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EX-32.1 - EX-32.1 - ORGANOVO HOLDINGS, INC.onvo-ex321_8.htm
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EX-31.1 - EX-31.1 - ORGANOVO HOLDINGS, INC.onvo-ex311_7.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

Form 10-Q

 

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

For the quarterly period ended December 31, 2019

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 001-35996

 

Organovo Holdings, Inc.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

27-1488943

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

440 Stevens Ave, Suite 200,

Solana Beach, CA 92075

 

(858) 224-1000

(Address of principal executive offices and zip code)

 

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading symbol

Name of Each Exchange on which registered

Common Stock, $0.001 par value

ONVO

The Nasdaq Stock Market LLC

 

 

(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, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

 

Accelerated filer

 

Non-accelerated filer

 

 

 

Smaller reporting company

 

 

 

 

 

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 1, 2020, a total of 130,497,563 shares of the registrant’s Common Stock, $0.001 par value, were outstanding.

 

 

 

 

 


 

ORGANOVO HOLDINGS, INC.

INDEX

PART I. FINANCIAL INFORMATION

 

Item 1.

 

Financial Statements

 

3

 

 

Condensed Consolidated Balance Sheets as of December 31, 2019 (Unaudited) and March 31, 2019

 

3

 

 

Unaudited Condensed Consolidated Statements of Operations and Other Comprehensive Loss for the Three and Nine Months Ended December 31, 2019 and 2018

 

4

 

 

Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended December 31, 2019 and 2018

 

5

 

 

Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months Ended December 31, 2019 and 2018

 

6

 

 

Notes to Unaudited Condensed Consolidated Financial Statements

 

7

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

22

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

29

Item 4.

 

Controls and Procedures

 

29

 

PART II. OTHER INFORMATION

Item 1.

 

Legal Proceedings

 

30

Item 1A.

 

Risk Factors

 

30

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

37

Item 3.

 

Defaults Upon Senior Securities

 

37

Item 4.

 

Mine Safety Disclosure

 

37

Item 5.

 

Other Information

 

37

Item 6.

 

Exhibits

 

38

 

 

 

2


 

PART I—FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

Organovo Holdings, Inc.

Condensed Consolidated Balance Sheets

(in thousands except for share and per share data)

 

 

 

December 31, 2019

 

 

March 31, 2019

 

 

 

(Unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

30,467

 

 

$

36,477

 

Accounts receivable

 

 

165

 

 

 

503

 

Grant receivable

 

 

 

 

 

55

 

Inventory, net

 

 

 

 

 

490

 

Prepaid expenses and other current assets

 

 

474

 

 

 

1,049

 

Total current assets

 

 

31,106

 

 

 

38,574

 

Fixed assets, net

 

 

 

 

 

1,832

 

Restricted cash

 

 

79

 

 

 

79

 

Other assets, net

 

 

127

 

 

 

138

 

Total assets

 

$

31,312

 

 

$

40,623

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

 

 

Accounts payable

 

$

822

 

 

$

628

 

Accrued expenses

 

 

1,536

 

 

 

2,549

 

Deferred revenue

 

 

 

 

 

525

 

Deferred rent

 

 

 

 

 

35

 

Total current liabilities

 

 

2,358

 

 

 

3,737

 

Deferred rent, net of current portion

 

 

 

 

 

588

 

Total liabilities

 

 

2,358

 

 

 

4,325

 

Commitments and Contingencies

 

 

 

 

 

 

 

 

Stockholders’ Equity

 

 

 

 

 

 

 

 

Common stock, $0.001 par value; 200,000,000 shares authorized,

   130,497,563 and 124,015,429 shares issued and outstanding at

   December 31, 2019 and March 31, 2019, respectively

 

 

130

 

 

 

124

 

Additional paid-in capital

 

 

305,566

 

 

 

296,929

 

Accumulated deficit

 

 

(276,742

)

 

 

(260,755

)

Total stockholders’ equity

 

 

28,954

 

 

 

36,298

 

Total Liabilities and Stockholders’ Equity

 

$

31,312

 

 

$

40,623

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

3


 

Organovo Holdings, Inc.

Unaudited Condensed Consolidated Statements of Operations and Other Comprehensive Loss

(in thousands except share and per share data)

 

 

 

Three Months Ended

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

Nine Months Ended

 

 

 

December 31, 2019

 

 

December 31, 2018

 

 

December 31, 2019

 

 

December 31, 2018

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Products and services

 

$

228

 

 

$

670

 

 

$

2,055

 

 

$

1,709

 

Collaborations and licenses

 

 

70

 

 

 

43

 

 

 

89

 

 

 

128

 

Grants

 

 

 

 

 

66

 

 

 

52

 

 

 

574

 

Total Revenues

 

 

298

 

 

 

779

 

 

 

2,196

 

 

 

2,411

 

Cost of revenues

 

 

13

 

 

 

136

 

 

 

328

 

 

 

381

 

Research and development expenses

 

 

145

 

 

 

3,782

 

 

 

5,413

 

 

 

10,348

 

Selling, general and administrative expenses

 

 

5,374

 

 

 

3,387

 

 

 

15,037

 

 

 

11,794

 

Total costs and expenses

 

 

5,532

 

 

 

7,305

 

 

 

20,778

 

 

 

22,523

 

Loss from Operations

 

 

(5,234

)

 

 

(6,526

)

 

 

(18,582

)

 

 

(20,112

)

Other Income (Expense)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gain (loss) on fixed asset disposals

 

 

25

 

 

 

(65

)

 

 

111

 

 

 

(63

)

Gain on lease termination

 

 

525

 

 

 

 

 

 

525

 

 

 

 

Interest income

 

 

127

 

 

 

192

 

 

 

507

 

 

 

526

 

Other Income (Expense)

 

 

1,187

 

 

 

 

 

 

1,454

 

 

 

 

Total Other Income

 

 

1,864

 

 

 

127

 

 

 

2,597

 

 

 

463

 

Income Tax Expense

 

 

 

 

 

 

 

 

(2

)

 

 

(3

)

Net Loss

 

$

(3,370

)

 

$

(6,399

)

 

$

(15,987

)

 

$

(19,652

)

Comprehensive Loss

 

$

(3,370

)

 

$

(6,399

)

 

$

(15,987

)

 

$

(19,652

)

Net loss per common share—basic and diluted

 

$

(0.03

)

 

$

(0.06

)

 

$

(0.12

)

 

$

(0.17

)

Weighted average shares used in computing net

   loss per common share—basic and diluted

 

 

130,466,234

 

 

 

116,256,561

 

 

 

129,234,731

 

 

 

113,991,794

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

4


 

Organovo Holdings, Inc.

Unaudited Condensed Consolidated Statements of Stockholders’ Equity

(in thousands)

 

 

 

Three and Nine Months Ended December 31, 2018

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Paid-in

 

 

Accumulated

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Total

 

Balance at March 31, 2018

 

 

111,033

 

 

$

111

 

 

$

278,595

 

 

$

(234,120

)

 

$

44,586

 

Issuance of common stock under employee and

   director stock option, RSU, and purchase plans

 

 

200

 

 

 

 

 

 

(103

)

 

 

 

 

 

(103

)

Issuance of common stock from public offering, net

 

 

2,085

 

 

 

2

 

 

 

3,008

 

 

 

 

 

 

3,010

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

1,279

 

 

 

 

 

 

1,279

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(7,416

)

 

 

(7,416

)

Balance at June 30, 2018 (Unaudited)

 

 

113,318

 

 

$

113

 

 

$

282,779

 

 

$

(241,536

)

 

$

41,356

 

Issuance of common stock under employee and

   director stock option, RSU, and purchase plans

 

 

205

 

 

 

 

 

 

3

 

 

 

 

 

 

3

 

Issuance of common stock from public offering, net

 

 

1,677

 

 

 

2

 

 

 

2,072

 

 

 

 

 

 

2,074

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

1,274

 

 

 

 

 

 

1,274

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(5,837

)

 

 

(5,837

)

Balance at September 30, 2018 (Unaudited)

 

 

115,200

 

 

$

115

 

 

$

286,128

 

 

$

(247,373

)

 

$

38,870

 

Stock option exercises

 

 

622

 

 

 

1

 

 

 

49

 

 

 

 

 

 

50

 

Issuance of common stock under employee and

   director stock option, RSU, and purchase plans

 

 

149

 

 

 

 

 

 

(36

)

 

 

 

 

 

(36

)

Issuance of common stock from public offering, net

 

 

1,799

 

 

 

2

 

 

 

1,830

 

 

 

 

 

 

1,832

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

1,358

 

 

 

 

 

 

1,358

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(6,399

)

 

 

(6,399

)

Balance at December 31, 2018 (Unaudited)

 

 

117,770

 

 

$

118

 

 

$

289,329

 

 

$

(253,772

)

 

$

35,675

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three and Nine Months Ended December 31, 2019

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Paid-in

 

 

Accumulated

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Total

 

Balance at March 31, 2019

 

 

124,015

 

 

$

124

 

 

$

296,929

 

 

$

(260,755

)

 

$

36,298

 

Issuance of common stock under employee and

   director stock option, RSU, and purchase plans

 

 

177

 

 

 

 

 

 

(52

)

 

 

 

 

 

(52

)

Issuance of common stock from public offering, net

 

 

6,087

 

 

 

6

 

 

 

4,990

 

 

 

 

 

 

4,996

 

Stock-based compensation

 

 

 

 

 

 

 

 

1,220

 

 

 

 

 

 

1,220

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(6,323

)

 

 

(6,323

)

Balance at June 30, 2019 (Unaudited)

 

 

130,279

 

 

$

130

 

 

$

303,087

 

 

$

(267,078

)

 

$

36,139

 

Issuance of common stock under employee and

   director stock option, RSU, and purchase plans

 

 

156

 

 

 

 

 

 

(8

)

 

 

 

 

 

(8

)

Stock-based compensation

 

 

 

 

 

 

 

 

1,236

 

 

 

 

 

 

1,236

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(6,294

)

 

 

(6,294

)

Balance at September 30, 2019 (Unaudited)

 

 

130,435

 

 

$

130

 

 

$

304,315

 

 

$

(273,372

)

 

$

31,073

 

Issuance of common stock under employee and

   director stock option, RSU, and purchase plans

 

 

63

 

 

 

 

 

 

(1

)

 

 

 

 

 

(1

)

Stock-based compensation

 

 

 

 

 

 

 

 

1,252

 

 

 

 

 

 

1,252

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(3,370

)

 

 

(3,370

)

Balance at December 31, 2019 (Unaudited)

 

 

130,498

 

 

$

130

 

 

$

305,566

 

 

$

(276,742

)

 

$

28,954

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

5


 

Organovo Holdings, Inc.

Unaudited Condensed Consolidated Statements of Cash Flows

(in thousands)

 

 

 

Nine Months Ended

 

 

Nine Months Ended

 

 

 

December 31, 2019

 

 

December 31, 2018

 

Cash Flows From Operating Activities

 

 

 

 

 

 

 

 

Net loss

 

$

(15,987

)

 

$

(19,652

)

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

 

 

 

 

 

 

 

 

(Gain) loss on disposal of fixed assets

 

 

(111

)

 

 

63

 

Gain on lease termination

 

 

(525

)

 

 

 

Depreciation and amortization

 

 

1,136

 

 

 

824

 

Stock-based compensation

 

 

3,708

 

 

 

3,911

 

Inventory write-off

 

 

214

 

 

 

 

Increase (decrease) in cash resulting from changes in:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

349

 

 

 

336

 

Grants receivable

 

 

55

 

 

 

21

 

Inventory

 

 

276

 

 

 

(207

)

Prepaid expenses and other assets

 

 

654

 

 

 

637

 

Accounts payable

 

 

194

 

 

 

183

 

Accrued expenses

 

 

(1,013

)

 

 

(1,185

)

Deferred revenue

 

 

(525

)

 

 

(107

)

Deferred rent

 

 

 

 

 

(122

)

Operating lease right-of-use assets and liabilities, net

 

 

(98

)

 

 

 

Net cash used in operating activities

 

 

(11,673

)

 

 

(15,298

)

Cash Flows From Investing Activities

 

 

 

 

 

 

 

 

Purchases of fixed assets

 

 

 

 

 

(37

)

Proceeds from disposals of fixed assets

 

 

728

 

 

 

3

 

Net cash provided by (used in) investing activities

 

 

728

 

 

 

(34

)

Cash Flows From Financing Activities

 

 

 

 

 

 

 

 

Proceeds from issuance of common stock and exercise of warrants, net

 

 

4,996

 

 

 

6,916

 

Employee taxes paid related to net share settlement of equity awards

 

 

(61

)

 

 

(136

)

Proceeds from exercise of stock options

 

 

 

 

 

50

 

Net cash provided by financing activities

 

 

4,935

 

 

 

6,830

 

Net decrease in cash, cash equivalents, and restricted cash

 

 

(6,010

)

 

 

(8,502

)

Cash, cash equivalents, and restricted cash at beginning of period

 

 

36,556

 

 

 

43,853

 

Cash, cash equivalents, and restricted cash at end of period

 

$

30,546

 

 

$

35,351

 

Reconciliation of cash, cash equivalents, and restricted cash to the condensed

   consolidated balance sheets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

30,467

 

 

$

35,224

 

Restricted cash

 

 

79

 

 

 

127

 

Total cash, cash equivalent and restricted cash

 

$

30,546

 

 

$

35,351

 

Supplemental Disclosure of Cash Flow Information:

 

 

 

 

 

 

 

 

Receivable related to fixed asset sales

 

$

11

 

 

$

 

Tenant improvements funded by landlord

 

$

37

 

 

$

 

Assets held for sale

 

$

38

 

 

$

 

Income taxes paid

 

$

2

 

 

$

3

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

6


 

Organovo Holdings, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

 

Note 1. Description of Business

Nature of operations

Organovo Holdings, Inc. (“Organovo Holdings,” “we,” “us,” “our,” “the Company” and “our Company”) is a biotechnology company that has focused on pioneering the development of bioprinted human tissues that emulate human biology and disease. In August 2019, after a rigorous assessment of the Company’s lead liver therapeutic tissue program following completion of various preclinical studies, the Company’s Board of Directors (the “Board”) concluded that the variability of biological performance and related duration of potential benefits presented development challenges and lengthy redevelopment timelines that no longer supported an attractive opportunity for the Company and its stockholders. Furthermore, the Board deemed the stage of development of the Company’s other therapeutic pipeline assets, including stem cell based tissue programs, to be too premature to potentially reach IND filing status within an acceptable investment horizon and with the Company’s available resources. As a result, the Company suspended all development of its lead program and all other related pipeline development activity and engaged a financial advisory firm to explore its strategic alternatives, including evaluating a range of ways to generate value from the Company’s technology platform and intellectual property, its commercial and development capabilities, its listing on the Nasdaq Capital Market, and its remaining financial assets.

On December 13, 2019, the Company and Tarveda Therapeutics, Inc. (“Tarveda”), a privately owned biopharmaceutical company, entered into an Agreement and Plan of Merger and Reorganization, as amended by the First Amendment to Merger Agreement, dated January 26, 2020, and as may be amended from time to time (the “Merger Agreement”). The Merger Agreement provides that, upon the terms and subject to the conditions set forth in the Merger Agreement, Opal Merger Sub, Inc. (“Opal”), a new wholly-owned subsidiary of the Company, will merge with and into Tarveda, with Tarveda as the surviving corporation, becoming a wholly-owned subsidiary of the Company (the “Merger”). As a result of the Merger, each outstanding share of Tarveda capital stock will be converted into the right to receive shares of the Company’s common stock. Under the terms of the Merger Agreement, the Company will issue, and Tarveda securityholders will be entitled to receive, in a tax-free exchange, shares of its common stock such that Tarveda securityholders will own approximately 75% of the combined company on a fully diluted basis (as defined in the Merger Agreement) and the Company’s securityholders will own approximately 25% of the combined company on a fully diluted basis (as defined in the Merger Agreement). The Merger Agreement provides that the exchange ratio for Tarveda’s capital stock are subject to upward and downward adjustment based on the Company’s net cash balance at the closing of the Merger. If the Company’s net cash balance at the closing of the Merger is below $22 million, the Merger Agreement provides for adjusting the exchange ratio to increase the number of shares of its common stock issued to former Tarveda securityholders. As a result, Tarveda’s securityholders may receive additional shares of the Company’s common stock as Merger consideration, and consequently the Company’s securityholders may be further diluted as a result of the Merger. If the Company’s net cash balance at the closing of the Merger is above $22 million, the Merger Agreement provides for adjusting the conversion ratio to decrease the number of shares of its common stock issued to former Tarveda securityholders. Additionally, the Merger Agreement provides for certain adjustments for debt of each of the parties. These percentages are calculated based on other assumptions as well, and, to the extent these assumptions prove to be inaccurate, Tarveda’s securityholders may receive a larger or smaller percentage of the combined company’s pro forma fully diluted capitalization. If Tarveda’s net cash balance at the closing of the Merger is below $15 million, the Company may elect to not consummate the Merger.

The Merger is subject to customary closing conditions, including approval by the Company’s stockholders of the issuance of its common stock in the Merger, as well as a reverse stock split of its common shares. The Company anticipates the Merger will be completed in the fiscal fourth quarter of 2020. The Merger Agreement contains certain termination rights for both the Company and Tarveda, and further provides that, upon termination of the Merger Agreement under specified circumstances, either party may be required to pay the other party a termination fee ranging between $1.0 million (plus reimbursement of $0.3 million of expenses) and $2.0 million (plus reimbursement of $0.5 million of expenses), depending on the cause of the termination.

Prior to execution of the Merger Agreement, the Company solicited bids from potential purchasers for its operating assets, which the Company had sought to sell or otherwise dispose of in one or more strategic transactions. In connection with that process, the Company entered into an agreement with LifeNet Health (“LifeNet”) on November 7, 2019 to sell certain equipment and inventory of our Samsara Sciences, for $1.5 million in cash. In addition, on January 26, 2020, the Company and Tarveda agreed to amend the Merger Agreement to provide that the Company would be credited with $1.5 million for purposes of calculating the number of shares to be issued to Tarveda stockholders in connection with the Merger if the Company does not sell or transfer its intellectual property and remaining assets prior to the closing of the Merger. The Company’s remaining assets following these actions will consist primarily of its cash, cash equivalents, interest receivables, restricted cash and other working capital items related to its corporate administrative function, its intellectual property portfolio, its license and collaboration agreements, its remaining assets, its listing on the Nasdaq Capital Market and the Merger Agreement with Tarveda. In addition, the majority of the Company’s employees have been terminated, except for six general and administrative personnel.

7


 

As a result of the sale transaction with LifeNet, aside from the maintenance of the Company’s intellectual property portfolio, license and collaboration agreements, its remaining assets, and its listing on the Nasdaq Capital Market, all of the Company’s business immediately following the Merger will be the business conducted by Tarveda immediately prior to the Merger, if the Merger closes. Accordingly, because of the pending Merger with Tarveda and the action described above, the Company believes its historical operating results are not indicative of future results. The Company cannot assure you that it will close the pending Merger with Tarveda on favorable terms, in a timely manner, or at all.

Except where specifically noted or the context otherwise requires, references to “Organovo Holdings,” “the Company,” “we,” “our,” and “us” in these notes to the unaudited condensed consolidated financial statements refers to Organovo Holdings, Inc. and its wholly owned subsidiaries, Organovo, Inc., Samsara Sciences, Inc, and Opal Merger Sub, Inc.

 

Note 2. Summary of Significant Accounting Policies

Basis of presentation and principles of consolidation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not necessarily include all information and notes required by GAAP for complete financial statements. The condensed consolidated balance sheet at March 31, 2019 is derived from the Company’s audited consolidated balance sheet at that date.

The unaudited condensed consolidated financial statements include the accounts of Organovo Holdings and its wholly owned subsidiaries. All material intercompany accounts and transactions have been eliminated in consolidation. In the opinion of management, the unaudited financial information for the interim periods presented reflects all adjustments, which are only normal and recurring, necessary for a fair statement of the Company’s financial position, results of operations, stockholders’ equity and cash flows. These unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended March 31, 2019, as filed with the Securities and Exchange Commission (“SEC”). Operating results for interim periods are not necessarily indicative of operating results for the Company’s fiscal year ending March 31, 2020 (see “Note 1. Description of Business”).

Liquidity

As of December 31, 2019, the Company had cash and cash equivalents of approximately $30.5 million and restricted cash of approximately $0.1 million. The restricted cash was pledged as collateral for a letter of credit that the Company is required to maintain as a security deposit under the terms of the lease of its facilities. The Company had an accumulated deficit of approximately $276.7 million at December 31, 2019. The Company also had negative cash flows from operations of approximately $11.7 million during the nine months ended December 31, 2019.

Through December 31, 2019, the Company has financed its operations primarily through the sale of convertible notes, warrants, the private placement of equity securities, the sale of common stock through public and at-the-market (“ATM”) offerings, and through revenue derived from product and research service-based agreements, collaborative agreements, licenses, and grants. During the three and nine months ended December 31, 2019, the Company issued 0 and 6,087,382 shares of its common stock through its ATM facility and received net proceeds of approximately $0 and $5.0 million, respectively.

Throughout the strategic alternatives assessment process, the Company has taken steps to manage its resources and extend its cash runway including reducing commercial activities related to its liver tissues, except for sales of primary human cells out of inventory, negotiating an exit from its long-term facility lease, selling various assets, and reducing its workforce to the minimum level necessary to explore and support these strategic alternatives as well as to support the remainder of the Company’s on-going business activities and assets, including its intellectual property platform and collaborations with research institutions and universities. As a result, the Company terminated the employment of 52 employees, or 90% of its workforce and recorded a restructuring charge during the nine months ended December 31, 2019 of approximately $2.8 million, primarily related to employee severance and benefits costs, of which $1.7 million was paid out during the fiscal second quarter, $0.9 million was paid out during the fiscal third quarter, and the remainder is anticipated to be paid out during the fiscal fourth quarter.

The Company currently expects further restructuring actions tied to the completion of the Merger with Tarveda, which could lead to an additional $3.5 million of severance and benefits costs that would be incurred and paid upon the closing of the Merger. As a result of the sale of certain non-intellectual property related assets and remaining assets, its future cash requirements will consist primarily of fees associated with the Merger including fees payable to financial advisors, consulting fees, intellectual property, legal and accounting support costs, key employee retention, severance and change of control benefits and ongoing compensation obligations for the six general and administrative personnel that remain with us as of the date the sale transaction is completed. The Company currently anticipates requiring approximately $4.2 million in transaction related costs, to complete the Merger. Absent any further impact from asset sales, additional legal costs, Merger related costs or severance and benefit costs, the Company expects its cash balance to be approximately $29.0 million at the end of its fiscal fourth quarter.

8


 

The Company’s expenses may exceed its current plans and expectations, and, if the Merger with Tarveda is not completed, it could cause the Company to complete another transaction or wind-down its operations sooner than anticipated. If the Company is unable to successfully complete the Merger with Tarveda or another strategic transaction or secure additional capital on a timely basis and on terms that are acceptable to its stockholders, the Company may elect to cease its operations altogether, in which event the value realized by its stockholders might be significantly less than the $29.0 million of stockholders’ equity recorded on the Company’s consolidated financial statements as of December 31, 2019.

While the Company believes that it can maintain its current operations for at least the next 12 months, based on its current plans and available resources, the assessment by the Company discussed above with respect to the Merger with Tarveda and other alternatives raises substantial doubt over the Company’s ability to successfully finance itself on a long-term basis. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Use of estimates

The preparation of the financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Significant estimates used in preparing the condensed consolidated financial statements include those assumed in revenue recognition, the measurement of operating lease right-of-use assets and lease liabilities, the valuation of stock-based compensation expense, the valuation of impairment of long-lived assets, and the valuation allowance on deferred tax assets. On an ongoing basis, management reviews these estimates and assumptions.

Impairment of long-lived assets

In accordance with ASC 360-10, the Company records an impairment loss on long-lived assets used in operations when events and circumstances indicate that long-lived assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of those assets (i.e. not able to be recovered). During the second quarter of Fiscal 2020, the Company announced the restructuring of its operations. This event required the reevaluation of the recoverability of the gross carrying value of its long-lived assets. Upon the Company’s announcement and at each quarter-end, the Company performed an asset impairment analysis on its long-lived asset group, consisting primarily of licensed intangible assets, computer equipment, and software following the completion of various asset sales prior to December 31, 2019, which concluded that the carrying amount is not recoverable. However, the Company’s analysis indicated that carrying amount of the asset group does not exceed its fair value. As such, no impairment loss is required to be recognized. Nonetheless, it is reasonably possible that the impairment analysis may change in the near term resulting in the need to write down those assets to fair value. The Company will continue to monitor assets for impairment.

Revenue recognition

The Company has generated revenues from payments received from research service agreements, product sales, collaborative agreements with partners including pharmaceutical and biotechnology companies and academic institutions, licenses, and grants from the National Institutes of Health (“NIH”) and private not-for-profit organizations.

The Company recognizes revenue under Topic 606, Revenue from Contracts with Customers (“Topic 606”) when (or as) the promised services are transferred to customers in an amount that reflects the consideration to which it expects to be entitled in exchange for those services. To determine revenue recognition for arrangements the Company concludes are within the scope of ASC 606, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligation(s) in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligation(s) in the contract; and (v) recognize revenue when (or as) the performance obligation(s) are satisfied. At contract inception, the Company assesses the goods or services promised within each contract, assesses whether each promised good or service is distinct and identifies those that are performance obligations. The Company recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

Billings to customers or payments received from customers are included in deferred revenue on the balance sheet until all revenue recognition criteria are met. As of December 31, 2019 and March 31, 2019, the Company had approximately $0 and $525,000, respectively, in deferred revenue related to its research service agreements, collaborative agreements, and licenses within the scope of Topic 606. In the nine months ended December 31, 2019, the Company recognized revenue on approximately $525,000, of which $490,000 related to the expiration of an agreement with a non-refundable up-front fee, that had been recorded as deferred revenue at March 31, 2019.

9


 

Service revenues

The Company’s service-based business, Organovo, Inc., utilized its NovoGen® bioprinting platform to provide customers access to its highly specialized tissues that model human biology and disease, and to in vitro testing services based on that technology. These contracts with customers contained multiple performance obligations including: (i) bioprinting tissues for the customer, (ii) reporting the results of tests performed on the printed tissues pursuant to the agreed upon work plan through exposure of the tissue to various factors (including the customer’s proprietary compound), and (iii) delivering specific byproduct study materials, which were satisfied, respectively, at each of the following points in time: (i) upon completion of manufacturing of the bioprinted tissue for the customer, (ii) upon delivery of the report on tests performed on the tissue, and (iii) upon making certain study materials generated from the aforementioned testing process available to the customer. The customer did not have access or control of any performance obligation prior to the point in time of full completion of the corresponding performance satisfying event as defined above. Furthermore, although the service could be customized for each customer, it was not so highly customized as to not have an alternative use either to other customers or to the Company without significant economic consequences or rework. Accordingly, the Company’s service-based business utilized point-in-time recognition under Topic 606.

For service contracts, the Company allocated the transaction price to each performance obligation based on the estimated relative standalone selling prices of the promised products or services underlying each performance obligation. If the standalone selling price was not observable through past transactions, the Company estimated the standalone selling price taking into account available information such as market conditions and internally approved pricing guidelines related to the performance obligations. The transaction price for service business contracts was a fixed consideration.

In connection to the Company’s decision to pursue its strategic alternatives, the Company reduced commercial activities related to its liver tissues, except for sales of primary human cells out of inventory. The Company is expected to continue to maintain its external research collaborations and its intellectual property portfolio through the closing of the Merger.

Product sales, net

The Company’s product-based business, Samsara Sciences, Inc., produced high-quality cell-based products for use in Organovo’s 3D tissue manufacturing and for use by life science customers. The Company recognizes product revenue when the performance obligation is satisfied, which is at the point in time the customer obtains control of the Company’s product, typically upon delivery. Product revenues are recorded at the transaction price, net of any estimates for variable consideration under Topic 606. The Company’s process for estimating variable consideration does not differ materially from its historical practices. Variable consideration is estimated using the expected value method which considers the sum of probability-weighted amounts in a range of possible amounts under the contract. Product revenue reflects the Company’s best estimates of the amount of consideration to which it is entitled based on the terms of the individual contracts. Actual amounts of consideration ultimately received may differ from the Company’s estimates. If actual results vary materially from the Company’s estimates, the Company will adjust these estimates, which will affect revenue from product sales and earnings in the period such estimates are adjusted.

The Company provides no right of return to its customers except in cases where a customer obtains authorization from the Company for the return. To date, there have been no product returns. The Company will continue to assess its estimates of variable consideration as it accumulates additional historical data and adjusts its estimates accordingly.

On November 7, 2019, the Company entered into an agreement to sell substantially all of the Samsara inventory and associated assets for $1.5 million, which was recorded to other income. As a result, the Company will have no further product sales of cells nor tissues beyond what it sold prior to the November 7th sale.

Collaborative research, development, and licenses

The Company has entered into collaborative agreements with partners that typically include one or more of the following: (i) non-exclusive license fees; (ii) non-refundable up-front fees; (iii) payments for reimbursement of research costs; (iv) payments associated with achieving specific development milestones; and (v) royalties based on specified percentages of net product sales, if any. At the initiation of an agreement, the Company has analyzed whether it results in a contract with a customer under Topic 606 or in an arrangement with a collaborator subject to guidance under ASC 808, Collaborative Arrangements (“Topic 808”).

10


 

The Company has considered a variety of factors in determining the appropriate estimates and assumptions under these arrangements, such as whether the elements are distinct performance obligations, whether there are determinable stand-alone prices, and whether any licenses are functional or symbolic. The Company has evaluated each performance obligation to determine if it can be satisfied and recognized as revenue at a point in time or over time. Typically, non-exclusive license fees, non-refundable upfront fees, and funding of research activities have been considered fixed, while milestone payments have been identified as variable consideration which must be evaluated to determine if it has been constrained and, therefore, excluded from the transaction price.

The Company’s collaborative agreements that were not completed at the implementation of Topic 606 on April 1, 2018, consisted of research collaboration and limited technology access licenses. These agreements provide the licensee with a non-exclusive, non-transferable, limited, royalty-free technology license, including access to Organovo’s proprietary bioprinter platform, training, and continued support by means of consumables and consultation throughout the duration of the contract. The Company has determined that the intellectual property license is not distinct from the continued support promised under the agreement and is therefore a single combined performance obligation. The Company recognized revenue for these combined performance obligations over time for the duration of the license period, as the combined performance obligation would not be fully satisfied until the end of the contract.

For the nine months ended December 31, 2019, all collaborations and licenses revenue was within the scope of Topic 606 and recognized accordingly. As of September 30, 2019, the Company completed its obligations under the existing agreements with respect to receipts of revenue and does not anticipate recording any further revenue. See “Note 4. Collaborative Research, Development, and License Agreements” for more information on the Company’s collaborative agreements.

Grant revenue

In July 2017, the NIH awarded the Company a “Research and Development” grant totaling approximately $1,657,000 of funding over three years. The Company has concluded this government grant is not within the scope of Topic 606, as government entities do not meet the definition of a “customer” as defined by Topic 606, as there is not considered to be a transfer of control of goods or services to the government entity funding the grant. Additionally, the Company has concluded this government grant does meet the definition of a contribution and is a non-reciprocal transaction, however, Subtopic 958-605, Not-for-Profit-Entities-Revenue Recognition does not apply, as the Company is a business entity and the grant is with a governmental agency.

Revenues from this grant have been based upon internal costs incurred that are specifically covered by the grant, plus an additional rate that provides funding for overhead expenses. Revenue has been recognized as the Company incurs expenses that are related to the grant. The Company believes this policy is consistent with the overarching premise in Topic 606, to ensure that it recognizes revenues to reflect the transfer of promised goods or services to customers in an amount that reflects the consideration to which it expects to be entitled in exchange for those goods or services, even though there is no “exchange” as defined in the ASC. The Company believes the recognition of revenue as costs are incurred and amounts become earned/realizable is analogous to the concept of transfer of control of a service over time under Topic 606.

As of December 31, 2019, the Company has recognized approximately $1.2 million in grant revenue. Revenue recognized under this grant was approximately $0 and $52,000 for the three and nine months ended December 31, 2019, respectively. Revenue recognized under this grant was approximately $66,000 and $574,000 for the three and nine months ended December 31, 2018, respectively.

In connection to the Company’s decision to pursue its strategic alternatives, specific to the NIH NASH grant, all internal research activities have been halted, leaving a remaining available balance of approximately $0.5 million that will not be utilized by the Company.

Cost of revenues

The Company reported approximately less than $0.1 million and $0.3 million in cost of revenues for the three and nine months ended December 31, 2019, respectively, which includes an inventory write-off during the fiscal second quarter of approximately $0.2 million consisting of raw materials related to the Company’s bioprinting and testing services and is a result of the Company’s decision to pursue its strategic alternatives. The Company reported approximately $0.1 million and $0.4 million in cost of revenues for the three and nine months ended December 31, 2018, respectively. Cost of revenues consists of costs related to manufacturing and delivering product and service revenue.

 

11


 

Net loss per share

Basic and diluted net loss per share has been computed using the weighted-average number of shares of common stock outstanding during the period. The weighted-average number of shares used to compute diluted loss per share excludes any assumed exercise of stock options and warrants, shares reserved for purchase under the Company’s 2016 Employee Stock Purchase Plan (“ESPP”), the assumed release of restriction of restricted stock units, and shares subject to repurchase as the effect would be anti-dilutive. No dilutive effect was calculated for the three and nine months ended December 31, 2019 or 2018, as the Company reported a net loss for each respective period and the effect would have been anti-dilutive.

Common stock equivalents excluded from computing diluted net loss per share were approximately 16.7 million at December 31, 2019 and 15.6 million at December 31, 2018.

Recent Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) or other standard setting bodies. Unless otherwise stated, the Company believes that the impact of the recently issued accounting pronouncements that are not yet effective will not have a material impact on its consolidated financial position or results of operations upon adoption.

Adoption of New Accounting Pronouncements

In February 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-02, Leases (“ASC 842”), which supersedes the lease guidance under ASC 840 – Leases. The new accounting standard requires an entity to recognize right-of-use assets and corresponding lease liabilities on the balance sheet for all leases with terms of more than 12 months and to disclose key information about leasing arrangements. This new guidance became effective for the Company on April 1, 2019. The Company adopted ASC 842 on April 1, 2019 and elected the optional transition method that allows for a cumulative-effect adjustment in the period of adoption and did not require restatement of prior periods. The Company elected the package of practical expedients permitted under the transition guidance, but not the hindsight practical expedient. Please refer to “Note 6. Leases” for more information regarding the Company’s adoption of the new lease standard.

In February 2018, the FASB issued ASU No. 2018-02, Income Statement – Reporting Comprehensive Income (“Topic 220”), which allows stranded tax effects resulting from the Tax Cuts and Jobs Act to be reclassified from accumulated other comprehensive income to retained earnings. The amendment only relates to the reclassification of the income tax effects of the Tax Cuts and Jobs Act; thus, the underlying guidance relating to the effect of a change in tax laws be included in income from continuing operations is not affected. The amendments in Topic 220 are effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. This new guidance became effective for the Company on April 1, 2019. The requirements of ASU 2018-02 did not have a significant impact on the Company’s financial statements.

In June 2018, the FASB issued ASU No. 2018-07, Compensation - Stock Compensation: Improvements to Nonemployee Share-Based Payment Accounting, which aligns the measurement and classification guidance for share-based payment to non-employees with the guidance for share-based payments to employees. Under the new guidance, the measurement period for equity-classified non-employee awards will be fixed at the grant date. This new guidance became effective for the Company on April 1, 2019. The requirements of ASU 2018-07 did not have a significant impact on the Company’s financial statements.

Recent Accounting Pronouncements Not Yet Adopted

In November 2018, the FASB issued ASU 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606, which provides guidance on whether certain transactions between collaborative arrangement participants should be accounted for as revenue under Topic 606. The amendments in this update provide more comparability in the presentation of revenue for certain transactions between collaborative arrangement participants. The key improvements to GAAP for collaborative arrangements resulting from this amendment are to (i) clarify that certain transactions between collaborative arrangement participants should be accounted for as revenue under Topic 606 when the collaborative arrangement participant is a customer in the context of a unit-of-account, (ii) add unit-of-account guidance in Topic 808 to align with the guidance in Topic 606, and (iii) require that in a transaction with a collaborative arrangement participant that is not directly related to sales to third parties, presenting the transaction together with revenue recognized under Topic 606 is precluded if the collaborative arrangement participant is not a customer. The amendments in this ASU are effective for all entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years with early adoption permitted. This new guidance is effective for us on April 1, 2020. The Company is currently evaluating the impact that this guidance will have on its consolidated financial statements.

12


 

Note 3. Stockholders’ Equity

Stock-based compensation expense and valuation information

Stock-based awards include stock options and restricted stock units under the 2012 Equity Incentive Plan, as amended (“2012 Plan”) and Inducement Awards, performance-based restricted stock units under an Incentive Award Performance-Based Restricted Stock Unit Agreement, and rights to purchase stock under the 2016 Employee Stock Purchase Plan (“ESPP”). The Company calculates the grant date fair value of all stock-based awards in determining the stock-based compensation expense.

Stock-based compensation expense for all stock-based awards consists of the following (in thousands):

 

 

 

Three Months Ended

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

Nine Months Ended

 

 

 

December 31, 2019

 

 

December 31, 2018

 

 

December 31, 2019

 

 

December 31, 2018

 

Research and development

 

$

66

 

 

$

249

 

 

$

240

 

 

$

679

 

General and administrative

 

$

1,186

 

 

$

1,109

 

 

$

3,468

 

 

$

3,232

 

Total

 

$

1,252

 

 

$

1,358

 

 

$

3,708

 

 

$

3,911

 

 

The total unrecognized compensation cost related to unvested stock option grants as of December 31, 2019 was approximately $4,855,000 and the weighted average period over which these grants are expected to vest is 2.12 years.

The total unrecognized compensation cost related to unvested restricted stock units (not including performance-based restricted stock units) as of December 31, 2019 was approximately $1,642,000, which will be recognized over a weighted average period of 1.97 years.

The total unrecognized compensation cost related to unvested performance-based restricted stock units as of December 31, 2019 was approximately $2,339,000, which will be recognized over a weighted average period of 1.60 years.

As of December 31, 2019, there are no participants enrolled into the employee stock purchase plan for the current purchase period, beginning September 1, 2019.

The Company uses the Black-Scholes valuation model to calculate the fair value of stock options. Stock-based compensation expense is recognized over the vesting period using the straight-line method. The fair value of stock options was estimated at the grant date using the following weighted average assumptions:

 

 

 

Three Months Ended

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

Nine Months Ended

 

 

 

December 31, 2019 *

 

 

December 31, 2018

 

 

December 31, 2019

 

 

December 31, 2018

 

Dividend yield

 

 

 

 

 

 

 

 

 

 

 

 

Volatility

 

 

0.00

%

 

 

73.07

%

 

 

84.36

%

 

 

72.99

%

Risk-free interest rate

 

 

0.00

%

 

 

2.79

%

 

 

1.53

%

 

 

2.75

%

Expected life of options

 

 

 

 

6.00 years

 

 

6.00 years

 

 

6.00 years

 

Weighted average grant

   date fair value

 

$

 

 

$

0.67

 

 

$

0.23

 

 

$

0.84

 

 

*No options were granted in the three months ended December 31, 2019.

The assumed dividend yield was based on the Company’s expectation of not paying dividends in the foreseeable future. Prior to fiscal year 2020, the Company used a blend of historical volatility and implied volatility of comparable companies. As of April 1, 2019, the Company is using the Company-specific historical volatility rate as it is more reflective of market conditions and a better indicator of expected volatility. The risk-free interest rate assumption was based on U.S. Treasury rates. The weighted average expected life of options was estimated using the average of the contractual term and the weighted average vesting term of the options. Prior to fiscal year 2020, certain options granted to consultants were subject to variable accounting treatment and were required to be revalued until vested. As of April 1, 2019, the measurement and classification of share-based payment to non-employees is consistent with the measurement and classification of share-based payment to employees.

 

The fair value of each restricted stock unit and performance-based restricted stock unit is recognized as stock-based compensation expense over the vesting term of the award. The fair value is based on the closing stock price on the date of the grant.

13


 

The Company uses the Black-Scholes valuation model to calculate the fair value of shares issued pursuant to the Company’s ESPP. Stock-based compensation expense is recognized over the purchase period using the straight-line method. The fair value of ESPP shares was estimated at the purchase period commencement date using the following assumptions:

 

 

 

Three Months Ended

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

Nine Months Ended

 

 

 

December 31, 2019*

 

 

December 31, 2018

 

 

December 31, 2019*

  

 

December 31, 2018

 

Dividend yield

 

 

 

 

 

 

 

 

 

 

 

 

Volatility

 

 

0.00

%

 

 

80.23

%

 

 

43.69

%

 

61.35 - 80.23%

 

Risk-free interest rate

 

 

0.00

%

 

 

2.29

%

 

 

2.52

%

 

1.85 - 2.29%

 

Expected term

 

 

 

 

6 months

 

 

6 months

 

 

6 months

 

Grant date fair value

 

$

 

 

$

0.45

 

 

$0.29

 

 

$0.30 - $0.45

 

 

*There are no participants in the ESPP for the current purchase period (beginning September 1, 2019).

 

The assumed dividend yield was based on the Company’s expectation of not paying dividends in the foreseeable future. The Company uses the Company-specific historical volatility rate as the indicator of expected volatility. The risk-free interest rate assumption was based on U.S. Treasury rates. The expected life is the 6-month purchase period.

Preferred stock

The Company is authorized to issue 25,000,000 shares of preferred stock. There are no shares of preferred stock currently outstanding, and the Company has no current plans to issue shares of preferred stock.

Common stock

On June 25, 2019, the Company received a notice letter from the Listing Qualifications Staff of the Nasdaq Stock Market LLC (“Nasdaq”) indicating that, based upon the closing bid price of the Company’s common stock for the last 30 consecutive business days, the Company no longer meets the requirement to maintain a minimum closing bid price of $1 per share, as set forth in Nasdaq Listing Rule 5450(a)(1). On December 26, 2019, the Company obtained an additional compliance period of 180 calendar days by electing to transfer to The Nasdaq Capital Market. To qualify, the Company would be required to meet the continued listing requirement for market value of publicly held shares and all other initial listing standards for the Nasdaq Capital Market. In connection with the Merger with Tarveda, the Company is also seeking to effect a reverse stock split, which would be subject to the prior approval of the Company’s stockholders. There can be no assurance that the Company will be able to regain compliance with the minimum bid price requirement or maintain compliance with the other listing requirements necessary to maintain the listing of its common stock on the Nasdaq Capital Market. The Company’s failure to regain compliance during this second compliance period could result in delisting and impact our ability to complete the Merger with Tarveda.

The Company has an effective shelf registration statement on Form S-3 (File No. 333-222929) and the related prospectus previously declared effective by the Securities and Exchange Commission (the “SEC”) on February 22, 2018 (the “2018 Shelf”), that expires on February 22, 2021, which registered $100,000,000 of common stock, preferred stock, warrants and units, or any combination of the foregoing.

On March 16, 2018, the Company entered into a Sales Agreement (“2018 Sales Agreement”) with H.C. Wainwright & Co., LLC and Jones Trading Institutional Services LLC (each an “Agent” and together, the “Agents”) and filed a prospectus supplement to the 2018 Shelf, pursuant to which the Company may offer and sell, from time to time through the Agents, shares of its common stock in at-the-market sales transactions having an aggregate offering price of up to $50,000,000 (the “Shares”). Any shares offered and sold will be issued pursuant to the Company’s 2018 Shelf.

During the three and nine months ended December 31, 2019, the Company issued 0 and 6,087,382 shares of common stock, respectively, for net proceeds of $0 and $5.0 million in at-the-market offerings under the 2018 Sales Agreement. During the three and nine months ended December 31, 2018, the Company issued 1,798,384 and 5,560,514 shares of common stock, respectively, for net proceeds of approximately $1.9 million and $6.9 million under the 2018 Sales Agreement.

As of December 31, 2019, the Company has sold an aggregate of 17,719,185 shares of common stock in at-the-market offerings under the 2018 Sales Agreement, with gross proceeds of approximately $18.7 million. Based on these sales, the Company cannot raise more than an aggregate of $81.3 million in future offerings under the 2018 Shelf, including the $31.3 million remaining available for future issuance through its at-the-market program under the 2018 Sales Agreement.

14


 

On July 26, 2018, the Company filed an amendment to its certificate of incorporation to increase the number of authorized shares of common stock to 200,000,000 shares.

Restricted stock units

A summary of the Company’s restricted stock units (not including performance-based restricted stock units) activity from March 31, 2019 through December 31, 2019 is as follows:

 

 

 

Number of

Shares

 

 

Weighted

Average Price

 

Unvested at March 31, 2019

 

 

2,080,723

 

 

$

1.80

 

Granted

 

 

585,926

 

 

$

0.97

 

Vested

 

 

(500,666

)

 

$

2.26

 

Cancelled / forfeited

 

 

(1,057,673

)

 

$

1.23

 

Unvested at December 31, 2019

 

 

1,108,310

 

 

$

1.70

 

 

Performance-based restricted stock units

On April 24, 2017, the Company issued a Performance-Based Restricted Stock Unit Award for 208,822 shares of common stock (the “PBRSU”) to its newly hired Chief Executive Officer. The PBRSU was issued outside of the 2012 Plan, in the Inducement Award Agreement, as an “inducement award” within the meaning of Nasdaq Marketplace Rule 5635(c)(4). While outside the Company’s 2012 Plan, the terms and conditions of these awards are consistent with awards granted to the Company’s executive officers pursuant to the 2012 Plan. On August 23, 2017, the Board of Directors formally approved the vesting criteria for the PBRSU. The vesting of the PBRSU is divided into five separate tranches each with independent vesting criteria. The first four tranches had performance criteria related to annual revenue goals with measurement at the end of fiscal year 2018 (20 percent), fiscal year 2019 (20 percent), fiscal year 2020 (20 percent), and fiscal year 2021 (20 percent). The fifth tranche had a performance metric related to a path to profitability goal measured as Negative Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”) achievable at any point between the grant date and the end of fiscal year 2020 (20 percent). The number of units that ultimately vest for each tranche will range from 0 percent to 120 percent of the target amount, not to exceed 208,822 in aggregate. On December 12, 2018, the Board of Directors formally approved an amendment to the vesting criteria for the PBRSUs. As of December 12, 2018, 100% of the Negative Adjusted EBITDA tranche, or 41,764 shares had vested and 8,352 units had been forfeited. Based on the amendment to the vesting criteria, the remaining 158,706 units eligible to vest upon future performance were divided into three separate but equal tranches with independent vesting criteria based on the achievement of certain regulatory milestones. As of December 31, 2019, no tranches are expected to vest unless there is a change in control.

Based on the amended PBRSU vesting terms, a Type III modification, the modified grant date fair value of the PBRSUs is $165,000 of which one-third is being recognized over the expected service period of each tranche ending on April 23, 2023. The Company began recording stock-based compensation expense for the initial performance tranches after the August 23, 2017 grant date when the initial financial performance goals were established and approved and has modified its recording of compensation expense in accordance with the amended performance tranches beginning on December 12, 2018.

On July 2, 2019, the Company issued Performance-Based Restricted Stock Unit Awards (the “PBRSU Retention Awards”) for an aggregate of 6,027,899 shares of common stock to its management team. The PBRSUs were issued pursuant to the 2012 Plan. The PBRSU Retention Awards will vest in full upon the earlier of the Company’s engagement in a pre-IND meeting with the FDA, twenty-four months from the grant date, or a change in control. As of December 31, 2019, all PBRSUs are expected to vest twenty-four months from the grant date.

A summary of the Company’s performance-based restricted stock unit activity from March 31, 2019 through December 31, 2019 is as follows:

 

 

 

Number of

Shares

 

 

Weighted

Average Price

 

Unvested at March 31, 2019

 

 

158,706

 

 

$

1.04

 

Granted