onvo-10q_20190930.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 September 30, 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.)

 

 

6275 Nancy Ridge Drive, Suite 110,

San Diego, CA 92121

 

(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 Global 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 November 1, 2019, a total of 130,434,904 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 September 30, 2019 (Unaudited) and March 31, 2019

 

3

 

 

Unaudited Condensed Consolidated Statements of Operations and Other Comprehensive Loss for the Three and Six Months Ended September 30, 2019 and 2018

 

4

 

 

Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the Three and Six Months Ended September 30, 2019 and 2018

 

5

 

 

Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months Ended September 30, 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

 

31

Item 1A.

 

Risk Factors

 

31

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

45

Item 3.

 

Defaults Upon Senior Securities

 

45

Item 4.

 

Mine Safety Disclosure

 

45

Item 5.

 

Other Information

 

45

Item 6.

 

Exhibits

 

46

 

 

 

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)

 

 

 

September 30, 2019

 

 

March 31, 2019

 

 

 

(Unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

30,350

 

 

$

36,477

 

Accounts receivable

 

 

619

 

 

 

503

 

Grant receivable

 

 

 

 

 

55

 

Inventory, net

 

 

351

 

 

 

490

 

Prepaid expenses and other current assets

 

 

1,394

 

 

 

1,049

 

Total current assets

 

 

32,714

 

 

 

38,574

 

Fixed assets, net

 

 

758

 

 

 

1,832

 

Restricted cash

 

 

79

 

 

 

79

 

Operating lease right-of-use assets

 

 

4,089

 

 

 

 

Other assets, net

 

 

131

 

 

 

138

 

Total assets

 

$

37,771

 

 

$

40,623

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

 

 

Accounts payable

 

$

152

 

 

$

628

 

Accrued expenses

 

 

1,932

 

 

 

2,549

 

Deferred revenue

 

 

 

 

 

525

 

Deferred rent

 

 

 

 

 

35

 

Operating lease liability, current portion

 

 

1,038

 

 

 

 

Total current liabilities

 

 

3,122

 

 

 

3,737

 

Deferred rent, net of current portion

 

 

 

 

 

588

 

Operating lease liability, net of current portion

 

 

3,576

 

 

 

 

Total liabilities

 

 

6,698

 

 

 

4,325

 

Commitments and Contingencies

 

 

 

 

 

 

 

 

Stockholders’ Equity

 

 

 

 

 

 

 

 

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

   130,434,904 and 124,015,429 shares issued and outstanding at

   September 30, 2019 and March 31, 2019, respectively

 

 

130

 

 

 

124

 

Additional paid-in capital

 

 

304,315

 

 

 

296,929

 

Accumulated deficit

 

 

(273,372

)

 

 

(260,755

)

Total stockholders’ equity

 

 

31,073

 

 

 

36,298

 

Total Liabilities and Stockholders’ Equity

 

$

37,771

 

 

$

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

 

 

Six Months Ended

 

 

Six Months Ended

 

 

 

September 30, 2019

 

 

September 30, 2018

 

 

September 30, 2019

 

 

September 30, 2018

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Products and services

 

$

1,221

 

 

$

493

 

 

$

1,827

 

 

$

1,039

 

Collaborations and licenses

 

 

9

 

 

 

42

 

 

 

19

 

 

 

85

 

Grants

 

 

 

 

 

408

 

 

 

52

 

 

 

508

 

Total Revenues

 

 

1,230

 

 

 

943

 

 

 

1,898

 

 

 

1,632

 

Cost of revenues

 

 

264

 

 

 

125

 

 

 

315

 

 

 

245

 

Research and development expenses

 

 

1,445

 

 

 

3,187

 

 

 

5,268

 

 

 

6,566

 

Selling, general and administrative expenses

 

 

6,348

 

 

 

3,640

 

 

 

9,663

 

 

 

8,407

 

Total costs and expenses

 

 

8,057

 

 

 

6,952

 

 

 

15,246

 

 

 

15,218

 

Loss from Operations

 

 

(6,827

)

 

 

(6,009

)

 

 

(13,348

)

 

 

(13,586

)

Other Income (Expense)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gain on fixed asset disposals

 

 

85

 

 

 

 

 

 

86

 

 

 

2

 

Interest income

 

 

183

 

 

 

172

 

 

 

380

 

 

 

334

 

Other Income (Expense)

 

 

267

 

 

 

 

 

 

267

 

 

 

 

Total Other Income

 

 

535

 

 

 

172

 

 

 

733

 

 

 

336

 

Income Tax Expense

 

 

(2

)

 

 

 

 

 

(2

)

 

 

(3

)

Net Loss

 

$

(6,294

)

 

$

(5,837

)

 

$

(12,617

)

 

$

(13,253

)

Comprehensive Loss

 

$

(6,294

)

 

$

(5,837

)

 

$

(12,617

)

 

$

(13,253

)

Net loss per common share—basic and diluted

 

$

(0.05

)

 

$

(0.05

)

 

$

(0.10

)

 

$

(0.12

)

Weighted average shares used in computing net

   loss per common share—basic and diluted

 

 

130,357,184

 

 

 

113,993,237

 

 

 

128,615,615

 

 

 

112,732,767

 

 

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 Six Months Ended September 30, 2018

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Accumulated Other

 

 

 

 

 

 

 

Common Stock

 

 

Paid-in

 

 

Accumulated

 

 

Comprehensive

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Income (Loss)

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three and Six Months Ended September 30, 2019

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Accumulated Other

 

 

 

 

 

 

 

Common Stock

 

 

Paid-in

 

 

Accumulated

 

 

Comprehensive

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Income (Loss)

 

 

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

 

 

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)

 

 

 

Six Months Ended

 

 

Six Months Ended

 

 

 

September 30, 2019

 

 

September 30, 2018

 

Cash Flows From Operating Activities

 

 

 

 

 

 

 

 

Net loss

 

$

(12,617

)

 

$

(13,253

)

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

 

 

 

 

 

 

 

 

Gain on disposal of fixed assets

 

 

(85

)

 

 

(2

)

Depreciation and amortization

 

 

379

 

 

 

570

 

Stock-based compensation

 

 

2,456

 

 

 

2,553

 

Inventory write-off

 

 

214

 

 

 

 

Increase (decrease) in cash resulting from changes in:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(116

)

 

 

408

 

Grants receivable

 

 

55

 

 

 

(308

)

Inventory

 

 

(75

)

 

 

(194

)

Prepaid expenses and other assets

 

 

415

 

 

 

366

 

Accounts payable

 

 

(476

)

 

 

(15

)

Accrued expenses

 

 

(617

)

 

 

(1,315

)

Deferred revenue

 

 

(525

)

 

 

(68

)

Deferred rent

 

 

 

 

 

(88

)

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

 

 

(98

)

 

 

 

Net cash used in operating activities

 

 

(11,090

)

 

 

(11,346

)

Cash Flows From Investing Activities

 

 

 

 

 

 

 

 

Purchases of fixed assets

 

 

 

 

 

(11

)

Proceeds from disposals of fixed assets

 

 

27

 

 

 

2

 

Net cash provided by (used in) investing activities

 

 

27

 

 

 

(9

)

Cash Flows From Financing Activities

 

 

 

 

 

 

 

 

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

 

 

4,996

 

 

 

5,129

 

Employee taxes paid related to net share settlement of equity awards

 

 

(60

)

 

 

(145

)

Net cash provided by financing activities

 

 

4,936

 

 

 

4,984

 

Net decrease in cash, cash equivalents, and restricted cash

 

 

(6,127

)

 

 

(6,371

)

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

 

 

36,556

 

 

 

43,853

 

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

 

$

30,429

 

 

$

37,482

 

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

   consolidated balance sheets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

30,350

 

 

$

37,355

 

Restricted cash

 

 

79

 

 

 

127

 

Total cash, cash equivalent and restricted cash

 

$

30,429

 

 

$

37,482

 

Supplemental Disclosure of Cash Flow Information:

 

 

 

 

 

 

 

 

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 Stock Market, and its remaining financial assets. These strategic alternatives may include possible mergers and business combinations, sales of part or all of the Company’s assets, and licensing arrangements. In connection with this process, the Company also implemented various restructuring steps to manage its resources and extend its cash runway, including halting all commercial activities, 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.

This strategic alternatives process is both active and ongoing, and includes a range of interactions with potential transaction counterparties, including both potential merger transactions, sales of the Company’s inventory and assets and potential licensing arrangements. We believe it is in our stockholders’ best interests at this time to continue to pursue one or more of these transactions, or other strategic alternatives we may identify in the near term. Although we are actively pursuing our strategic alternatives, there is no assurance that we will be able to successfully negotiate and consummate a transaction on a timely basis, or at all. Additionally, any transaction we consummate may offer limited value for our existing business and proprietary technology and may not enhance stockholder value or provide the expected benefits. Based on our current plans and available resources, we believe that we can maintain our current operations for at least the next 12 months, however, if we are unable to successfully complete a strategic transaction or secure additional capital on a timely basis and on terms that are acceptable to our stockholders, we may elect to cease our operations altogether.

As the Company continues to pursue and evaluate its strategic alternatives and reorganizes its operational capacity, its operations and the trends and risks that apply to its business have changed from those that are described in the Company’s Annual Report on Form 10-K for the year ended March 31, 2019. Prior to August 2019, its business and historical operating results were based on its past operational contract services model and therapeutic tissue development programs which are not indicative of future results. In the event that the Company does engage in one or more strategic transactions, it is possible that the value realized by its stockholders in such transactions might be significantly less than the $31.1 million of stockholders’ equity recorded on its condensed consolidated financial statements as of September 30, 2019 for a number of factors, risks and uncertainties, including the fact that the Company will continue to realize a net loss through the closing of such a transaction.

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. and Samsara Sciences, 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.

7


 

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 September 30, 2019, the Company had cash and cash equivalents of approximately $30.4 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 $273.4 million at September 30, 2019. The Company also had negative cash flows from operations of approximately $11.1 million during the six months ended September 30, 2019.

Through September 30, 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 six months ended September 30, 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.

As we explore various strategic alternatives, we have taken steps to manage our resources and extend our cash runway including halting all commercial activities except for sales of primary human cells out of inventory, negotiating an exit from our long-term facility lease, selling various assets, and reducing our workforce to the minimum level necessary to explore and support these strategic alternatives. As a result, the Company terminated the employment of 46 employees, or 79% of its workforce and recorded a restructuring charge in the fiscal second quarter of approximately $2.5 million, primarily related to employee severance and benefits costs, of which $1.7 million was paid out during the fiscal second quarter and the remainder is anticipated to be paid out during the fiscal third quarter.

The Company currently expects further restructuring actions tied to progress made on the strategic alternatives process, which could lead to an additional $3.1 million of severance and benefits costs that would be incurred and paid on or prior to a possible strategic transaction, of which $0.4 million is expected to be incurred during the Company’s fiscal third quarter, with the remainder to be incurred upon closing of a strategic transaction. As a result, absent any further impact from asset sales or merger related costs or other costs incurred from other strategic alternatives, the Company expects its cash balance to be between $28.0 million and $29.0 million at the end of its fiscal third quarter and between $26.0 million and $27.0 million at the end of its fiscal fourth quarter.

Although the Company is actively pursuing strategic alternatives, there is no assurance that it will be able to successfully negotiate and consummate one or more transactions on a timely basis, or at all. Further, the Company’s expenses may exceed its current plans and expectations, which could cause the Company to complete a transaction or wind-down its operations sooner than anticipated. Additionally, any transaction the Company consummates may offer limited value for the Company’s existing business and proprietary technology and may not enhance stockholder value or provide the expected benefits. If the Company is unable to successfully complete a 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 our stockholders might be significantly less than the $31.1 million of stockholders’ equity recorded on our consolidated financial statements as of September 30, 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 its strategic 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 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.

8


 

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 quarter-end, the Company performed an asset impairment analysis on its long-lived asset group, consisting of its property, plant and equipment, leases, and intangibles, 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 September 30, 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 six months ended September 30, 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.

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, all commercial activities have been halted, except for product sales of primary human cells out of inventory.

9


 

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 will adjust its estimates accordingly.

Subsequent to the end of the quarter, 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. As a result, the Company will have no further product sales beyond what it sold prior to the November 7th sale and will write-off the remainder of its inventory.

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”).

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 six months ended September 30, 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 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.

10


 

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 September 30, 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 six months ended September 30, 2019, respectively. Revenue recognized under this grant was approximately $408,000 and $508,000 for the three and six months ended September 30, 2018, respectively.

In connection to the Company’s decision to pursue its strategic alternatives, all grant-related research activities have been halted, leaving a remaining balance of approximately $0.5 million in grant revenue that will not be recognized.

Cost of revenues

The Company reported approximately $0.3 million in cost of revenues for the three and six months ended September 30, 2019, which includes an inventory write-off 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 $0.2 million in cost of revenues for the three and six months ended September 30, 2018, respectively. Cost of revenues consists of costs related to manufacturing and delivering product and service revenue.

 

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 six months ended September 30, 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 19.5 million at September 30, 2019 and 17.8 million at September 30, 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.

11


 

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 financial statements.

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

 

 

Six Months Ended

 

 

Six Months Ended

 

 

 

September 30, 2019

 

 

September 30, 2018

 

 

September 30, 2019

 

 

September 30, 2018

 

Research and development

 

$

10

 

 

$

229

 

 

$

174

 

 

$

431

 

General and administrative

 

$

1,226

 

 

$

1,045

 

 

$

2,282

 

 

$

2,122

 

Total

 

$

1,236

 

 

$

1,274

 

 

$

2,456

 

 

$

2,553

 

 

The total unrecognized compensation cost related to unvested stock option grants as of September 30, 2019 was approximately $5,586,000 and the weighted average period over which these grants are expected to vest is 2.34 years.

The total unrecognized compensation cost related to unvested restricted stock units (not including performance-based restricted stock units) as of September 30, 2019 was approximately $2,116,000, which will be recognized over a weighted average period of 2.21 years.

The total unrecognized compensation cost related to unvested performance-based restricted stock units as of September 30, 2019 was approximately $2,720,000, which will be recognized over a weighted average period of 1.85 years.

As of September 30, 2019, there are no participants enrolled into the employee stock purchase plan for the current purchase period, beginning September 1, 2019.

12


 

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

 

 

Six Months Ended

 

 

Six Months Ended

 

 

 

September 30, 2019

 

 

September 30, 2018

 

 

September 30, 2019

 

 

September 30, 2018

 

Dividend yield

 

 

 

 

 

 

 

 

 

 

 

 

Volatility

 

 

84.36

%

 

 

73.19

%

 

 

84.36

%

 

 

72.98

%

Risk-free interest rate

 

 

1.53

%

 

 

2.74

%

 

 

1.53

%

 

 

2.75

%

Expected life of options

 

6.00 years

 

 

6.00 years

 

 

6.00 years

 

 

6.00 years

 

Weighted average grant

   date fair value

 

$

0.23

 

 

$

0.73

 

 

$

0.23

 

 

$

0.84

 

 

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.

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

 

 

Six Months Ended

 

 

Six Months Ended

 

 

 

September 30, 2019*

 

 

September 30, 2018

 

 

September 30, 2019*

 

 

September 30, 2018

 

Dividend yield

 

 

 

 

 

 

 

 

 

 

 

 

Volatility

 

 

43.69

%

 

61.35 - 80.23%

 

 

 

43.69

%

 

61.35 - 80.23%

 

Risk-free interest rate

 

 

2.52

%

 

1.85 - 2.29%

 

 

 

2.52

%

 

1.85 - 2.29%

 

Expected term

 

6 months

 

 

6 months

 

 

6 months

 

 

6 months

 

Grant date fair value

 

$0.29

 

 

$0.30 - $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).

13


 

In accordance with Nasdaq Listing Rule 5810(c)(3)(A), Nasdaq will provide the Company with a period of 180 calendar days, or until December 23, 2019, in which to regain compliance. In order to regain compliance with the minimum bid price requirement, the closing bid price of the Company’s common stock must be at least $1 per share for a minimum of ten consecutive business days during this 180-day period. In the event that the Company does not regain compliance within this 180-day period, the Company may be eligible to seek an additional compliance period of 180 calendar days if it elects to transfer to The Nasdaq Capital Market to take advantage of the additional compliance period offered on that 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, with the exception of the bid price requirement, and would need to provide written notice of its intention to cure the bid price deficiency during the second compliance period. The Company’s failure to regain compliance during this second compliance period could result in delisting.   

The June 25, 2019 Notice does not result in the immediate delisting of the Company’s common stock from the Nasdaq Global Market. The Company will continue to monitor the closing bid price of its common stock over the 180-day period to see if its closing bid price may increase based on its future filings with the Securities and Exchange Commission or any future announcements the Company may be able to issue regarding its business. The Company will also consider its available options to regain compliance, including effecting 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 for the Company to maintain the listing of its common stock on the Nasdaq Global Market.

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 six months ended September 30, 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 six months ended September 30, 2018, the Company issued 1,676,590 and 3,762,130 shares of common stock, respectively, for net proceeds of approximately $2.1 million and $5.1 million under the 2018 Sales Agreement.

As of September 30, 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. The Company intends to use the net proceeds raised through any at-the-market sales for general corporate purposes, general administrative expenses, and working capital and capital expenditures.

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 unit (not including performance-based restricted stock units) activity from March 31, 2019 through September 30, 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

 

 

(435,192

)

 

$

2.22

 

Cancelled / forfeited

 

 

(874,864

)

 

$

1.24

 

Unvested at September 30, 2019

 

 

1,356,593

 

 

$

1.67

 

 

14


 

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. Based on changes to the Company’s strategy, 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 September 30, 2019, no tranches are expected to vest unless there is a change in control.

Based on the amended PBRSU vesting terms, which the Company believes are probable of being achieved, 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 September 30, 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 September 30, 2019 is as follows:

 

 

 

Number of

Shares

 

 

Weighted

Average Price

 

Unvested at March 31, 2019

 

 

158,706

 

 

$

1.04

 

Granted

 

 

6,027,899

 

 

$

0.49

 

Vested

 

 

 

 

$

 

Cancelled / forfeited

 

 

 

 

$

 

Unvested at September 30, 2019

 

 

6,186,605

 

 

$

0.50

 

 

Stock options

A summary of the Company’s stock option activity from March 31, 2019 to September 30, 2019 is as follows:

 

 

 

Options

Outstanding

 

 

Weighted

Average

Exercise Price

 

 

Aggregate

Intrinsic

Value

 

Outstanding at March 31, 2019

 

 

12,039,264

 

 

$

2.24

 

 

$

 

Options granted

 

 

342,500

 

 

$

0.32

 

 

$

 

Options cancelled / forfeited

 

 

(558,544

)

 

$

1.53

 

 

$

 

Options exercised

 

 

 

 

$

 

 

$

 

Outstanding at September 30, 2019

 

 

11,823,220

 

 

$

2.21

 

 

$

 

Vested and Exercisable at September 30, 2019

 

 

5,910,480

 

 

$

2.91

 

 

$

 

 

The weighted average remaining contractual term of options exercisable and outstanding at September 30, 2019 was approximately 6.10 years.

15


 

Employee Stock Purchase Plan

In June 2016, our Board of Directors adopted, and in August 2016 stockholders subsequently approved, the 2016 Employee Stock Purchase Plan (“ESPP”). The Company reserved 1,500,000 shares of common stock for issuance thereunder. The ESPP permits employees after five months of service to purchase common stock through payroll deductions, limited to 15 percent of each employee’s compensation up to $25,000 per employee per year or 10,000 shares per employee per six-month purchase period. Shares under the ESPP are purchased at 85 percent of the fair market value at the lower of (i) the closing price on the first trading day of the six-month purchase period or (ii) the closing price on the last trading day of the six-month purchase period. The initial offering period commenced in September 2016. At September 30, 2019, there were 1,188,718 shares available for purchase under the ESPP.

Warrants

The following table summarizes warrant activity for the six months ended September 30, 2019:

 

 

 

Warrants

 

 

Weighted

Average

Exercise Price

 

Balance at March 31, 2019

 

 

145,000

 

 

$

7.11

 

Granted

 

 

 

 

$

 

Exercised

 

 

 

 

$

 

Cancelled

 

 

(50,000

)

 

$

7.62

 

Balance at September 30, 2019

 

 

95,000

 

 

$

6.84

 

 

The warrants outstanding at September 30, 2019 are exercisable at a price of $6.84 per share and have a weighted average remaining term of approximately 0.10 years.

Common stock reserved for future issuance

Common stock reserved for future issuance consisted of the following at September 30, 2019:

 

Common stock warrants outstanding

 

 

95,000

 

Common stock options outstanding and reserved under the 2012 Plan

 

 

8,760,314

 

Common stock reserved under the 2012 Plan

 

 

7,991,803

 

Common stock reserved under the 2016 Employee Stock Purchase Plan

 

 

1,188,718

 

Restricted stock units outstanding under the 2012 Plan

 

 

1,236,058

 

Performance-based restricted stock units outstanding under the 2012 Plan

 

 

6,027,899

 

Common stock options outstanding and reserved under the Incentive

   Award Agreement

 

 

3,062,906

 

Restricted stock units outstanding under the Incentive Award Agreement

 

 

120,535

 

Performance-based restricted stock units outstanding under the Incentive Award

   Agreement

 

 

158,706

 

Total at September 30, 2019

 

 

28,641,939

 

 

 

Note 4. Collaborative Research, Development, and License Agreements

In December 2016, the Company signed a collaborative non-exclusive research affiliation with a university medical school and a non-profit medical charity, under which the Company received a one-time grant from the charity towards the placement of a NovoGen® Bioprinter at the university for the purpose of developing a kidney organoid for potential therapeutic applications. The Company received up-front payments in January and March 2017, which has been recorded as deferred revenue. Revenue of $9,000 and $19,000 was recorded under this agreement for the three and six months ended September 30, 2019, respectively. Revenue of $10,000 and $19,000 was recorded under this agreement for the three and six months ended September 30, 2018, respectively. The Company completed its obligations under this agreement and does not anticipate recording any further revenue.

16


 

In April 2017, the Company signed a collaborative non-exclusive research affiliation with a university, under which the Company received a one-time non-refundable payment toward the placement of a NovoGen® Bioprinter at the university for the purpose of specific research projects mutually agreed upon by the university and the Company in the field of volumetric muscle loss. The Company received an up-front payment in May 2017, which was recorded as