ORGANOVO HOLDINGS, INC. The following management's discussion and analysis of financial condition and results of operations should be read in conjunction with our historical consolidated financial statements and the related notes thereto included in our Annual Report on Form 10-K for the fiscal year endedMarch 31, 2020 . This discussion and analysis contains forward-looking statements, such as statements related to our plans, objectives, expectations and intentions. Any statements that are not statements of historical fact are forward-looking statements. When used, the words "believe," "plan," "intend," "anticipate," "target," "estimate," "expect" and the like, and/or future tense or conditional constructions such as "will," "may," "could," "should," or similar expressions, identify certain of these forward-looking statements. These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q and are subject to risks and uncertainties, including those described in this Quarterly Report on Form 10-Q, as well as the risk factors disclosed in our Annual Report on the Form 10-K for the fiscal year endedMarch 31, 2020 , filed with theSecurities and Exchange Commission onMay 28, 2020 , and discussed in the section titled "Risk Factors" under Part II, Item 1A in this Quarterly Report on Form 10-Q, that could cause our actual results or events to differ materially from those expressed or implied by such forward-looking statements. Except to the limited extent required by applicable law, we do not undertake any obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this Quarterly Report.
Basis of Presentation
The unaudited condensed consolidated financial statements included in this Form 10-Q have been prepared in accordance with theSecurities and Exchange Commission (the "SEC") instructions to Quarterly Reports on Form 10-Q. Accordingly, the unaudited condensed consolidated financial statements presented elsewhere in this Form 10-Q and discussed below are unaudited and do not contain all the information required byU.S. generally accepted accounting principles ("GAAP") to be included in a full set of financial statements. The audited financial statements for the year endedMarch 31, 2020 , filed with theSEC on Form 10-K onMay 28, 2020 , include a summary of our significant accounting policies and should be read in conjunction with this Form 10-Q. In the opinion of management, all material adjustments necessary to present fairly the results of operations for such periods have been included in this Form 10-Q. All such adjustments are of a normal recurring nature. The results of operations for interim periods are not necessarily indicative of the results of operations for the entire year. OnAugust 18, 2020 , the Company effected a 1-for-20 reverse stock split of its common stock (the "Reverse Stock Split"). Unless otherwise indicated, all share amounts, per share data, share prices, exercise prices and conversion rates set forth in these notes and the accompanying condensed consolidated financial statements have, where applicable, been adjusted retroactively to reflect the Reverse Stock Split.
Unless the context otherwise requires, the terms "
Overview We are an early-stage biotechnology company that is developing and utilizing highly customized 3D human tissues as dynamic models of healthy and diseased human biology for drug development. Our proprietary technology is being used to build functional 3D human tissues that mimic key aspects of native human tissue composition, architecture, function and disease. Our advances include cell type-specific compartments, prevalent intercellular tight junctions, and the formation of microvascular structures. We believe these attributes can enable critical complex, multicellular disease models that we will use to develop clinically effective drugs for selected therapeutic areas. Market opportunities may include externally-partnered or internally-directed drug discovery and the clinical development of new molecular entities or repurposed drugs in-licensed from other pharmaceutical companies. Our goal is to establish a pipeline of drug candidates in high-value disease areas, aiming to commence human clinical testing for at least one drug candidate within a three to five year timeframe.
Historical Operations and Strategic Alternatives Process
Prior toAugust 2019 , we focused our efforts on developing our in vivo liver tissues to treat end-stage liver disease and a select group of life-threatening, orphan diseases, for which there are limited treatment options other than organ transplantation. We also explored the development of other potential pipeline in vivo tissue constructs in-house and through collaborations with academic and government researchers. In the past, we also explored the development of in vitro tissues, including proof of concept models of diseased tissues, for use in drug discovery and development. 19 -------------------------------------------------------------------------------- InAugust 2019 , after a rigorous assessment of our in vitro liver therapeutic tissue program, we concluded that the variability of biological performance and related duration of potential benefits no longer supported an attractive opportunity due to redevelopment challenges and lengthening timelines to compile sufficient data to support an Investigational New Drug ("IND") filing. As a result, we suspended development of our lead program and all other related in-house pipeline development activities. Our Board of Directors (our "Board") also engaged a financial advisory firm to explore our available strategic alternatives, including evaluating a range of ways to generate value from our technology platform and intellectual property, our commercial and development capabilities, our listing on theNasdaq Capital Market, and our remaining financial assets. These strategic alternatives included possible mergers and business combinations, sales of part or all of our assets, and licensing and partnering arrangements. We implemented various restructuring steps to manage our resources and extend our cash runway, including reducing commercial activities related to our liver tissues, 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. Additionally, inNovember 2019 , we sold certain inventory and equipment and related proprietary information held by our wholly-owned subsidiary,Samsara Sciences, Inc. ("Samsara"), and as a result of such sale, Samsara ceased its operations. After conducting a diligent and extensive process of evaluating strategic alternatives and identifying and reviewing potential candidates for a strategic acquisition or other transaction, which included the receipt of more than 27 non-binding indications of interest from interested parties and careful evaluation and consideration of those proposals, and following extensive negotiation withTarveda Therapeutics, Inc. ("Tarveda"), onDecember 13, 2019 , we entered into a merger agreement with Tarveda (the "Merger Agreement"). Pursuant to the Merger Agreement, and subject to the satisfaction or waiver of the conditions set forth in the Merger Agreement, our wholly-owned merger subsidiary would merge with and into Tarveda (the "Merger"), with Tarveda becoming a wholly-owned subsidiary ofOrganovo and the surviving corporation of the Merger . The Merger Agreement included various conditions to the consummation of the Merger, including approval by our stockholders at a Special Meeting of Stockholders scheduled forApril 7, 2020 (the "Special Meeting"). At the Special Meeting, the Merger was not approved by our stockholders. As a result, we terminated the Merger Agreement with Tarveda. Pursuant to the terms of the Merger Agreement, we were obligated to reimburse certain of Tarveda's merger-related expenses not to exceed$300,000 , which was offset by Tarveda's portion of shared expenses incurred byOrganovo in fiscal 2020.
The Cooperation Agreement and Advisory Nominees Proposal
Following the Special Meeting and the termination of the Merger Agreement, our Board continued to solicit stockholder feedback regarding our strategic alternatives and how to maximize stockholder value. In response to feedback from our largest stockholder regarding its desire for the Board to consider opportunities in the 3D bioprinting field and suggestion that the Board should speak withKeith Murphy , our founder, stockholder and former Chief Executive Officer and Chairman, for potential business ideas, our Board initiated discussions withMr. Murphy . Based on these discussions, we entered into a Cooperation Agreement withMr. Murphy onJuly 14, 2020 (the "Cooperation Agreement"). Under the terms of the Cooperation Agreement, the Board appointedMr. Murphy andAdam K. Stern to the Board as Class III directors, and two of our existing directors,Richard Maroun andDavid Shapiro , resigned from the Board and the committees thereof. The Board also agreed to nominate, recommend, support and solicit proxies for the re-election of Messrs. Murphy and Stern at our 2020 Annual Meeting of Stockholders (the "2020 Annual Meeting"). The Board also agreed to nominate, recommend, support and solicit proxies for an advisory stockholder vote (the "Advisory Nominees Proposal") at the 2020 Annual Meeting to appoint three individuals,Douglas Jay Cohen ,David Gobel andAlison Tjosvold Milhous (collectively, the "Advisory Nominees"), to the Board.Mr. Murphy identified each of the Advisory Nominees. Our Board approved the appointment of the Advisory Nominees, to be automatically effective immediately following the final adjournment of the 2020 Annual Meeting if the final vote tabulation for the Advisory Nominees Proposal received more votes cast "FOR" than "AGAINST" its approval. In addition, each of our then-current directors (other than Messrs. Murphy and Stern) agreed to resign from the Board immediately following the appointment of the Advisory Nominees. At the 2020 Annual Meeting held onSeptember 15, 2020 , our stockholders approved the re-election of Messrs. Murphy and Stern to the Board as Class III directors to hold office until the 2023 Annual Meeting of Stockholders and the final vote tabulation for the Advisory Nominees Proposal received more votes cast "FOR" than "AGAINST" its approval and, accordingly, effective upon the final adjournment of the 2020 Annual Meeting,Ms. Milhous was appointed as a Class I director to hold office until the 2021 Annual Meeting of Stockholders and Messrs. Cohen and Gobel were appointed as Class II directors to hold office until the 2022 Annual Meeting (collectively, the "New Director Slate") andCarolyn Beaver ,Taylor Crouch ,Mark Kessel andKirk Malloy , Ph.D. each resigned as directors.
Current Drug Discovery Business
Following the election of the New Director Slate, we have recommenced operations
and are now focusing our future efforts on developing highly customized 3D human
tissues as living, dynamic models of healthy and diseased human biology for drug
development. Our proprietary technology is being used to build functional 3D
human tissues that mimic key aspects of native human tissue composition,
architecture, function and disease. Our advances include cell type-specific
compartments, prevalent intercellular
20
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tight junctions, and the formation of microvascular structures. We believe these
attributes can enable critical complex, multicellular disease models that we
will use to develop clinically effective drugs for selected therapeutic areas.
Market opportunities may include externally-partnered or internally-directed
drug discovery and the clinical development of new molecular entities or
repurposed drugs in-licensed from other pharmaceutical companies. Our goal is to
establish a pipeline of drug candidates in high-value disease areas, aiming to
commence human clinical testing for at least one drug candidate within a three
to five year timeframe.
We have a significant opportunity to change the classic model of drug discovery
using 3D bioprinted human tissues and other 3D models (sometimes known as
"organoids" or "organs on a chip"). Our new paradigm will involve augmenting or
replacing available animal disease models, in the discovery process with more
relevant human disease models utilizing 3D human tissues developed by us. Our 3D
human tissues may enable us to study the treatment of human disease by
replicating key aspects of human biology in areas where this is currently a
challenge with existing models. Rather than offering contract research services
(as we have done in the past), we will focus on identifying and developing our
own drug candidates, including from unique compounds or repurposed drugs
in-licensed from other pharmaceutical companies. After identifying a drug
candidate, we may out-license the drug candidate or may elect to develop the
drug candidate internally. In addition to drug discovery, we will continue to
evaluate opportunities to monetize our intellectual property and technologies
along the way as a means to generate funds to support our primary business. We
will continue to identify and work with partners and collaborators, including
leading academic research sites, to develop new enabling applications which can
support our discovery and development mission.
To restart our research operations, we have commenced hiring a team of research
and development professionals with drug discovery and 3D tissue development
experience. This team will leverage 3D models of disease to discover and develop
new drugs with improved clinical efficacy.
We expect our research and development staff to grow to seven to ten employees.
We also expect to maintain or grow a general and administrative staff of three
to five employees to support our operations and reporting requirements as a
public company.
We expect to lease sufficient office and laboratory space to support our
requirements. We will need space in the short term in the 5,000-10,000 sq. ft.
range, with mixed office and laboratory space. We currently plan to lease a new
facility in San Diego at prevailing market terms.
COVID-19
InDecember 2019 a respiratory illness caused by a novel strain of coronavirus, SARS-CoV-2, causing the Coronavirus Disease 2019, also known as COVID-19 or coronavirus, emerged. While initially the outbreak was largely concentrated inChina , it has since spread globally and been declared a pandemic by theWorld Health Organization . Global health concerns relating to the COVID-19 pandemic have been weighing on the macroeconomic environment, and the pandemic has significantly increased economic volatility and uncertainty. The pandemic has resulted in government authorities implementing numerous measures to try to contain the virus, such as travel bans and restrictions, quarantines, shelter-in-place or stay-at-home orders, and business shutdowns. The overall extent to which the coronavirus impacts our operations will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the outbreak and travel bans and restrictions, quarantines, shelter-in-place or stay-at-home orders, and business shutdowns. In particular, the continued COVID-19 pandemic could adversely impact our operations, including among others, the timing and ability to pursue our strategy, given the impact it may have on the manufacturing and supply chain, sales and marketing and clinical trial operations of potential strategic partners and the ability to advance our research and development activities and pursue development of our pipeline products, each of which could have an adverse impact on our business and our financial results. However, our employees and consultants have been working remotely prior to the COVID-19 pandemic and we currently believe our operations have not otherwise been negatively impacted by the pandemic.
Critical Accounting Policies, Estimates, and Judgments
Our financial statements are prepared in accordance with GAAP. The preparation
of these financial statements requires us to make estimates and judgments that
affect the reported amounts of assets and liabilities, disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. We continually
evaluate our estimates and judgments, the most critical of which are those
related to stock-based compensation expense and the valuation allowance on
deferred tax assets. Though the impact of the COVID-19 pandemic to our business
and operating results presents additional uncertainty, we continue to use the
best information available to inform our critical accounting estimates. We base
our estimates and judgments on historical experience and other factors that we
believe to be reasonable under the circumstances. Materially different results
can occur as circumstances change and additional information becomes known.
Besides the estimates identified above that are considered critical, we make
many other accounting estimates in preparing our financial statements and
related disclosures. All estimates, whether or not deemed critical, affect
reported amounts of assets, liabilities, revenues and expenses, as well as
disclosures of contingent assets and liabilities. These estimates and judgments
are also based on historical experience and other factors that are believed to
be reasonable under the circumstances. Materially different results can occur as
circumstances change and additional information becomes known, even for
estimates and judgments that are not deemed critical.
21
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There have been no significant changes to our critical accounting policies since
March 31, 2020 . For a description of critical accounting policies that affect
our significant judgments and estimates used in the preparation of our unaudited
condensed consolidated financial statements, refer to Item 7. "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Note 1. Description of Business and Summary of Significant Accounting Policies"
in the Notes to Consolidated Financial Statements contained in our Annual Report
on Form 10-K for the year ended March 31, 2020 , filed with the SEC on May 28,
2020 .
Results of Operations
Comparison of the three months ended
The following table summarizes our results of operations for the three months
ended
Three months ended
September 30, Increase (decrease)
2020 2019 $ %
Revenues $ - $ 1,230 $ (1,230 ) (100 %)
Cost of revenues $ - $ 264 $ (264 ) (100 %)
Research and development $ 28 $ 1,445 $ (1,417 ) (98 %)
Selling, general and administrative $ 8,922 $ 6,348 $ 2,574 41 %
Other income $ - $ 535 $ (535 ) (100 %)
Revenues
We had no revenue for the three months ended September 30, 2020 compared to $1.2
million of revenue for the three months ended September 30, 2019 , due to an
ending of revenue generating activities following our decision to restructure
operations to preserve capital as we pursued various strategic alternatives.
Costs and Expenses
Cost of Revenues
Cost of product and service revenues, which reflects expenses related to
manufacturing our products and delivering services was zero for the three months
ended September 30, 2020 , compared to approximately $0.3 million for the three
months ended September 30, 2019 . The decrease was due to the end of revenue
generating activities following our decision to restructure operations to
preserve capital as we pursued various strategic alternatives.
Research and Development Expenses
The following table summarizes our research and development expenses for the
three months ended
Three months ended Three months ended Increase (decrease)
September 30, 2020 % of total September 30, 2019 % of total $ %
Research and
development $ 20 71 % $ 1,332 92 % $ (1,312 ) (98 %)
Non-cash stock-based
compensation 7 25 % 10 1 % (3 ) (30 %)
Depreciation and
amortization 1 4 % 103 7 % (102 ) (99 %)
Total research and
development
expenses $ 28 100 % $ 1,445 100 % $ (1,417 ) (98 %)
Research and development expenses were less than $0.1 million , a decrease of
$1.4 million , or approximately 98%, from the prior year period as we eliminated
all research and development activities following our decision to pursue our
strategic alternatives during the second quarter of fiscal 2020. This action
caused a $0.8 million reduction of personnel related costs, a $0.3 million
reduction in facilities costs, and a $0.3 million reduction in all other costs.
Our average full-time research and development staff decreased from an average
of seventeen full-time employees for the three months ended September 30, 2019
to an average of zero full-time employees for the three months ended September
30, 2020 . Going forward, we will pursue renewed research and development
activities with an associated increase in expenses.
22
--------------------------------------------------------------------------------Selling, General and Administrative Expenses
The following table summarizes our selling, general and administrative expenses for the three months endedSeptember 30, 2020 and 2019 (in thousands, except %): Three months ended Three months ended Increase (decrease) September 30, 2020 % of total September 30, 2019 % of total $ % Selling, general and administrative $ 4,787 54 % $ 5,051 80 %$ (264 ) (5 %) Non-cash stock-based compensation 4,131 46 % 1,226 19 % 2,905 237 % Depreciation and amortization 4 0 % 71 1 % (67 ) (94 %) Total selling, general and administrative expenses $ 8,922 100 % $ 6,348 100 %$ 2,574 41 % For the three months endedSeptember 30, 2020 , selling, general and administrative expenses were approximately$8.9 million , an increase of$2.6 million , or 41%, due to the approval of the Advisory Nominees Proposal inSeptember 2020 triggering a "Change of Control" under our severance plan. These actions caused a$2.8 million increase in personnel costs, related to one-time costs of$3.5 million in stock-based compensation and$2.8 million in severance, which were offset by a$0.2 million decrease in all other costs. Our average selling, general and administrative headcount was six full-time employees for the three months endedSeptember 30, 2020 compared to an average of thirteen full-time employees in the prior year period.
Other Income (Expense)
Other income was less than$0.1 million for the three months endedSeptember 30, 2020 as compared to$0.5 million for the three months endedSeptember 30, 2019 , due to a decrease in interest income caused by lower average yields and investment balances.
Comparison of the six months ended
The following table summarizes our results of operations for the six months
ended
Six months ended
September 30, Increase (decrease)
2020 2019 $ %
Revenues $ - $ 1,898 $ (1,898 ) (100 %)
Cost of revenues $ - $ 315 $ (315 ) (100 %)
Research and development $ 28 $ 5,268 $ (5,240 ) (99 %)
Selling, general and administrative $ 11,708 $ 9,663 $ 2,045 21 %
Other income $ 19 $ 733 $ (714 ) (97 %)
Revenues
We had no revenue for the six months ended September 30, 2020 compared to $1.9
million of revenue for the six months ended September 30, 2019 , due to an ending
of revenue generating activities following our decision to restructure
operations to preserve capital as we pursued various strategic alternatives.
Costs and Expenses
Cost of Revenues
Cost of product and service revenues, which reflects expenses related to
manufacturing our products and delivering services, was zero for the six months
ended September 30, 2020 , compared to approximately $0.3 million for the three
months ended September 30, 2019 . The decrease was due to the end of revenue
generating activities following our decision to restructure operations to
preserve capital as we pursued various strategic alternatives.
23
--------------------------------------------------------------------------------Research and Development Expenses
The following table summarizes our research and development expenses for the six
months ended
Six months ended Six months ended Increase (decrease)
September 30, 2020 % of total September 30, 2019 % of total $ %
Research and
development $ 20 71 % $ 4,860 93 % $ (4,840 ) (100 %)
Non-cash stock-based
compensation 7 25 % 174 3 % (167 ) (96 %)
Depreciation and
amortization 1 4 % 234 4 % (233 ) (100 %)
Total research and
development
expenses $ 28 100 % $ 5,268 100 % $ (5,240 ) (99 %)
Research and development expenses were less than $0.1 million , a decrease of
$5.2 million , or approximately 99%, from the prior year period as we eliminated
all research and development activities following our decision to pursue our
strategic alternatives during the second quarter of fiscal 2020. This action
caused a $2.5 million reduction of personnel related costs, a $0.8 million
reduction in lab supply costs, a $1.1 million reduction in facilities costs, and
a $0.8 million reduction in all other costs. Our average full-time research and
development staff decreased from an average of twenty-nine full-time employees
for the six months ended September 30, 2019 to an average of zero full-time
employees for the six months ended September 30, 2020 . Going forward, we will
pursue renewed research and development activities with an associated increase
in expenses.
Selling, General and Administrative Expenses
The following table summarizes our selling, general and administrative expenses for the six months endedSeptember 30, 2020 and 2019 (in thousands, except %): Six months ended Six months ended Increase (decrease) September 30, 2020 % of total September 30, 2019 % of total $ % Selling, general and administrative $ 6,645 57 % $ 7,235 74 %$ (590 ) (8 %) Non-cash stock-based compensation 5,056 43 % 2,282 24 % 2,774 122 % Depreciation and amortization 7 0 % 146 2 % (139 ) (95 %) Total selling, general and administrative expenses $ 11,708 100 % $ 9,663 100 %$ 2,045 21 % For the six months endedSeptember 30, 2020 , selling, general and administrative expenses were approximately$11.7 million , an increase of$2.0 million , or 21%, due to the approval of the Advisory Nominees Proposal inSeptember 2020 triggering a "Change of Control" under our severance plan. These actions caused a$1.9 million increase in personnel costs, related to one-time costs of$3.5 million in stock-based compensation and$2.8 million in severance, and a$0.1 million increase in all other costs. Our average selling, general and administrative headcount was six full-time employees for the six months endedSeptember 30, 2020 compared to an average of seventeen full-time employees in the prior year period. Other Income (Expense) Other income was less than$0.1 million for the six months endedSeptember 30, 2020 as compared to$0.7 million for the six months endedSeptember 30, 2019 , due to a decrease in interest income caused by lower average yields and investment balances.
Financial Condition, Liquidity and Capital Resources
Until our decision inAugust 2019 to explore strategic alternatives, we had primarily devoted our efforts to developing and commercializing a platform technology to produce and study living tissues that emulate key aspects of human biology and disease, raising capital and building infrastructure. Following the decision to explore strategic alternatives, we took steps to manage our resources and extend our cash runway, including reducing all commercial and research and development laboratory activities, except for sales of primary human cells out of inventory, negotiating an exit from our long-term facility lease, selling lab equipment and inventory, and reducing our workforce to the minimum level necessary to explore and support these strategic alternatives and maintain our core intellectual property, licenses and collaborations with research institutions and universities. We are now recommencing operations and focusing our efforts on developing highly customized human tissues as living, dynamic models of human biology and disease for use in drug discovery and development. 24 -------------------------------------------------------------------------------- As ofSeptember 30, 2020 , we had cash and cash equivalents of approximately$17.7 million and an accumulated deficit of$291.2 million . We also had negative cash flow from operations of$9.7 million during the six months endedSeptember 30, 2020 . AtMarch 31, 2020 , we had cash and cash equivalents of approximately$27.4 million and an accumulated deficit of$279.5 million . AtSeptember 30, 2020 , we had total current assets of approximately$19.5 million and current liabilities of approximately$0.7 million , resulting in working capital of$18.8 million . AtMarch 31, 2020 , we had total current assets of approximately$28.3 million and current liabilities of approximately$1.8 million , resulting in working capital of$26.5 million .
The following table summarizes the primary sources and uses of cash for the six
months ended
Six months ended
September 30,
2020 2019Net cash (used in) provided by:
Operating activities$ (9,718 ) $ (11,090 ) Investing activities 7 27 Financing activities 11 4,936
Net decrease in cash, cash equivalents, and restricted cash
Operating activities Net cash used in operating activities for the six months endedSeptember 30, 2020 was approximately$9.7 million as compared to$11.1 million used in operating activities for the six months endedSeptember 30, 2019 . This$1.4 million decrease in operating cash usage can be attributed primarily to a$3.0 million improvement in the net loss less depreciation and amortization and stock-based compensation, resulting from our restructuring and reduction of headcount, which was offset by a$1.6 million increase in the change in working capital between the two periods.
Investing activities
Net cash provided by investing activities was less than
Financing activities
Net cash provided by financing activities was less than$0.1 million during the six months endedSeptember 30, 2020 compared to net cash provided by financing activities of approximately$4.9 million during the six months endedSeptember 30, 2019 . Financing in the prior year period was driven by the sale of common stock through at-the-market ("ATM") offerings.
Operations funding requirements
ThroughSeptember 30, 2020 , we have financed our operations primarily through the sale of common stock in public offerings, the private placement of equity securities, from revenue derived from products and research-based services, grants, and collaborative research agreements, and from the sale of convertible notes. Throughout the strategic alternatives assessment process, we took steps to manage our resources and extend our cash runway, including selling various assets and reducing our workforce to the minimum level necessary to explore and support these strategic alternatives as well as to support the remainder of our then on-going business activities and assets, including our intellectual property platform and collaborations with research institutions and universities. We believe our cash and cash equivalents on hand will be sufficient to meet our financial obligations for at least the next 12 months of operations. As we recommence our operations and focuses our efforts on drug discovery and development, we will need to raise additional capital to implement this new business plan. We cannot predict with certainty the exact amount or timing for any future capital raises or the terms or structure of any such raises. 25 --------------------------------------------------------------------------------
Based on our use of the 2018 Shelf through
Having insufficient funds may require us to relinquish rights to our technology on less favorable terms than we would otherwise choose. Failure to obtain adequate financing could eventually adversely affect our ability to operate as a going concern. If we raise additional funds from the issuance of equity securities, substantial dilution to our existing stockholders would likely result. If we raise additional funds by incurring debt financing, the terms of the debt may involve significant cash payment obligations as well as covenants and specific financial ratios that may restrict our ability to operate our business. We cannot be sure that additional financing will be available if and when needed, or that, if available, it can obtain financing on terms favorable to its stockholders. Any failure to obtain financing when required will have a material adverse effect on our business, operating results, financial condition and ability to continue as a going concern. OnJune 25, 2019 , we received a notice letter from the Listing Qualifications Staff of Nasdaq indicating that, based upon the closing bid price of our common stock for the last 30 consecutive business days, we no longer meet the requirement to maintain a minimum closing bid price of$1 per share, as set forth in Nasdaq Listing Rule 5450(a)(1). OnDecember 26, 2019 , we obtained an additional compliance period of 180 calendar days by electing to transfer to The Nasdaq Capital Market to take advantage of the additional compliance period offered on that market. OnApril 17, 2020 we received an additional notice letter from Nasdaq indicating that based on extraordinary market conditions, Nasdaq has determined to toll the compliance periods for bid price and market value of publicly held shares requirements (collectively, the "Price-based Requirements") throughJune 30, 2020 . Accordingly, since we had 66 calendar days remaining in the compliance period as ofApril 16, 2020 , we had untilSeptember 4, 2020 to regain compliance. OnAugust 18, 2020 , we effected a 1-for-20 reverse stock split of our common stock, and onSeptember 2, 2020 , we received notification from Nasdaq that the closing bid price of our common stock had been at$1.00 per share or greater for ten consecutive business days and that Nasdaq had closed the matter. There can be no assurance that the Company will be able to maintain compliance with the Price-based Requirements or other listing requirements necessary to maintain the listing of its common stock on the Nasdaq Capital Market.
As of
In addition, our 2008 Equity Incentive Plan provided for the issuance of up to 76,079 shares of common stock upon the exercise of outstanding stock options, of which 44,812 shares were issued. The 2008 Equity Incentive Plan terminated onJuly 1, 2018 . The 2012 Equity Incentive Plan, as amended, provides for the issuance of up to 1,427,699 shares of our common stock, of which 251,026 shares remain available for issuance as ofSeptember 30, 2020 , to executive officers, directors, advisory board members, employees and consultants. Additionally, 75,000 shares of common stock have been reserved for issuance under the 2016 Employee Stock Purchase Plan ("ESPP"), of which 59,435 shares remain available for future issuance as ofSeptember 30, 2020 . Lastly, 104,410 shares of common stock have been reserved for issuances under Inducement Award Agreements. In aggregate, issued and outstanding common stock and shares issuable under outstanding equity awards or reserved for future issuance under the 2008 and 2012 Equity Incentive Plans, the Inducement Award Agreements, and the ESPP total 7,898,774 shares of common stock as ofSeptember 30, 2020 .
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements, including unrecorded derivative instruments that have or are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources. We have certain options outstanding but we do not expect to receive sufficient proceeds from the exercise of these instruments unless and until the underlying securities are registered, and/or all restrictions on trading, if any, are removed, and in either case the trading price of our common stock is significantly greater than the applicable exercise prices of the options and warrants.
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