents     Our future success is highly dependent upon our ability to successfully develop and commercialize any of our current product candidates, acquire or license additional product candidates, or discover, as well as produce, develop and commercialize proprietary NCEs using our stem cell technology, and we cannot provide any assurance that we will successfully develop and commercialize PH94B, PH10, AV-101 or acquire or license additional product candidates or discover and develop NCEs, or that, if produced, PH94B, PH10, AV-101 or any other 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 NCEs require substantial technical, financial and human resources, whether or not any additional product candidate is acquired or licensed or NCEs are ultimately identified and produced.     In addition, we do not have a sales or marketing infrastructure, and we, including our executive officers, do not currently have any significant pharmaceutical sales, marketing or distribution experience. We may seek to collaborate with others to develop and commercialize PH94B, PH10, AV-101, and/or other product candidates if and when they are acquired and 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 entering into arrangements with third parties to sell, market and distribute PH94B, PH10, AV-101, or other product candidates or may be unable to do so on terms that are favorable to us.  We likely will have little control over such third parties, and any of these third parties may fail to devote the necessary resources and attention to sell, market and distribute our products effectively.  If we do not establish sales, marketing and distribution capabilities successfully, 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 NCEs and no operating history with respect to the production of NCEs, and we may never be able to produce a NCE.   If we are unable to develop and commercialize PH94B, PH10, AV-101 or acquire or license additional product candidates, or produce suitable NCEs using VistaStem’s technology, 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.     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 NCEs, independently or with partners, including:   ● our ability to identify potential candidates in the public domain, obtain sufficient quantities of them, and assess them using our bioassay systems;   ● if we seek to rescue drug 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 candidates to us on commercially reasonable terms;   ● our medicinal chemistry collaborator’s ability to design and produce proprietary NCEs based on the novel biology and structure-function insight we provide using  CardioSafe  3D; and   ● financial resources available to us to develop and commercialize lead NCEs internally, or, if we sell or out-license them to partners, the resources such partners choose to dedicate to development and commercialization of any NCEs they acquire or license from us.   Even if we do acquire additional product candidates or produce proprietary 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 PH94B, PH10, AV-101 or additional acquired or licensed products candidates or any NCEs, we or our potential collaborators must complete preclinical and clinical development programs, submit clinical and manufacturing data to the FDA, qualify a third party CDMO, receive regulatory approval in one or more jurisdictions, satisfy the FDA that our CDMO 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 potential NCEs, then VistaStem’s programs will be adversely affected.   Success of our subsidiary, VistaStem, is partly dependent on its ability to use  CardioSafe  3D to identify and predict, accurately and efficiently, the potential toxic and nontoxic cardiac effects of potential NCEs. If  CardioSafe  3D is not capable of providing physiologically relevant and clinically predictive information regarding human cardiac biology, our business may be adversely affected.         -62- Table of Contents     CardioSafe  3D  may not be meaningfully more predictive of the behavior of human cells than existing methods.   Each potential future program undertaken by VistaStem and focused on producing a NCE will be 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 potential NCEs 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, VistaStem’s NCE-focused activities will be limited and our business may be adversely affected.   We may invest in producing NCEs for which there proves to be no demand.   To generate revenue from VistaStem’s NCE-focused activities, we must produce proprietary NCEs for which there proves to be demand within the healthcare marketplace, and, if we intend to out-license a particular NCE for development and commercialization prior to market approval, then also among pharmaceutical companies and other potential collaborators. However, we may produce 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 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.   VistaStem’s hPSC technology is technically complex, and the time and resources necessary to develop various human cell types and customized bioassay systems, although not significant at present, are difficult to predict in advance. We might decide to devote significant additional personnel and financial resources to research and development activities designed to expand our focus on potential small molecule NCEs and explore potential applications of our stem cell technology platform for RM. In particular, we may conduct exploratory nonclinical RM programs involving blood, bone, cartilage, and/or liver cells. Although we and our third-party collaborators have developed proprietary protocols to produce 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 NCEs, design and development of certain human cellular assays and performance of certain exploratory nonclinical RM studies. In the past, our stem cell research and development projects have been significantly delayed when we encountered unanticipated difficulties in differentiating hPSCs 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 RM business opportunities and results of operations.   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 so than in years past, certain political and religious groups in the U.S. and elsewhere may 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 capabilities of our technology, which could have a material adverse effect on our business.         -63- Table of Contents     The use of embryonic or fetal tissue in research (including the derivation of hESCs) in other countries is regulated by the government, and such regulation 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  (iPSC s) 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 induced pluripotent stem cells ( 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 RM 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 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 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.   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 U.S. 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. U.S. 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 U.S., 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 U.S. In addition, both the application and interpretation of these laws and regulations are often uncertain, particularly in the rapidly evolving stem cell technology sector. Compliance with these laws and regulations can be costly, 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.         -64- Table of Contents     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 RM applications, such as tissue engineering or organ replacement, we would first need to obtain FDA pre-market clearance or approval. Obtaining such clearance or approval from the FDA is expensive, time-consuming and uncertain, generally requiring many years to obtain, and requiring detailed and comprehensive scientific and clinical data. Notwithstanding the time and expense, these efforts may not result in FDA approval or clearance. Even if we were to obtain regulatory approval or clearance, it may not be for the uses that we believe are important or commercially attractive.   Risks Related to Our Financial Position   We 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 approximately $20.8 million and $24.6 million during our fiscal years ended March 31, 2020 and 2019, respectively, and a net loss of approximately $11.7 million during the nine months ended December 31, 2020. At December 31, 2020, we had an accumulated deficit of approximately $213.6 million. 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 and working capital. We expect our research and development expenses to significantly increase in connection with nonclinical studies and clinical trials of our product candidates. In addition, if we obtain marketing approval for our product candidates, we may incur significant sales, marketing and outsourced-manufacturing expenses should we elect not to collaborate with one or more third parties for such services and capabilities. As a public company, we incur additional costs associated with operating as a public company. As a result, we expect to continue to incur significant and increasing operating losses for the foreseeable future. Because of the numerous risks and uncertainties associated with developing pharmaceutical products, we are unable to predict the extent of any future losses or when we will become profitable, if at all. Even if we do become profitable, we may not be able to sustain or increase our profitability on a quarterly or annual basis.   Our ability to become profitable depends upon our ability to generate recurring revenues. Through December 31, 2020, we have generated approximately $22.7 million in revenues, consisting of receipt 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, the majority of which has been recognized as deferred revenue at December 31, 2020, and research and development grant awards from the 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 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 product candidates. Our ability to generate recurring revenue depends on a number of factors, including, but not limited to, our ability to:       -65- Table of Contents     EverInsight Agreement during the quarter ended September 30, 2020, the majority of which has been recognized as deferred revenue at December 31, 2020, and research and development grant awards from the 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 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 product candidates. Our ability to generate recurring revenue depends on a number of factors, including, but not limited to, our ability to:   ● initiate and successfully complete nonclinical and clinical trials that meet their prescribed endpoints;   ● initiate and successfully complete all safety studies required to obtain U.S. and foreign marketing approval for our product candidates;   ● timely complete and compose successful regulatory submissions such as NDAs or comparable documents for both the U.S. and foreign jurisdictions;   ● commercialize our product candidates, if approved, by developing a sales force or entering into collaborations with third parties for sales and marketing capabilities; and    ● achieve market acceptance of our product candidates in the medical community and with third-party payors.   If our pivotal Phase 3 studies of PH94B for the acute treatment of anxiety in adults with SAD are successful, unless we enter into a contractual arrangement for the commercialization of PH94B in the U.S., we expect to incur significant sales and marketing costs as we prepare to commercialize PH94B on our own in the U.S. Even if we initiate and successfully complete Phase 3 clinical trials of PH94B and our other product candidates, and all of our product candidates are approved for commercial sale, and despite expending substantial capital for sales and marketing costs, PH94B and our 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.   We require additional financing to execute our long-term business plan.   Since our inception, a substantial portion of our resources have been dedicated to research and development of AV-101 and VistaStem’s stem cell technology platform. In particular, (i) for AV-101, we have expended substantial resources on research and development of methods and processes relating to the production of API and drug product, IND-enabling preclinical studies, Phase 1 clinical safety studies, and a Phase 2 clinical study completed in 2019 and (ii) for VistaStem, development of  CardioSafe  3D and cardiac stem cell technology for potential RM applications licensed in connection with the Bayer Agreement. In addition, beginning in 2018, we have expended a considerable portion of our resources for research, development, manufacturing and regulatory expenses related to the development and production of PH94B and PH10. We expect to continue to expend substantial resources for the foreseeable future developing and commercializing our product candidates on our own or in 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 any products approved for sale.   At December 31, 2020, we had cash and cash equivalents of approximately $104.3 million. We believe this amount is sufficient to enable us to fund our planned operations for at least the twelve months following the issuance of the financial statements included elsewhere in this Report.       -66- Table of Contents     Although we received the $5 million non-dilutive cash upfront payment under the AffaMed Agreement in August 2020 and expect to recognize that amount as revenue in future periods, we have no other recurring source of revenue or recurring cash flows from product sales to sustain our present activities, and we do not expect to generate sustainable positive operating cash flows until, and unless, we (i) out-license or sell a product candidate to a third-party that is subsequently successfully developed and commercialized, (ii) enter into additional license arrangements involving our stem cell technology, or (iii) obtain approval from the FDA or other regulatory authorities and successfully commercialize PH94B, on our own or through a future collaboration, or one of our other product candidates.   As the outcome of our ongoing research and development activities, 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 our product candidates, on our own or in collaboration with others. As in prior periods, we will continue to incur costs associated with other 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 our 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 and requirements. We have completed in the past a range of potential 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 the 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:   ● the number and characteristics of the product candidates we pursue;   ● the scope, progress, results and costs of researching and developing our product candidates, and conducting preclinical and clinical studies;   ● the timing of, and the costs involved in, obtaining regulatory approvals for our product candidates;   ● the cost of commercialization activities if any of our product candidates are approved for sale, including marketing, sales and distribution costs;   ● the cost of manufacturing and formulating our product candidates and any products we successfully commercialize;   ● our ability to establish and maintain strategic partnerships, licensing or other collaborative arrangements and the financial terms of such agreements;   ●     market acceptance of our product candidates;   ●    the effect of competing technological and market developments;   ●   our ability to obtain government funding for our research and development programs;   ●   the costs involved in obtaining, maintaining and enforcing patents to preserve our intellectual property;   ● the costs involved in defending against such claims that we infringe third-party patents or violate other intellectual property rights and the outcome of such litigation;   ● the timing, receipt and amount of potential future licensee fees, milestone payments, and sales of, or royalties on, our future products, if any; and   ● the extent to which we may acquire or invest in additional businesses, product candidates and technologies.         -67- Table of Contents     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. 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. 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 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 or otherwise at an earlier stage than otherwise would be desirable and we may be required to relinquish rights to some of our technologies or product 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 material